The Wolf Of All Streets - Bitcoin: Buy The Dip Before This Happens | Macro Monday

Episode Date: June 10, 2024

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Some analysts are saying that it is time to buy the Bitcoin dip before one very specific thing happens. Spoiler, that specific thing is rate cuts in the United States. I have a feeling that some of the panel here on Macro Monday will take issue with the idea that the United States is ready to cut or should be ready to cut just because it's happening around the world. But we're going to talk about that everything macro. Of course, it is Macro Monday with James Lavish, Dave Weisberger, and Mike McGlone. Let's go. What is up, everybody? I'm Scott Melker, also known as the Wolf of All Streets. Before we Let's go. 400 days of starving at the poker table. He's been there. You've been there since last week. You were live.

So he's back. We've got James and Mike, of course. Eight straight days of poker. It's impressive. It's impressive. So yeah, as I said here, you know, well, maybe we'll start with Mike. What do we got in general here? I mean, I see Bitcoin, as I kind of look on CoinMarketCap, trading around $69,000.

We had that nice bump and then a drop on Friday. So that's worth talking about. James obviously had a lot to do with the employment numbers, which we're going to dig into from your newsletter as well. But Mike, what are you guys looking at this morning? So from the morning meetings, similar, what you'd probably expect, some headlines you might appreciate from Anna Wong. There's zero job growth in small businesses. So we know that's, thinks the headline overstated job strength,

expects unemployment to go to 4.5% by the end of this year. And that'd be the key reason the Fed will potentially cut rates. I remember that's really a good thing when unemployment goes up for markets. James can touch on that lately, and I'm sure Dave loves that. And that's why the Fed, why is there all these other central banks in the world cutting? Because it's wonderful. So no, that's kind of my rant. But key thing also from Gina, Martin Adams, our equity strategist, is that she's seen deterioration in sentiment from an economic regime model. And Audrey Chill Freeman, our FX statement, pointed out there's a risk to downside in euro, which means dollar strength. In the meantime, so my macro view remains the same. But I have a little bit of a tilt difference is I want to point out is I got some pretty good significant oversold signals in crude oil.

And not just signals, just managed money net positions. You know, hedge fund speculators have completely flushed out. Remember when they got really long near the peak around 87, Mike, in May? They're completely sold out. So that's kind of a buoyant thing for crude oil. It hardly ever goes down when managed money positions are this low. And I got the opposite in copper. Copper, they're way too stretched long, which means copper goes down.

But to me, the bottom line for everything, and I think Bitcoin's the best leading indicator on the planet for it, is the U.S. stock market is still way too expensive and it's in a hopium stage to keep going up yeah i want to talk about those employment numbers uh and james you wrote a great newsletter as usual about this right uh here's the inspirational tweet the fed may want to keep an eye on the rate of change in the unemployment rate if they're not too busy giving speeches. Of course, gray areas equal recessions. You've shared that same chart over and over again. But we had this interesting sort of situation on Friday that I want to discuss. We had the numbers come in. It said 275,000 new jobs, I think, 265, 275 with an expectation of 185. Mark markets went nuts, right? Because that was way more jobs, job strength, that means obviously less of a chance of a rate hike, which means bad for markets, sort of that upside down that Mike was discussing. But then as people started to actually read the

report, there was a huge loss of full-time jobs and a massive rise in part-time jobs, right? And there was a lot more nuance actually to that, but maybe you can dig into it because this jobs report, as good as the headline continues to be, which we see revised back literally every month anyways, wasn't that great. You know, it's actually incredible. I was thinking about this morning, how everybody focuses on these numbers. Like the entire financial world is looking at these numbers and making investment long-term and short-term decisions off of these numbers.

And the numbers are sometimes just garbage, absolute garbage. And so what we saw last week was that, you know, and Ana Wong talked about this, Mike, and one of her articles I read this weekend, is that there are inconsistencies here that you have to take note of. First of all, like you said, the full-time jobs fell by 625,000, while the part-time jobs rose by 286,000. Okay, so here's the biggest thing in this report. You have a household survey and you have an establishment survey. And the household survey is, it calls, I think it's 600,000 people. And it calls people at their homes and asks them how they doing. Do they have a job?

Like what's going on? And they're asking individuals. And then the establishment survey asks the companies, how many jobs did you create? How many jobs did you lose and all that? And how are the wages and whatnot? So the issue here is that if you're a full-time worker and you lose your job, okay, so that's a job that's lost. The household survey shows that. If you're that same worker that they call that company and they say, OK, well, how many jobs did you lose? Well, one. OK, so that's great. But then we also added a part time job. So and that counts. So we actually had zero. So right there that that shows an inconsistency. Right. And so anybody who has a part time job is showing that's essentially a full-time job at the establishment. Whereas if you're an individual

with a job and a part-time job, you just say I'm employed. So the inconsistencies start there. And then something that is just mind-boggling to me is this whole birth-death model. So what is that? So it's the business birth-death model. And what the BLS does, the Bureau of Labor Services does, is it estimates the number of jobs that were created or lost from either the creation of an entity or the dissolvement of one. So if a company goes out of business, then obviously there are jobs that are lost there. But there's a tremendous lag. And Mikey, I think you've talked about this before,

is that there's a tremendous lag in the recognition of that. And even off of my newsletter, I had multiple people message me and say, oh yeah, this has happened with my business before. And one of them said, look, I closed my medical practice two years ago. It got bought. And the dissolvement of it is just two years later, finally, officially hitting the federal books through all the paperwork and the filings. It's finally hitting it now. So the lag on this is just, it's massive. And so the whole point is that birth death mark showed a gain of 231,000 jobs. It's just like, it's just vapor. It's just a guess.

It's just, well, what do you think? 231 sounds good. Okay, perfect. And so you had 272,000 jobs created. 231,000 of those came from this birth-death model. It's just mind-boggling that the entire world is fixated on this number. And then you get those massive headlines. The jobs gains 272,000. The economy is ripping forward. Everything's great. Yet you hear from both companies and from people that they're struggling. They're either struggling with margins, the cost, the input costs, the wage

pressures are real. And so you have companies that are reluctantly raising wages into the face of knowing that they're going to be losing money here. Why? Because it was so difficult to get people to work after the pandemic because they were given checks and they just were like, I don't need to work for a little while. So it was so difficult to get workers back into the company that they're reluctant to let them go. And we've seen this before. And so now you're seeing just a small tick up in unemployment. And the question is, when does that spike? Like Mike said. That's the one that I mentioned, right? We went from 3.9 to, of half a percent above your low of that cycle, then you're officially in, in a recession. But the issue here is that we, we never recognize a recession until after a spike in unemployment. So it's an absolute abysmal indicator. It's the worst indicator, in fact. So you better pay attention to that. And that's the whole point of Sven's post there is that you better pay attention in a recession? Well, it's because of all the fiscal spending.

And we have so much money coming out of a DC that they're papering over certain areas. And you're getting expansion over here while you're getting recession over here. And so we have pockets of recession. There's just no doubt about it. Those interest rate sensitive companies and industries, many of them are in a recession. So the question is, are we going to kind of skate through this through the election, get the interest rates down, kind of ease off the pressure before we have a spike in unemployment or not? And my guess, since the Fed has a tremendous track record of this is that they will overstay and we will have a recession that everybody's worried about unless they come out and start talking dovishly quickly and avoid that asset sell off that Mike has been talking about for months.

Dave, if you don't have a specific comment on that, I want to move to the title here, which is adjacent, obviously, which is about those rate cuts that we're talking about. But if you have a specific comment, go ahead. Sorry, Scott, I do. I think that the thing Mike said right in the beginning, combined with what James said is very important. What you're seeing when we talk about recessions, we talk about economic averages is as instructive as looking at the breadth of the S&P. The fact is, is we very well, we are clearly careening down the road to an engineered two-tiered economy where the rich are doing well and the average to the poor are getting hosed.

And that's very important. Two data points are critical here. You know, there's the immigrant versus native-born American employment rate, which continues to diverge dramatically. There's the 670-some-odd thousand or 685, whatever the number was, very large number of full-time jobs lost versus part-time jobs gained. And what you're seeing here is an economy where we are in a recession as far as anybody who is below median in income is concerned. And so the Fed may be saying, well, we're not in a recession yet. That's because the people who are well off are doing

extremely well. I mean, look, I was just at the World Series of Poker. I will tell you they are breaking records there. There are more people who are willing to flush their money into that casino. You wonder why the meme coin casino is doing well. You wonder why GameStop is attracting what it's doing. All of that is relevant. It's all the same thing. The people who have money have money. The people who don't are getting hosed. And politically, there are way more voters who are getting hosed than in terms of numbers than are doing well. And that is important. And if you think that Powell is stupid enough to not understand that, then you're smoking something because he gets it. What he cares about, the reason he cares about unemployment rate of 4 percent.

Hell, 10 years ago, 4 percent unemployment would have said that we would have been doing backflips. It'd be freaking great. But he knows that a 4% unemployment rate probably means a 8% to 10% unemployment rate among people at median or below median income. And that, in terms of full-time employment rate and ignoring part-time, that is a very big number. And so the reason that my central thesis has been that the Fed is going to be injecting liquidity in the back half of this year and is likely to do whatever they have to do to, quote, be neutral to not influence the election is high. So Mike and I may disagree on a lot of things. I agree with them. The stock market is pumped and there's no two ways about it. It is clearly engineered. They want it higher because they want the rich because they know that's the way to make it look like so Biden can claim and people can claim that

unemployment rates are what they are and so for politics. Which may work very short term if people aren't feeling so much pain, but they're feeling enough pain, it's not going to work this time. People are seeing through the gaslighting. I totally agree that people could see through it. So when people see inflation high, when they see their mortgage rates high, when they see their credit card rates high at the same time as we have this bifurcated economy, it's bad. And so that's why central banks are doing what they're doing. And that's why the Fed is really in a box. And I've been saying this for two and a half years, so that shouldn't surprise anybody. But what's different this time is that the averages, as Mike has stated, are, yeah, you know, the economy is ripping at the high end. And it is.

The economy at the high end is ripping. I mean, people have money and they're spending it and they're investing it and or they're gambling with it. And it's all symptoms of the same. It's almost a perfect definition of stagflation, you know. Well, that's what we have. Because you've got an economy that's struggling in one area. Some markets are doing well because of excessive spending and assets are going up because of inflation. So that's just a separation of wealth.

That's all that is. Well, that's right. I mean, I've said this before. If you wanted to design a system to create wealth and equality, you would do exactly what this government is doing. You would do two things. You would want to pump up asset prices and you would regulate to starve small businesses. I tried reaching out to someone on the progressive side who's actually moderating. And the funny thing is, is I think that we've come full circle. I think people who are libertarian are becoming more and more progressive in the real sense, because the real sense is, you know, Teddy Roosevelt, when he was the start of the

progressive movement, it was trust busting. It was literally about breaking up large pools of capital and allowing the free market to work. That's what it was about. And we now have this situation where, and I'm riffing off of what Mike started with, and I won't call it, it's small businesses are being strangled, strangled. And when you do that, that is the engine of growth in the economy. That's where job growth, that's where economic mobility comes from. And regulations are the biggest thing strangling small businesses, both state and local, as well as federal. And we are at peak government regulation on small business right now.

And that's what's going on. Scott, I know you want to pivot, but can we just show James' chart real quick? Because there's only one thing that matters when that employment number comes out. And Dave touched on it, is the rate of change and where it's going. The unemployment number, even if you don't get it, is at 4%. It's going down to the bottom of my newsletter. Yeah, and it's on its way higher. So I just, as we're playing around in my terminal, I went back to 1960.

The only time in history that it started going bottoming and then stayed and didn't bottom from this level and go straight up to 6% was 1966, 67. And the Fed started cutting rates in November 66 from 5.6% all the way down to 3.7%. It delayed it and then it started going up and then we got to the inflation in the 70s. So that's my point is that is the body in motion that everybody should pay attention. Which period was that, Michael? I had to go back to, I went back to, it's 1966, 67. I can share my screen if that helps. But it's just the point. The fact is, that's all that matters. Non-farm payroll number will be revised completely. It's almost insignificant. But one thing it does is one thing I've always tried to learn something every week. And this week,

and I learned that 55% of all earners, people who make money in this country are wage earners. They're not salary or they earn wages. And if they don't own a home or a stock market, inflation is the worst enemy for them. And then also, I'm learning 55% of all trading is high-frequency trading. I mean, that's bots just trading to click a button. They don't even touch it. It kicks in, and it buys and sells. And at some point, so they see the non-fame payroll. It clicks in. You're supposed to, you know, markets go up, whatever. At some point, this is all that's going to matter. And that's where I'm a fearful that the highest volatility leading indicator, 24-7 traded speculative risk asset on the planet will tell us that first.

And so that's why I'm worried that. And also, and then you just compare just the GDP. Just $55 trillion is the total value to market capitalization of U.S. stock market. It's two times GDP. The last time we were up doing this on the way up was 1929. That's the only stock market. It's two times GDP. The last time we were up doing this and the way up was 1929. That's the only comparable period. To me, the only thing that's going to matter

for consumer spending, inflation, deflation is when the stock market goes down. And then we're going to have our severe normal deflation to expect similar to the 1930s. That's not profound to say. That's the way it's always worked out. That's why I'm looking for leading indicators,

looking for things to show me otherwise. And I tip into my commodity space. I see declining demand for diesel, declining demand for unleaded gas, corrugated boxes, inverted curve. And then I look, I think what history is going to look back at this period with the election and say, oh, that was silly. We just had a normal reversion. And unfortunately, if you look back in history, the 1930s is the most recent example. So I wonder if Mike is as a legion of traders following your advice, and that's why the stock market is high. Let me explain. I think this is very interesting. If you're looking for Bitcoin

to be the leading indicator to the stock market in a world where Bitcoin probably would be trading at 30,000 right now. But wasn't for the fact that we literally opened up the asset class to an enormous wave of new money. Scott, how many Bitcoin have been bought by the ETF? I see that BlackRock, I think today's or Friday Friday surpassed 300,000 in IBIT, I believe. I think we're over a million. It's over a million collectively. But literally 5% new money buyers of Bitcoin. Where would the price be if it was the same crypto community and that 5% wasn't there?

We've gone nowhere, literally nowhere in months now. I think it's not remotely surprising. It would be, in fact, one would have expected a 25 to 40 or 50% correction in Bitcoin had that new money not come in. Now, here's the joke. That new money is still the tip of the iceberg in terms of people who understand its investment case. So people looking for Bitcoin to be the tip of the spear for the stock market are missing something because on a demand adjusted Bitcoin price, it already has dropped. So basically what I'm saying is stocks are massively overvalued. Bitcoin is massively undervalued. So looking at the undervalued thing to predict the overvalued thing is a really, really interesting idea.

Because we've had this massive shift in the demand curve for Bitcoin. And the price has gone literally nowhere. So that's divergent weakness. It's divergent. Yes. It's divergent. Yes, but it's massive divergent weakness, which basically has already happened. And the stock market has not shown that divergent weakness because people are still playing around with GameStop and everything else and NVIDIA,

because after all, NVIDIA pumps up small. I love this, the virtuous circle that people were describing to me. It sounds exactly, I mean, NVIDIA pumps up small. I love the virtuous circle that people were describing to me. It sounds exactly, I mean, NVIDIA today sounds exactly like Cisco in the spring of 2000. It is the same thing. I would love to see the charts. I don't have the Bloomberg to do it, Michael. I'm sorry, but you can look that up. But the narrative for people watching around Cisco in 2000 was the internet is going to be the biggest thing. Every company has to have it. Cisco is the number one routing company,

all that traffic. They are the Levi Strauss of the internet. For those who don't know, Levi Strauss famously had the quote, I'm selling shovels, not digging holes. Levi's became rich because he sold equipment to people and jeans, obviously, you know, riveted, very tough clothing to people who were going out to the California gold rush. Well, we know what happened. The people digging holes in the gold rush all went kerfooey. Levi Strauss had a business. Yeah, they took a little bit of a hit. They had a business. But, you know, I don't know what Levi Strauss's stock price was, if it was even a public company at the time. But, you know,

Cisco literally went, had a market cap that was so large. And they said, well, but it's a virtuous circle. They, you know, Cisco's large and it's the only place to put your money because we don't know which internet companies are going to be the ones that make money, but look at all this and look what's going on. Meanwhile, what people didn't understand was capacity. Whether it was WorldCom or Global Crossing or all these internet companies that were doing infrastructure, they all got pumped up and up and up. They all crashed 70%, 80%, whatever. A lot of the internet companies that we still know and did well, dropped, you know, bigger, and quite a few of them went bankrupt. Amazon, Amazon 96%, I think.

Yeah, I mean, you know, look, great companies. But now, am I calling for NVIDIA to crash? No. But if we do have a stock market correction and the virtuous circle turns into the opposite of a virtuous circle, then yeah, these things will go down. Now, is this what the Fed is most worried about? Yes, I think it is. But it is, as Mike said, it's actually at the broader stock market is at a higher percentage of GDP than it was in the internet bubble in 2000. And people think about the internet bubble, but they forget. I mean, Cisco's still around. It's still a great business. And they were dominant in their core. It feels exactly the same way. Meanwhile, Mike looks at Bitcoin and says, well, look, divergent weakness. Yeah, it's already happened. If you had

that kind of divergent weakness in NVIDIA, where would the S&P be? I think the S&P would be at exactly where Mike is calling for it to go, which is 50% lower than here. So you could honestly, yes, if there's a crash, all things, all correlation, everything goes to one. Yeah, yeah, yada, yada, yada. But it is completely reasonable to make the argument that Bitcoin's already shown the divergent weakness, that it's churning through that divergent weakness. And people will look at it and say, well, wait a minute. What is the cause of this stock market problem? Well, we're printing money, but the earnings aren't keeping up with it. You're doing what James said right at the end of his last monologue, which is you're pushing. He didn't use the word pushing on a string, but that was more or less where you were moving up to. It's not going to have as much effect. So all that money is going to do much less

for jobs. But where is it going to go? Are people going to really put it into earning companies? Or are they going to say, wait a minute, when earning companies, multiples start collapsing, people don't try to catch knives at the bottom. They're going to pump money into crap, like meme stocks and shit. And they're going to pump money into crap like meme stocks and shit. And they're going to put money into Bitcoin because that's where it actually makes sense to go. And so that's my thesis here. and it's the election and we have an exceptionally predictable and boring summer and we trade sideways in a range that's actually this time tighter than in previous cycles. And every dip has been tighter than previous cycles. And then we see what happens. I think that both of you have

good valid points. I just got to follow up with the facts of a value at risk model. So the S&P 500 has had one 5% correction since the bottom in October. And at about the same time, Bitcoin corrected 21%. So value at risk model is going to show that. The S&P 500, the last biggest correction was 25% with the tightening and Bitcoin corrected 80%. I get it. I mean, that's my point is that is to expect an asset that's the most speculative 24 saving risk asset on the planet that's three times of volatility of beta to not have a problem when beta goes down is my point is we have to be careful now i'm not pointing i'm pointing out facts of a lot of people disputing me oh it's

not a really i'm not expecting to i'm just saying it's potentially still doing that and i show that that trend of divergent weakness lately let me just me finish on that rant. The key fact, I think, is there's massive inflows. And I can see them on the screen right now. The latest was for June is $1.9 billion. That's great. Just about $100 million this month so far. But that's my point. And I agree with the macro big picture completely. But when when the tide goes out, all risk assets, especially at high volatility, go down more. That's why gold's always been kind of done OK. It just trades a lower volatility. And I'm just thinking I just want to make sure our viewers get this, that if you're replacing some of your beta or your stock portfolio with Bitcoin and expecting to do better on the way up, I'm saying good luck because the risk is we just have a normal reversion of beta

and everything goes down hard. Does that mean I finally get the segue now? No. I have a question. How well did value at risk models do in 2008? So from a standpoint of me, it was one of my best years ever because I was actually way net short, but I started getting way net short in 2007. I was trading. I couldn't, I don't trade now. I couldn't, I can't use options back then. I wasn't talking about trading.

My point is my, the indicators I'm using now are worse than then. And the thing is everything went down, particularly gold, but gold was very expensive. Gold dropped 30% initially when Lehman collapsed and everything. I know because that was long, a lot of it, but then it came back. I had a lot more profits in there. And the key thing that really did well was treasury bonds, long bonds. And that's what I think is going to happen, particularly with the yield right now in US treasuries, about 200 basis points above China and about 100 basis points above the top five other countries in the world. And that is what's majorly different. And here, I'm glad you brought in 2008, because that was a birth of Bitcoin. That's right. And the value at risk models that every bank used

completely failed. Completely, boom, gone, because it's a recency bias. The first thing you learn in quantitative finance is to try to root out biases. I mean, the two most obvious biases, the things that I was hearing in 2008, and it's totally true now, are survivor bias and recency bias. And recency bias is hugely important because you just said the S&P hasn't had a, you know. Just look at the S&P chart over the last 16 years since 2008. And you look at that and now try to find that same chart anytime in the history before that. And the reason you can't, it's reflexivity and it's what you're seeing. And the fact is when it breaks, it breaks. And when it breaks, where are people going to put money? Answer is Bitcoin. And that is, yes, it people going to put money answer is Bitcoin and that

that is yes it's going to you know seriously well they'll put money in Bitcoin after everything goes down yeah that's my point is you might need that 50 to 80 correction first in maybe maybe but it's a question of Supply Demand you know if there's only 21 million actually it's only whatever 19 some odd million of it but you know if you can take take out you know what hasn't moved etc etc but the fact is if if anybody believes that there is a chance for bitcoin to surpass gold's market cap which by the way is still a 10x from here, it will happen when there's a major market shakeout. And so does that mean that you want to wait for that? Maybe. Does that happen from Bitcoin at $70,000 or does it happen from Bitcoin at $40,000? I am not smart enough to know

that. What I do know is if there's a major market shakeout, two years later, I want to be in Bitcoin. That's what I know. Yeah, Mike, you made my favorite point, I think, of all time, which is March 2020, right? Everything crashed, obviously, COVID, Bitcoin bottomed 12 days before the stock market. Where did you want to be when that bottom came? On the asset that doubled the S&P or the asset that went up 17 times to 69,000, which was obviously- And that's my point. So you can both be right is the point. I suspect we will be. Exactly. That's my point is right now, though, I sense that, you know, it's just I kind of always feel for the little guys and people who watch this show and get

leveraged long and their job's not going so great. So I'll gamble. I'm just be careful. You got to you got to get the pain before the gain. And we just had a massive gain in Bitcoin. We made an all-time new high. We rallied from 15 to 73. It was a great trade. People bought GBTC and ETH, crushed it. Hedge funds were all over it. You just had the best trade ever in your life.

You don't double add to it here. That's my point. It's because this is where you're supposed to say, lay low and be willing to miss the next 10%, 20% for that normal backup. That's my point. It's because this is where you're supposed to say lay low and be willing to miss the next 10%, 20% for that normal backup. That's not. I definitely want to ask Dave about this because I was thinking about it last week. Obviously, there's clearly leverage in the system, in the Bitcoin pricing. And so you just see these flush outs.

It's almost clockwork. It gets near the all-time high, flush out. Gets near the all-time high these flush outs. It's it's almost clockwork. It gets near the all time high flush out, gets the all time flush out. So what what did you see last week of anything on that side? Because it's it's to Mike's point. People are, you know, leveraging up there. You know, they've got they've got two, five, ten times margin on there. And they're getting they're getting completely wiped out on these hope, hope that we bust through the all time high trades. There, most of the flush outs have not been in Bitcoin.

There's been some flushing out in ETH. Bitcoin funding rates, ETH funding rates are low. ETH is falling as funding rates are falling. There's not a lot of liquidations. There's obviously tons of liquidations in the casino style in the casino and that's what you're seeing you're seeing there's virtually no leverage in the Bitcoin system relative to everything else sure this every once in a while you know punters come in but it's just it look I I agree first of all I couldn't agree more with Mike that if you're

leverage longing now in the hopes of being you know to catch the bottom and catch the next wave up you're you're an idiot uh by the way you'll probably lose your money being right because you'll just lose your money yeah but on the other hand if you're dcaing in and you're doing it over a multi-year period you're going to be right and you're and you could end up catching the whole thing. Now, if you want to leverage into a meme coin, understand it is a trade, not an investment. If it starts going against you, cut your losses, use tight stops. Scott has a couple of my favorite guests that talk about it in other shows.

This is not a trading show. This is not a timing show. The liquidation rates basically tell me there's not a lot of leverage in other shows. This is not a trading show. This is not a timing show. The liquidation rates basically tell me there's not a lot of leverage in the system. There's real spot buying. And there's actually, if anything, there's leveraged shorts that are meeting it. You know, someone commented last week on the show that, well, they asked the question and saying that, well, look, you know, there's this, there's this huge short position in futures. And so obviously that's going to be fodder for the market to go up. No, that's not what's happening. What's happening is, is the CME futures trade at a small premium. They're trading at a premium.

Why? They trade at a premium because the Morgan Stanley and Goldman Sachs are authorized participants in the Bitcoin ETF and they cannot buy spot Bitcoin. So when they have to make their prices, they're using the futures. And so what are all the actual crypto natives doing? Well, they're selling them Bitcoin futures and they're buying spot or buying perpetuals. How do I know this? My company uses their spread algo. It's one of the more popular ones on the street. And we're helping facilitate that trade. And we're doing that in a way that is keeping the prices tight. Arbitrage, people like to demean it. It's a good thing. You know, whenever you see markets that arbitrage channels don't work, that's when the prices go crazy. That's when you get volatility high. I mean, Bitcoin's volatility is mostly from the upside, you know, this year.

Right. You know, a lot of that volatility that used to exist, you know, the intraday volatility that used to have these huge wicks up, down and sideways were because people had there was no arbitrage channels and they couldn't communicate it. Therefore, different markets would get disjointed and go all over the place. So we don't have that right now. We have a much more efficient, the market in Bitcoin is actually relatively efficient, significantly more so than gold, by the way, because there's no gold demand. There's no gold spot markets that trade with any transparency. I mean, there was a big

story about, was it India that took delivery of its gold holdings from the UK? I don't know what that means, but my guess is it's not irrelevant. You know, it's interesting. But, you know, Bitcoin doesn't have that. One quick little follow up on that. That's what attracted me to Bitcoin in the first place. It's the most significant tradable asset, easily recognizable tradable asset in the history of mankind, 24-7. There's nothing even close. The final diminishing supply, increase in demand

adoption, I guess. Let me push back you a little bit, Davis. I'll make a pushback. We are in the most leveraged state of financial assets in about 100 years, most leverage ever. And to say that they're not is just ignorant of history. Let me finish. When assets go up like this, it's what Warren Buffett said. You don't know any type of leverage until assets go down. Why did Sam Bankman-Fried go under? We only knew that after prices went down. It's just the way history, Lehman didn't go under until assets went down. That's my point. Now here, I just want to end with this. We have not had a decent test at all that Bitcoin's passed in terms of its value at risk or in terms of its relation versus beta. The last time beta corrected 5%, Bitcoin corrected 20%. And Bitcoin actually

lagged on the way back up. Last time, beta corrected 25%. Beta corrected 25%. Bitcoin collected 8%. My point is, let me see that test. As a strategist looking forward, pattern recognition, I want to see that first test. Can we get S&P 500 down 10%? It might be happening soon at some point. We'll see how this speculative risk asset responds. And I'll end with this. This is what I think is going to happen. We're going to have a normal reversion of all risk assets led by the stock market this time. Last time was housing because the stock market's so leading now, so expensive, and everything is going to go down with the exception of treasury yields. I need to push back on one thing, Scott. Every time you talk about this data, you're missing a very important point. In school, when you learn

statistics and you understand there's a difference in correlation and causation, when there is a causal event that is exceedingly specific and you ignore that causal event, even though we know that it happened, you have a problem. What was the causal event? The causal event was the GBTC trade. The causal event was the tide went in and retail put a premium on GBTC because the SEC did not allow retail with brokerage accounts to buy any other assets to get exposure to Bitcoin. And so for years, I had friends who were doing this. There were hedge funds that did it. It was what became known as the Widowmaker trade. We ended up with this massive, I mean, it was a multi-billion dollar position, massive, where on a six month basis, the hedge funds had all bought this stuff and they owned it. And the idea was that they could, six months later, take their Bitcoin and sell it into it without having to pay the premium. And then it reversed. And it sharply reversed. Wham. And that sharp reverse took it to a 30% plus discount. And they were trapped.

And ultimately, when that unwound didn't unwind, it was a rubber band and it snapped. And so we had a year of forced selling of Bitcoin for people who did not want to sell it. They wanted to belong it, but they had no choice but to sell it. And that caused Bitcoin to drop from the previous all-time high, which was way more stressed than this. And I will tell you that relative to the network and relative to inflation, the previous all-time high, relative to inflation, the previous all-time high was 79,000. Okay. We'll just baseline it there. So we're still not even back to that. That wave of forced selling can't be ignored. So everybody's saying, well, Bitcoin is a quadruple. No, it hasn't. It's not even close to where it was the last time. And that is hugely important. And so you need to, you know, the base premise, the underlying premise that Bitcoin has, you know, has rallied so much more than everything else. has gotten back to mostly think about what happened in November of 2021. Or when when

not 2021 2022, when November of 2022 happened, what did people say they said it'll take 18 months to three years to recover from this? Well, because of the Bitcoin ETF, it's happened a bit quicker, we've recovered from it. That's all we've done. By the way, Dave, the better argument for that is Solana. Or the more amplified argument for that is Solana because it was so disproportionately destroyed by FTX and the affiliation with Sam Bateman Free that it dropped to $8. And now people point at this massive rise, but most of that was mean reversion, that rubber band kind of snapping back. Right. So I'm saying it just makes the statistical analysis difficult and potentially wrong. That's all I'm saying. Now that said, virtually everything else you've said, I agree with, and I think is so important for people

to understand just how overextended, just how much. There are people out there who are living on their stock market. They're living on credit cards. There are people out there who have 401ks that have done well. They look at it and say, okay, I could afford to max out my credit card because I could borrow against my 401k or I could always sell. The problem is they may not end up being able to. And that is very, very important. And so what Mike is telling everybody is your stock market, your portfolio is at more risk than you think. Unless the Fed says, you know what, the Fed puts back and we're not going to let this happen, which I don't think is true. Yeah. Now, which we know Bitcoin would be the best performer in that environment. Yeah. OK. Now we got to talk about interest rates, though, because we have the title here, which says buy the dip before this happens.

And obviously, we already talked about what happened on on Friday. But if you dig down into this, it's effectively saying we agree that this is a good opportunity to buy the dip as the markets will increasingly price in at least one Fed rate cut from here. It will be difficult for the U.S. to ignore as the rest of the world continues to cut rates. You know, the ECB cut rates last week. Bank of Canada cut rates last week. A few months ago, they started cutting in South America. Mike, I know this is red meat for you, but I want to ask James first. Now we're talking about you should buy the dip before we cut once.

Like a month ago, it was you should be buying the dip before we cut three times. Six months ago, you should be buying the dip before we cut once. Like a month ago, it was you should be buying a dip before we cut three times. Six months ago, you should be buying a dip before we cut six times. So I guess the question is, A, is this even valid? Because that rate cut might come when things are bad,

as opposed to B, that might be preceding to buy the dip opportunity, not after. And B, will the United States actually feel pressure from these other central banks cutting or are we kind of

operating in our own sphere here? There's a few a few things to unpack here first of all the ec the ecb cut rates at the same time they raise their inflation expectations so you heard that right just think that through for a second they cut rates and raised expectations of inflation why would they do that why would they do that because that? Because it's not just the Fed put, it's a central bank put, and it's everywhere. And they know that they cannot go into a deep recession because of the massive amount of debt that all of these sovereigns are carrying. So that's number one. Number the Fed the Fed put never went away uh it's just a question of where it sits like what's that strike price like where where are

they going to come in because they cannot let the and and to you know Mike has said this before they they they cannot let assets deteriorate so rapidly that it impacts the treasury market. That's the bottom line. We talk about stocks, we talk about Bitcoin, we talk about... Really, everything that drives this entire economy, this entire world is the bond market. And right now, it's the treasury market. You've got to pay attention to that. And that's why you'll hear things coming out of the Fed that seemingly, they seem innocuous, you know, QT. Like we're going to cut back QT from $60 billion a month to $25 billion. I thought it was going to be $30 billion. Yeah, $25 seems better. Why is that? We're going to be buying, we're going to be out there, the treasury is going to be out there buying off the run treasuries. What? Why is that? Well, we just need to make sure there's enough liquidity. Is that QE?

Not really, but we just want to make sure there's enough for trading that there's no disruption, there's no dysfunction in the market. Okay. So one cut, two cuts, three cuts, this is going to be severely political in the next three. We have just gotten into the the heart of the election season we're just now stepping into it we haven't even had a debate yet whether or not we have one or not that's a question for the gods but you know there's going to be it's going to be tremendous there's going to be tremendous political pressure on on powell particularly on Powell, to cut rates before the election. Why? He did push back when that happened under Trump, though. What's that? He did push back. I mean, I'm not saying that the Fed is not political,

but Trump was very aggressive in his that needs to cut. And Powell did not do what he was asked. Right. And so I think that Powell is going to try to be as apolitical as he possibly can, but the pressure that he's going to feel is going to be tremendous. And why is that? Because they want to declare victory. We had a soft landing. We did it. The economy's doing great. Look, we added 272,000 jobs, even though we made 231,000 of them up. It's, you know, we're doing great. And so it's all politics. It's all not. It's just all it's, you know, it's optics.

And so that's what we have to recognize. So the question now is we're going to have the CPI come out on Wednesday morning, and then we're going to have the Fed come out with the dot plot. and then we're going to have the fed come out with the dot plot and then we're going to have the fed come out with their statement and you're going to have the red line and people are going to be fixated on single words coming out of the fed and isolating them and saying well look he said this and look he said this it's dovish it's hawkish and how he said it and how he he said it. He appeared nervous on the stand. He appeared nervous in front of the podium.

He coughed with his head left. He paused before he answered that question. I mean, like, it's going to be just, it's gotten to psychotic levels of fixation on the Fed. And so pull back, 100,000 foot view, both Dave and Mike are right in my opinion. Mike, I could not agree more. If we get a mean reversion, Bitcoin is going to get hammered, in my opinion. Unless it's for a reason that means that people need to do something with their money. Like a bank collapse.

Like when SVB happened. Like in a banking collapse. Exactly. So that could be an event that people are not expecting. We don't know. But assets do correlate to one. We've said that over and over and over and over again. We want to drill this into people's minds.

Be aware. Be ready. Don't leverage up. Don't have some powder to take advantage of the opportunity maybe if you have the ability to. But also, I think Dave is right. Long term, Bitcoin is going to outperform everything. Period. End of story.

And that is because the Fed put has not gone away. It's just a question of where it sits. So let me follow up with that a little bit. I think it's going to be more the latter, that Bitcoin's going to outperform everything. I think the next trade we are going to expect, normal cycles, is the next biggest and best performer of all risk assets will be the worst performer the last three years. And that's TLT, U.S. Treasury Long Bond.

So, McGlone, you've been wrong. Got it. Stopped on if I was a trader. Got it. I used to be in a trading pits and I used to have hair. I get it. But I have to point out the facts is right now Fed funds, the benchmark for the whole world of interest rates is Fed funds at 5.33% in middle, in range 25, 5.25, 5.5. You look at US 10-year note, it's 80 basis points less.

You look at China's 10-year note, it's 200 basis points less than the US 10-year note. You look at the top five countries in the world, including India, the average, it's 100 basis points or less than that US 10-year note. In 2008, everything was higher than the US. That to me is the tilt. It's just a matter of time. The world is heading towards a significant deflationary recession. China's leading. We're going to see China implode, I think, worse than what Japan did. And just look at the facts. Now you can buy a BYD car. It gets 1,300 miles with gas and electric. It costs 13 grand. The whole world's pushing back. And I go, oh, no, you can't import that into our country. Yes, we want renewable energy and EVs,

but we don't want them that cheap. Well, they can do it. It's just the world exporting massive deflation in the complete normal cycle of the inflation, inflating economy they had. It's all tilting that way. What stops it? Everything is predicated on the U.S. stock market. It's got to stay up. So that's why I look at the U.S. bond market. It's just a matter of time. Fed's not going to ease until the stock market goes down and they might ease and stock market will bounce. It always does. And that's the beginning of the biggest trade. I think the next will just be a little bit of reversion and everybody hating U.S. long bonds and realizing there's no better place and we're all turning Japanese. I'd like to amplify that a bit and talk about some history.

First of all, remembering the Japanese analogy is interesting. Comparing China to Japan is fascinating. The difference is China is 10x the size of Japan. That's the problem. China has 10 times the number of STEM graduates. Their economy is there. I actually think China is more like America in that analogy, and we're more like Japan in that analogy. And I think that's very, very important to understand that we are at serious risk. You know, whatever happens in this election, if we have four more years of what we currently

have, which is the most regulated, hardest to start small businesses, most entrepreneur unfriendly regime in the history of the United States. If we elect that again, we will be Japan. And that and understand what that means. What that means is instead of being the leaders in most of the world, we will resort to, you know, people look at Trump and they say, well, he's going to be protectionist. And that makes me sick to my stomach because it's the one policy that makes no sense to me that he says. I think it would, the Smoot-Hawley tariff, which is what caused the Great Depression more than anything else, was the last event that caused it, is on the table. But if in fact I'm right, and, you know, Bidenomics continues with Elizabeth Warren running all of the various parts of the economy where regulations get stacked on regulations, the federal register is at all time highs and small businesses can no longer be formed in the United States. weird and wonderful places like Dubai, and you have a managed economy in China, which can produce for $13,000 an actually reliable car, not like the Yugo was back in the last era,

but an actual reliable car that gets better gas mileage than anything that we have on the road, you have a very different situation. It's a very scary thought because the end of Pax Americana is nigh. Now, do I actually hope that happens? Of course not. Would I like to see a major regime shift away from this regulatory strangulation? Yes. That's why, you know, I'm going to vote the way I'm going to vote. And by the way, I still don't know who I'm going to vote for, just for anyone who cares. I just know I'm not voting for Biden. So it's very, very straightforward. I am not going to vote for the regulatory state. But every time you talk about

America does everything right and you give the rah-rah speech, Mike, and I love your rah-rah speech because it's been true in the past. It's not true now. It just isn't. We have a command economy. We literally have an economy where large companies dominate everything and their lobbyists lobby the regulators and regulations are strangling small business. really have an economy where large companies dominate everything and their regulator and their lobbyists lobby the regulators and regulations that are strangling small business. And that is unsustainable. America was founded on small businesses getting bigger, creating economic mobility. But it is really important because if you look at the analogy, if you look at the 80s and everyone was saying Japan is going to take over the world, Japan at a much smaller size with a totally managed economy, what ended up happening?

Well, their stock market went up to 40,000 on the Nikkei and bottomed where? You know, 75% below that and barely is back to that 40 years later. I mean, you know, it's 35 years later, whatever. It's that is is what happened. They can adjust it, not inflation. That's China in our future. So this is a debate I clearly want to lose because I know I'm going to win the macro. You will be wrong. I guarantee. And here's why. If China succeeds, the world fails and that's not going to happen.

And every lesson we learned of autocratic leaders that start wars in other countries and piss off their best customers that's where we are right now and that's just the history of china i'll mention one book we all can look at it's called the price of time by edward chancellor and just point out the cycles um victor shivitz the the great rupture pointed all the cycles in china they're just tilting towards a normal cycle that Japan's reached. And you mentioned 10 times GDP. They're just doing similar. Their asset markets got as expensive as Japan did, and then they're imploding.

The problem is Japan never supported a war that pissed off its best customers. China just did. One person. I'm sorry, not China. One person. So let's not talk about China. Let's talk about one person, President Xi. I hope you're right. That's all i'll say i will be james yeah yeah all of that

we've never we've not in the history of of of the world as far as i know have we ever had this much leverage in the system from the sovereign from the sovereign states. And so the show must go on. The show must go on or else it's devastation. Let's unpack that. What James is talking about isn't the sovereign states doing 20X leverage on Binance, right? What he's talking about is debt to GDP globally among the G20 countries. I don't know what that number is, but I, I I'm fairly confident that you're right, that it's never been at this level before. Yeah. Yeah. And so what's, what's important is that I saw a statement today in an article and it was actually out of Bloomberg and I'm, you know, and I like Bloomberg and I think you've got some awesome economists and Anna Wong and some great coverage, Mike.

I actually really do like Bloomberg. But somebody said that the statement was, I'm not going to pull it up and shame them, but the statement was the reason that the sovereigns can operate at such high debt to GDP levels and why it's sustainable is because they have the ability to tax. Yeah. And that's not the reason. The reason is because they have the ability to print. That's right. The ability to print. Not tax, but print.

But that is a very important distinction. And why is that? Because of the asset inflation we're talking about is going to continue and it's going to continue until it doesn't. And I hope that Mike, you're, you're right that we have a mean reversion and not an absolute collapse. And we, but we are being nice at this point by saying mean reversion, because we know it's like the expects absolutely 87 crashes are mean reversion. That was only one one day but a simple reversion that's a mean reversion it's fair so you know um 898 was more of a was it was more of a crash in certain in certain areas it wasn't it wasn't a full-on but you know um that that's the thing though is that we all are hard money and hard asset enthusiasts because of exactly everything we're talking about.

Own them. Whatever you can do, own them. Hold on to them long-term and ride it through and be careful. And I should say that if you're expecting this mean reversion to investors out there, that's why you have cash in your portfolio. That's why guys like Warren Buffett are raising it. And that's why short-dated treasuries like Mike is talking about are great because that's the dip you're going to want to buy. I've got two bills because the U.S. will not default on their debt, meaning they will not pay their- Your buddy Larry Lepard, he was really angry about bonds. Yeah, as he should be. But they won't default.

They'll soft default every day through inflation. We got to get one fact about cash out there. That's really the facts about what you see in this media. It's completely long. Cash levels are very low compared to total market capitalization. Relative. That's my point is you can't, it's got, it's all relative. So ICI money market funds right now is about 11% of the market capital GDP Right before the stock market, right before the crash in 2008, they were about 15%. They're extraordinarily low. So a lot of people, that's the leverage I'm talking about. They're not putting it into cash or alternatives.

It's the classic case. We all know what happens when markets go up like this and you're not in it and your neighbor is. It's the way it works. Human nature will never change. You got're not in it and you're your neighbors this is the way it works human nature will never change you got to be in it borrowing against their 401ks to to to maintain their standard of living yeah that is a macro trend and it is a very dangerous macro trend and it is one that i agree with you on mike i just think that the ultimate answer is the government can't afford for that to unravel in the way, you know, they just can't afford to. So I think, you know, Jim Grant,

or is it, I think Jim Grant says it, but it could be just Bill Fleckenstein, but all in a fiat economy, all roads lead to inflation. And they want, and I've said this before, they want asset inflation. It is a good thing in their opinion. They think consumer inflation is bad. Asset inflation is good. And so they're going to do everything they can to try to engineer that. I mean, I think all three of us are rightly skeptical of their ability to do so. Absolutely. James, you seem like you have a final thought. No, I'm just a shout out to my wife for getting me the big one. to do so. Absolutely agree. James, you seem to have a final thought. Shout out to my wife for getting me the big one. Everyone wants your hat.

I can see it in the comments. Everyone, do the math. This is a present from my wife this weekend. Randomly, she loved this hat. She got it for me. We're all saying the same thing. Do the math. Love it. Thanks, guys. We'll be back, obviously, next Monday for another

that was a great episode by the way and uh the numbers showed we had about 2 000 people listening pretty awesome um that's all we got guys we will see you next week i'll of course see you uh 900 times before then but uh the this group we'll see you next week monday Monday, 9 a.m. Eastern Time. Thanks, Mike. Thanks, Dave. Thanks, James. Bye.