TFTC: A Bitcoin Podcast - #364: The Sovereign Debt Crisis is Imploding in Real Time with Greg Foss

Episode Date: October 10, 2022

Join Marty as he sits down with Greg Foss to discuss the ongoing financial chaos. Follow Greg on Twitter Shoutout to our sponsors: Unchained Capital Braiins HodlHodl Upstream Data TFTC Merch is Available: Shop Now Join the TFTC Movement: Main YT Channel Clips YT Channel Website Twitter Instagram Follow Marty Bent: Twitter Newsletter Podcast

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and enjoy this episode with Greg Foss you've had a dynamic where money's become freer than free when you talk about a fed just gone nuts all all the central banks going nuts so it's all acting like safe haven i believe that in a world where central bankers are tripping over themselves to devalue their currency bitcoin wins in the world of fiat currencies bitcoin is the victor i mean that's part of the bull case for bitcoin if you're not paying attention you probably should be mr foss the boss welcome back sir it's a pleasure to be here marty thanks for having me it's the pleasure is all mine this is a great way to end the week we're recording on a

on a friday afternoon here uh after i mean the markets are chaotic today but they were relatively stable throughout the week but the last few weeks things have been popping off particularly in the arena we discussed when you first came on this podcast which is the credit default swap arena both in sovereign debt markets and uh in the banking sector financials yeah yeah financials well marty i wanted to thank you uh publicly for my uh And you were my first date, man. You and I started talking about this. And then your podcast got viewed by some of the other important people in the community.

And it vaulted me into a point of being able to talk about this idea. Now, the truth is, I mean, there's not not everybody believes my methodology of valuing Bitcoin, and that's fine. That being said, I've had some really, really complimentary, you know, personal feedback, including one guy who's it was a classic. He actually said this publicly goes, he goes, I'm a math nerd. I hate Bitcoin. He goes, I own it, but your thesis is the most compelling argument I have ever heard for why I should own a little bit more Bitcoin. So here's a guy who actually hates the asset, hates the technology, understands the asymmetry of the trade, wasn't sure why. He was basically valuing it through the options market and saying, yeah, I can see a 20, you know, it's got, it's got the volatility implies that with a 5% position, you can get, uh, uh, uh, you know, 15 to 50 times return.

So he owns like probably 5%, but he goes, I was never into it for any value. And he goes, the CBS methodology, he's probably an ex financial guy. He understands options well enough that he certainly has experience there. But he basically said, this is the most, you know, this thesis helped me get over the edge in terms of why I do own essentially insurance on the fiat system. Does he still hate Bitcoin or does he get it more now? I only got this feedback within the last two weeks, okay, because I had sent it out. I was having this debate with Joe Carlisare on the Blue Collar Bitcoin podcast. And Joe is one of the guys, and this is fine.

He doesn't agree with my insurance thesis, and that's cool. But I sent out a thread that basically valued Bitcoin as simply as this. You take the default, the current credit default swap market on the USA, and you multiply that by its unfunded debt, which is funded plus unfunded debt, which is now over 200 trillion U.S. dollars, and you come up with a valuation just on the USA that Bitcoin should be worth approximately 1.2 trillion in market cap. And given that Bitcoin is trading for under $400 billion, you're getting very cheap insurance on the USA. But here's the kicker. You're getting insurance on all the other countries in the world for free. If you think of it just that way, it's cheap protection on the USA. It's about one third the value it should be if you were just protecting against the potential default of the USA,

which is very small but not zero but still when you're dealing with 200 trillion dollars worth of debt that small default probability translates to an insurance premium of 1.2 trillion well you're getting all the other countries in the world for free marty free now the usa will be the last fiat currency to fail in my opinion so if you're getting protection on that for one third the price and you get all the other currencies in the world for free those are the currencies that you really should be worried about and those are where people in those countries live they need bitcoin even more than people who live in the usa and then i'll go a little further and then people that live in canada but the truth is canada is in bad

shape so i need bitcoin way more than you need bitcoin as a u.s citizen but compared to places like nigeria and as soon to default turkey etc etc perhaps some southern european countries i will leave those off the map of potential default candidates but here's the point lots of people in the world need insurance on the failure of their fiat currency it's freaking cheap i can't say it in any other way yeah it's it seems like a very good deal right now within the context of this theory and i mean let's just talk about the environment we're in obviously we have the fed raising rates pretty significantly at a pace never seen before uh in our lifetime and it's obviously throwing a wrench in the global financial system and we had the bank of england

step into gilt markets last week uh we had the bank of japan step in the yen markets the week before that uh and then on top of that even he even though i would also concede the u.s dollar may be the last to fail i guess the question in my mind is how does it happen sooner than most people expect especially in this high rate environment when you look at i mean that's One of the charts that's been really gaining steam over the last week is the amount of interest that is owed by the U.S. on their debt alone. It's approaching $1 trillion annually as they jack up rates. And when you couple that stat with the fact that you have to imagine

that tax revenues are going to decrease because people aren't making as much money they're being forced to spend uh their discretionary income on things that weren't as expensive as they were only a year ago energy and food most specifically and i guess you can throw health care in that as well how how dire is the situation that's let's start um outside of the u.s and then move toward the u.s because what happened in yen markets and the great british pound markets in recent weeks is a bit scary because i mean you mentioned turkey and other countries throughout the world that you expect it from when it comes to Japan and England and that was a bit of a shock to me personally sure so well let's start with uh I'm going to make one

comment about the USA and then we'll we'll move back overseas and then we'll come back and my comment is simply this look uh it was actually Robert Breedlove that uh I came on scene and I said look all fiat currencies are melting ice cubes and Breedlove loved that little line and And the truth is, all fiat currencies are melting ice cubes. It's just their rate of decay is relative. And right now with the DXY, the Dixie, measuring the strength of the U.S. dollar relative to other melting ice cubes, it's showing the strength of a fiat currency that has increased its interest rates. So the attractiveness of lending money or holding money in U.S. dollars has increased. everything else being equal, a very simple formula called interest rate parity

will lead you to essentially deposit money in the United States and hedge out your currency risk in the forward markets, and you can arb a higher return than if you left your money just in your domestic market. So that's what's hitting the Bank of Japan. Before I get to the Bank of Japan, though, or the Japanese economy, so remember this, people. all fiat currencies are melting ice cubes the us dollar though is just the best looking horse at the glue factory okay that's all it is all right it's like you're you're either the best crack

house on a crack street whatever you want to call it it's just the best of the worst yeah so the us ice cube sitting in a house that's room temperature is 42 degrees while the yen is sitting in one that's 72 degrees beautiful so the yen is sitting there because they are invoking yield curve control where their 10-year japanese government bond so jgb japanese government bond is only yielding 25 basis points so one and a quarter percent excuse me a one quarter percent versus the current 10-year rate in the usa just to make the math simple is about four percent okay so there's a difference between the two countries of 3.75 percent in the 10-year term what you can do is you can be a japanese investor and you're you can take yen put it into u.s dollars which

weakens the yen because you're selling yen putting it in u.s dollars hold it in u.s dollars turn around and forward hedge your currency risk and get a bigger return back home it's going to cost you on that forward hedge currency risk but you're still going to make more than 25 basis points in the tenure it's called interest rate parity you can't fool math they're doing this the problem is so that puts downward pressure on the end what the bank of tokyo the the bank of uh japan is trying to do is defend the yen on the other side by selling treasuries out of their reserves to sell us dollars to buy yen back in the market so you see how it's circular you got the people in or in pension funds in japan who might be incented

to hold u.s treasuries but you have the bank of japan which is the largest holder of u.s treasuries selling u.s treasuries and they're a net seller so you have the currency impact on the one hand and you have the dynamic of a ycc yield curve control jgb bond it's artificially held at 25 basis points it's a disaster because it's circular okay so why doesn't it help the usa well because the usa needs to raise more money for deficit financing and the biggest holder the bank of japan is also selling all right so that's a pressure on the uh on the u.s treasury market

fast forward to what happened in the bank of england that was a similar story but not because of yield curve control per se in the bank of england it was because they raised rates quickly as well but that rate increase caused stresses in the pension funds in the uk which employed a strategy called ldi or liability uh liability something investing um anyway what it meant is they basically added margin or leverage to their fixed income portfolios because yields had been driven so low the only way they could attain their interest rate or excuse me their fixed income bogeys within the pension plan was to lever it so these guys got margin from lenders where they basically got three times leverage to buy let's say the 30-year bond the 30-year guilt in uh the

the uk which at one point last year marty was yielding 1.25 however because of inflation pressures and bank of england uh raising rates as well that 30-year 1.25 yield went very quickly to three percent which meant that bond price fell from a hundred cents on the dollar to i'm gonna guesstimate at three percent yield let's see you're close to two twenty it was found probably 35 points so it went from uh from par 100 cents on the dollar down to 65. okay oh that's a pretty big uh little hickey there and they were using leverage they had three times leverage which meant that 35 uh point or percentage point loss on the mark to market of their bonds uh is actually close to 100 now when you're using three times leverage right right

however it gets worse because then they have to raise margin their prime broker comes to them and says guys you have to post more collateral well how are we going to post collateral you're going to have to sell some of these bonds holy crap i'm already down 35 points on these bonds okay now i have to sell some so all the guys that are levered start selling and guess what happens the price falls further it went down into 42 okay now you're talking real losses okay in a supposed risk-free treasury bond or guilt bond it's hilarious it's not even funny i'm actually laughing because i live that right i'm i'm a high yield junk bond trader i'm used to waking up to a tape bomb where a bond that i think is worth 90 cents from the dollar all of a sudden is trading

at 60 cents on the dollar because of some tape bomb like earnings uh a miss or uh you know fraud in a company or whatever anyway this is not supposed to happen to government bonds all right so more selling more selling yields in the ua in the uk go to five percent over five percent in the long end and the bank of england basically goes holy grace i gotta rescue my pension funds if i don't step into the market all the pensioners in england they're offside they're underfunded Their pension plans have lost all their savings on a mark-to-market basis. This is what happens when you use leverage in pension funds to enhance returns. You can enhance returns, but you can also enhance losses.

So it was a death spiral of a leverage unwind that the BOE had to step in to stem the losses. Now, it was a temporary fix because the yields went from 5%, Marty, back down to under 4%. So the price made a modest recovery. But since then, the yields have ticked back up to about 430 the last time I looked, 4.3% on the UK gilth, 30-year gilth. And the bond prices have come back off of their little bounce. And it's bad. if you're a pensioner in england imagine in the last 90 days you haven't opened your statement for 90 days well let's say it's nine months okay let's just say oh yeah you know end of 2021 let's

see where i am in september 2022 holy i'm down 30 like are you kidding me so that's what's happening you worked for the post office in uk you open your your your statement and you're like honey you know we're not in that good shape anymore and this is real life oh yeah it's scary especially when you consider how quickly it happened because it started that friday night uh bled into sunday night here in the us where the the great british pound tanked to its lowest point ever against the dollar 1.03 uh and then you had a little bit of panic and then wednesday was when the boe stepped in and a bit officially announced that they were going to embark on as much qe as is needed and no more that's the question how much is needed and another variable

to add to this conversation is they're embarking on qe only a month after 10 inflation print and here's the truth okay guys and this is what a lot of people miss it is impossible to have any sort of quantitative tightening anywhere as a whole in the debt markets because total global debt has reached a point of over four times total global GDP. You have to print. Somewhere in the world can try to quantitative tighten, but that just means elsewhere in the world has to print more because it's a ecosystem made up of total debt okay now given that the usa is the world's most important economy and the world's largest debtor them pretending that they're going to do quantitative tightening is theoretically possible it just means

that everywhere else in the world has to ease so much more to keep the whole world in balance It's my opinion, QE infinity for the world is pretty simple. You're going to have to live with it. You'll probably have to invoke some sort of form of yield curve control to control your debt spiral. But what it means is fiat debasement is 100% certain. I don't know why it's so difficult for people to understand that in a debt spiral where the increase in interest expense is what is growing your debt in the absence of any increased deficit spending because of entitlements or military, you have to print. It is the error term. It solves this debt spiral conundrum. It's like the simplest math I've ever seen. And people are like, well, don't forget, they say they're

going to QT. Theoretically possible, but so unlikely because everyone else in the world is getting blown out of the water and you mentioned you know your tax revenues yeah last year's tax revenues in the usa 4.8 trillion a lion's share of that or not a lion's share a large part of that was due to capital gains there's not going to be any capital gains this year people there are destruction in the equity markets destruction in the bond markets so that portion of your tax revenues is gone. And Luke Grohman lays it out as well as anybody I've seen. But I know I've talked a lot. I want to take it one step further, though. Since I spent my entire life in the junk bond markets, I'm very sensitive to credit metrics. I can look at a company really quickly

and say, OK, the rating on this company should be, you know, double B based on this interest coverage ratio, this type of leverage, the industry it's in, et cetera. Well, I'm going to say, I'm going to give you the conclusion really quick. If the USA was a corporation based on its debt metrics of simple interest coverage of around one times, which is to say the USA only has about one times excess revenues over their entitlements and their military expanding you have one-time interest expense coverage a one-time interest expense coverage ratio for a corporation puts you as a triple c full stop triple c okay one notch above the double c level which indicates financial distress and restructuring you can't suck and blow okay this

is where the usa would be if it was a corporation now the rating agencies say well you can print money that is true except when your money becomes worthless in the case of argentina they through or venezuela they throw the money to the curb okay yeah you can print all of that money you want no one is taking it from you so therefore is that a default in my argument that is what credit default swaps are projecting the potential for a default which is a you know an actual default included within that is a devaluation of the currency to the point where okay we printed all this money but no one would even take it there is your risk and everyone says okay well the usa is too big to fail it's i agree but not with 100 certainty i don't want it to happen but when

you're a triple c rated equivalent corporation you're basically a zombie country and that's the best horse at the glue factory yeah it seems pretty dire right now i mean this conversation's happening because i wrote this newsletter a week ago on friday which highlighted uh a chart from bloomberg that james lavish posted which tried the spreads uh uh for like how far away each country was from their their average spread and they're all very far on the end of the spectrum away from the average that's a three month and the truth is uh you know we're not even at highest levels of stress in the system when you get the potential for a credit suisse or even worse would be a Deutsche Bank. Because if Deutsche Bank needs help, which they do, their credit, their leverage

metrics are ridiculously thin, or protection levels are ridiculously thin. Let's say Germany has to step in to help Deutsche Bank. Well, then all of a sudden Germany, which is the sugar daddy of Europe, is not able to help its southern neighbors as much, and the EU experiences stresses in that system there is the armageddon scenario as far as i'm concerned we don't have to worry about the usa what you really have to worry about is the european union falling apart so in james's thing you can see the stresses in italy for example uh in portugal the infamous uh pigs right uh portugal italy greece and spain uh that acronym i'm not naming it that was a great financial crisis acronym that uh you know still holds the same amount of concern in my

opinion today and in fact is worse today than it was in the great financial crisis because the credit metrics of the countries are so much worse so james and i are good buddies uh we conspire on a lot of the stuff he i should conspire is a bad word we we consult i consult with him on a lot of the stuff he publishes because we both spent our lives in the credit markets and yeah i'm i fully endorse his analysis he also put out a great analysis on the reality of the usa debt spiral it happened to be the most red piece of uh you know his most red sub stack report i'm glad people are reading it finally getting the word uh you know the news out if you were a uh teenager with a credit with a habit of spending on your credit card right now that the the responsible

parent would not allow you to have another credit card and in fact would rip up the current credit card that you have well you can't rip up the usa's credit card but man alive it's gonna be very scary if people finally wake up and say why am i lending to this this is just throwing money into a black cool yeah and it's particularly precarious right now because you have this energy crisis and this war going on in the fed tightening at the same time but it's hilarious the fed tightening if you look at the monetary base chart the tightening like you have a monetary base going zero bound up here yeah and they've only tightened they've tightened this much and it's completely destroying global credit markets and it's being exacerbated by this energy crisis which is unfolding of all

these input costs globally but more particularly in europe going up significantly which is making it hard to actually conduct economic activity which is making it hard to sell goods to make it hard to make profits which is making it hard to pay off debts and it's the contagion the contagion it's that's the worst thing in a credit market okay is contagion is well a biatch i can't say the end of the way but you get um uh it becomes circular imagine i keep saying and i don't want this to be the case either but canada will likely fail i say a decade but let's even say it's three years before the usa and we are in bad shape okay like the the credit metrics of the usa are not looking good but canada is like off the charts worse okay and the rating agencies are are

refusing to acknowledge it that's probably political or you know they realize there's too big of a risk to downgrade it starts the the run on the country essentially but if 2008 taught us anything the credit agencies are nothing but uh just a placeholder except believe it or not there's investment policy guidelines within large funds that say I have to own triple-a rated paper believe it or not Canada still has one notch higher credit rating than the USA Canada's triple-a USA is double a plus there are investors in the world who will have to sell Canada if it even gets downgraded to the level of the USA and that's selling causes bond price

pressure which causes yields to go up which makes the credit metrics look even worse and there's your contagion or circularity of a debt spiral so you know getting back to it if Canada were to fail as the USA's largest or second largest trading partner depending on the statistics you look at don't you think there'd be pressure on the usa economy that canada is not able to buy all the goods and services from the usa that it does currently because it can't afford them anymore what do you think that does to the usa's economy so there's circularity um play that with every country in the world right now because the u.s dollar wrecking ball is causing some serious pain throughout the globe

and uh i'm not really sure what the fed is thinking quite honestly like i cannot believe that they are this blind to the reality of the credit stresses that are building in europe and it appears that they are blind to it uh yesterday's speeches by some of the fed governors was it's quite honestly it's sickening you know it's really sickening they get us into this mess and they're too stubborn to tighten when they should have and you know wringing all that blood out of the stone at the lowest interest rates possible and then they come at us as you mentioned with the highest most uh uh you know the highest and most uh speedy uh tightening of overnight fed funds in the history and we're at three and a quarter percent overnight rates or

fed funds i don't think they can get to four and a half percent without something blowing up first that could be a small country it could be a big financial institution it could be a combination of both but that's what markets are telling you right now the system is fragile it's on the edge it's teetering and these monkeys at the fed are like if they're not blind to it they're driving us full speed through the guardrail and off the cliff it's like you heard larry lapard say it right we're bouncing off one guardrail and the other and it's just uh it's a clown show it really is and another thing as it pertains to the fed like they're using these lagging indicators so today we have the jobs report that they're all like oh look the jobs are our unemployment is

not as bad as many people thought it would be so they're definitely going to raise lagging but That's so lagging, eh, Marty? And the other thing is the reality is the revisions, right? This is what, you know, you've got to be looking, you've got to have forward-looking numbers. The dual mandate of the Fed, full employment and low inflation, at times like this is not attainable. One is it's like they designed that, you know,

realizing that, well, in times of stress, you can't have both low unemployment as well as contain inflation. So that's the problem. But the third leg of their mandate, which is financial stability, that's the one that I really think will cause them to take their foot off the brake and perhaps, you know, it depends how you define a pivot. But I'm going to define a pivot as saying I feel it's unlikely they will get to four and a half percent Fed funds before something breaks that will cause them to have to, let's say, pivot, meaning not get to four and a half percent. yeah because it certainly feels like things are already beginning to break but i do want to really lean into what you brought up which obviously with this policy that everybody you know the dollar milkshake theory essentially playing out in real time everybody funneling into the dollar and that's exacerbating inflation throughout the world and we really just need to lean into and

highlight how nefarious of a of a system this is how unfair it is how it's anti-human at the end of the day it really uh is disgusting to a certain extent because um like you said they got us into this mess and now they're trying to get us out with this crazy policy and it's it's wreaking havoc on global markets and increasing suffering globally that's the key yeah it is increasing you know the the i i you know i'm doing my i love bitcoin because i know my kids are going to need it and what hurts me the most is that the fed is invoking uh pain on many millions of children primarily in less privileged nations than Canada and the United States, but eventually coming to Canada and eventually coming to the United States

in the form of either a global depression or the fact that they'll have to live with high inflation. They brought inflation back to the system and it will not go away quickly. So that's a hidden tax, as Mark Moss and others frequently say. So neither outcome is good. The flip side is all paths lead to Bitcoin. So I think they've painted themselves into a corner. I'm not certain they know what they're doing.

That being said, I'm almost positive they have no idea the suffering that they are invoking on the least fortunate of the world. No. And this I mean, this obviously it's always a big topic in Bitcoin circles. like when does the dollar use its lose its status as reserve currency of the world when does this whole debt bubble actually pop and reach a point where it is unfixable no matter how much qe you do you can't fix it and just socially i mean the u.s as a u.s citizen

considering the last two decades of foreign policies and now we have these two things running in parallel where we've had very intrusive foreign policy that i would argue has created more enemies than actual people who like us for spreading democracy. And then in parallel, now you have this financial weapon, that first weapon's kinetic warfare, going and actually killing millions of people, innocent people who should not have died.

And then in parallel, you have this financial weapon that is, we're bombing these countries and then we're destroying their currencies so that they can't even pick themselves up from the bootstraps to develop an economy that that allows people to to get through life and not only get through life but climb up the ladder and make their their life better there i would say as succinctly as i can if it wasn't for bitcoin i would be apoplectic you know like it's just i i'm so thankful not just of the instrument but

also of the community of like-minded people who seem to care. Having spent my career on Wall Street and Bay Street in Canada, but primarily trading with Wall Streeters, you know, the world is probably 85% takers to begin with, right? 85% of the population of the world are probably takers and 15 are givers and on wall street it's probably more like 99 percent takers and one percent giver okay that's just the the reality and in the bitcoin community it's the flip it's like 85 of bitcoiners are actually givers they they care they and there are certain and i you know obviously i'm just playing the math i'm not going to point people who i think are takers within that bitcoin community because let's look at the positive like it's so such a positive community of people who

want to try and help now some of us yourself included nita you know our bedside manner is or our table manners are a little rude right and uh you know but we got to call out the bullshit and and you know the other day i like ray dalio is like an icon it i our hedge fund that i worked debt we studied his risk parity model very carefully it was our cios oh my god this guy is brilliant well ray dalio knows everything about the problems we lay out the debt problems and everything he knows bitcoin is the solution yet he doesn't have the backbone to endorse it and i would just challenge him on your podcast like i've tried to do on a couple of others Mr. Dalio, I mean, I tip my hat to your investing prowess. You melt the Fiat Ponzi like a champ,

okay? You were absolutely beautiful in milking the Fiat Ponzi. What I would love you to do is join our side and try and do something good for the future of the kids. And that future revolves around Bitcoin. And it's a challenge that, you know, the likelihood of him accepting that i'd say is very low but it's not zero uh it can happen it happened to a guy like me i'm not nearly as successful in the fiat markets as mr dalio but i didn't do badly and what gives me hope is that i'm just trying to teach people the same stuff that i learned like it cannot continue as you said and the longer that we whistle past the graveyard the more severe the consequences are going to be and those consequences will be borne by my children and by my children's children

and if i just sit here and just you know count my fiat dollars and go and play golf all day i'm not going to feel very good about myself so ray come on buddy get a backbone let's go what do you think up to the plate what do you think prevents the dahlias of the world from i mean obviously they recognize the problem and hopefully they can come to recognize like bitcoin is a very obvious solution but there seems there does seem to be this cognitive dissonance or self-censorship or they're paid not to understand it marty to begin with and then if they do understand it i think they would be viewed as a turncoat within the tradfi business community. And the question is, are you able to live with that? Now, there are people that

are able to live with it. And these are white guys like Ross Stevens, who's the brilliant head of NYDIG and also was one of those extremely successful TradFi guys. Hey, he has no problem coming out and writing a letter that I still believe was the greatest shareholder letter I've ever read in my life uh and you know there you go he puts his he signs his name on a piece of paper that says these are my beliefs these are my principles i'm going to tell the truth as i see it so it's possible uh but then you got to fight the academics of the world who really will never understand it because they're not bright to begin with okay any guy that is an academic failed on wall street because there's no way that you can make as much money in academia as you can on wall

street but if you can't work in wall street you go to academia well we have to battle those knuckleheads but then you also have to battle the guys who are paid not to understand it right and like jamie diamond like what a pathetic congressional uh uh hearing he participated in the banking hearing where he says i love blockchain but i hate bitcoin because it's a ponzi well he clearly has no clue what a blockchain is then okay and like you know the fact that he's on apple hill making this testimony you should short jp morgan's stock uh either because he's a liar or because he's really that silly and either way doesn't invoke confidence in the guys who are paid not to understand bitcoin right why well because he'll be disintermediated his

business his banking business gets disintermediated by the beautiful technology of bitcoin yeah it's yeah it's very frustrating but like that's also maybe how we pitch this this class of people is like yes it will disintermediate you but if you get on the ride early enough and you disintermediate yourself the the benefit that you'll provide not only yourself but your company will far exceed or how about that let's take it one step further your country okay and And this is why a young man, Jason Lowry, who I've come to know and has been on some absolutely brilliant podcasts recently, is talking about, you know, the importance of national security and proof of work defending, you know, the sanctity of your money, your savings, rather, and your property rights. You know, blows me away. This kid blows me away.

And all I can say is I don't care that much about companies anymore as much as I do about countries, because that's where we have accelerated this, too. We've continuously kicked the risk higher up to the point where it all lives on the balance sheets of the countries now. And the only solution, in my opinion, is the El Salvador model for, you know, truly huge nations, though, not just a six million, six million citizen nation like El Salvador, but, you know, a 30 million, 36 million citizen country like Canada. I mean, we can absolutely change the lives of our kids with some very good leadership at the country level. Yeah, we need that. And that was like one of the things. Again, last week, there was a big meme about Credit Suisse and their CDS spreads. And who knows? I don't know if Credit Suisse is about to go under their stock. I'll tell you. I know. Stock certainly looks very bad. The stock is a rounding error. You can't look at the stock because it's worth about $10 billion right now against trillions of dollars of assets. So it's like the stock is an option. The CDS market is real. The CDS market is telling you there's problems, but it's not deathly yet.

They better do something because their cost of funds as a bank is now 7% to 8%. That doesn't work, okay? When you have 7% to 8% cost of your own money and the market is paying you on U.S. Treasuries 4%, and then you have to go, you're not going to lend to Treasuries all that much because you have a negative gap, they call, an interest rate. You're not going to pay 8% to earn 4%. So then you say, OK, I better go out and get a higher yield by adding on a credit spread due to junk bonds or anything like that. Well, then again, you're making the system more tenuous because you're increasing credit risk on your own balance sheet.

So they need a wholesale injection of capital. It's not, you know, I've seen numbers like six billion. I don't even think six billion would be even close to being enough. The point is, their whole market cap of equity right now is $10 billion. You bring another $10 billion in, you've diluted your existing equity holders by a half. That is not a good scenario, but it's better than having to be nationalized, because then the equity holders get a bagel, and they can invoke things called bail-ins, where the depositors actually start losing money. right a bail-in which was used in cyprus so all of these things are potential and you get these guys who pretend they know how to analyze credit that say oh credit suisse is fine no it's not fine

it doesn't mean that it's gonna end but the risks are right there it's smoldering okay don't whistle past the graveyard so credit suisse is not in good shape does it mean it's over no not at all but it's certainly a lot harder for it not to be over when the rest of the world is on fire as well. And that's the truth, right? If Deutsche Bank was in bad shape and there was an argument that they recovered a little bit, but that was into a booming economy. They're still having fully recovered, but they had a bit of a restructuring effort that put them in better standing in the risk markets if you will but that was they had the tailwinds of a of a booming global macro economy credit suites doesn't have those tailwinds in fact they have headwinds because the macro environment

is brutal anyway i've been ranting a lot marty um i just you know it's all about credit it's always all about credit credit's the dog equity's the tail don't even look at equity markets right now people they're going to go up and down like a toilet seat because vol is high emotions are raw one day of a rally everyone feels good guess what right in your face smoke you the next day and you feel like a chump again okay until the credit markets settle down we're in for a rocky road and the credit markets won't settle down until the fed either slows down or something breaks and they have to invoke full-scale easing.

But then the great financial crisis took about two years to work itself out. So don't expect this storm to pass quickly in any scenario. Yeah, it's going to be a rough one. Prepare yourselves. But to shift to more theoretical, maybe Bitcoin can fix this conversation.

We have a portfolio company at 1031 Battery, and they come from a credit market background, and they're trying to get creative with injecting Bitcoin into credit products to lower cost of capital and make better credit products out there. or one idea that they've mulled around, I've talked to their founder Andrew about is basically going to pension funds that have a lot of credit on there. Yes. On and within their funds and going and restructuring the lower tranches of those debt products with Bitcoin to. Wow.

To maybe save a failing credit products. And it's the same. it's it's my thesis uh you know as in you know my thesis titled uh why every fixed income investor needs to consider bitcoin as portfolio insurance it's exactly the same thesis uh is but you know the hedge that i was talking about now becomes a collateral uh or a credit enhancing uh ability for the fixed income portfolio to reduce their risk. It's the same thing said differently. So IDB, I'm rooting for those guys.

Because when you think about the term soft landing, in my mind, this is the only way you ever get a soft landing, is if there's a tipping point in the psyche of markets, fixed income traders specifically, or people who have heavy amounts of debt within their pensions that are depending on cash flows that probably aren't going to be there. Yes, yes.

If you can, if there's a market moment where people are like, all right, let's basically wash your hands, recognize that this debt is not going to return what we thought it was in terms of revenues in the future. Like, let's go in and restructure some of the tranches here with Bitcoin. Beautiful.

I would 100% endorse that operation. I mean, the devil is in the details, but conceptually, it certainly works. And yeah, you got to solve the credit situation before you even see true recovery of equity values because credit ranks as a prior claim to equity. So if your credit's not fixed, your equity is an option and it gets flung around like a ragdoll. With that being said, too, what are your thoughts? Like Bitcoin's just been hovering in this 18 to 20, 20K range and all this chaos. I'm pretty, I'm pretty, actually, I like the price action.

I have to be honest. You know, we had our Lehman moment. When I say we, the Bitcoin community's Lehman moment could have been considered early summer, right with the us terra and uh ust and luna um and then you know throw on top of that celsius and other levered selling throw on top of that elon musk coming out and say that tesla sold theirs everything else considered i mean i think that bitcoin has stood in there like an absolute star um but i'm not smart enough to tell you whether it's going to trade through 10 000 before it trades through two million but i like the odds that my fat tail my long tail uh price target

is that i don't care i'm not smart enough to tell you that you should buy it at 18 000 but let's get fancy and wait till it hits 14 000 or 10 000 guys that's not how you trade asymmetric return opportunities okay you just buy it you keep buying it until you get to your waiting you re-evaluate as the information changes well i think the odds just went higher that my 2 million price target will come true therefore add a little more on weakness add a little more on strength doesn't matter because the thesis of the global fiat system unraveling is really coming fast okay And so that's why Bitcoin right now is the best ever in the lifetime that I've been studying Bitcoin, the best ever risk adjusted trade, not because its price has gone down, but more than the world has started to unravel. this is the this is why you need the insurance and the fire which was all the way over on the

other side of the valley has now crossed the valley and it's coming up and it's lapping on your back porch and the price of the insurance fire insurance hasn't gone up holy crap you got to be happy about that yeah it is insane because it does feel i mean i'm somebody who's been screaming like the the global financial system is going to have a meltdown for the last decade it certainly does feel last three weeks particularly that things are being irreparably irreparably broken behind the scenes right now it takes time because uh and it's not and again i don't want it to happen and it will happen uh in periphery countries first but there's a great author by name of John Malden, who wrote a book that I'm reading right now. He wrote it in 2011, though,

and he was basically calling for the unraveling of the fiat system in 2011. And, you know, it was right at the height of the sovereign debt crisis, the European sovereign debt crisis right there in 2012 when Mario Draghi said, we will do whatever it takes, the Draghi bazooka or whatever. But you have to admit, it felt like he was going to be right then. And lo and behold, you know, 10 years later, we're still hussing around, but everything's gotten way worse. The COVID response, you know, he wasn't aware of that. He wrote the book 10 years ago. So, you know, it can go for a little while longer. When I say a little while, you know, certainly another decade.

But the risk is that it doesn't. And that's why you need to be prepared because slowly then suddenly. Yeah. That's why this time around, I mean, again, I don't want any of this to happen. But what gives me more confidence to say that this may be it again, and going back to the energy crisis. Yes, it's the most important

asset on the planet it's the base of the whole global economy and if you fuck up energy infrastructure energy supply chains and then like we talked about that doom loop earlier if that doom yeah is seriously beginning to come into play where you can't afford the energy to produce goods so you default on your credit and then you can't afford to actually go explore for more energy like that's that's what keeps me up at night these days well rightly so now i was on a spaces conversation with swan bitcoin the other day and uh jeff ross dr jeff ross uh goes said something about heavy oil and venezuela and i i said jeff do you know who has uh so much oil you have no idea and i actually was mistaken i said we had canada had more oil than saudi arabia

i was slightly wrong we ranked number three in the world behind saudi arabia but my god we live right in your attic marty we we live in risk-free in the attic of the usa we have more oil than russia iran iraq libya you know we're living right up here in canada world's longest undefended border you guys cancelled the Keystone pipeline. I mean, now you're going down to Venezuela to buy heavy oil out of Venezuela. At least our heavy oil in Canada is cleaner. You know, to the extent that environmentalists are concerned, the Canadian process for heavy oil, which is what a lot of the refineries in the USA need, is much cleaner. and you decided to cancel the pipeline.

You know, it's just there is the infrastructure that you guys could have had. Oh, believe me, I know. It's frustrating. Well, it's frustrating for Canada too, right? Because what would have been the mutually beneficial outcome there? You're not draining your strategic SPR as fast. You're paying, you know, a friendly neighbor.

I know you guys are lucky to have the Canadian Army and Navy to protect the USA from the north, but I'm kidding, obviously, because that's why we live rent-free in your attic, right? I don't, you know, we're like, but we are a solid partner and we have, we're blessed with large natural resource, oil, you know, water, hydroelectricity, all these things that, you know, make us a great trading partner. And then you go, well, why didn't you construct this infrastructure? And well, the politics speak for themselves. Well, the socialist dictator down in Venezuela is a much better partner to be dealing with. You Canadians are. At this time, yeah. At this time, it appears.

But anyway, you know what, bud? I'm still optimistic. We have to be, right? We have to win for our kids. It is not easy, but there are rays of hope. We have a contender for prime minister in Canada, opposition leader Pierre Poiliev, who gets it. You know, he's on about inflation. He has endorsed Bitcoin in his own personal portfolio, although he's coming under opposition attack because, you know, the price of Bitcoin has gone down since he came out with it.

But that being said, he understands the link between the energy sector and the potential Bitcoin mining. And, you know, we have a nuclear reactor in Ontario that at off-peak hours, not only do we sell power to the USA cheap, we actually pay. We actually pay the peninsula of Michigan to take our power. Pay. Yeah. Yeah, it's going to be the baby buying some Bitcoin. I mean, you know, but anyway, what comes around over time hopefully will be positive outcomes that lots of Bitcoiners can see.

No, didn't I see maybe it was on Twitter or somewhere else, wasn't there? Premier in Alberta was just elected is very pro Bitcoin. That's correct. Yeah. So that was just that to the new premier of Alberta, correct? Yeah. Now I didn't see about Bitcoin. I'll have to do more research there. But I will say that, you know, the power company that I'm involved in in Canada is, you know, we do take a lot of incoming calls of concerned politicians and that. So that's encouraging. Yeah. And I think Steve Barber is tweeting that she, right? It's a woman? That's correct.

She gets Bitcoin mining and how it helps the energy sector. So that's good. Nice. Awesome. Awesome. yeah we need that we just yeah energy is good we just need better leaders we need bitcoiners to get in the place of power just be like all right we're gonna fix this we are going to win at the end of the day i know we've been a bit doom and gloom here freaks but you should know we are going to win we have the truth on our side we have the smartest people in the world working on this problem and we're getting better from the narrative perspective too we just tell a better story at the end of the day we're going to tell better stories that's what people we are we we are the marketing

department of uh of bitcoin but we're rookies right like we we're not a paid marketing department we gotta we gotta get our uh our game together a little bit better but even guys not even but you know my hat goes off to uh uh you know dennis uh and uh his his uh his desire to advance the bitcoin uh uh mining agenda within uh capitol hill um you know these are driven young smart people that are successfully telling the story right and i don't know marty i i don't have a choice um i certainly don't ever want to go back to traditional finance i know that because that's a uh that is a uh a mugs game and i certainly can't so it's all or nothing for me yeah well keep up the good work my friend um i know we're bumping up against the one hour time frame i don't

know how long you uh you had blocked off for this but i could go on forever but i think people tend to come after me by always saying the same thing uh you know i'm the bitcoin bingo guy because i keep saying the same thing over and over but i'll actually have to say this the reason i have to keep repeating myself is because most people don't listen. I mean, I've been waving and ranting on this credit default swap problem for sovereign nations for close to two years now. I wrote that paper 20 months ago. I look back in that paper and I'm like, well, I wasn't bad. What I see happening now is exactly what I was worried about 20 months ago. Not only are bonds down 22% since then that's a risk-free asset has lost 22 but bitcoin has hung in like a champ

and the insurance the value of that insurance is higher than ever so not trying to pat myself on the back once again i wanted to thank you for being a uh a great host uh getting me uh the air time that allows me to uh uh you know go out and spread the word i'm going to be in amsterdam with Jeff Booth, then in Bulgaria, and then in Edinburgh with Larry Lepard and Jeff and a bunch of other pretty cool Bitcoiners in the Edinburgh conference. And I know that the timing is perfect in Edinburgh because of all the crap that went on in the UK financial markets, and they're getting a turnout that is blowing them out of the water. They can't believe how excited people are for them to have a U.K. Bitcoin conference.

Well, I mean, people are waking up to understand. Yeah, yeah. So I think that's where where did you say Odell was going to go? No, Odell is going to be in in Amsterdam, Amsterdam. Yeah, it'll be an earthquake when a magazine conference. Okay, cool. Yeah, I'll be there, too. So, man, it's always good to to to get revitalized or recharged when you see your own your your brethren and your brothers

and sisters uh you know out there fighting the good fight so um there's nothing better than meeting bitcoiners in person and i want to thank you i mean you don't have to thank me for bringing you on i brought you on because i think the thesis that you have is very compelling very interesting and very important for people to understand because as we've discussed the situation is pretty dire and if people get caught uh with their pants down not understanding the situation it's it's not going to be good and so the more people we can educate about this and get smart about this the better because hopefully one man at a time we can begin to put people into the life raft and lessen the blow that is inevitably on our way well the thing that and

thank you for that marty uh the thing that makes me the most excited are the young kids that are coming on board and then i'll be very honest the the young ladies and and women that are coming into the space like matt there are some i i just there's a lady that works for the texas blockchain council i think called natalie smolinski or something do you know her anyway she was on a uh on a podcast the other day and i'm like wow just love the message i love the delivery i know that you attract more bees with honey than you do with vinegar and i'm not really good i just throw vinegar that's all i'm good at is just spewing the vinegar right so sometimes it's good to have the the honeybees uh around and uh so hats off to the kids that are bringing great info dylan leclaire

man i think you're uh you know you're my brother from another mother or maybe you're my son from another marriage but i don't want to i don't want to go there but uh like it's all it's it's cool you got these smart kids you got you know every you know nation in the world has different we're going to bulgaria and they're so excited that uh that they're hosting myself and jeff and natalie uh brunel for example it's like going on a concert tour i feel like some sort of uh you know rock star and uh and it's just beautiful to uh to try and share that and and and share the uh the knowledge that 35 years of uh of trading and financial markets can bring you a different perspective i'll just sign off by saying this what i bring to the table is 35 years of mistakes okay

people and the reality is though is that i've survived those mistakes so if you actually think you're going to skate through a trading career without ever making mistakes while you're in knucklehead you probably make if you're a really really really good trader 60 of your trades are good and 40 of them are bad and the key is that is to control the 40 bad ones let the 60 ride control your losers that is the challenge humans are not good at that but if you learn to control your losers you make you've made a mistake you bring those war wounds to the next fight and you're smarter for it so bitcoin in a nutshell is the best asymmetric trade opportunity and hedge or investment however you want to decide describe it that i've ever seen

i can't say it any other way the best asymmetric trade opportunity i have ever seen and i'm not a hundred percent certain that my two million dollar price target will come to fruition in today's dollars but just do some quick math with me and we'll sign off the market is trading at 20 000 and i have a 2 million dollar price target in today's dollars that's to say the market is giving me a one percent chance of being correct twenty thousand divided by two million is one percent okay i'm not a hundred percent certain but i will look you right in the eyes and tell you i'm way more certain than one percent okay i'm way more certain of my price target than the market odds are giving me and it's like going to the kentucky derby this year knowing the pony that

won shouldn't have been trading at 80 to 1 odds wasn't certain he was going to win but 80 to 1 was stupid and if you would watch that pony train and knew it's time you're like i'm a buyer i'm a buyer i'm a buyer so that's how you have to treat expected values and risk opportunities in bitcoin don't despair you are managing risk correctly by owning an appropriate amount of bitcoin in your portfolio the role only wrong allocation is zero you figure out what the right allocation is in bitcoin yes because if your allocation zero you're about to get stampeded by a bunch of the losers that the uh the governments can't control right now right now which is their their sovereign debt and who knows who else is exposed to that outside of the

governments well there's no other level we can't we can't kick it to mars unless we find another civilization we can dump it on we are at the there's nowhere else to kick it right like you've you've bumped it up to the highest level of uh of panic and there's no other level to to push it to Well, even if we could, if an alien civilization did come, you'd think that if they're smart enough to get here, they'd be smart enough to look at the situation down here. They would take our Bitcoin before. They might have come and said, hey, we designed Bitcoin about a million years ago. But at least you guys finally discovered it. You know, like they didn't.

See, I don't think Bitcoin was designed. I actually think it was discovered. And so we could get into a whole tangent on that part. Much like I think math wasn't math wasn't designed. it was discovered okay like it's there it's the laws of nature put in beautiful a beautiful language called math and uh i think bitcoin is a little bit like that and i don't want to get too off like let's focus on the here and now but bitcoin very simply has some properties that make you go wow this is unbelievable that this was actually you know an invention or discovered

within the context of earth all the other shit that exists on earth and we were able to figure out bitcoin i mean i i tend to agree i mean it's cryptographic hash function it's validation rules and a difficulty adjustment it's difficulty adjustment brilliant absolutely yeah unbelievable right buddy yeah it's uh it's very underappreciated right now and i agree with you here's the market pricing your two million dollar price target at one percent odds is insane people don't appreciate the difficulty adjustment that just understanding that alone uh i think would send the expected value above two million dollars far beyond it but that's a conversation for another day well or we just sit back and we say okay like you know we give a target but not a time and more importantly

the people that need bitcoin most are most advantaged by being able to buy it still at a ridiculous ridiculously low price relative to melting u.s dollar fiat so mine your fiat buy some bitcoin hug your kids i'll see you guys wherever but thanks thanks for having me we got four sevens on the block clock right now that's that's a good luck block right there to end it on i'm very i am very uh superstitious i think i said that i i'd send out a tweet but i'm not sure if i ever told you i just passed thanks to you and other guys that i i'm when i see 11 11 on on the clock uh during the day on a digital clock i'm like oh that's good luck and i tend to see it very often it's weird i'm not the only one because when i sent out the tweet but i just passed

111 111 followers on twitter thanks to guys like you so there's my lucky number 11 11 11 and uh yeah i'm superstitious and i'm gonna keep fighting the good fight uh because i have three kids and uh i care i care about the future for my kids and for my kids kids so uh go austin uh how about that texas uh alabama game eh that was uh sick but uh anyway we'll uh we'll pick it up in a bar just you and me and we'll have a beer i look forward to it i can't wait for that day We're signing off here at block 7, 5, 7, 5, 7, 7 freaks. Go enjoy your weekend, Greg. And you too.

Happy Thanksgiving from Canada. It's Canada's Thanksgiving this weekend. So happy Thanksgiving from Canada. Well, enjoy the time with your family before your travels. Absolutely. My friend. Talk to you soon, Marty. Thanks again.

Peace and love freaks.