The Pomp Podcast - #272: Jim Bianco on The Potential Separation of State and Money

Episode Date: April 17, 2020

Jim Bianco is President and Macro Strategist at Bianco Research, L.L.C. Since 1990 Jim’s commentaries have offered a unique perspective on the global economy and financial markets. In this conversation, Anthony and Jim discuss the current state of the economy, how monetary policy decisions will drive future movements in the financial markets, and why Jim believes the next global reserve currency will be a cryptocurrency.  =============================== Crypto.com is the only all-in-one platform that allows you to BUY / SELL / STORE / EARN / LOAN / INVEST crypto all from one place. Join over 1 million users currently using the Crypto.com app. Download and earn $50 USD using my code ‘pomp2020’, or use the link http://platinum.crypto.com/r/pomp2020 when you sign up for one of their metal cards today. ===============================  Ledger hardware wallets empower you to optimally secure, own and control your crypto. Visit ledger.com and give yourself peace of mind by knowing that your cryptocurrencies are safe. ===============================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Jim Bianco is President and Macro Strategist at Bianco Research, LLC. Since 1990, Jim's commentaries have offered a unique perspective on the global economy and financial markets. Unencumbered by the biases of traditional Wall Street research, Jim has built a decades-long reputation for objective, incisive commentary that challenges consensus thinking. In nearly 20 years at Bianco Research, Jim's wide-ranging commentaries have addressed monetary policy, the intersection of markets and politics, the role of government in the economy,

fund flows, and positioning in financial markets. We covered a lot in this conversation, including the current state of the economy, how monetary policy decisions will drive future movements in the financial markets, and why Jim believes the next global reserve currency, will be a cryptocurrency. I really enjoyed it and Jim taught me a bunch. Before we get into the episode though, I want to quickly talk about our two sponsors. The first is Crypto.com. Crypto.com is a pioneering payment and cryptocurrency platform that seeks to accelerate the world's transition to cryptocurrency. They have a vision to put cryptocurrency in every wallet, which is frankly why we're all here. The Crypto.com app offers a full range of financial products with

competitive pricing, well-designed user experience, and high security. It is the best place to buy and sell and pay with crypto. These guys have been longtime supporters of Off The Chain and The Pomp Podcast, and they keep launching new product after new product. So do yourself a favor and go to crypto.com to check them out. Again, crypto.com, the place where mass adoption is occurring. The second sponsor is Ledger. They've got a ton of great products to custody your assets. They're going to play a pre-recorded advertisement now, and then we'll get into the episode with Jim. I hope you enjoy it. Digital assets custody can be quite difficult to secure and hard to scale. Firms are often left with a difficult decision, having to choose between

security or liquidity. At Ledger, we're obsessed that our clients' businesses succeed. That is why we decided to create a digital asset platform that would enable financial institutions and crypto firms to manage their funds without compromising on security and liquidity. Firms like Uphold, Bitstamp, Crypto.com, Indax, and Dunamu are already using Ledger Vault to operate their business at scale while maintaining the highest standards of security to protect their clients' funds. Visit ledger.com slash vault to learn more. Control, scalability, agility, because security is not enough. Anthony Pompliano is a partner at Morgan Creek Digital.

All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion.

This podcast is for informational purposes only. All right, guys. Bang, bang. I've got a special treat for you. I have Jim here with us, so I appreciate you taking the time to do this. Thank you. Thanks for having me. For sure. Let's just jump right into your background. Maybe you can give us a quick overview of what you did in the past and then the business you've been running for the last 20 years or so. All right. Well, in the beginning, there was light. And I graduated from Marquette University in 1984. So maybe we could talk Big East basketball a little bit later on, because that's kind of my passion right now. Once in New York, worked on Wall Street, was there at First Boston during the 87 crash, kind of giving some people an idea of how freaking old I am right now. So 1990, came back to Chicago, working for a brokerage firm called Arbor Research and Training, which is a fixed income brokerage firm.

I still am with them to this day. They are my marketing partner. I spun myself off in April of 98. So I've just had my 22nd anniversary as an independent research firm, Bianco Research. We put out a lot of research on the macro space, politics, demographics, that kind of stuff. it's more suited for fixed income people but not exclusively fixed income people we have a number of equity types and a number of other types that like to hear what we talk about so we cover a lot

of different things as well too I live in Lincoln Park I can walk to Wrigley Field because everything in my life revolves around something related to sports I'm glad I wore the Yankees cap to record this then if you're a diehard Cubs fan yes yes you're the evil empire but we'll go to that day, another day. We'll go on that later. Absolutely. So let's just start with kind of a 10,000 foot view of how you currently evaluate where we are on the economy side, right? Just if you had to give kind of a two minutes, this is what's happening. Let's start there and then we can get into some of the nuanced views and research that you've put out recently. Yeah. So we are undergoing the most significant event of this generation right now. The virus came upon us

without anybody knowing about it, it's going to have, I think, long-lasting an impact. The wishful thinking on Wall Street is we're just going to sit here and talk to each other and Zoom for a little while, and then it's going to go away. And it's all going to be January 2020 again once we go back. We'll get back most of the way, but we're not going to get back all the way. I think there's going to be some long-term changes. There's going to be some deglobalization, but I think we're going to look at this period, just like we talk about pre-war, post-war, pre-crisis, post-crisis, there's going to be a pre-virus, post-virus period. And what financial markets have been doing is transitioning to a post-virus period, that it's going to be different.

I don't want to say bad or worse, because I don't think that it's going to be different. And it's not going to be like it was in January. It might be better in some respects, and it could be worse in other respects, but I think a better description of it would be different. Elaborate on that a little bit, right? This idea that it could actually be better in some cases, but worse than others. Maybe give us a couple of examples of each one of how you're thinking about that. Yeah, I think better is that there's going to be more efficiencies when it comes to work at home and it's going to be with, you know, online shopping. One of the things that I think has been kind of the big hope is people have the ability to work at home. But too many people are,

oh, yeah, I'd like to work at home, but I don't know how to set this stuff up. And now they've been forced to learn how to do it. And now that they've learned how to do it, I'm hoping that, and I'll put it in virus terms, I'm hoping that in the post-virus period, we're going to get to a period where if I have the sniffles or you have the sniffles, stay at home and you turn on Zoom and you don't come in and cough on me or I don't come in and cough on you and get everybody sick. If your kid is sick, they stay at home

and maybe their classroom, now that they've learned how to do it, is being streamed. And that in the future, we're going to, you know, where early on in the virus, we talked about 30,000 people die a year because of the flu.

Maybe that number goes down a lot because we wash our hands and we stay away from each other when we're sick. And that subsequent flu seasons are a lot less painful for the economy than we've seen in the past. Now, on the worst side is to get to the markets where we were and get the economy where we were, there was a certain amount of aggressiveness that we had. Borrow, buy back your stock, relocate to China because it was more efficient. Go, go, go, go, go. That attitude might change a little bit now.

We're not going to be as willing to borrow and lever up that the battle cry of the wealth manager, that fear of missing out, there is no alternative FOMO, ATIMA, that I think might fall off the wayside for a while as well, too. And so that kind of aggressiveness that helped get us to the S&P 3400 level and the belief that we were going much further than that, that may take a while to return before we were ready to engage or embrace that one more time. Yeah. And then maybe comment a little bit. I know you've done a lot of work on kind of the Fed's action so far. You know, how do you currently grade what they've done? Good, bad, indifferent? And then we can kind of get into some of the second and third order effects there. Yeah, I'd say that what the Fed has done is necessary. Look, 17 million people have lost their jobs in the last three weeks. The expectations are that initial claims is going to show another 5 million on Thursday. Something's got to be done about that. You just can't sit there and start spouting Austrian free market economics when you have that type of level of unemployment. it. Now that I've said that, there is a real fear that what the Fed is going to do is going to have consequences on the backside. All that stimulus, in other words, taking 22 million people that are unemployed, handing them money and saying, go out and spend some of this. Yet all those businesses that they were associated with are not producing stuff, but we've got demand up. I'm trying to

define the basic definition of inflation. And then I'm afraid not now, not next quarter, not the quarter after, as we go down, but once the virus passes and we go back up, all that stimulus could spart off into inflation later on. And I've heard a lot of people say, well, the Fed is setting us up for inflation. Yeah, they may be, but they cannot. And I don't think it would be right for them to say, look, we might have inflation in three quarters. So all you people that have lost your job. I'm really sorry. Good luck that, you know, you're, you're stuck in a bad position. And finally, if you will, the government forced everybody to, I'm going to go Austrian here on you. The government forced everybody to close their business. They didn't

do anything. They, and then, you know, uh, the police came in and said, you have to close their own compensation. And maybe this is the level of, or the type of compensation that they're owed either these loans that will be forgiven in the future, or this unemployment benefits, the extra 600 bucks a month that the federal government's giving you on top of whatever your state gives you as well, too, because of, you know, those businesses are not closed because of the failure of those people that ran those businesses, unless you want to be brutal enough to say that you should have had in your business plan a pandemic that closes the economy for three months, which no one does, nor should anybody have that as well, too. So I do think what they've done

is necessary. But I also think it comes with a potential consequence further down the line. So it isn't just all good and no bad. There might be a problem associated with it later on. Yeah, and I think it was Jerome Powell pretty explicitly said, like, look, I'm not worried about inflation at the moment, right? It's kind of like, let us solve the problem at hand, and then maybe that comes later, but we'll deal with it at that point. I do think that part of the critique of the Fed has been, it doesn't matter how much liquidity they pump into the market, at it seems like it's not enough, right? This is such a deflationary environment, the dollar continues to strengthen, etc, that they will almost have to over rotate and trillions and

trillions of dollars get injected into just the US kind of financial system. But then you overlay that with central banks around the world doing this, right? We saw Japan with almost a trillion dollar stimulus package, etc. But at some point, you do switch from that deflationary environment back to the inflationary environment, right? And you almost get this like wave. Do you think that there's a concern of hyperinflation or just higher levels of inflation? And so it's something that can be controlled. It's something to pay attention to. But it's not necessarily something to kind of ring the alarm about. Or is this more of let's pound the table and actually be worried about some level of hyperinflation or something like that? Well, let's put this in perspective. I

think that in some levels, what we're doing is MMT version 1.0. Modern monetary theory. and modern monetary theory always has had the idea that you could borrow a lot higher levels of money because there's you until you produce inflation and that's when you would stop it so we'll have to see um hyperinflation um you know i feel like that that's step two step one is look for 20 years we've been talking about where's inflation and other than a bump here or there because crude oil prices went over a hundred dollars it hasn't been evident now maybe you I'll just be happy with the idea that I'm not happy, but I'll be satisfied with the inflation call if we actually see a bump up in inflation. Then the question becomes, okay, the Fed has,

let me give you an example. The Fed has had this 2% inflation targeted core PCE since 2012. One month, it's been above that number. In seven or eight years, one month, it's been above that. It's always been below it. So now that the Fed gets above it for three or four months in a row, okay, finally got some inflation. At least we got that number up. What do they do about it? Do they start mumbling average inflation target? We don't need to do anything. Let it run hot for a little while. Then I get a little bit more worried that it's going to go. Or do the first signs of inflation, oh, we got to tighten. We got to start taking it back. We got to start pulling it back. We'll have to see. We can all speculate as to what they would do when and if inflation

returns. But as any general knows, every good battle plan never survives the first contact with the enemy, you know, and so we'll see what it looks like when, when we're actually in the war and see how they react to it. For sure. And obviously, the quantitative easing is one part of the Fed's actions. I know that you've talked a little bit about kind of the nationalization of markets and industries, etc. Maybe share kind of your thoughts there. Yeah, you know, A lot of people that follow the Fed would say to me, look, they're buying commercial paper, both from the issuers in the market, they're buying corporate bonds, both from the issuers in the secondary market, they're buying ETFs. How can the Fed do that? And the answer is they can't. So how are they pulling this off? And the answer is the Treasury's buying this stuff. Each one of those programs, and there's nine in total, they've created a fund or a special purpose vehicle. With that special purpose vehicle, what they wind up doing is the fancy word the Fed uses is the Treasury will put $10 billion in and be in a first loss position. Well, I know what a first loss position is.

That's the owner. I own my company. When it takes a loss, I take the first loss. That's what the Fed is. That's what the Treasury is. The Treasury is buying commercial paper. The Treasury is buying corporate bonds. The Treasury is buying ETS.

That's the federal government. The Fed is providing the financing. The Fed can finance anything or borrow against anything that has the full faith and credit of the United States government. Well, a special purpose vehicle funded by the Treasury satisfies that. So that's how they're doing that. It's the Treasury that's buying that. That's why I say the Treasury is getting involved in these markets and that they're partially

nationalizing the markets. There's one other important point about that. You're merging the Fed and the Treasury together into one. On Powell's press conference last Thursday, three times he made a point of saying, every time they do one of these programs they need the treasury's permission steve mnuchin works at the pleasure of donald trump he needs donald trump's permission trump for a year and a half has been blasting the fed where's my negative interest rates why aren't you printing money if you had done all of that we'd have to dial 10 000 points higher well the treasury the fed just

handed over the printing press to Donald Trump. Now, he's not going to abuse it now. Everybody's on the same page. They got to get these programs up and running. They got to do something about those unemployed. But I heard Rich Clarida today say, oh, when the time comes, we, the Fed, will know when to pull back from these programs. Sorry, you got to ask the guy in the Oval Office whether or not it's time to pull back. And he might say no, especially if you think you're going to do it in September, five weeks before an election or six weeks before an election. He's going to say, no, guys, you're turning those printing presses up faster. I want my $10,000 points back so I could get reelected. That's the risk that they run with this. So

it isn't the Fed that's buying it. It's the Fed is financing the US government that's buying this. And that means that the political apparatus has a say in monetary policy, that independence is not there. Another argument for future inflation as well, too. Yeah. And we've obviously seen this in kind of the dictator playbook, right? In a lot of third world countries where somebody gets in charge, they basically get all the assets and they say, start printing. And it hurts the bottom 50 to 75 percent of the population. Rich people get rich and the dictator gets the richest. But at some point you run off the cliff and you get Zimbabwe, you get Venezuela, et cetera. One of the things that I think is really interesting that you've covered and is a fantastic question is just like, how do we stop the programs?

Right. Well, what's the end of these programs? There's a lot of people right now that are debating. Should we have the program? Should we not? How should they be executed, et cetera? But there's also the question of the end life of them. What's kind of your thoughts there? And maybe do you have suggestions as to how they should be thinking about ending these programs? Well, I think the way that you keep in mind, we did a version of this not as big in 2008. But the big difference in 2008 was this was all new. No one really understood what was going on with a lot of these programs. A lot of them were the same programs, you know, the commercial paper funding facilities, exactly the same program. And so we didn't really know it. And we said at the time, Ben Bernanke, it's your baby, man. You tell me when we go, when we stop. We'll just do what you tell us to do. And Bernanke, to his credit, pulled back on a lot of these programs before we got the real inflation going. So fast forward to 2020, we now have a better understanding of how they work. We have a better feel for their meaning. And we have a president that has a different view of the Fed. Remember, when you had Bush and you had Obama, it was that, you know, Fed independence is sacrosanct and we could never tell the Fed what to do. Trump is fully ready to become Federal Reserve Chairman right now and tell them exactly what they should be doing. And so that's going to be the big problem. I think that if you know,

the way you should pull back the programs is the way that Bernanke did it is that we're going to do this for the minimum amount of time, just to get everything, get its sea legs, and then get out. But I have a feeling that we're not, we're going to have to be pushed further and further. And the only thing that's going to cause it to end, I fear, is inflation comes back, the markets riot over the prospects of inflation and demand that you stop with all the money printing and all the inflationary policies that they demand you stop them at that point. And once that happens, I think then you'll see the end of it. But then that's a painful exit, what I just argued. It's not a pleasurable exit like everybody wants to think it's going to be. I know the other argument that you'll get is the 2009 argument. Oh, we'll do these programs for a while, and then the economy will recover, and it will go, and then we can exit. No one will care because the economy is taking off. That was the QE argument from 2009. We're going to QE like crazy, and then the economy will take off, and then when we exit, no one will notice.

it's 2020 they never left they never left they did it for 13 years they tried to qe in 2013 we had a temper tantrum they tried to qe in the fourth quarter i'm sorry they tried to exit qe in 2013 and the market had a temper tantrum they tried to exit in the fourth quarter of 2018 the stock market fell 20 and paul had to completely reverse himself in early 19 So what I'm afraid of is that this idea that, you know, the handoff, that the economy will recover and it will be going guns and we'll just leave and no one will notice because they're so happy the economy's going. And it didn't work out the first time that they tried doing it that way.

And I doubt it'll work out this time as well, too. Yeah, I always kind of explain this as a crack addict, right? It's like, hey, it's like a crack addict saying to you, oh, just one more hit, just one more hit, right? I promise I won't do it again after this. But once the economy gets addicted to the stimulus, I would actually argue you can't get off of it, right? It's impossible for them to leave because literally you're now dependent on that stimulus in order to keep going. And I guess really what this brings then is as you get this merger between the Federal Reserve, the Treasury, and ultimately kind of the administration, what does that look like, right?

Like let's say we get into a scenario that you just described where the Federal Reserve says, hey, based on our monetary policy and the economists and everything, like we actually think now's a good time to pull back and it's kind of run its course and we think that we've had the impact that we can have. The treasury then turns and says to the administration, hey, what do you guys think? And the administration says, slam on the gas, right? Or at least don't let up. What is the process for kind of coming to a agreement or some sort of conclusion to that type of disagreement between the Federal Reserve that's supposed to have the independence and then this you know organization that now obviously wants control but but isn't necessarily supposed to have that control right keep in mind now that when i say that they've merged

they haven't merged everything so the fed you know is doing more traditional qe where they're buying treasury securities and agency securities they have domain over that they can pull back on that or they can speed that part up as well too but it's this alphabet soup of programs they'll just have to negotiate, I think, with the administration. They'll have to say, you know, I think it's time that we pull back. And then the administration says, no, especially if you believe like the consensus that, you know, the virus will pass this summer, it will go away this summer, the economy starts, you know, rebounding this summer as we go back to work. And you're now into August or September or October, and they start making noise about pulling back. And Trump says, I gotta get

elected in four weeks you know you're not pulling back now you know and so then they start going into that negotiation and then i guess it really becomes a question of how how insistent is the fed going to be about pulling back would they would they end their traditional qe well we're not gonna buy any more treasuries then um or maybe we'll talk about raising rates now i doubt they're going to do any of that because he even said on thursday that they're probably going to err on the side of easy so it ultimately will come down to the i word inflation you're not going to see it by the end of the year because the economy is going to you know have a deflationary spot right now but probably 21 22 is when you could possibly see the inflation sprout back and maybe force them

out so i suspect there'll be some behind the scenes negotiations on this stuff um and right now, like I said, right now, there's no problem because all the Treasury comes, the Fed comes to the Treasury and says, we got to do more. Donald, do you think we should do more? Yes. Yes. I don't even care what the details are. Just do it.

Do more of it. He was tweeting that. He literally was tweeting it, you know, 12 months ago. Exactly. Exactly. So there's no, there's no disagreement now. The disagreement comes on the other side when it's Donald, we got to do less. And I might add, somebody said, well, what if Biden becomes president?

Well, you know, one of the things that's interesting about this program is, you know, the old line that there's no atheist in a foxhole, there's no capitalist in a crisis either. And that no less than Wall Street itself is just applauding wildly what the Fed's doing. Bob Michael, global CIO, J.P. Morgan, investment management, the Fed should take over every market. The Fed should set the price of everything. That's what they want. Rick Reeder at BlackRock has been saying the same thing. Everybody has been cheering what the Fed is doing. Now, you know, Biden comes in and Biden then is asked the question, what do you think? And, you know, he turns to Glenn Hutchins or Roger Altman or all of his Democratic moneybags.

You guys think the Fed should end? And those guys are going to look and go, man, I'm making a ton of money off of buying paper and selling it to the Fed at a premium. No, I think they should keep going. And what I'm trying to spin here is there's just an easy argument to be made that a Biden administration will want this to keep going as well, too. because that's why Wall Street loves this thing because they make so much money off of it. Yeah, I think part of what I've tried to spend a lot of time educating folks on

is the reason why the rich cheer when they see quantitative easing is because they know how to benefit from it, right? They understand, get into the assets, the asset prices are gonna go up, this is gonna be fantastic, we're all gonna get rich and they're counting on the bottom 50 plus percent,

not understanding how money works, not understanding how quantitative easing kind of eats away at the cash value and ultimately those are the people who end up losing and so I guess really this brings a question then of how far can the Fed go right so you've got kind of on an amount standpoint and then you also have do we start to see them go into buying stocks do they buy indexes do they actually start playing kingmaker on individual stocks like how far can these programs go both in size and scope they can go as far as they want I think what we got to keep in mind, let's talk about where they're not going right now. They've pretty much gone everywhere

except high yield. They will buy fallen angels. March 22nd, they announced that they'd buy corporate bonds. And then they announced on last week that they will now buy any investment grade corporate bond that lost its investment grade status after March 22nd. So March 25th, Ford got downgraded to junk. They're eligible for the Fed to buy. March 20th, Occidental Petroleum got downgraded to junk. Sorry, Oxy, you're not going to be bought by the Fed. And so that's kind of where they've drawn that line. And they're not buying equities. Why are they hesitant to go there? I think there's a simple reason. When you start owning high yield, there's a very good chance that you're going to be involved in restructuring. That's running the company.

That means that one set of bondholders thinks that we should restructure the company this way. Another set of bondholders thinks we should restructure the company that way. Hey, Fed, you own some of these bonds. You get a vote. Which way we're going to go? The Fed doesn't want to be in that place. And they don't want to be running companies.

That's why they don't want to own equities. They don't want to have to vote the slate of candidates for the board of directors. They will come under enormous, you know, just to get the point across. If the Fed owns equities and then it's proxy voting season, you could see AOC on the floor of the house going, I think I should help you guys decide which directors that these companies should be voting in. And that's why they don't want to go there. So ETFs, yes. Sure, you could be involved in the ownership of the fund management company that manages ETFs. Nobody cares about that. But, you know, could they bleed into buying spiders? Sure, they could bleed into that. But I think it would be a big leap for the Fed in order to buy equities or go straight into high yield itself, because then they're going to get into the management of companies. I'm not discounting that they won't do it. I'm just saying that I think that, you know, I've argued on Twitter and stuff like that.

I think it's a possibility that they do it. But first, the S&P's probably got to make a new low off below its March 23rd low. And they got to feel under tremendous amounts of pressure. How far can they go, you know, money-wise? Paul has said it and he's right. Boy, they could put up a big infinite number up in front of that if they need to.

I think more of the question becomes, would that work? Because ultimately, you got to ask the question of, Eric Peters of One River Asset Management wrote over the weekend, if the Fed eliminated all their programs, the stock market would probably fall 50%, 50% off its high. It's down about a quarter, so it would go back to the below the March 23rd lows. it's probably not wrong on that meaning that the fed is artificially supporting the market at a level it wouldn't be as i like to joke i'm pointing at my bloomberg right now if a little red headline came across my bloomberg jay paul changes his mind cancels all the programs what do you think the stock market would do tomorrow it'd be down a zillion points and so if the fed is holding the market at artificial levels can it do it forever and i think the answer is no i think they could

do it for a while because they've got a lot of money with an infinite printing press, but ultimately whatever we perceive as fair value, and if that is lower, that weight will eventually come down on the market and push it back down one more time. So yeah, they could keep going and they could keep trying, but if the market's at the wrong level, even an infinite printing press cannot keep it there forever. For a while, yes, but not forever. Yeah, it almost feels like a lot of the stock market movements right now are pure speculation based on federal reserve announcements and programs and all this kind of stuff and almost like selling the hope that, hey, they can get us out of this. But I do think that one of the reality checks is going to be that first, you know, real

big set of earnings reports that come out where people show, you know, hey, our revenue is down 70%, right? And yeah, our stock fell 25%, but that 25% haircut we took, we're still overvalued based on the revenue we have, right? And you start to get some kind of, you know, at least an acknowledgement or a highlight of the dislocation between the speculation in the markets versus the reality that a lot of these companies, and I was talking to a buddy who's an accountant, been doing it for a long time. And he literally said to me this morning, he goes, I haven't seen this level of financial carnage that I've seen in the last three weeks ever in my career, right? He usually is dealing with kind of, you know, small to medium sized businesses, you know,

nothing kind of corporate or public companies. And so if that's what's happening on the, you know, kind of everyday main street, you got to imagine at some point that reality actually sets in an investor's mind as well. Yeah, I agree. You know, if you actually look at this week, Jan Hatzis at Goldman Sachs and Mike Wilson and Morgan Stanley, basically, they abandoned their bearish calls saying that the low is in place on March 23rd, and the market's going to go higher reason one the fed's ultimate printing press so that's not like a fundamental reason or the economy's getting better it's just that you know if somebody keeps hitting me in the face with hundred dollar bills enough that maybe i'll change my behavior and

that's exactly what they're betting on uh that that's going to happen it might work at a strip club but i'm not sure it works for the entire market in general uh as well too and so that's what's really pushing it. As far as the carnage goes, you're right. Peter Bruckfarb mentioned, you got to watch the balance sheets. And I think he's exactly right for the following reason. If your company reports a 70% loss of revenue, revenue, you are taking a giant loss and you are losing capital. You are not just going to have a revenue, you're just going to have a miss on your earnings. Your capital position is going to be impaired by that size of loss. It's going to affect the structure of your balance sheet. That takes a while to fix. You know, because you're not going to have, you know, like the old saying goes, when we go back, you're not going to get two haircuts and eat three dinners. You know, those are gone. And that revenue is not going to be all replaced all at once.

so you're going to impair balance sheets and that's going to create time in order to see how long it's going to take and that's what i think we got to watch in this earnings report i think bookfire's got it right it's not that we're going to watch yeah we know the earnings numbers are going to be horrific but how much did you impair the balance sheet i think that's what your accountant friend was talking about is that people's business is one under and they're drawing against their life savings to keep them going and they're at real risk of financial ruin here, even though everybody says this will be temporary and it'll go away and everything will be okay. Yeah. Part of this really is, it leads into kind of the bailout conversation, right?

Where if you are one of these businesses, whether you're a Fortune 500 company or you're a small business, you've got to get that balance sheet to a position of strength. And so you can do that through one of three things. You can either inject more capital yourself somehow, especially on the small business side, or you can go out to the equity and debt markets, right? And I think that we're starting to see some of that play out. Obviously, when it comes to bailouts, my whole position is really people are going to the government because they think the government's the idiot in the room, right? United Airlines or whoever it is, there's a market to be made in both debt and equity. It's just not at a price that the executives want. So they run to the government and

hope that the government will give them better terms or more advantageous terms. But you are now starting to see some of these companies, like today, the airlines were announced that they're in conversation with Visa, MasterCard, et cetera, about potentially doing a bulk sale of reward points, right? How do they get cash in the door, even if it's at a discount for those points so they can start to strengthen that balance sheet? And it just feels like more and more companies are going to get put in that position, especially the longer that this kind of economic crisis persists. Absolutely. I think that that's indeed the case. And I found that I have this fear that the ultimate hubris when we look back in this period was, you know, the government is bailing

out. And what are they arguing? Is that they're arguing that we need to have warrants. And the reason we need to have warrants, because everybody knows the government's going to bail out these companies, and then their government's going to make tons and tons of money off of every single bailout. So we need to argue about the terms of the warrants, the terms of the greed. And because the last bailout we did worked out well for some of the warrants as well. That doesn't mean that every one of these is going to work this out as well. So I have a feeling that while they're negotiating how much money they think they're going to make off of warrants of these bailouts, they're going to wind up realizing that maybe they don't make nearly as much as they think

they're going to make. And it comes back to what you said, it's the terms. You know, there's an old saying in the bond market that there are no bad bonds, there's only bad prices. And if you're going to give me financing at a bad price, you're not going to be advantageous to me, bad for the lender, you're not going to make money, but I'm going to be very happy at what you did. My company will survive well because you gave me cheap financing, but your warrants, your upside is not going to be there because you're giving away to me right now in the terms that you're giving me in the financing. Yeah. Well, it's the difference between price takers and price makers, right? And there's some on either side of that. You've previously said that we're kind of in like a

Bear Stearns moment, but maybe not the Lehman moment. Talk a little bit about kind of how, So what you mean by that, first of all, and then second of all, like, what does that mean in terms of moving forward out of where we are today? So let me talk about it as a technical analyst. One of the things I should have mentioned at the top is I am a chartered market technician. I was in the second class in 1990. I got my market technician's designation, CMT. We have done a 50% retracement in this market. And if you go back and you look at bear markets, 29, 37, 62, 2,000, 73, 4, 2,000, 2,008, 50% retracements happen all the time.

You retrace half the move. Everybody thinks it's over. And then you roll over and go down. You had a low in the market in March of 08. And then we bailed out Bear Stearns. And by May of 08, we did a 50% retracement. That's it. It's over.

We bailed out Bear Stearns. The market's recovered half of what it needs to recover. It's done. There's no more crisis. And the second quarter GDP numbers were originally reported as positive 1.5%. See, proof it's all over. They got revised to minus something or another. And then we had the Lehman moment in the fall.

And that's where I think we are. Like March 23rd was it. It's over. The Fed came in unlimited. The market's recovered. It's done. It's done. It's done.

And then we find up rolling over and going back down one more time. That's what I meant by the bear moment is that typically the low, the March 09 low was made on despair. There's nothing more we could do. The market's just destined to keep falling forever and ever. And it was almost to the point where when the market did start to lift off in mid-March of 09, everybody's first reaction to that was not it's a buying opportunity, but this is like a cruel joke. It can't be going up. There's so many problems and stuff.

And then that was indeed the start of a bull market. So I do think that that's kind of where we are right now. We've had, you know, the March 23rd low. We've had the Fed all in. We had the 50% retracement. We had bear. We had it bailed out. We had the 50% retracement.

Everybody was arguing. That's it. It's all done with. And in fact, we've got, just like we had in 08, we got the analysts today now all changing their opinion that March 23rd was the low. Yeah. Yeah. It feels like the economy cannot recover with us all sitting at home. That's all I keep going back to, right? It's just like, how are you going to argue that the economy is recovering if

we're all still sitting at home? You know, it can, over time, it can create efficiencies that we didn't have before. Now, like I said, if you get the sniffles, or if you've got, if you want to take half a day off, you could zoom into your office for one or two days. That's great. The The reason we didn't do it before is everybody said in theory we could do it, but nobody wanted to go through the blood, sweat, and toil of trying to figure out how to make it happen. Well, we've now figured out how to make it happen. So that could be good. But you're right. The bigger issue is if we're all going to sit at home and we're all going to try and educate our kids in the other room at home, our economy is not built that way.

If that's what we have to do, we have to fundamentally restructure it. We don't want to fundamentally restructure it. So this is not going to work in the long term. But it could be a nice legacy once we go back to normal that, you know, anytime you need to bail on the office for one or two days, you've got this new tool to kind of keep you connected and not just completely lose touch with it like we did before the virus. Yeah, before we move on to a couple other topics, last question around the Fed is, you know, there's a lot of people saying that this isn't capitalism, right? And obviously you said earlier about how kind of there's no capitalism in a crisis. Talk a little bit about how you see the incentive structure changing, right? If I take risk and I know that the government will always bail me out, well, I'll take all kinds of crazy risk, right? It's like a no-lose situation. It's the best way to make money because I can't lose. that doesn't seem like a very sustainable strategy. So maybe talk a little bit how incentives change after we see this type of quantitative easing and bailouts, etc.

You're right that this isn't capitalism. And, you know, I think what we need to remember by capitalism is the Joseph Sumter argument of creative destruction. And that I also think that the problem with capitalism is so many people don't understand capitalism. You know, I remember 2012 presidential election and that the battle cry was bin Laden was dead and GM was alive. And what they meant by GM was alive is to this day, everybody still thinks that bankruptcy and restructuring means that a company ceases to exist, that they don't understand the idea of restructuring, that if we had let, you know, just to use the autos from 09, because we've got 10 years of history to look at, if we had let the auto companies go bankrupt, that somewhere in

Detroit, there'd be a half-done car on an assembly line with weeds growing through the floor. That would have never happened. Those assets would have been spun off. They would have been restructured. They would have come in as a GM. They would have come in as other companies as well, too. They would have become a lot more efficient. I think what we did with the bailouts of the auto industry is while we bailed out the auto industry we kept it stuck where it is now so that it opened the door for a company like a tesla now yeah we can argue tesla's a bubble and stuff but they have really been in the forefront of leading the innovation in the auto industry between electric cars manufacturer selling and everything else in a way that the auto companies itself could never do

if they are incentivized to not think boldly and not creatively change themselves. So in the long run, we're better off letting companies become these organic things that bend and fold and become something different and the like. And that is where we should be in the long term. But we don't think that way.

We always think in the very short term. You know, that's been my complaint about what's going on with this virus right now. when I listen to Wall Street, all they want to talk about is what's going to happen the next two quarters. You know, it's going to be really bad second quarter, it's going to be less bad third quarter. Yeah, I get that. Let's move on. What's going to be long term? No, it's going to be, I just, I can't go, I can't think past September 30th. I just want to know when we're going to restart and when things are going to get less bad. And that is that, that kind of

short-term thinking is what leads to these bailouts. And while it may give you pleasure through the end of the year, when you look back at it in five years or 10 years, you say, look at these industries that should have been innovating and should have been changing, but you've incentivized them to basically status quo. And that doesn't help anybody in the long run. Yeah. It's interesting that the industries that are asking for bailouts tend to all look the same, right? Airlines, auto industry, et cetera. One thing that we saw today is the, I guess, the Governor's Association or something like that has come forward and they're asking for about half a trillion dollars, about $500 billion in bailout money for their states. So now you have state

governments going to the federal government asking for them to bail it out. And what I continue to say is there's a lot of financial ramifications from this, right? But this specific development to me is going to lead to individuals saying, wait a second, why are you taking 25, 30, 35, 40, 45% of my income? If you guys can just print the money and basically just hand it to yourselves, right? And why is there taxes and all of these structures that, you know, look, there's plenty of people in kind of a small community that they hate taxes, they hate the government, whatever. I'm not talking about those people. I'm talking about the average Joe or Jane on, you know, kind of main street business and an employee at a business saying wait why am i giving you

you know a significant portion of my income and then you guys just go print it and stick it in your uh your your bank accounts and that's your revenue when uh you run out of money it just feels like there's something other than uh the ramification on the financial industry and it's more societal in nature so i don't know if you have any thoughts there yeah yeah no you you're starting to hear people grumble that too i mean it hasn't quite happened but if the fed could just the Fed could print $4 or $5 trillion without there being any consequence, no inflation, no consequence, why do I pay taxes? Why do I pay taxes at all? Why don't they just print it up and let it go from there? And then, you know, wow, there'll be inflation. Well, there isn't

any right now. And as far as the municipals go, aren't we all in 100% agreement that the average state financing is a complete mess between their pension plans and their union contracts and everything else that states have had that especially when you get to the municipal level especially the big city municipal levels if you look at Chicago or Detroit or New York or Los Angeles or take your pick that it's all messed up and that maybe a catalyst from this could be the creative change that we need to fix some of these problems. Now, those problems won't get fixed without a little bit of pain. But to continue this busted system that creates a lot of pain for the taxpayers, there's a lot of there's a lot of middle income and lower middle income

taxpayers that live in urban areas that are really being taxed to death to pay for all of this inefficiencies that everybody agrees it would be nice if it went away well here's your opportunity here's your catalyst that you've always needed to force that change instead you just want the fed to print money and throw it at you so you can continue the status quo i think that's a lost opportunity to fix some of these problems and they need to be they need to be dealt with as look i'm in chicago and the pension plan and the pension system here is so woefully screwed up that something needs to be fixed with that as well too but you know we're just hoping and praying that the fed just prints the money so that everything can stay the way it is broken

that's the way it is now just continue to keep it broken yeah one of my favorite things to tell people is uh i love when everyone says let's take the money from the billionaires and i say hold on a second so you want to take the money from the people who have shown a propensity to be a good capital allocator and give it to the people who suck at capital allocating right let's go give it to the government and see what inefficiency they can do with that capital it seems kind of more destructive than anything right and you know and i don't know if you've seen the studies but if you took the forbes 400 and you took all their money and let's say all their money and of course that means you have to liquidate microsoft and you have to liquidate amazon and not to mention the damage

that that would cause you could fund the government for about a month okay now that you've now that you've wiped out all the billionaires and you got through the month of may what are we going to do in June. And now we don't have Amazon, and we don't have Microsoft, and we don't have Facebook anymore, because you liquidated it to pay for May. So I think that people also way underestimate, overestimate the number of billionaires in the sheer amount of money that they have. Yeah, they have individually, they have way more than you or me could possibly imagine. But collectively, as a group, compared to the size of the government, it's not that big. Yeah. I want to talk a little bit about globalization or the lack thereof. And obviously this idea that the virus is probably going to reverse the trend of globalization. I think that there was this kind of underlying tone of, hey, borders coming down, let's be more global, both on a business and also a social component. Virus happens.

now everyone's basically walking around with masks on pointing at each other saying you know forget another country hey you're from another state right i heard those new yorkers they got a ton of virus or chicago oh no i don't want you coming from that city uh maybe talk a little bit about how that that trend reversal globalization may occur yeah you know another state the people in the suburbs are telling the people in new york and chicago to go back to the city uh at this point. But yeah, as far as globalization goes, the virus came out of China. You know, we can leave for another argument whether or not China did everything that they needed to do and has been properly reporting, probably not. And there's a lot of anger around the world. Rick Scott,

Senator from Florida, was on TV last week, and he got very mad. And he said, anybody that buys anything made in China is immoral. Well, you know, 60 days ago, you would have been run off as a kook if you would have said that. As I like to say, who's going to defend China? You know, there's 22,000 dead Americans. Is anybody in the Democratic Party going to stand up and say, Rick, you've lost your mind? How about Europe? Is Macron from France? He's got 16,000 dead. Is he going to say, no, we have to be nice to the Chinese? No. Are the Italians going to say that? No. This is global. Who's going to say that? Larry Kudlow over the weekend, Easter Sunday, said, remember, Larry Kudlow, who signed off his show, I believe in free market capitalism is the best path to prosperity, said the United States government should pay the moving costs of all companies that want to move back from China. um okay two things about that where's the free market capitalism larry but more importantly

so now we're ready to do that come the other direction and i think that there's going to be a lot of that everybody's in agreement that at a minimum some strategic stuff like pharmaceuticals should be coming back okay why does it stop there why are we going to not turn to mr cook and say why are you leaving yourself vulnerable by making your phones in china why aren't you making your phones here or in Europe or in South America or a little bit of all of them. And Mr. Cook's argument would be because it's more efficient to make them in China. And we would come back to him and say, this is about resiliency now. This is not about efficiency anymore. That era has sailed. We're more about the resilient era. The next time we have to shut down the economy for three months,

we want nobody to have a bailout. Okay. Think about how the balance sheets have to look and how everybody's business has to be, they can be structured for that, but they're not going to give you that forward PE of 20 on 130 earnings to get you back to 3,400 on the S&P. You're not going to have that. So I think that that de-globalization is going to push back, and governments are going to do that too. When people start pointing at the Trump administration, you could have done more, or the Johnson administration in the UK, you could have done more. They're going to say, it's China's fault. And everybody's going to say, yeah, I agree with you. It's China's fault. And there's going to be no natural constituency to defend China.

So I do think you're going to see some of that deglobalization come down. And it's going to mean less efficiency. I didn't make a qualification of whether that's good or bad. It might be necessary. But it is a reality that the reason we're in China is it's more efficient. And if we leave, we're going to be a little less so. Yeah. When that happens, what do you think occurs in terms of the China versus U.S. global superpower showdown, right? And what I mean by that is what you're essentially doing is by becoming more resilient, you're becoming less efficient, and therefore, can you actually produce the goods as well? Probably not. Can you produce them as fast? Probably not. As cheaply? Definitely not. And so you get in this weird world where

Do U.S. consumers exclusively consume then from U.S. companies where everything's made in the U.S. and China is, you know, exclusive Chinese manufacturers that are all made in China? Or do you still get the consumer kind of shopping for lowest price and kind of benefiting from the efficiencies, but companies are the only ones that are affected and they're the ones that are forced to be resilient and therefore U.S. companies end up actually losing because they lose that efficiency? Yeah, I think, you know, first of all, that efficiency or that resiliency will come over time. It won't happen immediately. You know, we won't just wholesale pull out of China. We will start to pull out of China over time. I think from the Chinese perspective, they're going to be under enormous pressure because they're going to see their growth rates peak and they're going to start coming down. Keep in mind the following about China.

In the United States, there's nine cities that have a million or more population. And there's 10 cities in Europe that have a million or more population. In China, there's over 30. And we learned a new one called Wuhan that had more people than New York City. Probably before November, nobody knew what Wuhan was as well. There's 1.4 billion people in China. every year, the population of Canada, about 22 million people in China, migrate from the farms in the rural areas, which are really third world, to the cities, which are really first world in

China. They're as modern as any city, and they're looking for a job. And as long as China's growing fast, they can bring those people, and they show up sometimes with no shoes on, and they say, here sit out at this thing and do this like this for you know for 14 yuan a day and you can send it back to your family on the farm and they're happy to do it now they come to the city they don't have that growth rate anymore and they don't have that and there's going to be resentment and anger and they pile up in the ghettos in these cities and they get mad why don't i have a job and they create a lot of social unrest in china so china is going to be under the gun to try and rectify this now Now, the way that China is going to rectify this, I think, is real simple, is China needs to be more transparent.

Let the world in. Let the world see what's going on. The next time three people have a cough in China, people from the West can go down and see, is this a pandemic or is this nothing? Instead of waiting for you to give me, you know, your spin and hide it. The Chinese government's never, communist government's never going to do that. So they're going to have some change. On the flip side, we're going to have that change too. We're going to have to see us pull back. While we pull back, I think it's going to fall on the companies themselves in order to eat that loss. Their margins are going to have to get squeezed over time. It will only be as the process is unfolding is that you're going to see them be able to pass those costs along. Because remember, I think what's going to happen is companies are going to be forced to become more resilient. There's going to be rules.

There's going to be twisting of arms. You got to get out of China or something like that. And then they're going to get out of China, but then they always won't be the lowest cost producer, but they're going to have to be forced to price to the lowest cost producer. And that's going to make them squeeze their margins as well, too. So this will be a process that will take some time. And again, I'm not suggesting that this is catastrophic in any way. But what I am suggesting is if you're waiting for 15% earnings growth and 20 forward PEs to just power the market forever and ever, that era may have ended already. And we're going into a different type of era. It doesn't mean the stock market goes down 90% like the Great Depression, but we're not going to go back to the old highs for a while, at least one cycle before we can kind of figure it out.

Yeah, so this kind of leads to the conversation of what happens or what can people do moving forward, right? And basically, the situation right now is from this deflationary environment, we're getting tons of liquidity injected around the world into the financial system, we'll eventually move into that inflationary environment. environment. And as we saw in 2008 to 2011, it takes something like gold. Gold went down almost 30% in the summer of 2008. And then all of a sudden, it ends the entire crisis up about 300%, hits an all-time high in 2011. One, do you think we see a similar kind of sequential playbook here with something like gold? Or do you see something different happening, even though we're likely to get that inflation at some point in the future? and I'm assuming that investors will look for those inflation hedge assets. Yeah, gold is a tough one to measure.

You know, I've always struggled with it. I think that in this era, you know, people have always said to me, I can't believe what the Fed's doing. Why isn't the dollar crashing? And my answer is, have you seen what the ECB and the BOJ are doing? They're printing even faster than we are. And then their answer is, why isn't gold going up? And I've always argued, very good question.

I'm kind of myself surprised that gold hasn't responded more positively. I think the reason gold is not responding is what is gold supposed to represent for the investor? It's a way supposedly to get your money out of the financial system, but it's not really out of the financial system. Besides, most people buy gold, they buy GLD or they buy gold futures. Hell, if you're buying GLD listed in the New York Stock Exchange, you're just buying a tesla version of gold is all you're wanting what you need to do is buy coins and bury them in your

backyard oh that's too hard the dealers are running out by the way the premium of spot gold over like the comex price is is about a 10 or 12 year wide it is that that's when what's been happening also gold becomes a source of funds when you are in a when you are in a stressful period and the market's falling and there's margin calls being hit you've got this one asset here that It hasn't lost value that you might need to liquidate in order to meet your margin calls in other places that you've lost money. And I think that that's what gold is suffering from. And I think it did in 08.

And that's why I think, not surprisingly, gold made its peak at 1900 in 2011. It was a year and a half after the crisis. So I think it will lag again as it goes higher. But the biggest thing about gold you have to remember is if you're buying gold because you think that inflation is coming or bad things are going to happen to the financial system, if you're buying something listed on the New York Stock Exchange and GLD, you're not getting out of the financial system. And that is the problem that gold has right now. It's still part of the whole system as well. It's not as separate as people like to make it out to be. Yeah. And I guess really this all kind of brings us to the point of, have you heard Brent Johnson's dollar milkshake theory?

I've heard of it. Yes. Okay. So basically his whole idea is central banks around the world inject liquidity into the financial system. They're essentially making a milkshake, right? They're kind of everyone's throwing their liquidity in to this cup, but only one asset gets to have the straw, right? That asset sucks all the value into it. And his theory is the dollar milkshake. So obviously, the dollar is that asset that gets to hold the straw. And we're having all that liquidity ultimately seek out the dollar. And so what you see around the world is the dollar strengthening, other currencies are selling off or losing value against the dollar, you see other assets, you know, cross markets selling off, and the dollar continues to strengthen. And, you know, kind of a classic deflationary environment. What I'm wondering is, does this help to accelerate the strengthening of the dollar and then ultimately the need for the weakening of it? Will this accelerate people looking to get outside the system? Does this drive people to gold, to crypto, to other things where they feel like they're getting out of the system? Or is that more something simultaneous that happens, but isn't necessarily a driver of that action?

Yeah, I think the first part Brent's got it right, that everybody's racing to the dollar. And they're racing to the dollar for two reasons. Reason one, when everything, remember now, let's remember that the dollar is the reserve currency. What that means is 90% of world trade is in dollars. We quote the price of crude oil in dollars. We quote the price of gold in dollars. If you are Chinese and you want to do a trade for Brazilian timber, you're quoting the price and paying for it in dollars is what you're doing most of the time. Maybe in rare exceptions, they'll accept Yuan or they'll want Riel, but most of the time it's always done in dollars. So the world needs dollars for two reasons. One is because there's trade that the economies have slowed. Their trade is down. They need to get their economies going. So they need to amass dollars, especially the Chinese.

They want to restart their economy. Well, they got to buy crude oil. They got to buy copper. They got to buy aluminum. They got to buy wood. They need dollars for that. So they're trying to acquire dollars for it. The second thing, the reason everybody wants dollars is when you get into a crisis,

everybody looks around and goes, what currency do I want to be in? And the answer is, I want to be in the reserve currency. I want to be in dollars. So I've had this argument with people in Europe. I can't believe that the dollar is going up. Why? You think that we want to run the euros when there's a problem? Because ultimately, if I want to buy crude oil, if I want to buy a copper, I still got

to go back to dollars for it as well. So that is why I think there's this giant need for dollars, the safe haven currency, and because it's the thing that we do trade with. To your second question, well, will this accelerate the need or the desire for people to find another reserve currency? I think they've been desperately looking for one for 10 years. I think, you know, to quote Winston Churchill, the dollar is the worst reserve currency we've ever devised, except for every other one. And so it benefits that there is no alternative. You're not going to, you know, wave a wand and say the euro or the yen or the pound or the one. None of those can fill the bill that the dollar fills. I've argued that in theory, the next reserve currency will be a crypto. For a hot second, I thought maybe Libra would do it. But then I thought for sure I was onto something because the first thing that they did when they announced Libra was they dragged Marcus in front of Congress and ripped him a new one because they were afraid of what Libra represented. it. So I'd like to say that the next currency will be a crypto. It probably doesn't exist yet. I don't know when it will exist and which one it will be, because it needs to be both a medium of

exchange and a store of value. Well, Bitcoin might be a store of value, but it's not a real good medium of exchange. Maybe there's some others like Ether or something like that you could argue are a better medium of exchange, but they're not a good store of value. So we're on the path for it. I've used the analogy of, if you remember early on in the search engines, we used to have Lycos, and then that went bankrupt. We had AltaVista, and that went bankrupt. But we had the idea, one of these guys is going to be a really good search engine one day.

Then we got Yahoo, and it became the fastest company to become an S&P 500 company. We thought that was it. Then we got Google, and then everything changed. Well, we're waiting for the Google of cryptos to show up, and we're probably somewhere in the like old salta vista era on our way to the yahoo era before we get to google and then i think that that would be the reserve the new reserve currency and i don't think that the next reserve currency will be some government controlled crypto i think it will be outside of their reach is what it is where it would go there's no reason to have a government controlled crypto takeover

you've got the dollar and you can you know and the fed could make you a digital dollar in a week if you wanted that but it's still the dollar it hasn't changed anything so i do think it's coming but it still could be many years down the road um right now maybe it exists in some infancy form right now whichever crypto is going to be it or maybe it's still to be invented yeah this is super interesting i mean this is part of the reason i wanted to talk to you because uh i think that you are uh what i'll call the tip of the spear of an emerging group on wall street and kind of the traditional financial system in that if you would have this conversation five years ago, anybody in the traditional financial system would be like, you're crazy thinking that one of these

digital currencies is going to be potentially in the future a reserve currency. Now, I think what we get is exactly the position that you're stating, which is, hey, actually, there's a very high probability that the next reserve currency will be a crypto. I just either one, don't know which one it is, or two, don't think it's been created yet, right? So I think that like that group is actually was non-existent five years ago. Now there's a number of people and it's actually growing pretty quickly to people who kind of fall in that bucket of their belief. The one thing that I keep going back to, so a lot of times I'll hear kind of the like goes Yahoo, Google, or some variation of, you know, the first thing doesn't always win. But I'd love to hear your thoughts

on like, the only thing that I usually go back to is like currency is a little bit different in that it's kind of like if you're sitting there in Venezuela or Zimbabwe and your government's currency fails, when they then say, hey, just kidding, here's our second currency that we just created, you almost have lost trust in the government monitoring the currency. You're not going to then take all your wealth and say, okay, Bolivia failed. Let me put this in Bolivia V2. You're just like, no, you guys are idiots. I'm not going to risk my wealth here. It feels to me like digital currencies are in that same bucket. And what I mean by that is Bitcoin was the first, it's the most popular, it's the most liquid, largest market cap, et cetera. What I wonder is

if Bitcoin doesn't become the global reserve currency, if it doesn't end up being the winner, do people say, well, there was one, why do I trust version two, three, four, five, six, seven, 10 or 12? And what I don't know yet is, is it true that currencies are different than let's say, technology companies or other products, or actually it's all the same and people would be willing to kind of jump from crypto to crypto until they found that one that ended up being the winner? No, I think that's a good point. I think that, you know, could Bitcoin be it? I think what Bitcoin needs to do, you probably know this better than me, is it needs to be a medium of exchange. And I think the blockchain is not quite ready to have, you know, several

tens of thousands of transactions a second to be able to handle it in that degree. But I do think that what a global cryptocurrency gives people that they would immediately embrace, no matter how many failures there is, is this idea that my government can't devalue or ruin my wealth. And by having it in an encrypted account, they can't get at it. Because one of the other things I think is going to happen. If you ever got a global cryptocurrency, governments would have to change their tax structure. They can't tax you on income anymore because they can go ahead and audit you. And I can handle my thumb drive. And guess what? It's 256K encrypted and you ain't breaking into it. And as far as you know, even though I have a 14 bedroom house and six Ferraris

on the driveway, I have zero income. So you can't tax me on that. So what I think they'll move to is a use tax and they'll just say you know every thousand square foot in your house you're going to pay this for a tax every car you have you're going to pay that for a tax i don't care what your income is and that's the way that the governments will have to survive but people will like that because they'll say my money is safe if my government does stupid things i don't lose the value of my money like they like they have in all those other countries so i think if you could offer that promise of a safe store of value that's beyond the reach of profligate governments, I think that it would be embraced, whether it's an existing crypto that can morph

itself into that or some new one as well, too. So there are operational difficulties with it. So, yeah, I hear what you're saying that it might be different. But I don't know if Bitcoin is really graduated beyond the speculation point no one is really trying to use that as anything but a speculation right now um and we'll have to see what happens i think that's one of the problems with the cryptos right now is that why aren't they rallying in the financial crisis because if i put my money in bitcoin i can't do anything with it until i exchange it back to dollars and then buy groceries with it and so i'm still kind of stuck in the same system that i'm trying to get out of at the same time. And I think that that's one of the reasons that they're struggling

to get out of the way. Kind of the same argument I made with gold. But once you get one where you can say, I can take this currency and I just don't mean you can buy a ticket on cheap flights, but I could actually do something real with it outside of the financial system. Then you've got something and you've really got something going. Well, if Amazon could do it, that would really be the game changer at that point. Yeah. I think one of the things that you're really highlighting here, right. And some of the stuff you said, I agree with some, some of it you know, I have other thoughts as to how it happens, but, but I think it's less important for the main point of like this separation of state and money. Right. And if you would have talked about this 10 years

ago, I mean, you're the anarchist of anarchist and literally people would have thought you were crazy. Now, I think again, going to kind of that mainstream population, there's a lot of people saying, wait a second, that actually sounds interesting. Explain that to me, right? And they don't necessarily care so much about like, show me the answer today or the solution, but you've highlighted a problem that I have identified is a problem, right? And I think what ends up happening is over months and years and even decades, you get more and more people that buy into this idea of like, I'd be okay with a separation of state and money if the money was a good store of value, was a good medium of exchange. And that's not just a financial markets

thing, right? They're also seeing, hey, I get to go to Starbucks and use my reward points. And I just use mobile payments. Like, what do I care if that's dollars, Starbucks points, or, you know, crypto, I get to go on the video games, and my kid is using V bucks. And you know, all these different things that I think kind of societally are occurring, or just training people or educating people on the idea of a digital asset. And then all of a sudden, you get that separation. And again, it's very slowly, right? You get a couple of people at first and then they kind of slowly cross over and it's not even with a hundred percent of their wealth. That's the other thing, right? It's like, Hey, I'm going to take 1% of my wealth. Okay. Now I'll take 5%, then 10,

then 20, then 30%. And then eventually you get to the point where it kind of flips over and everyone says, well, duh, why did we ever not have the separation of state money? But I'm not of the belief like that's going to happen tomorrow either. Right. And I think the catalyst for that was the 2008-9 bailouts. I think that the bailout, those bailouts, I think that there's something interesting about the bailouts

that the catalyst for them, I think, you know, led to the resentment, which was Occupy on the left. It was the Tea Party on the right. It led to the polarization that we've seen in our politics. And it's not just here,

you know, it's Brexit in the UK and stuff. And so there is that distrust of the government that was being fostered. That can be accelerated right now, even though we're doing paycheck protection plans and all this other stuff. If the perception is at the end of the day that the wealthy are being cared for and that everybody else is not being cared for as well, that that could really start pushing this idea that we need to separate money from the government because the government doesn't

take care of us being the middle class or the broad population. It just takes care of the select elite pretending like they're trying to take care of us. And so you can definitely see that. I think you're absolutely right. I think also 10 years ago, if you talked about a digital currency, most people didn't know how that was supposed to work. But now, you know, I got my Apple Watch right here you know and i know how to wave that and everybody knows how to do that stuff and now if you tell them okay you just do the same thing with some other currency i know how to do that i'm comfortable doing that i'm comfortable waving my phone in front of a reader in order to pay something so we're starting to get that mentality you know to to come down the pike as well too and

we're moving that way very fast and interestingly you probably know when it comes to digital payments the united states is pretty much behind a lot of countries especially if you look at m pesa in kenya some third world countries are way ahead of us in digital payments i know i tell my friends this they can't believe that yeah no there there's a grant there's a there's a little village in kenya and there's a honda generator charging 50 phones and tomorrow these guys that are pushing oxens are transferring money with their phones back and forth to each other more than we do with our iPhone at Starbucks right now. So we're way behind a lot of countries when it comes to digital payments. So it could wind up, you know, that reserve currency thing, we could be the laggard

in that. If you're waiting for the American psyche to catch up on it, look, the rest of the world's psyche is well on the road, further on the road than we are right now. Yeah, I always joke, I think it was maybe a year ago now or so, there was a conference in Russia and Putin was up there and he, in no uncertain terms, said the dollar is expensive and I want to find an alternative. Right. And basically it was just like, I want to get off this. And so we know that, you know, other superpowers would love to be the owner of the reserve currency or have an alternative that the U.S. has in control. But I also think that there's a lot of people who aren't necessarily other superpowers that believe the same thing. Before we finish up, I always ask two questions

questions and then you get asked me one to finish. What is your favorite book or the most important book that you've ever read? The most important book that I've ever read? Boy, that's a good question. There's a lot of ones, but I would have to say, I'll answer the question by the book that really had a profound impact on me, Reminiscence of a Stock Operator. I read it when I was in college. It made me understand the psyche of speculation. It attracted me to the fixed income markets, or excuse me, to the financial markets. I'm in the fixed income market. And that was kind of like the book. I took a finance class. My finance professor recommended it as outside reading. And boy, it just completely changed my life.

I love it. That's a great answer. Second question, aliens, are you a believer or not? think they're real oh um you know i do think they're real i do think that at a minimum you've probably got alternate form lower forms of life bacteria and stuff like that um whether or not there is um intelligent alien life forms i do think they're real um are they floating around incognito in in this on this planet uh i do love sci-fi but i'll go with no on that question yeah uh they're they're still stuck in their solar system and we're stuck in ours yeah i think that's probably a a pretty uh safe bet is uh if i had a bet that'd take the same thing what uh one question you have for me to uh to finish up um what is opening day since you got a yankees

i actually am of the belief um they are going to uh all sports it's not just baseball but all sports are going to start playing without fans in the stands um for some period of time uh my guess is baseball we start to see that earliest um end of may latest like beginning of july maybe maybe somewhere in that range uh and i have no clue what that means in terms of this i mean you're not going to play a full season right so like like kind of what what do they end up doing i have no clue um but but uh i'll interject on that one for you since we're talking about baseball for five seconds if you see the plan that they've got that they would play with no fans to make it more cost efficient and everything they would play it in arizona that they would have all the teams in

arizona that way when they have to do an away game it's a 20 minute bus ride down the road to another minor league stadium because you don't need a stadium for 50 000 as well so and they move Well, the Florida minor league teams to Arizona as well, too. But bear in mind, because I'm a big baseball fan, too, only 25% of their revenue comes from TV. If you're still going to pay Bryce Hopper $38 million a year and you're losing on the gate, you're going to take a big hit to have him on your team.

Yeah. I think part of this is, what do you do? Like, there's a lot of ramifications. Like, what do you do if you're playing at a minor league baseball stadium and now somebody breaks the home run record right and people can say all day long you know hey it was still baseball it may be um also i saw a plan at one point pitchers right yeah and then i saw a plan at one point that they were going multiple players had said that they were willing to play double headers multiple times a week to like catch up on games and i was like yeah they

say that now when they're sitting on their couch but they get you know six weeks into playing three to four double headers a week and they're just like dude what are we doing you know why you're saying that because the players association has agreed to get paid pro rata so if they're only going to play 81 games they're only going to get half their pay so yeah let's double up because i want to get 162 games and i want to get paid but the owners are not going to want it because they're you know like i said three quarters of their revenue is you're playing in front of 40 000 people at yankee stadium or wrigley field and if you're just broadcasting it locally on tv on the yes network or on the new marquee network for the cubs you're not going to be making enough money to

pay those $200 million payrolls is what they're going to wind up having happen. So it's going to be a tough one. Football is a little different because they make more than half their revenues off of TV. So they could play those in empty stadiums and as television content and probably get by a lot more. And plus it doesn't start until September and we should be at a different point with the virus back then as well too. Yeah, for sure. It's going to be interesting to watch play out. Listen, Jim, I really appreciate taking the time to do this. Where can people find you on the internet and also uh go find other research you guys crank out so uh best place would be my twitter feed at bianco research or our website biancoresearch.com

but i would start with our twitter feed as well to look me up on linkedin if you're on linkedin those are the two uh social platforms that i uh traffic most frequently you've been doing a fantastic job on twitter and i highly recommend people go follow you so uh see if we get you some followers there. But listen, thank you so much. And also a huge shout out to Nick Prince from Coinbase for helping set this up. We wouldn't have done it without him. So I appreciate his help and we'll have to do this again in the future. Thank you. Hey, everyone. Pop here. If you like this episode of Off The Chain and want to help us take crypto to the top of the Apple, Spotify, and other podcast charts, please do us a favor and rate,

review, and subscribe. To review, simply go to the Off The Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off The Chain.