The Breakdown - People Aren’t Buying the ‘Great American Recovery’ Narrative

Episode Date: August 22, 2020

Today on The Breakdown’s Weekly Recap: People aren’t buying “the Great American Recovery” Let’s stop considering the economy as one thing Dave Portnoy doesn’t care about your principles DeFi is the Wild West and saved only by the fact that no normie understands what the hell is going on Bitcoin is being compared to the dollar not stocks and that’s serious progress

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 crypto.com, BitStamp, and nexo.io, and produced and distributed by CoinDess. What's going on, guys? It is Saturday, August 22nd, and that means it's time for the Breakdown weekly recap. On this weekly recap, I'm going to go through five themes that's stand out to me from the past week. This will be brief, short, to the point precise. Let's go. Number one, people aren't buying the Great American Recovery narrative. So earlier this week, one of the biggest things to happen this week was that the S&P 500, or as you probably heard me call it

on Wednesday, the S&P 5, is now back at all-time highs. It is completely erased its losses from the COVID crash and is now back on track for all-time highs and Everyone is happy, right? Well, the problem is that that is both a reality, but it's also a narrative. And the narrative is that politicians try to use the stock market as the great economic scoreboard. They say if the stock market is doing well, America is doing well, and you are doing well. And the problem is that third part that you are doing well, because as it turns out, 50% of Americans are more can't access or don't access at least the stock market. They don't have stocks, they don't have big money tied up in it.

And so it is not a lot of support or comfort for them when these stock prices go up when jobless numbers continue to rise as well. Those are two things that we don't want to see correlated at the same time. We don't want to see stocks going up as jobless claims are going up as well. And so it's interesting to me. I was really fascinated to see how mainstream media, how alternative media was going to react to this S&P 500 narrative, or news rather, that it had gotten to new all-time highs. And frankly, all of the the stories, if you look at the cover of Wall Street Journal, if you look at the cover of Bloomberg, etc., etc., it's all this skepticism and this question of how that can be at the same time as so many

people are going through so much pain. Now, my point in bringing this up isn't to say that these things have to be correlated. There's plenty of reasons why this can happen at the same time. The point and the reason that this matters is the political dimension of it, is the idea of the stock market as political utility, of the stock market as political scoreboard. That's the thing I think we should reject, because it just doesn't tell the whole story. Speaking of which, theme number two, maybe we should stop talking about the economy, quote unquote, as one thing. Never has it been so clear that our economy is actually multiple different economies experienced in extraordinarily different ways interacting with each other via markets and via politics. That's

That's the story of the COVID-19 era. And if you need an example of that, home sales just had their biggest month basically ever. Home prices were up 8.5% from last year. The demand is through the roof. How can this be, again, in the context of 10% unemployment? How can this be in the context of jobless claims rising by $135,000 this week? How can this be even in the context of similar growth of defaults on mortgages and defaults on rent. The reality is that there are some folks who are not impacted in the same way by this crisis.

People who have the benefit of working from home, people who have the benefit of the mobility to decide that they want to go move from cities to suburbs or to rural areas. These people are experiencing what's happening right now in fundamentally different ways. And when you play this out, you see that there are entire categories of people who are doing better for this. Lumber prices are up. Stock and construction companies is up. these are fundamentally different phenomenon. That doesn't mean I'm applying value judgments. I'm just saying that maybe we should stop talking about them as one big monolithic thing.

We might have a much better ability to diagnose real problems and to come to better solutions about what we want for the quote-unquote economy if we stop treating it as just one thing. What's going on, guys? I'm excited to share that one of this month's breakdown sponsors is crypto.com. Crypto.com offers one of the most cost-efficient ways to purchase crypto out there, as they've just waived the 3.5% credit card fee for all crypto purchases. What's more? With crypto.com's MCO Visa card, you can get up to 10% back on things like food and grocery shopping. When you buy gift cards with the crypto.com app, you can get up to 20% back.

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Get started at nexo.io. Theme 3, Dave Portnoy doesn't give a shit about your principles. So one of the big things over the last couple weeks, obviously, is the idea of El Presente himself getting involved in crypto. He invited the WinkleVi out. We had a feature on that last weekend. But he got in, and when he did, he also got in on Link. And then in a couple days, he said that he had a new crypto to pump and dump that he didn't

want to give away because he didn't want people to get into it before him. And then he posted how he was going to go all. in on that coin. And then he talked about how he loved crypto because in the regular markets, he wasn't allowed to pump and dump because the SEC really didn't like that. But in crypto, it wasn't just that they allowed pumping and dumping, it's that it was encouraged. Melton Demir's retweeted Dave's tweet and said, they said he'd be good for crypto, dot, dot, dot, dot, dot, dot, dot, or something to that effect. And I think a lot of people were, one, feeling like that, because maybe they thought this is going to go a different way. But two, a lot of people,

people were like, yeah, of course. When you have someone whose only focus is to blatantly make money and leverage their following to do so, that's what happens. Ultimately, for me, I'm not that concerned. These things happen already. The whole idea, like this is, as we've talked about before, a movement based on somewhat near-market nihilism, where they are out to claim what they can get like barbarians and who cares. And that's going to be a type of energy that we just simply have to deal with in this space and in every space, right? It's not that much healthier for the regular stock market, but it's part of it. And in fact, these guys are just giving voice to a type of point of view that I think exists much more deeply across Wall Street in many, many places as well.

So the point here that I'm trying to make is simply that agents of chaos are going to agent of chaos. That's what they do. They create chaos, they sow chaos, and then they try to benefit from it. And if you expected anything different, you were nuts. Speaking of nuts, theme number four, Defy is the Wild West and the only saving grace right now is that most people don't have any idea what's happening. First of all, there is no denying that DeFi has had explosive growth. I was looking back at the charts on defypulse.org and just two months ago, exactly two months ago, The total value locked in Defi was at $1.6 billion. It's now up over $6.6 billion. So a huge amount of growth. With that, you have to say the engineering, the financial sandboxes that are being created are

phenomenally interesting from a pure, unfettered sort of capitalist standpoint. The things that people are experimenting with, just the raw financial power, the permissionless nature of these systems is wild and that's what's addicting, what's hooking a lot of people. At the same time, this is a NUTSO space that is based on nothing but these games. This is gambling. If we thought that the random tokens of 2017 were like gambling, with the binances of the world being the casinos, this is a whole other level of supercharged financial games. This is just one big game theory bet after another.

And the speed with which these things are coming online, and the speed with which money is flowing into these systems is affirmation. of that. Now, my point at the beginning is that the only saving grace of this is that most people don't have any idea what's happening. And what I mean by that is that the barriers to entry are so high that you're not seeing the same sort of real victimhood that you saw before. In 2017 and 2018, you had a lot of people who were vulnerable who were trying to get in on the next big thing who put money in random tokens, right? Their pension money in random tokens. I don't think you're yet seeing that in DeFi because it's just so hard to participate in any knowable way.

However, if I'm interested in that space and interested in the long term of that space, that's what I'm paying attention to. I want to keep this thing a sandbox where people can gamble and can have fun and can run their experiments for as long as possible. I've made this point a million times now, and I know people don't always love it, but if you're going to have this sort of radical experimentation, you have to rate limit it to the people who really know what they're getting into and are prepared to lose everything. Because right now, this is a game, doesn't mean it might not be significant in the future, but it's a game right now. And it's not just me who's saying it. Look across a huge number of people who are in and invested in this space who care a lot more than I do

about the long term of what happens for Ethereum and for Defi. And there's a lot of nervousness going on right now about just what all this stuff means. So watch out. Stay safe out there. Have fun, because whatever, you're an adult, do your thing, but recognize that it is a good thing that normal people can't get involved right now. Don't make it too easy for them. Last up is a funny one, because on the one hand, we're kind of bummed out. Bitcoin is down below 12,000. It's been languishing there at 11,800 or whatever it is right now for a few days. And we're kind of sad, right? Even though it was at 9,000 for months up until a couple weeks ago, it's not at 12,000 where it was, and it was at 12,000, so we wanted it at 12,000. But here's the thing that I

wanted to actually talk about. We saw a bunch of really stupid conversation right at the beginning of the COVID-19 fallout about Bitcoin and its correlation to stock losses. So Bitcoin was supposed to be this hedge against a crisis. Why isn't it performing as a hedge? Now, people who have been in Bitcoin screamed and batted their head against the wall because Bitcoin has nothing to do with stocks in some ways. It's a different phenomenon. The sound money Bitcoin narrative is, of course, about Bitcoin as a hedge against monetary debasement. And the interesting thing is that I'm seeing way more articles that I've ever seen attributing Bitcoin's decline over the last few days to the gains of the dollar. So we're referencing and we're comparing Bitcoin to the dollar instead of to stocks. And that's

great progress. I don't care about the price in the short term. I actually don't care about the price in the medium term. I have a lot of conviction in this space. You might recognize that from me blogging about it and talking about it basically every day. But the fact that our discussions are not about Bitcoin versus stocks rallying, but Bitcoin versus the dollar rallying shows that our narratives may be catching up to where we actually are. And that is a good thing. Anyways, guys, I hope you're having a great weekend. I appreciate you listening. Rate, review the show if you like it. I appreciate every one of you who takes the time to do that. And until tomorrow, be safe and take care of each other. Peace.