The Breakdown - Paul Tudor Jones: ‘Inflation … [Is] the Single Biggest Threat to Financial Markets and Society in General’

Episode Date: October 22, 2021

This episode is sponsored by NYDIG. Last year, Paul Tudor Jones wrote a paper called “The Great Monetary Inflation” that would end up creating narrative motivation for many traditional retail and institutional investors to allocate to bitcoin as an inflationary hedge. On today’s episode, NLW looks at the rising discussion of inflation in the media and in mainstream American society. He discusses why the inflation conversation, even more than the ProShares bitcoin futures ETF, might be driving bitcoin’s current rise. He also shares Paul Tudor Jones’s latest comments from “Squawk Box” on CNBC regarding the inflation issue. NYDIG, the institutional-grade platform for bitcoin, is making it possible for thousands of banks who have trusted relationships with hundreds of millions of customers, to offer Bitcoin. Learn more at NYDIG.com/NLW. Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW “The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: Michael Nagle/Bloomberg/Getty Images, modified by CoinDesk.

We're in for interesting times, and I think the most important takeaway is, in fact, not the implications for Bitcoin per se, but just the overall narrative shift, or perhaps a better word for it, is consolidation. Inflation, the traditionalists are telling you, is here to stay, and it's going to have an impact. And when you have 62% of American voters agreeing with that position, there are going to be political implications one way or another. Welcome back to The Breakdown with me, NLW. It's a daily podcast on Macro, Bitcoin and the big picture power shifts remaking our world. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Thursday, October 21st,

and today we are revisiting our old friend Paul Tudor Jones and his assertion that inflation is not transitory and also represents the single biggest threat to financial markets. Let's go to yesterday where we left our story. Bitcoin had reached new all-time highs and there was much rejoicing throughout the land. There was lots of discussion on how retail hasn't even really arrived yet. Analysis about the fact that whales and long-term holders seemed to still be buying into the market rather than selling away from it. And of course, the nature of crypto markets and crypto cycles being what they are, people immediately started discussing how fast we'd see a cycle into alts. This is the way people said that crypto markets work.

Bitcoin prints a new all-time high and then people rotate into alts, and then everything falls off and then some new catalyst brings Bitcoin back to a new all-time high and so on and so forth forever. For what it's worth, I think alts are one of the stupidest leftover terms in crypto. It comes from a time when things were actually trying to be an alternative to Bitcoin, and now it just means things that aren't Bitcoin, which is a pretty useless description because everything is not Bitcoin. Either way, we've seen pumps across a number of different coins,

but again, this is all really crypto industry insiders. Going back to the point about retail, this still does really just seem to be people who are already inside the crypto industry. It's just that there's a lot of us now, and many of whom have far more money to play around with in the crypto markets than they used to. When it comes to the mainstream press, there are two big reasons that people are exploring for why Bitcoin is surging now. The first is, of course, the BITO Bitcoin Futures ETF from ProShares.

I discussed on yesterday's show the way that even pre-market, BITO was threatening to beat gold's record for the fastest ETF to get to $1 billion in assets under management. That's a record that stood for just shy of 20 years, and so it would be a big thing to see Bitcoin beat out its symbolic rival of gold for the fastest ETF to a billion dollars in AUM. Well, around midday James Safart from Bloomberg tweeted, there it is. It's only 130 and BITO has already traded $1 billion on its second day. Wild. Assuming this thing converted just 43% of this volume into assets, it converted 57% yesterday. This is the first ETF to crack $1 billion in AUM in under two days. GLD did it in three days. When all was said and done, BITO did in fact have over a billion

dollars in assets, $1.1 billion to be precise. Now, before the Bitcoin could celebrate too much. Of course, the gold bugs pointed out that if you adjusted for inflation, gold had hit about $1.5 billion in three days, so we'll have to see where things are after today. That said, as Eric Baucus also from Bloomberg tweeted, quote, gold was around for like 4,000 years prior to ETF. Bitcoin only 13 years. Either way, both were total game changer ETF launches. So going back to our question, why Bitcoin has reached new all-time highs now, the obvious driver that people are pointing to is this ETF. The ETF, they say, has refocused the institutional lens on Bitcoin and gotten even more people excited because even though that

institutional lens is on Bitcoin, it's been largely retail buyers so far that are piling into the pro-share's ETF. Now, even when it comes to the ETF, I would argue that the biggest impact is around sentiment. We have been absolutely hammered by FUD for the past few months. The two biggest parts of that FUD, of course, have been China and regulatory. On the China-frew, what would it mean that China is actually factually banning Bitcoin mining and now Bitcoin trading? On the regulatory front, would the U.S. try to follow in China's footsteps to put a full ban or some other extremely restrictive policies in around Bitcoin and cryptocurrency in general? Well, on China, the network hash rate has shifted spectacularly well, so no security issues

there. We've seen the great hash rate migration west. And as I discussed in a show last week, the U.S. has been one of the biggest beneficiaries of that change. In the meantime, this shift has killed an entirely different line of China FUD, which was around the potential control and influence of the CCP in the Bitcoin network. China moving away from crypto has also positively impacted the ESG questions around the asset. Given how much of Chinese mining was done with dirty coal, if China's out of the game and much of that mining is shifting to the U.S. where it's wind farms in West Texas, the energy profile of Bitcoin starts to look a little bit different.

Meanwhile, on the regulatory front, the fact that a Bitcoin futures ETF was approved, no matter what one's legitimate critiques about the structure and why a spot ETF would be so much better and better for retail, the fact of its approval makes one point clearly. The U.S. does not intend to ban Bitcoin. Hold aside their approach to defy or stable coins or any of these things that are in the debate right now, the grand mufti of the non-state MLTs, aka money-like things, is safe. And that is what I mean when I say there is a big sentiment shift here. So to me, it's not surprising that we got right back to where that top had been before that endless multi-month barrage of FUD. However, that's only one or maybe one and a half takes on why Bitcoin is back to all-time highs. There is another one.

And for that, let's turn to J.P. Morgan. Here's a quote from a note from J.P. Morgan Chase Strategists. By itself, the launch of BITO is unlikely to trigger a new phase of significantly more fresh capital entering Bitcoin. Instead, we believe the perception of Bitcoin as a better inflation hedge than gold is the main reason for the current upswing, triggering a shift away from gold ETFs into Bitcoin funds since September. This strategist note goes on to point out that Bitcoin products have been thriving in recent weeks with increased inflation concerns, while gold products just really haven't.

Other recent pieces in the press have made a similar point. A piece published on Nasdaq site from earlier in this week writes, why persistent inflation is driving Bitcoin gains? Quote, on Friday last week, Bitcoin jumped by 8% to over 62,000 after the Securities and Exchange approved the first ever Bitcoin Futures Exchange traded fund. The green light is a milestone for the crypto industry where companies have tried in vain for years to receive approval for a crypto-linked ETF. But even with the big SEC news, it appears that a more fundamental market force is behind

Bitcoin's continued rise. Inflation. The utility of Bitcoin in an inflationary environment has been touted from the cryptocurrency's origin. In fact, it is baked into Bitcoin's design. So again, clearly a narrative forming in the press, but is there other evidence? This podcast is sponsored by NIDIG, the institutional grade platform dedicated to building a more inclusive financial system through Bitcoin. To find out more about NIDIG and their mission to bring Bitcoin to all, go to nidig.com slash NLW. That's NYDIG forward slash NLW. Let's discuss last week's news from billionaire Barry Sternly.

He's the co-founder of the Investment Fund Starwood, and in a recent interview on CNBC, he came out as a Bitcoiner. He said, The reason I own Bitcoin is because the U.S. government and every government in the Western Hemisphere is printing money now to the end of time, and this is a finite amount of something and it can be traded globally. For those keeping track, Barry also likes other crypto things for different reasons. He revealed he also owns Ether as something programmable for different use cases and thinks, quote, blockchain technology as a whole, end quote, those are his words, could change the entire financial landscape. The CEO of Standard Chartered Bill Winters, speaking on a conference call,

made some similar points. He said, broadly, we've gone through a period of low inflation, and we've got central banks experimenting in uncharted territory with very, very loose monetary policy. It's perfectly reasonable for people to want an alternative to fiat currency. Jack Dorsey, who's obviously a known bitcoiner, has also been tweeting or at least retweeting about inflation as well. He retweeted Mike Brock, who said, in Canada, they're blaming Trudeau for inflation. In the UK, they're blaming Boris Johnson. In France, they're blaming Macron. The inflation pressure we're seeing is global in nature and it's very troubling, especially for its potential to be politically destabilizing, which was itself a retweet of Josh

Crashauer who quoted Politico saying, in a new political morning consult poll, 62% of American voters say the administration's policies are either somewhat or very responsible for increasing inflation, including 41% of Democrats, 60% of independent voters, and 85% of Republicans. So there is clearly a buzz around inflation, and it's obviously been an ongoing discussion, but it was certainly exacerbated and made a lot louder by last week's inflation report from the Bureau of Labor Statistics. Last month, the BLS found CPI rose 0.4% from already high numbers, overall hitting a 5.4% inflation rate. Food and shelter represented about half this increase. New cars, furnishings, car insurance also went up. You might notice that these are sort of all

the things that people actually need. Food, went up just 1%, which was a much bigger increase than August, and many economists pointed to shelter costs increasing as maybe the most worrying part. Economist Sung-wan San wrote, Shelter costs rose little last year, but keeps marching upward. The government gradually phases in rent increases over time. It is about to become a major source of inflation in the coming months. The question, of course, is what this means for Fed policy. Does this force the Fed's hand to tighten monetary policy faster? Believe it or not, CNN sort of perfectly sums up the tension between policymakers and the general public that we've been seeing all year, but which also seems to be

coming to a head. Quote, inflation has been running above the Federal Reserve's target of around 2% for what feels like a long time now. Even so, the central bank has been steadfast in its view that the price spikes that have become a hallmark of the pandemic economy will only be temporary. For consumers, it really doesn't feel that way. Prices for various goods jumped last year. Remember the huge spike in used car prices? And have since come down from their peaks, but overall, costs remain high this year. So is the Fed just plain wrong in its assessment? It's still a little early to tell. Even though American workers have been feeling the pandemic price pressure for some time, it hasn't been long enough for the policymakers at the Fed to really sound the alarm. That said,

the Fed is signaled that's getting ready to roll back its massive pandemic stimulus package. This could turn down some of the heat on U.S. inflation, but a lot of the price pressure comes from supply chain problems lurking around the world. And this is really just one example of many. you can feel the narrative shifting. The Wall Street Journal writes, accelerating inflation spreads through the economy, higher inflation weighs on Fed policy, starts to have a broader impact on cost of living wages

and social benefits programs. All of which gets us back to Paul Tudor Jones. Now, regular listeners will be familiar with Paul Tudor Jones. He is a famous hedge fund manager, and last year he became incredibly important in the Bitcoin space after he released his great monetary inflation paper, which started, COVID-19 is a one-of-a-kind virus that has triggered a one-of-a-kind policy response globally. The depth and magnitude of the

economic drop-off took modern monetary theory, or the direct monetization of massive fiscal spending, from the theoretical to practice without any debate. It has happened globally with such speed that even a market veteran like myself was left speechless. We are witnessing the great monetary inflation, an unprecedented expansion of every form of money unlike anything the developed world has ever seen. Well, now about a year and a half later, he was back on Squawk Box and said yesterday, I think to me the number one issue facing Main Street investors is inflation, and it's pretty clear to me that inflation is not transitory. It's probably the single biggest threat to certainly financial markets, and I think to society just in general. He went on and called Fed policy

the most inappropriate monetary policy that I've seen maybe in my lifetime. He also said, quote, inflation can be much worse than what we fear. We have the demand side of the equation, and that is 3.5 trillion greater than what it would normally have been, just sitting in liquid deposits. They can go into stocks or crypto or real estate or be consumed, so that's a huge amount of dry powder just sitting waiting to be utilized at some point, which is why inflation is not going away. Paul Tudor Jones also talked about what this can do to a portfolio saying it's absolutely dead for a 6040 portfolio, for a long stock, long bond portfolio. So the real question is how you defend yourselves against it. He goes on. You don't want to own fixed income. You do not want to

hold that whatsoever, because what they're saying, what they're telling you by their actions, is that they're going to be slow and late to fight inflation. And somewhere down the road, somebody will have to come in and put the hammer down. Now, he's somewhat bullish equities, saying, equities are interesting. Certainly in an inflationary world, they are a much better bet than fixed income. But what we're really all here for are his latest thoughts on crypto. So let's listen in. One of the things you've talked about, talked about it, I want to say about 18 months ago, on our air, probably March, maybe right when the pandemic was hitting, was your interest in Bitcoin. as a hedge.

Bitcoin would be a great hedge. As a inflation hedge. Crypto will be a great inflation. Is it still a hedge at these prices? Listen, I said then, I said now, I've got crypto and single digits in my portfolio. I have a small training position that are fun. I do think we're moving into an increasingly digitized world. Clearly there's a place for crypto, and clearly it's winning the race.

against gold at the moment, right? So, yes, I would think that would also be a very good inflation hedge. It would be my preferred one over gold at the moment. The thing rightly getting the most headlines from that is, of course, this idea that he has shifted from gold to crypto in his inflation hedge assessment. I think that's going to make a lot of traditional fund managers stand up and, again, take notice of something that PTJ is telling them about this industry. Now, of course, the inflation discussion is really fraught, and it's extra complicated when it comes to Bitcoin. We have to remember, of course, that Bitcoin functions both as an inflation hedge over the long term, but as a risk asset in the short term. If we are to see interest rates rise and money flee away

from the riskier part of institutional portfolios, that will certainly impact Bitcoin as well as things like tech stocks. However, if people have this long-term conviction about the value of Bitcoin in the face of long-term systemic inflation, that's going to be a countervailing force as well. So whatever the case, we're in for interesting times, and I think the most important takeaway is, in fact, not the implications for Bitcoin per se, but just the overall narrative shift, or perhaps a better word for it, is consolidation. Inflation, the traditionalists are telling you, is here to stay, and it's going to have an impact. And when you have 62% of American voters agreeing with that position, there are going to be political implications one way or another. Anyways, guys, I hope you're having a great week, and I appreciate you listening. Until tomorrow, be safe and take care of each other.

Peace.