The Pomp Podcast - #800 Bitcoin Skeptic Changes His Mind w/ Sven Henrich

Episode Date: January 27, 2022

Sven Henrich is the Founder of Northman Trader. He's a highly respected technical analyst and commentator about markets and the macro economic environment. Sven recently changed his stance on Bitcoin and has started to allocate capital into the asset. In this conversation we talk about the macro environment, fiscal policy and how these unprecedented times led Sven to considering Bitcoin as an allocation in his portfolio. ======================= Mode, UK Fintech app, allows you to buy, earn and grow Bitcoin, all in one app. Not only is it a secure app to buy & hold Bitcoin, Mode allows you to pay & receive up to 10% Bitcoin Cashback from its growing list of online partner brands.   Available on the App Store and Google Play. Download Mode at modeapp.com and set up your account to be in with the chance of winning ONE WHOLE Bitcoin. Offer ends Jan 31, 2022. Only available in the UK. ======================= My friends at Coin Cloud will give you $50 in FREE Bitcoin when you buy $200 or more at any of their 4,000+ machines. Use promo code POMP to get your free Bitcoin. For details or to find your nearest Coin Cloud machine, visit www.Coin.Cloud/Pomp   Coin Cloud has been serving customers since 2014 and has established itself as the world's leading digital currency machine (DCM) operator. More than just a Bitcoin ATM, Coin Cloud machines make it easy to buy and sell Bitcoin and 30+ other digital assets with cash. To find your local ATM and get $50 in free Bitcoin, visit www.Coin.Cloud/Pomp ======================= Fundrise is largest direct-to-investor real estate investment platform out there, giving you the opportunity to achieve upside of an asset class previously reserved for institutions and high net worth individuals. That’s right, Fundrise is making high-end private market real estate investing accessible to everyone via an easy-to-use, automated platform. See for yourself how over 190,000 investors have built a better portfolio with private real estate. It takes just a few minutes to get started with as little as $10. Go to Fundrise.com/Pomp today and, for a limited time, get $10 when you place your first investment. That’s Fundrise.com/Pomp =======================

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. Now let's kick this thing off. Sven Henrik is the founder and lead market strategist for Northman Trader. He's a highly respected technical analyst and commentator about both markets and the macroeconomic environment. Sven recently became much more sympathetic to the Bitcoin mission and now has started to allocate capital towards the asset. In this conversation, we talk about Bitcoin, the macro environment, the Federal Reserve, and the insane monetary and fiscal policies that are happening around the world. I really enjoyed this conversation with Sven,

and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. Today's episode is brought to you by Mode. Mode allows you to buy, earn, and grow Bitcoin all in one app. Not only is it a secure app to buy and hold Bitcoin, Mode allows you to pay and receive up to 10% Bitcoin cash back from its growing list of online partner brands. Mode, the UK fintech app, is one of a kind. They're FCA registered and are listed on the LSE in the UK and the OTCQB in the US. They choose to hold Bitcoin on their balance sheet. They are piloting a Bitcoin payroll product to pay UK employees in Bitcoin.

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Find your local ATM at coin.cloud slash POMP. Again, that's coin.cloud slash POMP and use promo code POMP to get $50 of free Bitcoin when you buy $200 or more at any of their machines. Today's episode is brought to you by Fundrise. You all know I believe that the best investors both understand and seek out extreme asymmetry. Fundrise is here to help you do just that. It's the largest direct-to-investor real estate investment platform out there, giving you the opportunity to achieve upside of an asset class previously reserved for institutions and high net worth individuals. That's right, Fundrise is

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have built a better portfolio with private real estate. It takes just a few minutes to get started with as little as $10. Go to fundrise.com slash pomp today. And for a limited time, you'll get $10 when you place your first investment. Again, that's fundrise.com slash pomp. Go check it out.

And when you make your first investment, they'll give you $10 on top of it. Fundrise.com slash Pomp. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. All right, ladies and gentlemen, Sven Henrik from Northman Trader. Sven, you there?

I am. How about yourself? I am doing fantastic. I am so excited to talk to you. Obviously, the big news is I think you've gone from maybe cautiously skeptical, is how I would put you previously, to now you're a Bitcoin investor. You started to buy some Bitcoin. But before we get to the Bitcoin conversation, I want to just talk to you about the macro economy, Because I think that really kind of drove a lot of this kind of change in opinion and change in your portfolio. Let me just start with, like, what the hell is going on? Inflation is at a 40-year high.

Unemployment seems to be coming down, but there's still 10.5 million open jobs in America. It just seems like mass chaos. Nobody knows what's going on, undisciplined monetary and fiscal policy. Like, what's your take on, like, what is happening in the macro economy? Well, as you probably know, I've been kind of a skeptic or critic of the Fed for quite some time. I mean, look, I've always supported the notion of intervention when there are emergencies. Certainly, the global financial crisis was one. Certainly, COVID was one. My criticism has been that they never pull out, and we've really embarked on a boom and bust cycle over the last 20 years.

I mean, the housing crisis itself came about because of too easy money, right? I mean, we had all these mortgage-backed securities, everybody piled in, and it got too much and it blew up, and the Fed had to come in and rescue again. What was emergency measures back in 2009, as introduced by Bernanke, has morphed into permanent intervention, kind of the go-to drug. And we've seen that in equity markets ever since, right? I mean, every time you see a larger downturn on equity markets, there doesn't even need to be a recession, they intervene in a big way. And my criticism has been that on a macro level,

what this resulted in is two major trends. One is ever larger asset bubbles because you never let markets correct in a proper fashion. You don't weed out the excess. It's also created conditioning on the side of investors because everybody's kind of caught on to the game that they will blink at some point and so we we see corrections that last for a few weeks at the most right and then everything goes back and on the on the fed put it's not only the fed it's the ecb and everybody else as as well so that's that's one aspect aspect asset bubbles the other one is just ever widening societal wealth inequality and i think actually just a size from the number i think we're heading into a period where that is exerting ever more pressure in terms of the social

fabric of our society. And I think we see that in a political sphere already. You can blame social media all you want, but there is a core frustration that hangs in with people that are feeling left behind and they're finding all kinds of venues to vent on that. And I think what happened last year in particular, has been atrocious because, again, the Fed had every possibility to ease off on their monetary interventions, but they kept on insisting not only on printing, but also on a transitory narrative in terms of inflation. Everything they did between 2009 and 2019, basically, they kind of got away with it because we're in a deflationary environment. But what happened in the combination between just not only unprecedented monetary stimulus, but also unprecedented fiscal stimulus created a upsurge in demand that, and again, you can blame COVID all you want, but we ended up with retail sales 25% above pre-COVID trend.

That doesn't happen by accident. There was all this free money thrown out, and that overwhelmed supply chains, and it's created all this inflationary pressure now. And guess what? For the last nine months, the consumer got stuck with negative wage growth. Yes, you can live off your stimulus checks for a while, and that helps. But now that you're faced with inflation, you are left behind even further. And that is one of the macro criticisms I have. And the worry is, frankly, when you create ever larger acid bubbles, that not only are you becoming beholden to the market as the Fed already is, but if you make a policy error, you are risking, obviously, that the acid bubble bursts in a bad way and then everybody gets hurt.

right? I mean, and who takes the bath? You know, this is not me talking to Stan Druckenmiller speaking. I had a clip of his in May. He pointed out rightly, you know, when these acid bubbles hurt, it's again, the poor and the middle class that get hurt the most. So the Fed has overdone it in my perspective in a major way. Now they're chasing their tail, but they're also limited in what they can actually do because of all the debt creation that has taken place. So overall, what you're finding now in this market and we saw that last year already we started you know as as markets or the indices the main indices kept driving higher and higher we started seeing some of the excess falling to the wayside there was a lot of fluff valuations all kinds of remind me of

the 2000 tech bubble you know you saw the all these ipos coming these spacks these wonderful magical fantasy valuations and bit by bit by bit we've seen you know the internals deteriorate you know tops up processes as they say and these in these deterioration has finally accumulated in a major correction in in the equity markets and there is pain out there there's a lot of pain out there the the S&P may have been down only 12 percent call it a garden variety correction but But in the internal picture, I mean, the broader stock market got absolutely obliterated. And that is causing pain. And that's also now putting the Fed on the gun here because, you know, how much can they

risk in terms of further upsetting market? And I'll kind of speak more about the foot put strategy here that's actually being maybe placed underneath the market, because now you've seen all these rate hike expectations being ratcheted up. I have written at the beginning of the year, actually, the easiest way to deal with inflation is actually let equity markets drop in, but not so much that it causes a systemic event. Get some of the excess out. It'll impact retail sales and confidence and what have you. And then what's what's probably going to happen here is at some point, inflation is going to turn on its own in terms of the year over year number. then they can claim victory on inflation and then basically step aside before the midterm elections, right?

Because that is going to be a tricky navigation because the politicians can't afford inflation in order to get reelected. The Fed can't afford a major bear market. And so and neither can the politicians, by the way. So by midsummer, I would expect to be some sort of pivot. And then when you have ratcheted up rate hike expectations of four, five, six, seven rate hikes, and then inflation comes down, then they can pull back from that and then gives you an ability to have the fit put in play and boom off to the races we go again. That's kind of my general backdrop at this point. Okay, so we agree on a lot of stuff here. And you do a great job of articulating kind of how complex this is and how interrelated so many different parts are, everything from midterm elections to inflation, etc. One of the key pieces, I think, to this analysis is what the hell is inflation, right, from an actual number?

Obviously, the official number is 7%, kind of year-over-year price change. Do you believe that number? Do you think it's higher? Do you have a kind of a guesstimate, if you will, in terms of what the actual inflation is, especially when you compare that to home prices or the stock market, you know, kind of these assets that are up much, much more than we see in what is being told to us about the consumable goods? Yeah, so there's several caveats to that. First of all, I understand that the Fed does not look at CPI from a decision-making point of view. They're looking at something called core inflation, which all these definitions have changed over time. And call me a cynic, but these definitions have changed in a way that always gives the Fed an excuse to stay more dovish, right? There is actually not a, let's call it an agenda to actually measure inflation in terms of how the consumer experiences it at all. I mean, inflation from a consumer perspective is significantly higher than 7%.

I mean, you're looking at a basket. You mentioned housing prices, for example, you know, 20, 25% up, rent prices go up. Guess what is the largest line item for consumers? So there's two things happening. People are getting squeezed on rental prices. If you're a homeowner, that's great, right? You have more equity in your house and your price goes up. It's all wonderful on that perspective.

Issue becomes obviously when you are levering up your house, you know, you take loans out on your house and you go somewhere else with that and the house price goes down eventually. Keep in mind, for example, housing prices since 2009 have been very much correlated with the Fed buying mortgage-backed securities. They have continued to buy mortgage-backed securities to this day with house prices going up 20% plus. That's one of my criticisms. Why in the world are they doing that? Why have they been doing that? So let me get to the definition of inflation because I think this is really important here.

um jay powell himself last summer put out a clip i put that on my twitter feed as well where he kind of acknowledged something very important you know when you talk about inflation as a definition you talk about year over year inflation right so if if cpi were to go down to two percent as maybe for example they would want to see they can claim victory on inflation that does not mean that your price structure is coming back down. J-PAL admitted that in terms of their definition. So when you see all these incredible price increases, don't expect maybe some light items will come down, but in general, they will not. So the consumer now is stuck with higher prices for years to come. And so now that they're seeing pressure on wage inflation,

Now they want to stop. So just now when your wages are going up, they intervene, right? Because that's bad, right? The other stuff, just deal with it, right? So there's a bit of an intellectual inconsistency here. So basically, I'm worried if a lot of consumers are stuck with the higher prices, and that's going to actually pressure the economy. I mean, I think we're seeing a lot of this already because general consumer confidence is incredibly low. In fact, shockingly low, because typically during recoveries and rising stock markets, you want to see rising consumer confidence. Typically, it kind of tags along with it. Makes sense, right? Good news. This recovery is very different. Consumer confidence literally dropped off, obviously, with the COVID crash. It bounced up for a while, but now has been sinking. This is a complete disconnect, and we haven't seen this before at all. So there's something off here.

And obviously, from my perspective, the real reason for this is because inflation has crept up so high. It's putting a lot of pressure on consumers, and we're starting to see a market slowing in the economy. We're starting to see retails missing. We're starting to see a lot of these, you know, like inventory was up very high today. this all suggests slowing down, which is ironic, right? Because now, do you expect the Fed to really aggressively hike rates into a slowing economy? That's a tough decision to make, right? When you think about kind of inflation and their ability to curtail this in any way, there's a pretty well-accepted belief that the more people talk about inflation, the more it

causes inflation, right? So if all of a sudden I think inflation is coming, I start to raise my prices, I start to move my capital, I don't want to wait till it to be here, I want to act beforehand and kind of benefit from being an early actor in that scenario. It seems like the Fed and others believe that there's an ability to talk down inflation as well. So if we basically kind of talk tough, and we insinuate that we're going to have many, many rate increases, we're going to be very severe or kind of strong in our rate increases, people will again act early, right, They'll start to change the way they do pricing. They'll start to move their capital out of some of the tech or growth stocks or cryptocurrencies back into value stocks, et cetera.

Is there validity to that argument? Is there kind of proof that that's what's actually happening here and maybe that they'll end up just talking really tough and do a much watered down version of what they're saying? Or should we not kind of run to that assumption too quickly and we're going to have to wait to see what happens here? Well, to your first point, actually, yes, the inflation is also very psychologically driven, right, in terms of expectations. And yes, we're seeing price increases all over the place, right? Businesses are raising prices. And this is certainly what consumers are feeling and seeing.

And that's why inflation expectations are still high. In terms of talking it down, that hasn't really worked for them last year, did it? I mean, they were on transitory. Janet Yellen was out there saying, oh, it's going to come back down by the end of 2021, while she kicked that can out of 2022. And she's now hoping they've been wrong. They've been wrong in terms of the narrative. And this is a credibility issue. Because if the Fed loses credibility, which I would argue they've done a number of times in the last 14 years, you get to the point where maybe people are not quite believing them in terms of their competence

in that area. Having said that, I'll go back to what I said earlier. Markets have become so large, so extremely historically large vis-a-vis the size of the economy, that just a down move in markets alone will tamper inflation expectations. And I'll tell you how that happens. We saw that in 2018. As you may recall, the Fed was on their balance sheet roll-off on autopilot. Their rate hikes were coming. Goldman Sachs had priced in multiple rate hikes for 2009. And what happened? Markets tanked 20% into December 2018.

And immediately, retail sales dropped. The Fed was forced to flip-flop. So we have seen this before where markets are driving expectations in terms of how well the economy is doing. And we all like to know that we are all aware of this phrasing, you know, the markets are not the economy. But I tell you what, in this environment, markets are impacting the economy. One of my favorite indicators to use, although some people say everything no longer matters and it's outdated. I don't think it's outdated or no longer matters at all. It's market cap to GDP.

Biggest one we ever had was the 2000 tech bubble. Markets had exceeded market, the economy, 158%. It was too much. We crashed. The housing bubble was 137%. Just before the COVID crash, and as you may recall, the Fed had already cut interest rates in 2019 in response to the market downturn in 2018. three times in 2019 with unemployment at three and a half percent 50 50 year lows they cut rates

three times that cost a massive run-up in asset prices along with them expanding their balance sheet again and the valuations got to about 158 percent of market cap the gdp as well so again a massive bubble then of course we had the covid crash where some indices got wiped out seven years of gains within you know four or five weeks it was absolutely intense but now with what they've done along with the ecb and everybody else we ended the year 2021 at 210 market cap to gdp there's just simply no precedence and yes you can argue big global tech companies and big share you can you can discount all that if you want if you take those big cap tech companies out there we were still at 160 market cap to gdp so there's there's a lot of excess in the system and hence

when markets do don't turn downwards it will it will put pressure on the economy it will put pressure on confidence and so forth so from my perspective actually letting markets drop a little bit has worked really well if that was the fed's intention it was well played because they didn't have to do anything all they had to do was jawbone as you said reduce expectations you know they're They're going to get all aggressive and take some of the heat and the excess out of the market. But don't do it so much that you're going to end up being in a recession. And that's the real risk here. And that's the needle they have to thread this year for certain.

So in the coming weeks, I think we will see some of the data reflecting what we just witnessed in markets. So you, again, started out, I would say, skeptical of Bitcoin. and uh recently you wrote a piece that you titled revolution and in it uh you basically say at one point you say look you know you think that this price action may prompt a told you so type article but rather i find the macro backdrop actually steer me in a different direction that of becoming a bitcoin supporter which seems odd given that currently my notion of the everything bubble apparently beginning the process of playing out and so there's kind of two components here one is uh what is happening in in what i'll call the macro environment with asset prices and this big

bubble and the sell off and, and how the Fed is trying to kind of engineer a soft landing before midterm elections, etc. And then there's Bitcoin. And it's something that you previously weren't necessarily supportive of didn't hold any, but that's changed. So walk us through kind of the process of that transition. And also that this idea that like, when presented with new information, you've changed your mind, which, you know, to me is a sign of intelligence and kind of intellectual humility. So just like, how has this played out as you as you kind of transition to more of a Bitcoin investor or supporter? Well, first of all, full disclaimer, my wife's been a Bitcoin bull for years. And when I get on the bearish side, I get scolded quite a bit at home.

So that's part of it as well. In fact, I told Michael Saylor last summer, my wife has 100,000 target on and she still does. And I've taken potshots at Bitcoin and the entire craziness of of of the asset bubble and yes i'm also data driven and and the data to me and i've pointed that out all last year as well is there's just an incredible high correlation between equity prices and and crypto and we saw that again in recent months it's actually absolutely fascinating small caps uh russell peaked on november 8th bitcoin peaked on november 10th And they've been in a 93% correlation. And guess what?

They both bottomed this week. So this correlation is there. And I think we have to be all cognizant of that. I'm cognizant of that as I'm flipping positive Bitcoin. And I'll explain this a little bit further here. The first step is to recognize when you have this much liquidity thrown into the world, and we've just never seen this. This is absolutely bizarre what happened with money supply, with debt, with central bank,

balance sheet expansion. It dwarfs what happened during 2009. And so this liquidity has to find a way. In the ultimate TINA, there's no alternative environment. It will seek risk assets. It will seek yield. There's no question about it. And in fact, maybe I'm a masochist, but I'm actually reading the detailed Fed minutes, not the highlight Fed minutes, but the ones that come out five years later i actually go through these because they have literally the full transcript of these fed meetings and i posted some a few few days ago uh jay powell and williams from the fed they were all very clear um they they are aware of the risk of having uh too low rates for too long for losing the sight of their price stability mandate and what damage it will do and the

threats it poses, they are fully aware. And hence, it's kind of shameful that they embarked on this route anyway. But for me, so this correlation is still in place. And I'm cognizant of that, because if I look at the larger equity market, I still see downside risks. And I still obviously see downside risks in crypto and in Bitcoin. However, I see there is a big opportunity for this correlation to shift. Last year, I may get the precise number incorrect, but it was something like more money flowed into equities than in the previous 17 years combined. It was just an absolutely insane number. Everybody is long. They've piled more money into equities. Household exposure to equities is even higher than in 2000. So there is the risk, in my view,

if that equities sell off, let's say, further in the summer. And by the way, we may have a rally here coming. Obviously, we were kind of positive from a technical perspective here on Monday in particular. We had oversold readings that we have hardly ever seen before. But in terms of this valuation component, and if the Fed continues to be at least on the hawkish side for a little while, there is certainly more downside risk. But eventually, with everybody parked in the same space, either everybody is right and this party will continue forever, or there is going to be some sort of fleshing out process. And eventually, and this is my position, investors will seek a broader diversification and this broader diversification is coming about

partially because of Fed credibility and what they have done here I talked about wealth inequality I talked about inflation and my view is that you can debase your currency only so long you can play this free money debt expansion game only so long you know we'll all come to believe that this is all consequence free. And I freely admit this has gone much farther than I would have expected so far, seemingly consequence free. But I think they also recognize that they have a major issue on their hand. They're talking about reducing their balance sheet aggressively. Good luck with that. We have yet to see that go through without major ramifications from this height. I mean, we have no precedence for that. So my view is the correlation between the high correlation that

we're seeing right now is going to decouple. And Michael Saylor, when I talked to him last summer, and again, this last couple of weeks, made a very good point. And I want to highlight that point as well. And I mentioned how this all reminds me of the tech bubble in 2000. The tech bubble in 2000, this was when we also had a massive flush into equities, into unrealistic valuations, massive retail participation. Everybody was flying along. They were making money. Things just kept going up until it burst. And when did it burst? It burst because Alan Greenspan, who was FedShare at the time, he had pushed a bunch of liquidity ahead of Y2K around 2000 because there were concerns about everything will shut down on the computers.

obviously didn't happen but he then started pulling liquidity out starting march april of 2001 everything fell apart right but and what we saw obviously a lot of these companies that were based on unrealistic valuations got hit some completely went out of business others just got haircuts that lasted literally for decades i.e cisco right but then there were also those game changers like the Apples, the Amazons, yeah, they got major drawdowns, 90%. It was absolutely vicious. But those turned out to be the biggest buying opportunities ever for a long-term hold. Companies that had a button on changing the paradigm. And this is where new technologies such as blockchain are in the same category in my view i think the the first couple of years here

and in recent times there was a lot of question about sustainability whether this is all a bubble and by the way i mean you know i hear it on my twitter feed all the time and the camps the divisions are vast as i said in my article it's a it's a highly emotional space but that's what you would expect you would expect the highly emotional space and this will sort itself out over time. But it's not that this technology is going to disappear. I think it's very clear now that it has staying power, that institutional money is coming in. There's a lot of interesting developments on it. And I'm not saying, look, like in 2000, a lot of fluff disappeared. And I expect that with crypto as well in general. But there will be winners. There will be long-term

winners. And my view is that Bitcoin will be one of those key winners. Hence, given what's happening on the debasement front, the monetary debasement front, I as an investor, because I have, you know, I got places to put money too, and I don't like my cash being just completely mauled by inflation. I'm looking for a long-term allocation. And hence this week I started the process. Joe, John, what questions do you guys have? Yeah, so mine would just be around timing. How do you think about this? I know you've said in the past that you don't necessarily believe that Bitcoin has shown

that it is a true hedge to inflation. The data doesn't necessarily show it in your opinion. So is this something I know you're saying that you're starting to allocate now? Is this something where you say it's kind of dependent on what the Fed does, how aggressively you do it? Or is it a certain percentage? Or kind of like, is there a longer period of time that you're planning to consistently dollar cost average?

Just walk me through how you think about actually getting in and getting capital in the space. Yeah, it's a good question. I mean, first of all, I think from a background perspective, I think this is a key year for Bitcoin for two reasons. One is what I mentioned in terms of the correlation shift. And we don't have evidence of that correlation shift yet. But I take my own thinking process here maybe as a gamble here in the sense that me coming from a skeptical point of view and now getting on that and realizing what's happening on the macro fund. I think while I've been maybe late in terms of Bitcoin, in terms of the original investment premise, I don't think I'm late in terms of the shift that's yet to come.

Again, more capital in equity markets than ever before. And once that shifts and turns to a lower return environment, because the notion that markets go up 20 plus percent every single year, I think is a little far fetched. And from that perspective, I think I'm actually quite early. And obviously, I was, you know, maybe the one thing I was right about is I didn't FOMO chase into it last year. And so now I'm coming here with obviously a major bear move already having taken place. Having said that, I'm also very keenly observant on the technical side.

I know regulation is obviously coming. I think that's going to be a key pivot as well. It may produce an initial down move. I don't know about that. I think long-term it will be positive. But I'm looking at, and I've done this for a number of years, and anyone that's followed me on Twitter has seen my charts. I always, whether skeptical or not, I've tried to keep a really objective view technically, clinically, what's happening with Bitcoin, bullish patterns. I've had bearish patterns.

And from my perspective as a technical analyst, I love Bitcoin because it trades technically so beautifully. It's very clean, very precise. It's almost like there's no one mucking with the price discovery process as in equities, right? That's the good thing. So I'm looking at these structural charts. You know, this week I saw a confluence from a technical perspective. I said, you know what, I may as well start the process here. Doesn't mean the lows are in.

I have a very specific allocation amount I have in mind for myself that I want to start putting in. If I don't get the prices I would ideally like, then that's just too bad. But as we are going through this process of tightening and balance sheet reductions and a slowing in the economy and the correlation still being extremely tight, I'm cognizant of lower price risk this year. I have some charts that show to that lower price risk. I have no idea where I'm going to get it. But I also know these are technical pivots that if it were to get there, I would be a

lot more aggressive in accumulating. So my idea is I'm by the end of the year, early next year, I'm complete in my investment process. And then I'm just going to place it as a long-term hold, not interested in trading it. So I'm being selfishly completely opportunistic here in terms of what I'm looking at, what these entry points may be if they avail themselves at this time. But I think this year is going to be key, both regulation and obviously the correlation pivot. John, what do you got? So when you talk about the looming interest rate hikes that are coming this year, how you are a little bit skeptical, what are you doing with the rest of your portfolio? The stuff that you're not putting in crypto, how are you protecting your

purchasing power there? Well, we're active in markets, right? So we are, we're just technically driven. I mean, you know, I selling, you know, the shorting process is extremely difficult. It's not advisable for most traders. It's tops of processes, as I said earlier. You know, we look at big structural charts. I had a beautiful chart all year last year, NASDAQ vis-a-vis its underlying volatility component, VXN. I mean, it was just this big jawline, right?

And the trend was so clean. And so we try shorts at key pivots when we see them. Sometimes that can be extremely frustrating. sometimes like at early january here that that was just beautiful well worked on on the s&p uh but then also we we we are very respectful of the technical signals when they tell us to to pack it up uh on on the short side and just as aggressive on the long side when it makes sense for us and so that's what's what we're doing i mean it was basically navigating the the changing tides if you will knowing what the macro context is and and and that's that's what generally do

and then of course i have a bunch of cash which doesn't do me any good at all so um you know that's it i mean i that's why bitcoin is going to be an interesting journey for me i'm sure so two last questions i have for you and then we'll let you go um the first is when you think of kind of portfolio construction here, adding Bitcoin, do you have a percentage target as to how to think about that sizing? And then also, is there anything that you are explicitly trading off? So are you selling gold to do this? Are you converting cash? Are you selling real estate or public equities? Like how do you think about the portfolio changes, not just what you're trying to get from a allocation percentage on Bitcoin, but also is it impacting anything else in the

portfolio as you kind of make this transition? Yeah. I mean, look, real estate, not no changes there. Long real estate. On the cash, I got too much cash on my hand, frankly. So then I want to have that exposure to Bitcoin. And I'm perfectly aware that this may be even an average down experience. I'm obviously not coming in a full blast here. This is a process plan for me. in terms of gold. We're actually technically very bullish on gold. It's been probably a very frustrating experience for most holders of it.

We were very bullish last year. There was an inverse that built, got to a massive target. And I basically said, this last year, this is going to be a consolidation piece, but it has room higher as well, about $2,500. I don't have an allocation right now. As I said, I got too much cash, so I got to figure out what to do with it.

So there you go. Bonds, I don't like them either because I don't know what ultimately the yield equation will be. My sense is, and just to put this in perspective, that the Fed has been basically the kings of lower highs in terms of the effective funds rate. And given the debt construct, the math really says they don't have much of a choice. So in 2018, they got to about two and a quarter and then everything fell apart. And obviously, we added $7 trillion in debt since then. So, you know, I have a hard time seeing them getting above $1.5 this cycle around before they're going to have to pack it up again. If they get that far, we'll see about that. Yeah, it feels like 1.5 would be pretty high even, right? In terms of, you know, just talking about doing something. We've already seen the market sell off. And I guess the big question is just, you know, what will the response be as they go to start to act, right? And do people kind of accelerate it or not? One idea I have that I'd love to just get your reaction to is if you go back to 2008, 2009, during 2008, there was a liquidity crisis over the summer, you know, gold sold off 30% or so the government took about, I don't know, four or five, six months to really kind of get their heads around what should we do here, they ended up stepping in, they went ahead and started with, you know, hundreds of billions, which at the time was, you know, absolutely massive monetary bombs. and then ultimately an asset like gold

hit the all-time high, I think it was in 2011. So kind of, you know, two, two and a half years later. And so if you take that as kind of a sequence of events that occurred over, let's say a three-year time period, we basically got the exact same sequence of events, but it was packed into now rather than three years, maybe, I don't know, three to six months in 2020 where we started to see all-time highs

and government intervention, et cetera. Is your belief or kind of your thought process, like we're just going to see this happen faster and faster and faster as we continue? Or do you think that the kind of public health crisis and what we saw in 2020, that might actually end up being the outlier in terms of the speed and the severity of a response in that intervention? Because I think what's so interesting about you is you actually are not anti-intervention. You're just intervention when most needed or intervention in an emergency scenario. And so how do you think about the speed at which it has happened this last time? And is that going to be the norm or

the outlier moving forward in future kind of crisis or emergencies? Yeah, this is a really tricky one. My view is that the Fed is beholden to markets at this point. I mean, that's just not my opinion based on fluff. It's just the evidence that we have. We have yet to see a Fed chairman since the global financial crisis that had the backbone to actually allow markets to have some pain. And I think the problem is what I mentioned earlier, valuations have gotten bigger and bigger and bigger. So they're really afraid of the monster that they have created. The ECB, and I'll just throw this out, you know, last cycle before the COVID crisis was the largest expansion in since the Second World War. Things were going well, but the ECB didn't manage to raise rates

at all. I mean, they stayed negative through the entire process. The last time they raised rates was almost 11 years ago. Think about that. And so this was this whole deflationary spiral that we've been in, and they've never managed to get themselves out of that. So I keep asking myself the question of efficacy. And given the amount of money and the speed that they went in, they have shown efficacy in terms of asset prices. The question is, what is the structural economy underneath? Because whatever we saw last year, let's be very clear, it's all manufactured. Yes, you can have the most incredible party if you throw $11 trillion combined fiscal monetary into a system. Unfortunately, that just tells you preciously nothing about what the real economy

actually looks like. So this year, we'll be seeing the beginning of a process. My worry is that, for example, I mentioned at the outset, retail sales, 25% above trend. If those just revert to pre-COVID trend, you're already in a recession, right? Because you've jumped over the line so far that just a reversal to base trend gets you into major economic trouble. Just like inflation, GDP growth is also relative, right? So if you want to bring inflation down, you're going to end up with growth coming down. So I have no idea what they're going to do. I don't know what their backbone is in regards to letting the system flush itself out.

And I don't think you can do it without a recession. I don't want to see a recession, but that's the risk. You either maintain the bubble indefinitely, which there's no history of that happening, or you're going to have to take the pain in some shape or form and and and then when the pain comes how much are they willing to take before then repeating the cycle all over again that's actually mad if you think about it right it's insane is is the best way that i could think about it um all right now uh i lied i actually have one last question for you which is uh you have a uh a malleable mind right so when you receive new information you're willing to change your mind

or not change your mind, depending on that information. Given your new interest in Bitcoin and the position that you're putting on, do you have specific things in mind as to what would change your mind back to being kind of maybe not a Bitcoin investor or maybe become more of a Bitcoin skeptic? Are there certain things that you're like, look, I'm excited right now and I think that this is kind of a good long term play, but I'm watching A, B or C milestone or data point anything like that well i can think of a couple i mean first of all you know let's let's be clear central banks are the most powerful organizations on the planet they've proven that over and over again and they don't like competition they're unelected they don't like criticism i mean i i've

never seen you know a fed speaker put themselves out in front of a critical audience i would love to interview jay powell but that's never going to happen right um and and frankly you know before we go to specific your question uh one of the other things besides the inflation and the wealth inequality that i found absolutely abysmal last year is the fact that you know the fed presents itself as the kind of happy good guys that always come to save the world but they are also human and we saw that very clearly last year when three Fed governors were kind of caught up in this insider trading scandal. They are profit motivated and they were taking advantage of things. And what disturbed me in that sense was, you know, it just disappeared. You know,

they got to retire, kept the profits and off they went. I think that's kind of a really poor form. and that is going back to the credibility issues. And so they're, in that sense, completely untouchable. You know, if that happens in a corporate organization or what have you, there's just going to be fireworks, but not really here at all. So it's kind of rushed over, a new crew is coming in, and, you know, we fixed our ethics, rules, whatever,

and off we go, like nothing has happened. So we just have to recognize that there are a very powerful institution. They are maybe not as independent as they claim to be. Maybe they're not as clean as they claim to be, but they have enormous power on markets. They've become ever larger in markets and they don't like competition. So there is always the risk that they will aim to make things really difficult. I don't know what they can do from a technological perspective, maybe nothing. But from a regulatory point of view, they can certainly try to make things very difficult. I'm not saying that's going to change my mind. Maybe that's going to embolden

me because, you know, revolution, right? But we have to be cognizant. There's very big agendas and interests at play, not only in the United States, but certainly in other parts of the world. And we'll have to see what the ECB will come out with. By the way, a question I have for you in that regard and just maybe to educate myself um as i came out here in recent days i've also taken a lot of heat as i said it's a very emotional space and you know as i said you know young young spaces are volatile young technologies and there's going to be very emotional opinions on both sides of the spectrum and uh you know i've been accused of selling out and this and that my god i'm on the payroll i mean jesus um but if you're getting paid somehow then i need to figure

out who's paying you because i'm not getting paid and that's uh that seems to be a problem if everyone thinks that you're getting paid you know in the summer i had a one of my my poke fun of this thing tweets i i was in some we were shopping for the kid and he wanted some sort of bizarre jacket and i put it on and i said if i switch to bitcoin i'm gonna have to change my entire wardrobe to dress differently look to talk differently i mean bad enough i got laser eyes on on twitter i mean i scare myself every time i lock in log into twitter these days jesus i have to soften that up a little bit but the one question that keeps popping up is tether you know i'm i bloomberg had a big piece on it and in terms of you know they can't find any bank

to verify that they actually backed up and there's obviously all this chatter about i'm not knowledgeable enough about it. So I would love to have your take on it. Now, how do you respond to concerns on that space front? Yeah. So I think that people in some way, just like a very macro point of they assign legitimacy to the mainstream media as if they are law enforcement or a court of law or anything like that. What I mean by that is the media is just content creators like you and I, and they compete with you and I for people's attention. They have, in many cases, no special skills or any different tools at their disposal. And the reason why I say that is because whenever it comes to money, in many cases, you're talking

about things that are not held on a transparent ledger, right? And so, for example, use like net worth is always my favorite example, right? So a recent example is that the media thought that I think it was Forbes had Peter Thiel's net worth pegged at $2.2 billion. And then it came out, he had 5 billion in his retirement account, right? And so it's just like, how the hell are they supposed to know what the actual values are, where those that financial resources are, etc. Of course, it's very difficult to do no one saying that they should be great at it. But I think the media has that same exact problem when it comes to tether, right? Is if you call up a bank, whether you're a reporter or you're you and I, and you say, you know, Hey, bank a, uh, does so-and-so are

they a client? Hopefully the bank would say, kick rocks. I'm not telling you our client information, right? Uh, you would hope, uh, same thing with, well, how much money's in their bank account, right? Probably pretty hard to go ahead and do that. And so that's a generalized just view of like the media is probably not the right, um, you know, kind of venue to, to go and figure some of this out. Uh, they're going to try and for good reason, but, but I just don't think they're, they're kind of equipped with the right tools to do it. The second thing is obviously that the New York attorney general, they went ahead, they did an entire investigation, there ended up being a settlement, etc. I don't know what the answer is, frankly, what if I had to guess, and this is a

complete guess, I have no inside information, I've never seen, you know, bank accounts, financial details, any of this stuff. But my guess would be that it was pegged one to one to dollars in a bank account for a period of time at some point it became unpegged right kind of this thought process of like these rumors don't start just for no reason and so somewhere along the line something happened and when there became scrutiny they basically got re-pegged one dollar to uh one dollar one tether to one dollar and so my guess is now uh is actually probably less risky than it was at some point in the past uh but again i don't know that for fact that's just you know kind of my my uh frankly uneducated opinion and i think the other piece of the story that uh has changed over

time is if we were talking about this three four years ago tether basically was the stablecoin market right it was the dominant one now there's about 160 170 billion dollars worth of stablecoins based on the last time i looked and you see something like usdc as a legitimate competitor or a legitimate alternative in the marketplace where I think there's much less questions or rumors or speculation about kind of their backing, et cetera. And they have tens of billions of dollars as well. Tether's still bigger, but not by much

compared to USDC and the rate of growth, et cetera. It appears USDC will surpass Tether at some point here in the next 24 months or so. And so when you start to look at that, you're like, yeah, it's probably important to kind of get as much information as we can. I don't think we're gonna get any more information than we already have.

And then the free market or the kind of private market has already determined that there's going to be multiple players. There's other solutions. And so if people are worried about it, like you're a free actor in the market, like go just move and use a different asset. Now, at the same time, I don't think that it is likely that there's still high risk with Tether because of all the scrutiny. Right. You know, again, the media may not be well equipped to go and find out some of this information, but law enforcement definitely is. And when you have those investigations, et cetera, I think that if there had been, you know, maybe there was smoke and that's why there was an investigation. If there had been true fire, then I think we probably would have found out about that.

But instead, it seems like that wasn't necessarily the case. And so, you know, again, this is all speculation. This is all just my personal opinion and kind of my evaluation of the facts from what I read online. but ultimately i think that uh we're now at a point of maturity where it doesn't matter if tether literally went away tomorrow which i hope it doesn't i actually think it's very positive for the space in terms of uh the ability for people to use uh a stable coin on these new payment rails etc but if it went away tomorrow maybe there's some like short-term price uh impact you know just because there's hey something that was here isn't here anymore there's kind of fear

uncertainty whatever five years afterwards two years afterwards maybe even a year afterwards nobody cares like if bitcoin didn't suffer at the hands of china banning mining i think that you know there's not very many things that could be a more direct attack to the underlying fundamentals and kind of the network itself than literally kicking 50 plus percent of the uh the miners out of a country and making them unplug their machines and yet bitcoin you know back to an all-time high and hash rate and perfectly fine and more robust and more secure than ever and ended up hitting an all-time high, you know, after that occurred. I think Tether's pretty similar. Yeah, I mean, I saw an article, I think last summer, Janet Yellen is actually paying attention to all

this. Obviously, we have zero insight into if there's anything to it or not. But I think ultimately, any regulatory framework that comes out, and hopefully we'll get something soon. I I mean, Jay Powell was asked on the central bank front. They're supposed to have a report coming out. But then, of course, the SEC as well. I think this will all be sorted one way or the other during that regulatory process. So that's why I think this year is going to be fascinating. It will be interesting.

And as I said, from my perspective, maybe some more dip buying opportunities. We'll see. I think that that might be possible. We'll find out. Where can we send people to find you on the internet or to follow you on Twitter? Well, on Twitter, I'm at NorthmanTrader. Nice laser eyes there, by the way. I love it.

As I said, that's scary stuff. The website is NorthmanTrader.com. You'll find me there. We obviously trade in indices. And I also have a Northcast out that's on the top of my Twitter profile where I put out little blips and blurbs on what I see technically in markets. that's free. People can sign up there and it gets into the mailbox as, as, as always, whether you agree or not, I'll just give you a straight out what I, what I see and what I think. I love it, man. Listen, thank you so much for, uh, for taking the time to come on here. I can

talk to you forever about both your macro views and, uh, and I just got to say, you know, massive respect for, uh, for the ability to, uh, constantly seek out information, get new information and change your mind. And, you know, some people will say, oh, that's because it's confirmation bias that I think that you and I are now right together. But at the same time, I think that you just as quickly would switch back to being a Bitcoin skeptic if you've got new information. And I appreciate kind of that mental agility

because I think frankly in our society, that's missing that critical thinking skillset could be beefed up for a lot of people. So it's cool to see you do this and do it out in public as well. Well, you know, and switching your mind on Twitter in particular is a character building exercise. I mean, there's an article yesterday already,

you know henry got orange pilled by by sailing you know i just gotta take it with a grain of salt and humor i mean look at the end of the day it doesn't matter what anyone else thinks um it's it's all up to us to navigate through this macro journey we are in unprecedented times we will we're analytically i think all of us have to recognize we're being challenged and you know i have to say it's it's fun it's i'm i've always been passionate about the macro environment and markets and it's it's a complex puzzle to solve and i would i would also be um encouraging everyone to just be cognizant of the fact that even those in charge and claim to have all the knowledge don't necessarily do at all and there is room for varied opinions and you know we can agree on stuff

we can disagree on stuff and just in general be be open-minded i know i try to be open-minded And when I'm, when I'm wrong, I'm wrong. When I'm right, I'm right. You know, it is all part of, of, of life. And we all try to make the best decisions we can. I think you're doing a great job. So keep it up, my friend. I appreciate your time.

And we'll definitely do this again in the future. Thanks for having me on. Appreciate the discussion and good luck with your journey as well. All right. Sounds good. See you later. Cheers.