The Breakdown - BRRR: Biden Readies a New $3T Stimulus Package

Starting point is 00:00:00 In some ways, it feels like what matters about the inflation narrative is that it's allowing these new actors and institutions to walk in the door and fall down the rabbit hole. Even if the conventional wisdom and narrative around inflation shifts a year from now, Bitcoin will likely still be ascendant just for all those new reasons that institutions discovered as they held it. I'm just saying that from where I'm sitting, it seems hard to see how we have some major shift where all of these actors coming into the space just get completely off Bitcoin again. Welcome back to The Breakdown with me, NLW.

Starting point is 00:00:37 It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexor.io and stacks2.com and produced and distributed by CoinDesk. What's going on, guys? It is Friday, January 8th, and today we are talking about a potato potential new $3 trillion stimulus package, what it's likely to include, how likely it is to pass, and what it means for Bitcoin and markets as a whole. First up, however, let's do the brief. First on the brief today, the new Jobs Report is out, and this is the report that comes out the first Friday of every month published by the Bureau of Labor Statistics for the previous month. The Wall Street Journal headline pretty well sums it up. U.S. economy and

Starting point is 00:01:26 ends seven months of job growth. So last month, the U.S. lost a cumulative total of 140,000 jobs. This is, of course, attributable to rising virus cases and new business restrictions. And really the most important thing about this number is that it shows, if you peel it back just a little bit, just how uneven things are right now. So 498,000 jobs were lost in leisure and hospitality, but in other areas like retail, factories, construction, those jobs are actually going up. So you really have a situation where very different parts of the economy are having entirely different outcomes. Retail and factories are interesting because basically it's an indication that people are shifting their spending away from travel and leisure to buying things.

Starting point is 00:02:13 Construction as well is in particular a really interesting demonstration of this bifurcation. The cost of materials is way up, tons of things are being built, and really the interpretation is basically that people who are in a position to access this incredibly cheap money can take advantage at this moment to do so, even as those who can't are stuck waiting for either government relief or vaccine progress or something. This will of course play into our main topic Biden's next stimulus plan, as it creates even more momentum and justification for an aggressive stimulus approach. Next up on the brief today, Chimoth's SoFi SPAC. First, a quick background on SPACs, SPACs, special purpose acquisition companies, sometimes known as

Starting point is 00:02:56 blank check companies. These are an alternative way to go public. And basically how they work is people buy shares of a SPAC that isn't a company that operates. It's just a shell company. That SPAC then goes out and recruits a different company and merges with it and through the process of merging effectively takes that company public. So a promoter like a Chemoth would say, I want to buy a company in the financial services space. I'm not sure which one. Invest in my

Starting point is 00:03:25 blank check company and then you'll have exposure to that company as it goes public. Chimath Palahapitia has been perhaps the most prominent voice bringing Spacks back into the mainstream and they've been a huge trend. They accounted for a huge percentage of IPOs last year. Well, we've just learned that so-fi, the lending company, is going public via one of Chimath Spacks. The deal value so-fetched at $8.65 billion and will provide them up to $2.4 billion in cash. Before the deal was announced, rumors were abounding and markets were very excited. When Reuters reported that they were nearing a deal, units of this SPAC had gone up as much as 47.9% and were trading up at 29.7% before stock trading was halted. Speaking of SPACs, there was a crypto SPAC, and that's our final part of the brief today.

Starting point is 00:04:16 Last year, as SPAC started to dominate the IPO process, there was tons of speculation that they would become a preferred option for crypto companies to go to market. DCGs Barry Silbert, actually, in one tweet intimated that he was seeing a lot of crypto SPAC pitches. Well, we finally got one, and it is for BACT. We have a backed SPAC. BACT is a company that randomly I talked about the other day in the context of the Georgia elections because BAC's first CEO was former Senator Kelly Leffler, who left to take the job of senator, which she was appointed to when the previous Republican Senator of Georgia stepped down for health reasons. Backed as a company that had a huge narrative pop at the beginning of their existence in crypto because it was seen as legitimizing the space

Starting point is 00:05:01 because of its origin. It was a company that spun out of the intercontinental exchange, which owns the NYSE, and so people thought it was an indication of the institutions on the way. Since then, as I mentioned the other day, it seemed pretty quiet. They've kind of shifted their model a little bit from just their original derivatives business to wanting to make a big splash with a digital assets retail app that included things like loyalty points in addition to crypto. But my perception, and of course I could be wrong, is that it really just hasn't matured that much, or at least it hasn't really made a dent in the way that they wanted to. So either it seems to me that this SPAC is driven by continued strength of demand

Starting point is 00:05:40 for their derivatives products, or it's just a bet on the brand and the future, but pretty interesting regardless. Many investors want to be a part of the next bull run. Others seek to build their dream home, finally launch that startup or fund their education. Try NXO's instant crypto credit lines and borrow against any major cryptocurrency with no minimum or maximum withdrawal amounts, no fees whatsoever, no credit checks, and flexible repayment. Not to mention the APR starts at just 5.9%.

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Starting point is 00:06:57 followed by the number two.com. With that, let's shift to our main discussion, Biden's new stimulus plan. So first, just a reminder of why we're talking about this. To me, this is the major macro context that all markets, including Bitcoin and crypto, have to contend with. The narrative around the Dems has been more stimulus, more stimulus focused on direct checks to people, in other words, the beginnings of universal basic income, and the idea that more direct checks to people means the potential for more growth in consumer spending, which means the potential for the increase in the velocity of money, which ultimately means more inflation. If you chart the evolution of the institutional interests we've seen in this sector over the last year, it is entirely about

Starting point is 00:07:42 that fact. It started with Paul Tudor Jones, who wrote, we are witnessing the great monetary inflation, an unprecedented expansion of every form of money, unlike anything the developed world has ever seen. It was continued a few months later when Stanley Drucken Miller went on CNBC and said he wouldn't be shocked to see 5 to 10% inflation over the next few years. What's more, an aggregate inflation expectations among investors are currently at their highest point since 2018. Given all that, understanding the first moves of this new administration is important. got our first preview from Axios, who wrote a piece called Biden's One-Two Stimulus Punch. Part one of the plan is to give people the balance of this $2,000-corona payment.

Starting point is 00:08:27 This $2,000 number has become a meme over the last few months, aided and abetted in part by Trump, who said publicly that he was for it. So Biden's play would be to give people the additional $1,400 on top of the $600 that was approved last month. This is that exact direct consumer stimulus we were talking about. Still in the context of a one-time payment theoretically, but still a lot of new money floating around. Part two of his plan is effectively just a dusting off of his election campaign plan that he called Build Back Better. Now, Build Back Better has two dimensions to it.

Starting point is 00:09:01 The first is the allocations. Billions for caregivers, incentives for manufacturers, particularly to bring jobs back to the U.S., and trillions for green jobs and infrastructure. The second part of the plan is how to pay for it, which is focused on, increasing taxes on the wealthy. Specifically, the plan is looking to increase the marginal tax rate for top earners up to 39.6% from the current 37%, as well as treating capital gains over $1 million as regular income. The cap gain side is easily the most contentious, and so I expect a lot of battles around that in particular. Now, as I mentioned in some ways, this is a reversion.

Starting point is 00:09:39 Biden, you'll remember, was initially projected to have a blue wave where he could have these ambitious plans buoyed by support in Congress and the Senate. That obviously didn't come to pass exactly. However, with the Georgia elections, the Senate majority puts a lot of these things back on the table. So what then are the questions? First, how willing to work with Dems the Senate Republicans are? Are they going to throw down and do everything they can to not let anything go through? Are they going to compromise? And if so, what are the lines that they can compromise on? There are some clear things that the GOP has wanted that Dems didn't, such as liability protections for businesses fearing coronavirus lawsuits, that could be used as carrots. What's more, infrastructure spending allows for a lot of pork barreling to be built in for people's home constituencies.

Starting point is 00:10:29 In other words, you get a little piece of that big overall money and you direct it to some projects for people and businesses in your community, and that makes you look good, even if overall you're saying that the plan is spending too much, yada, yada, yada. All that said, the transition we're making isn't just between parties, but fundamentally different governing styles. And it's not entirely impossible to me. The Republicans will make it extremely hard to push this through. So then we come back to what the implications are for Bitcoin, and I think, frankly, that Bitcoin is in a really interesting position. On the one hand, it has this huge narrative tailwind around its role as digital gold in the inflation hedge. As I mentioned earlier, that's literally what has been driving all of these new institutions in. When it comes to proving or disproving that thesis, inflation is something that takes a long time to

Starting point is 00:11:16 show up. So as long as the expectation of this stimulus and spending is that they could create more inflation, there's going to be a lot of room to run for Bitcoin. As that happens, a lot of those new players and institutions that are coming in through the door of digital gold are going to discover a lot of other things that make Bitcoin interesting and things that gold simply doesn't have. In other words, gold doesn't have asymmetric upside. It doesn't create infrastructure for a new generation of finance. I don't want to be polyanish about it, but in some ways it feels like what matters about the inflation narrative is that it's allowing these new actors and institutions to walk in the door and fall down the rabbit hole. If I'm right, even if the conventional wisdom and

Starting point is 00:12:01 narrative around inflation shifts a year from now, Bitcoin will likely still be ascendant just for all those new reasons that institutions discovered as they held it. Of course, on the flip side, the inflation narrative could be dead on. The traditional fiat system could be increasingly beleaguered and that core narrative might remain. I'm just saying that from where I'm sitting, it seems hard to see how we have some major shift where all of these actors coming into the space just get completely off Bitcoin again. With that said, buckle up because if the first one, week tells us anything, 2021 is going to be nuts. Thanks for listening, guys. I appreciate each and every one of you. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - BRRR: Biden Readies a New $3T Stimulus Package

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