The Wolf Of All Streets - Bitcoin Crash: Will It Plummet to $50K? | [Black] Macro Monday

Episode Date: June 24, 2024

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Bitcoin has showed tremendous weakness over the weekend and into Monday, now trading around $61,000 and sweeping the bottom of the long-discussed range. This is calling many to say we're going down to $50,000, if not lower, especially if things turn negative or more negative in the macro. Is it really going to $50,000? What's happening with the macro? And why do I have red lights instead of purple lights today? It was an honor of the drop.

If you look behind me, my lights are red today. It must be really bad. No, it's not, guys. I have a feeling that we'll have our normal conversation with Dave defending Bitcoin and Mike telling us it's a leading indicator and James inviting Larry Lepard to yell at us. That's all we got. He's not actually here today, guys. That's what we got.

We're going to get it started now. Let's go. What's up, everybody? I'm Scott Melker, also known as the Wolf of All Streets. Before we get started, please subscribe to the channel. Let's go. later, but he will be showing up at some point probably in his car. Mike, do we start with the morning meeting? Do we dare anything new there today? Yeah. From our economist, Stuart Paul expects the PCE numbers to be favorable, weaker than expected, but he sees core rising by the end of the year and, of course, balance of risk for the fed be cutting rates um our fx strategist audrey trill friedman says she doesn't see what stops um the yen heading to 60 160 or higher and her quote was we need a sentiment change uh because intervention will happen but it just doesn't really work um gina martin was getting a little dicey a little bit worried about equity she says she's worried about technicals.

Bull market meets some of a break. Stuff I've been saying for a while, but she doesn't think it's a bubble. And then tilt over to me a little bit. I want to point out some really positive stuff for consumers. I see the price of unleaded gasoline, diesel, and natural gas all falling by the end of the year. And most of that's just based on declining demand. It's not supposed to be going down, but it is. And then rising production and supply,

most of it out of the US. So those are things I'm looking for right now. The average price of gasoline in this country is $3.50 or so. I expect to go down to $2.86. Why $2.86? That's been the average price for the last 20 years, since our database goes back.

And we have declining demand for diesel demand right now is down about 7% from the high a couple of years ago. And it's the same as 10 years ago. That's just never happened outside of recession. So my standpoint is this is all tilting that way. The stock market hasn't figured out yet, but Bitcoin has. And that's one thing I've been concerned about is this leading indicator is doing what it should do as a leading indicator, lead the way down. I've been pointing out it's been showing divergent weakness versus gold for a couple of years now. And certainly now the ratio,

the Bitcoin gold ratio is down to 26. Its peak was like 31 this year. Its peak a couple of years ago was 35. And that's not supposed to happen when beta is this expensive. And the problem is beta, S&P 500, 24% above its 100-week moving average. History shows you just never want to be long-risk assets. You want to get lucky. And that Bitcoin gold ratio is a really good indication of going the other way. So my standpoint is, from a commodity standpoint, I'll end with this. 2.24%. That's the 10-year note yield in China. It's basically at its lowest level in our database. It's 200 base points less than the U.S. 10-year note. So severe deflationary forces out of China, tilting over commodities. And it's going to be so silly because I think it's either going to mark a peak in overall risk assets like it has in the past, 2001, 2007, or it's just going to be part of that elongated strategy. They'll ease a little, they'll ease a little bit, but they'll only be forced to ease a lot if stock markets go down and make them ease. James, anything there you want to grab onto? Yeah, I mean, there's focusing on,

well, first of all, the general economy. I mean, I too expect that the PC numbers are going to be kind of favorable in that inflation is coming down. But we're seeing a lot of indicators that we're having a rollover in the economy, you know? And so we've talked about this for months now about how long can that fiscal spending prop up enough of the economy

that it looks like we're not in recession. Well, at some point here, pretty soon, we're gonna bump up through that 4% unemployment rate. And we're gonna see that on average, people are struggling out there. So it's not, this is not rocket science. You know, we all have friends and we talk to people who are either young, not able to find jobs or, you know, in the tech industry have already been laid off. So, you know, it's just a question of when do we hit that? And we've been, you know, we talk about the Fed a lot.

Unfortunately, they do have the Fed has quite an impact to the market and really Fed expectations. So people are looking for a rate cut. They're looking for good numbers for that rate cut. But the problem is we've seen this over and over and over again. The Fed overstays its welcome. They keep rates too high for too long. And when they do start cutting rates, typically the market drops. This is not anything new. Then they cut rates and we enter into a recession.

Or sometimes they cut rates after we've already hit recession technically. So are we there yet? Not quite. Could we be there soon? Absolutely. Am I a bear? No. Long term, I'm very bullish, especially on Bitcoin.

But that all comes back to the reasons behind that, which is we're going to see more money printing and we're going to see risk assets follow that money printing. And when you have the money supply that expands over 7% on average a year, forget about CPI, it impacts the price of these risk assets. Mike is absolutely right. We've been saying this also for a long time that Bitcoin is the tip of the risk spear. It typically shows when you start having some nerves around owning risk assets. I mean, look at NVIDIA last week. It kind of topped out. What was the price at the end there? About 140. I mean mean and now it's turned over and so is it a surprise that bitcoin's turning over to not to me and it's just the way it is should it be this way long term no people will start to learn about it they will understand it and when they understand bitcoin

finally it does have enough market value it will get out of this leading risk indicator, as Mike, I think, likes to put it, position, and it will start being a flight to safety. But we have a ways to go for that, that we're not there yet. And so as much as we believe it and we understand it, there's too many people out there who don't understand it and they're selling. And on top of that, just to kind of look at Bitcoin itself, you have a few forces there. And these are not excuses. This is just reality. You've got the halving, which lowers the rewards for miners. And if you're a miner that has high energy cost and you've been

trying to just, you know, stumble your way through this, hoping that we get higher prices in bitcoins so you can be profitable, then you're likely selling what you have in your treasury in order to keep up. That's one thing that's going on. Is it massive? No, I've talked to James check on, and check on chain. And he, you know know he doesn't see that and uh and but he does see some uh he wrote a whole newsletter about it last this last weekend he did he does see some i see some uh you see old ogs selling some and that's that's obvious you've got mount gox factors uh you know that's been distributed or part of it's been distributed. And that's billions of dollars that are coming to market, you know.

And then on top of it, you've got this pairs trade, the cash and carry trade that hedge funds are doing, I think, in size. And you're short the perpetual futures, you're long the ETF. And as the perpetual futures, that payout gets to be lower and lower, which Dave can give us the numbers here in a second, that just tips the traders off to unwind this trade. And so what do they do? They etf and they buy back the futures and the futures that is a much much much deeper market than than the etfs and so you're going to see etf sell off you're going to see cash sell off uh that's just so these are also selling spot correct it's not just that's right i'm sorry that's what i mean it could be both i mean both would work in theory yeah yeah yeah no that's. No, that's the, thank you. That's exactly what I mean. And so, uh, you know, it's a confluence of factors. Is it, are they excuses?

No, it's just a little bit of reality. Um, do, do I see us testing these mental levels, um, of the, the may lows or you brought up that chart, Scott, if you can bring that back up again of, of Bitcoin, I've got, it's funny because when you brought that up, I thought that you were sharing my screen because that looks exactly, I've got exactly the same channel. That range is the range. I mean, yeah, it's been in this tight range for, this has been for months now that it's been in this range. This is a long time for it to coil here. Does that mean that we're going to spring to the upside? No, it could mean that we spring to the downside first, which is it's a possibility.

We've been we've been discussing this. It could test that 200 day low, which your arrow is pretty close to. Right. And that 200 MA, by the way, on the daily, which rarely gets tested, is sitting kind of right there. Fifty seven. Yeah, exactly. So it could be it could it could test that moving average right there. You know, would it surprise me? Not in the least. It looks like it wants to test that $60,000 mental level. I think it produces long-term opportunity personally,

but that's me. And so I'm not too concerned about it. We're in the summer doldrums. You know, it used to be it's it's LMA and go away. And, you know, we've hit June here. You're going to you're going to see a lot of people in Europe take vacation like they have to in July and August. The markets are going to slow down right as we grind into an election. And so it's you've got uncertainty with low volumes. So if you look at the volumes on Bitcoin, they're low. And so does that mean that we see a lot of active selling? No, it means that this has always been the case that when you reach a top in markets like NVIDIA, for instance, it's not that you have massive selling. It's that the bids dry up. And so bids kind of dry up until you see a level where people just can't stand it anymore. They feel like they're finally getting Bitcoin and NVIDIA or whatever else on sale and they step into the market.

So that's kind of all the things I'm seeing. I don't see any one major factor, but kind of a confluence of them. Yeah, looking at Bitcoin, I think we have the classic, everybody's bearish at support. Doesn't mean it won't break, but right now, as to your point and to mine, when you look at that chart, we are at support. I don't want to just gloss over this. I do want to just bring up for people that missed it. Mt. Gox to begin repayments in July, Bitcoin slides under 61K. I can't say whether those two things are related or not. It was already sliding before that announcement. But we do know that we saw them move 140,000 Bitcoin to hot wallets not so long ago. That gave people conjecture. Now we have the confirmation this

is going to happen. This was always going to happen because the judge said it had to happen in the coming months they had to start. This will be in Bitcoin and Bitcoin Cash. And it will likely be a very slow rollout. Some of it will be cash. Some of it will be Bitcoin. And there's certainly doubt as to how quickly people will sell this, if at all. So I think it could be some very slow and sustained selling pressure. But I don't want people to have the impression that all of a sudden, $10 billion worth of Bitcoin are hitting the open market to be sold off because that's just not the case. There's so many things I want to unpack about what James just said. Oil, I want to go back to for Mike to talk about the escalating potential war that we have, but also, as you said, prices coming down, and I think they should continue to come down into

the election. I want to talk about that Fed funds rate. Maybe that's where we should go right now, because here we go. How long can high rates last? Bond markets say maybe forever, because James, you touched on this, right? Even if inflation is coming down, traders don't think it's coming down to 2% ever. If you really look at how the market is betting on this, they think that we just get an eventual Powell statement where he says, hey, man, 3% now is cool. Yeah, we're headed in the right direction is what they're going to say. And so is a July rate cut on the table? No, not really.

Is it possible? Sure. It's a non-zero probability or higher than a non-zero in my opinion. Is September on the table? Absolutely. Absolutely, September's on the table. I think it's over 60% probability now, Mike. Is that what Bloomberg is showing on the Fed on the futures? And so it's right before an election. Of course, it's on the table. There's going to be tremendous pressure for the Fed to cut rates in September and not just on Powell. Because remember, Powell, he's the spokesman, but he's sitting in there in that conference room and he's having these meetings with the other Fed officials.

And if he's got most Fed officials saying, yeah, we're ready to cut, then it would be him against the stream. So they're going to all have politicians in their ears. And we're going to start hearing things. And we've got probably five or 10 Fed officials speaking this week, and it's only going to continue all the way through September. Yeah. Yeah. I'm old enough to remember when we would get a 90% bet on cuts just a year ago, and here we still are. So 60% doesn't compel me that much, but it is starting to make a hell of a lot more logical sense, at least politically. I mean, Dave, what do you think? Do you think we go back to 2%? Better question, do you think that Powell actually is willing to do what it takes to get it back to 2% even though he says that he is because that could be highly problematic? The odds of Powell doing that are exactly the same as John Belushi's character, Blutarski, rate point average in Animal House.

Zero. Zero. Zero. John Belushi's character, Blutarski, grade point average in Animal House, zero. Zero. So for anyone who knows. Senator Blutarski, remember at the end. Here we go. For those who don't know, have never seen Animal Farm. Animal House.

That was a slip of the tongue. Animal Farm. Animal Farm is what's happening in the real world. Animal House is one of the best, most classic comedies that could never be made today. Do you mind if we dance with your dates? Okay, go ahead. No chance. No chance.

It's a classic movie. Look, I want to unpack it. There are three things that James said that need to be discussed. One was just wrong, which is rare that I'm going to say that, but I need to unpack it. There are three things that James said that need to be discussed. One was just wrong, which is rare that I'm going to say that, but I need to, which is about the futures basis. And then I want to expand on a couple of the other things he said. The futures basis, the perpetual swaps are 100 percent not being sold versus spot to capture funding rate. They're freaking negative. OK, they're they're being sold by speculators uh to capture funding rate they're freaking negative okay they're they are being sold by speculators and they're creating fuel for the inevitable bounce back to the middle

of the range that we're going to get uh unless there is a war or the markets do drop but as long as everything else is is kind of where it is bitcoin's going to bounce off these levels and that's going to be the fuel for it uh the actual trade that is happening because of gensler's unbelievable jihad against crypto that is still going on regardless of what all the democrat apologists are saying is that morgan stanley and goldman sachs as authorized participants cannot touch bitcoin spot full stop that is something that there's no law that says they shouldn't be able to be. It was never subjected to public comment.

It is absolutely outrageous that the SEC that's far in has created this situation where FINRA has been stopped from approving non-securities trading on behalf of broker-dealers. By the way, they're allowed to trade palladium, they're allowed to trade gold, they're allowed to trade oil, but they can't trade Bitcoin. Dave, before I go, I need to explain why. Because of cash, that is why the ETFs have cash creation. So where the actual selling is, is in the CME futures. And the basis of the CME futures is still, I just calculated it, over 9% implied interest rate between now and July. As long as that is true, yeah, there are people who are arbitraging that and making that trade. If in fact, ETF selling happens, that basis will

collapse. If there was sustained ETF selling, that basis will collapse. It is not. And so it's important to understand that that's what you're watching for. But even if it collapses, it's the spot selling that matters. It's not the unwinding of the hedge. And I've said this a million times, those hedges are two-way. So if you want to understand buying pressure from the United States vis-a-vis the rest of the world, look at the futures basis, which at 500 bucks to literally a month from now implies a 9% interest rate. You can do the math. It's pretty straightforward. So that's the only thing I want to correct. Everything else you said is true. Although I'm going to go on record right now and say that Mt. Gox, when they finally release it, is going to be a buy the news event in an epic sense, in the same way that the Bitcoin ETF final

approval was a sell the news event. And I'm saying this for a couple of reasons. Reason number one, and this is important, is the Bitcoin ETF approval meant that $26 billion of Grayscale was sold, the vast majority of which were actually shorter-term traders. If you were in Mt. Gox in 2014, you are not a short term trader in Bitcoin. So understand that, yes, I'm sure three, four or five billion of that will get sold over the next two, three years. It's going to get sold to Michael Dell. It's going to get sold to various sovereigns. It's going to sell the state funds. It's going to get sold.

People who have a big block that they actually want to sell are going to probably be smarter this time. And they're going to find people who are looking for liquidity who can't get it otherwise. So understand that I think that's going to be a buy the news event. Of course, that's why we dropped three or four thousand dollars over the weekend. It's a linear relationship. It dropped the same amount, actually a bit less when they moved it to the wallet. So, yeah, it's a, you know, sell the rumor, buy the news. It's really very straightforward. But other than that, the other thing that's really interesting is it's yet another divergence.

I mean, Mike calls it divergent weakness. I basically say it just shatters the correlation thesis unless we get a massive event. Yes, correlations go to one in a massive event but in a non-massive event bitcoin's doing what bitcoin does i mean anyone who remembers the summer of 17 knows that bitcoin had a really strong rally earlier in the year up to you know you know it was pretty high i think went up as what's000, then dropped to 3,000. So a 40% drop before- Same in 21. Same in 21. We went to 69,000, dropped below 30 in the summer and back to 69, and all coins went nuts. Right. But 21 was different. That was pure speculation. 17 is

much more of a cycle like this. And that ultimately did a 7X or 6.5X, whatever you want to do it, which I think is more, I don't know what level it will drop to. But we'll see. You remember my target. I'm not wavering from it. I still think 240 at the top of the cycle. So I think that that is unless we do have a cataclysmic stock market correction. I will say, look, I'm with Mike on this. I pegged two weeks ago. NVIDIA looks a lot like Cisco from 2000s. I will say, look, I'm with Mike on this. I pegged two weeks ago,

NVIDIA looks a lot like Cisco from 2000s. I did say that. I don't disagree with it. I think that it's absolutely true. And if NVIDIA drops 40% from the high, which would still make it a remarkable success story if you look at the chart, and then it probably is cleared for further growth because of AI, yada, yada. But if NVIDIA dropped 40%, what the hell do you think is going to happen to the S&P and the NASDAQ? And it won't be pretty, right? Now, so the real question is, if you think, if you want to know what keeps Powell up at night and what has him having the money printers on standby and the fighter jets, the jets are all out there, the ink is being printed, obviously it's not real ink. There are two things. One is NVIDIA, because if it goes and the stock market goes, Mike gets what he's been saying

all along for the last couple of years, which is a stock market crash, which is exactly the thing that will cause him to print. Or the other thing that keeps up at night is looking at the Bank of Japan and seeing the yen quietly getting close to the 160 level, meaning that I'm fairly confident you're going to find out that they did some intervention over the weekend. And intervention is code for if you don't give us dollars, we're going to sell treasuries. And I'm really curious what you think about that, because a yen going towards, you know, 180 is probably something the BOJ does not want to see, but on the chart, it looks like it's absolutely on the table. Obviously, we think it'll be manipulated differently. So I think those things will keep them up.

Other than that, repeat after me, people. We are in a range. And just like I didn't get excited when it was hitting 70. I'm not getting excited as it's hitting 60 either. It's a ring. And I've been saying this, I you know, people ask, this is a funny thing for traders, a P, a very important piece of wisdom that was imparted to me, or one of my early mentors from O's from O'Connor and trading. He had a bunch of things that he said, you all heard me talk about

leverage, right in terms of don't leave gamma, you know, short gamma on your position sheet because it could be very, very dangerous. And what he meant by that is don't be in a position where a sharp, sudden move could bankrupt you unless you're actually watching it and hedging it. It's just not a good thing to do. And that's why I always warn against leverage for people who aren't professional. But the other thing he would say is don't change your trading strategy unless the fundamental information has changed. Everything else is emotion. And generally, you want to take the other side of emotion. And just keep that in mind because we all know how hard that is to do.

It is hard to do at the top not to get excited and FOMO in. It is hard at the bottom of a range not to want to puke. Generally, you're wrong both times. Okay, there's enough for my sonata for this one. So on the futures, to clarify, what I was talking about is the perpetual futures that short who when the the hedge funds that have excess short to their longs and now it's flipped that's that was my selling yeah they have to sell some sort of spot which is sure i mean that's the way i make my voice i don't like to advertise coin routes on this show because you know go ahead but we literally that is, we have the market leading software to do exactly that. You do spread trades between perpetual swaps and spot and inverse perpetuals versus regular

perpetuals versus futures. Any of those five different product types all on Bitcoin, or actually it's more because if you had the tether perpetual swap to the dollar perpetual swap to the Tether spot, you have seven different products that you could trade against each other. And you wonder why people are confused by all this. Oh, well, I understand that. I'm just saying that there's an entire complex.

So when people say, look at Bitcoin, I mean, I look at things like, okay, what's the perpetual swap doing? What's the tether swap doing? The tether swap right now, just so you understand it, is crossed between exchanges. Right now, the best bid, I won't name them, is 62.225. The best offer is 61, 184. Now that's normal. That's $40 crossed. Now the reason for that is because collateral is tied up on each of those exchanges because there's no prime brokers. Well, there are some, but there's not a lot of real prime brokers. There's not a lot of capital because of all the reasons, all the facts that regulators have stopped the real prime brokers from doing. But it means that if you have, if you have put your collateral on OKEx,

for example, and you wanted a short, you're happy because OKEx is bidding higher. But if you want to go long, you're paying more for it than if you had your collateral on Bybit, for example, that's right now. I mean,

it doesn't always happen that way, but yeah, but that's important. And when you understand the dynamics of this market the fact is there there it is there is a lot of motion and anybody who's interested in trading any of this stuff in size or is trying to do it by hand they go to www.coinroutes.com uh and sign up for us and we'll get you a much better software for doing it much much tighter but we watch this like a hawk, not for trading,

but because we have to make sure that everything is in line, all the market data is right. I want to really, really quickly, because you said what keeps Pal up at night, it always makes me think of this meme, right? I don't know the story behind this meme. Was this, is she actually opening a door next to him Or was this photoshopped

I think it's photoshopped or she's opening a door next to him But it doesn't matter because it says everything That we need to know we talked about the political pressure And Mike I want your opinion On what I brought up before Which is obviously No that wasn't Malcox I'll find it here But I moved it

But it was obviously the article on how long can high rates last bond markets say maybe forever right because you obviously think we have deflation coming there's going to be a hell of a lot of political pressure to pivot if he pivots before they're at or below two percent it's a wrap for two percent correct those are classic headlines you see at peaks that give you great opportunity to stop out the week. People who've bought bonds too early, like I did. But the thing is, you always get the coupon back. You get that back. The key thing is deflation is not an indication it's happening significantly in China, the second largest economy. Just look at their 10-year-old CGB yield is 2.24%.

That's the lowest in our database going back to 2006. 200 basis points less than the US. When's the last time you heard of any major country in the world asking, oh, great, we want more exports from you, China? No. Even the whole world is pushing back on their overcapacity and their export deflation in terms

of EVs and renewables. It's just accelerating. The property crisis is as bad as Japan's was, but five times the size because the economy was five times the size when Japan peaked. It's all happening. And the trigger, which is keeping really bullish gold, was unprecedented, the unlimited friendship. That's just kicking in. This Cold War 2.0 is heating up. That's part of the reason I'm still bullish gold. But I just want to mention a little thing about Dave. Yeah, I've been a little bit bearish equities for too long, but I've been pointing out things that should outperform Bitcoin. It did. And it had a good fundamental reason, good reason to make a new high and has a good reason to go back down. The combination of beta making new high, the ETFs, a lot of us waited for for a decade and the having was just a great reason for new high and a great reason for prudent traders to lighten up and i don't know when that hangover is going to end but here's my scenario analysis i think that bitcoin's going to lead like it usually

does it led on the way up and the lead on the way up since it's it's it's uh birth in 2009 it's going to lead on the way down and this is just first all, we got to get over the first little baby test. That's just the little 10% correction of beta. You know, stuff that used to happen. That's one key thing that we all know of being veteran is pattern recognition. When markets, when bull markets don't correct, that's a big problem. And that's why I really appreciate what you pointed out, Dave, about that correction of Bitcoin back in 2017. We haven't had that in the stock market. That's a classic sign of a blow off top. And then you look at volatility, the lowest in a decade, interest rates the highest in, I should say, two decades. Just simple measure stuff versus 100-week movement

average levels, you never really want to get overweight. And Bitcoin, I think it's picking up on that. So to me, this is where we're heading towards just a normal correction in autocorrelated markets. We have to remember that this is where we're heading towards just a normal correction in autocorrelated markets. We have to remember that this is a tremendous opportunity for traders. So the key thing I like to point out is I think it's a period where now we're prudent traders. I realize, OK, they should be lightening up on this hot risk asset. And they're doing that because everything's tilting downward and overweighting on gold and and and treasuries, most notably bonds. Now, I've been wrong.

I've been early. But that's why that big trade's coming, tilting. I just point out what's happening with China long bonds. The whole world's tilting that way. So you have to ask yourself what stops it. And that's what really is going to accelerate. Just a normal correction in beta kicks everything in. So that, to me, is where we are now. Bitcoin's leading. And the

question is, how far does it go before we finally get that normal correction? Bitcoin probably be the first one to bottom, but we haven't even started the process. Yeah. I love how we say it really quickly. I love how we say normal correction. I can't, there's no, if you look at the last six months, there's zero correlation. Okay. You know, it's like, and that's, that's obviously we, we, we've been watching it, right? Bitcoin rallied. Well, actually there was correlation as Bitcoin is rallying.

The S&P is rallying. The S&P is still at all time high. It's sort of damn close to it. And Bitcoin is what, 15%, you know, off of its highs of actually more, more like 20%. Right. You know, it's, it's like Bitcoin's been dancing to its own drummer. It has its own things. No one in the S&P world cares about Mt.

Cox. Bitcoin certainly does. But there is one thing that is absolutely true. And that is something that's important that you said. China is furiously trying to export deflation, but you can't eat EVs. You can't EVs, you know, do not take care of you at the doctor's office. EVs, I guess you could live in your car, but, you know, and more and more people are probably being forced to, but EVs have nothing to do with

the cost of rent or housing or utility costs or insurance costs or any of the costs that are killing the average American that when you look at the overall averages, because the cost of computers, the cost of exported clothes, I mean, you know, my favorite shirts that I'm wearing, well, I'm not going to say which ones, but my favorite, it's a Formula One and it's from the enemy. But one of my favorite shirts cost me $13. Yeah, you know, when you paid for $13 for a shirt that you liked in 1980, that's 40 years ago. Yes. China and the third world are exporting deflation to us in some goods. But I also know how much I'm paying for my HOA fees and I know why my HOA fees are up.

And it's mostly insurance and services, you know, the things that people actually care about. And so what always drives me flipping crazy to see all these lunatics, and they think they're the smart people, all these lunatics giving, you know, Biden this victory lap of how great the economy is. Yeah, if you look at the average, sure. If you look at all the stuff that people actually care about, no, which is why the grumpiness is there. People go, I don't understand the grumpiness. And we show foreign-born versus native-born employment. We show inflation as it affects the average individual, not the 1%. These are really important things. I mean, we're seeing all sorts of divergences. That's why Powell can't go to 2%.

They need it. Now, the other thing that drives me absolutely crazy is, name one time in history, you can go back 5,000 years, anybody, when a country had 120% debt to GDP and over 200 if you take unfunded liabilities, and didn't have to inflate their way out. And by the way, don't say the United States in World War II and in the Great Depression, because we inflated our way out massively by confiscating gold and then doing a, what is it, 60% immediate one-off hit of inflation. So it literally is impossible. You have to inflate your way out. So what preceded that, Dave? What preceded the stock market had a drop 80 to 90% before we did.

That's what's missing. It's not going to really change. But the thing is, the tip of the risk, as we know, is Bitcoin. So Bitcoin will come out at some point as like a tree bond in gold, but not yet. It hasn't shown any signs of that yet. And I just keep pointing out, I'd like to see it do it, but it's not showing that. Here's the point. Maybe I haven't made it clear, but I want to be very clear.

About 65, 70% of all Bitcoin holders are holding it as a long-term asset, expecting significant changes versus treasuries. They're already holding it that way. They're just expecting it. It's sitting there. It doesn't trade, right? It doesn't move. The 15 to 20% of Bitcoin that trades, absolutely 100%, that hot money looks at as the tip of the spear. That is a very big difference from the 100% of people who are buying NVIDIA are buying it as a risk asset. It is a very big difference. I'm going to push back on that because NVIDIA, if you are, first of all, any index fund has to buy it. Okay. And so it's just because there's so much passive money out there.

And if you're running a tech fund, how can you not own NVIDIA? You have to. You know, like it's just... That's right. That's right. So maybe it's 50%, but it's still, it's still a much higher percentage. But the other thing about index funds, it's interesting. And you always hear it. People forget this. And I'm going to start sounding like Mike now. People forget just what happens with index funds when there is a major correction and they lose trust, they lose a belief that there's a Fed foot. You know what happens?

People who have been relying on their index funds to live off of and to do their spending either stop spending or they hit the panic button and they go to 5% treasuries. What would happen? It's not what will. It will. It's just a matter of time. It always cycles that way. Especially when you have the stock market at two times GDP, which is unstoppable for forcing up inflation and consumer sentiment. This hasn't happened on the way up since 1929. Mike, I never got your answer to that. I'm sorry, Dave, but I never got your answer to

that. Do you think 2% is gone? What do think that we, I mean, what do you think happens when we see traders saying we're never, that's never going to be the effective federal fund fed funds rate again? I mean, I know you believe in deflation, so you think we fly past it. A normal cycle is unemployment goes to 6%. Normal. It's always has. It's 100% return. Leading indicates we'll be right.

Yes. What's keeping things booster right now is 6% to 7% deficit spending normal cycles we will get down to we're all turning japanese the second largest economy is doing it we're just heading that way it's a matter of time it all predicated on the u.s stock market saying the most elevated in any time of my lifetime and volatility the lowest in 20 years and so those are short-term things the macro is it's just a matter of time we get there um and it's you just have to get through the inflection points and Bitcoin will probably be the best leading in it. It's part of the reason I still think one of the best trades is eventually going to be one of the worst ones

for the last three years. And that was good old US Treasury long bonds. So James, you were on, I think it was you that reposted, it was a really interesting thread that went through our fiscal deficit in peace, good times like we have now. And what's the likely impact if we actually do tip into a recession to that deficit? Was that you that posted that? Because it's, it's, it's not, I have posted about it, but yeah, I mean, if you, your deficit blows out, like your, your spending can blow out by 30% and then your, your tax receipts can collapse by 20%, 20 or 30%. Typically, your baseline would probably be somewhere around 10 to 12% on each side. But if we have a great financial crisis like downturn, the deficit could double overnight. But mean, you got to step all the way back to first

principles. And what are we looking at on the first principles, which is to Dave's point, and when you have this kind of debt to GDP, you don't have the luxury of just living through and allowing for a natural downturn after massive manipulation. Nothing's natural anymore. It's all manipulated. But you don't have the luxury of allowing markets to find their way through that, you absolutely must have negative real rates, which is going to your point, Scott. And that is the question of 2%, 3%, 5%, like where are the rates going to be? All we know is that the rates have to come down below inflation long-term, perpetually. They absolutely must. There's just no way out of this. Otherwise, you must have

negative real rates on bonds. And that's just reality. And so would I be holding 30-year treasuries in my portfolio? No, I don't hold them. And that's the reason is I think we're going to have long-term perpetual high inflation and low return on a real basis on bonds. And that's just because you have to have that when you have $2 trillion deficits in peacetime, $35 trillion of debt on $25 trillion of GDP, you're in a spot where you can't get out of. And like Lynn Alden likes to say, nothing stops this train. Like nothing is going to stop this.

There's only one way. It's that they have to, literally have to. They basically have to create, somehow engineer growth in nominal terms. That's it. That's it. That's big growth.

Print away. Print. it's not the only way to do it the problem we're taking not like we're printing money and going and building a hundred nuclear reactors no it's fake we're doing the exact opposite we're printing money and dumping it into the ocean basically just a way to incentivize excess investment but the problem that we have is and I've said this a million times, and this is where I betray my political beliefs a bit, the only thing that's going to do anything for nominal growth or actual real growth is to cut the federal bureaucracy, full stop. Mule is proving that in Argentina, by the way.

Good luck. I'm saying it's- That's not going to happen, unfortunately. It's not human nature. Well, I mean... I mean, our structure, it will not allow for it. It will be fascinating. It will be fascinating.

We're going to talk about it more as things come into focus. I still don't believe it's Trump-Biden the way we think it is in the fall, but we'll see what happens. So the only way I think that can happen, Dave, is crisis and pretty significant crisis. Otherwise, why change? I mean, or that's only with pitchforks and torches. That's the only way that that happens.

Well, I mean, look, we we we have an economy that if you people say, well, you know, you can print more money. It's like, yeah, but right now, money printing disproportionately goes into effectively gambling. I mean, it's, you know, yeah, there's some, obviously, obviously some investment is going to be productive, but a large amount of it isn't. We saw that in the pandemic. We've seen that now. And we understand that we have an economic system best defined as cronyism or crony capitalism, where the large companies get a disproportionate amount, yet growth in any meaningful sense almost always comes from smaller companies and innovators. And we have a government that's structured effectively, that's captured on multiple regulatory

levels, it doesn't matter which agency you're talking about, to stop that. So you can't just do that. But that's the playbook. They're going to try that. And that was the Japanese playbook. Koretsu, the cross ownership and the government control over the economy there was so strong that once they got into that hole, it was literally impossible for them to deregulate in a meaningful sense and encourage real economic growth. So what did they do? They cut to zero zero interest rates they kept them there for decades and we're still not back to the all-time highs on the uk and that's and we're going on 40 years so yeah you know you're right mike that is one possible outcome and there's no doubt about that now you have to ask yourself the

question is there an opt-out that's where lynn alden would say bitcoin if i talked to her she would say bitcoin is your opt-out and so would i and so would james and the question is when we're talking about trading it's like and i think so would you to be honest i think so would mike when i do long term but i i have to get i have to um do bitcoins i think is going to do more of this what it usually does be the v very high volatility assets that it doesn't have the dangling carrot anymore to have forever of the etfs being launched and lead and lead on the way down so that to me is the next big trade right now who knows how long it lasts and then the trade after that will be the overweight when it was really when it gets way underweight and get a

little kind of cheap it was just too expensive a couple months ago. It's not that complicated. Sorry, I just want to take you back. You said no dangling carrot. Oh my. Well, the significant dangling carrot was the ETFs. I mean, in my space, it was like every day we talked about those. But that was a significant, thank you very much. We got it.

We're done. We got 60 billion inflows. Now what? Okay, I get it. The client, I mean, I'm bullish long-term. I was pointing at this leading indicator. I think that now what, Mike, I think that now what, to be fair, is that we're trading in a $60,000 to $74,000 range instead of a $35,000 to $42,000 range, which is, I think, where we would have been if we had not gotten ETF, which I see the comments

all the time. Thought the ETF were a game changer. Ha, ha, ha. They were. Hypothetical trading has never worked for me. This is where we are. We're here for a game changer ha ha ha they were you know hypothetical training has never worked for me this is where we are we're here for a reason let's look forward and so looking forward i let's say we mentioned crude oil a little bit before crude oil's um mean price it should go back to 40 that's severe deflation why because it always has since the randair whack war since saddam hussein invaded kuwait. It pumps up and then it goes down. The low after both those wars was 10 within about six to eight years. It's doing the same thing now. Regional wars pumps up the price. What's the difference? Now the US is a net exporter, largest producer, largest net exporter of agriculture, of energy, producer.

It's just the world's changed. Why? Because we adopted that technology. Now we're doing it in Bitcoin, but that's part of that deflation that's kicking in. Now, Dave mentioned food a little bit. You look at the average price of the number one benchmark for food, like crude is for energy, is corn. Corn pumped up to near eight, it's going back to four, if not lower, partly because I hear it every day. We produce too much because of technology. And unless we get a bad year, you might not see it in a grocery store right away, but the producers are going to get hammered. Again, that's one of the things I don't see stopping.

That's what I tilt over to. That's why I'm still bullish bonds. Been wrong. But I was wrong on Bitcoin for quite a while in many cases. And it finally popped up. But the key thing I want to point out is the two biggest trades I saw in the last few years was GBTC. Boom, that happened. It's done. ETH, it happened. It's done. I just look at those like that was part of what I saw. It was, okay, now let's just get through this normal beta correction, and then we can move on and Bitcoin should be there.

To be fair, I'm not sure we can say ETH is done if we expect it to take the same path. I know, ETH, yes, correct. If we expect it to take the same path. If we expect it to take the same path that Bitcoin did, obviously, we had a sell the news event on the actual launch of the ETF. Bitcoin went from 49-ish to 39, and then to 74. So maybe we get a crash at ETH. I'm not saying it will follow the same path, but the ETH trade on the ETF I don't think is over if we see actual demand as we did with Bitcoin. We should see it literally double from whatever that sell the news event is if it follows the Bitcoin path. So I think that's interesting. Mike, I wanted to ask you one more thing about oil because you sort of hinted at it.

You think that prices will obviously be lower. You said it from the morning meeting today that that's a good news for the consumer. One of the first kind of good news things we've seen here, we have an election. So you would think it's politically popular news for the consumer. One of the first kind of good news things we've seen here, we have an election. So you would think it's politically popular to manipulate the price of oil down, but we do have a cold war and escalating tension still in Israel and potential of Hezbollah and Iran and a full scale war over there. How does all of this sort of way out for oil?

And then I want to talk stocks after that question. It hurts the rest of the world and it's completely beneficial for US producers. Let's look at the center of the universe for producing energy has shifted from the Middle East to America. And that includes Canada. I mean, the excess of crude oil and liquid fuel supply on a daily basis is 6 million barrels a day if you could, US and Canada. 2008, the deficit was 6 million barrels a day if you could the U.S. and Canada. 2008, the deficit was 10 million barrels a day. And then you look at natural gas. We are becoming the largest net exporter of energy. So that's a problem for the rest of the world. And also, those wars are not affecting supply. It's actually bringing on more. It's just the Russian supplies are going to China. China's not really importing much anymore. It's less from

OPEC. But it's also the facts of regional wars. They're bad for commodity prices. I love when people say commodity wars are good for commodities. Well, maybe World War II. I mean, none of us was alive then, but I was alive when an Iraq-Iran war kicked on. And crude oil initially popped up

from like about 13 to 40 in early 1980 and dropped to 10 in 1986. Same, I was in the trading pits and trading when Iraq invaded Kuwait. Crude oil initially popped from 20 to 40 and then dropped to 10 by 1998. And that was when the US wasn't incentivized to produce more. And that's happening in grains right now. That war just pumped up the US grain belt. I go out there all the time. I got a lot of friends and family there. And they're just reeling in profits, which are going away now because they created too much.

It's just the way it works. It's the lessons of Jeff Booth. So that's that deflationary trend that always comes from you raise the bar too much. You just have to have deflation because the average price of a home in this country now used to be $200,000. Now it's close to $400,000. And it just goes down a little. It's just the way it always happens. And all you need is a little bit of, and the thing is used to be recession. All those signs are there from my standpoint that I point out, I pointed out earlier, declining demand for these things, but it's that elevated stock market. That's going to trigger everything. It's just two times GDP. It's just one of those things you have to be, just look for alternatives. And Bitcoin was a great alternative until we got the ETF launch.

And I think that's the way prudent money managers are looking at it. Next question that I want to ask before we go, because I found this really interesting when I dug this up. The S&P is having its best election year in five decades since 1976. This is the best that the S&P has performed to this point in the year. And then I actually, as you were talking, pulled this up. I'm not sure if you guys can see that clearly, but this is a performance of the S&P in election years. You can see 1976, Carter, 23.8% to the upside. Why is that?

Reagan in 80 was 32.4, but these are still two of the highest. That's because markets trade on expectations. And it's clear the markets are expecting that there's going to be a changeover in the administration and there's going to be favorable tax treatments as opposed to what this current administration is talking about, which is unfavorable regulation and tax treatment. So that's, to me, it's kind of obvious. Mike, I mean, I know this gets you excited because it's too early. Well, first of all, it's what's like just President Trump elected Trump 2.0. It means drill will. It's really bad for crude oil prices. It's already bad already. It's probably bad for the Dow. I've knocked this around a lot, but he's so into anything to weaken the Dow or anything to

help US exports. I get that. Tariffs and everything. So that's all good for commodities, but overall, it's bad for crude oil. Drill it will. We've seen this before. The key thing I think is how much it's when he was... People, it's just the way markets work is you always and naturally use the most recent example. Why is it different this time? Well, I just look at how exceptionally elevated equity market is, how exceptionally low, how buried volatility is and T-bills are, right? I'm like, good luck when people buy into those statistics. The key thing is when you see it's popular statistics, like remember the housing market 2006?

Oh, it's never going to go down. It went down because it went up. I remember the same thing, peak crude oil production. And when I was 10 years ago and I was running commodities at S&P, actually it was more 15 years ago. When people widely use these statistics to justify expensive prices, back off. And I think that's the case. But also remember, the stock market over time goes up 9% on average every year. Election years, meh. There's a few good exceptions there. 2008, I just point out- It's 11.28%.

I think it's a no-no, and that is probably if Trump gets elected, he likes to talk about, I mean, we've never had a president talk about stocks more, but they're so well-priced for it. But here's something astounding that I look at in this chart, which echoes things you keep saying to me, Mike. What's the best year in history on this? 1928. Hoover. Here you go. 43.6%.

Because you love to tell us that it feels like 1928. 29. So the Fed actually cut rates in 1924 to lowest in the year. And they started hiking again in 28 when things got out of hand. And then they cut. This was the New York Fed in 29 as things started to collapse. But the key point, I think, is markets. What people forget sometimes is markets go down because they went up and go up because they went down.

That's a commodity versus. That's just the way they've always worked. It's a question of measuring how much. And the stock market's a little different. It goes up because it went up until at some point, then it makes everybody rethink that, oh man, I can't just spend, feel rich from my 401k because it's been going up straight up for 12, 15 years. At some point, we always get that. Now, maybe that's good this time, but at some point, you just get too expensive. I just wanted to point out when I started in 2007, when volatility is this low and its rates are this high, it's just a sign you should be underweight risk assets. And

we know what's the tip of the spear of risk assets is Bitcoin. Dave, 50K in the cards here. We have the title. Will it plummet to 50K? You gave the answer. I think we're just, I don't know, but I don't see why when we're still in a range, we'd be talking about anything that's outside that range yet. Yeah, that is my viewpoint. And I don't believe Bitcoin is the tip of the spear in risk assets for the majority of its holding. I've explained why I don't think so. I mean, every time I see Bitcoin dramatically down in the stock, you know, on Bitcoin only news news which is what we have look my contrarian view is until this election resolves itself uh we don't have uh a massive stock market move with one exception that that troubles me i agree with mike uh when volatility and volatility by the way in bitcoin

is actually not down at all time it's volatility in the the S&P. In S&P 500, yeah. S&P 500 looks ridiculous. The last time it was like this, I mean, this is the ultimate buy volatility trade. I am sure that there are salespeople who are just salivating over this and selling principal protected notes to beat the band out there because now there's interest rates enough to be, for people who don't understand it, a principal protected note is where people buy this piece of paper from a broker. And the piece of paper basically says, if the S&P goes up, we will pay you X percent of that rise, or we'll pay you 100% of everything the S&P goes up more than 5% or some number.

But it's a bond. And so it's a zero coupon. And you're going to get your principal back full stop in five years. How do they do this magic? What they do is they buy a real zero coupon bond for a piece of it at a higher interest rate than they're imputing. And then they take the difference and they buy call options. And, you know, why am I talking about this? I'm telling you that in these sorts of cycles, as people start to get, it always starts this way. People start to get a little bit nervous and they start swapping out their equity exposure for structures or they start buying put options because the volatility is low. But when volatility is low, those options are cheap. And when interest rates are relatively high, they can afford them. And so you see that.

Now, why does this matter? Well, it matters is because when it unwinds, it unwinds fast because you end up with dealers who are short options on both sides. And it doesn't matter which way it moves. Volatility tends to, when you're at a low range and it starts to increase, it doesn't increase like a normal asset. It tends to increase parabolically, right? And that's why. And so when Mike is talking about for people who aren't in the weeds like we are, is if you start to get a move, and if it doesn't look like Powell's running into the rescue, it forces a feedback loop where selling begets selling and the options hedging and all of this stuff will be there and will cause that to accelerate. That's what causes the massive declines that you see.

Now, the global financial crisis was different because that was led by actual defaults on real assets and seizing up of the financial system. The equity markets actually performed pretty well, although the idiots tried to ban short selling and cause another 25% down leg as a result. But that's because politicians are morons when it comes to understanding the economy and understanding how markets work. But the simple fact is that there is a lot of dry tinder for if a sell-off happens, what would occur. I just don't know that there's that spark because it feels like Yellen and Powell have these big ass water cannons and blankets to push down on that spark because they can't allow it to happen. So, you know, that's the only difference. I mean, Mike and I look at the situation and both see danger. I just tend to think that the market's more manipulated than it ever used to be. And I

don't think until the election resolves, you're to see anything i think next year however whoever wins uh there could be some really interesting dynamics that go on right and and we'll see i mean we'll be talking about it over the as the election starts to unfold yeah yeah there's there's mean... You got two minutes. We're at 10, so unpack. We're in our holding pattern, you know, and on notice. But, you know, just like Mike and Dave are saying that risk happens fast. So you just, you have to thing, and Dave hit on this earlier, is don't be levered into this moment because there's no volatility. This is not when you want to be levered because when volatility picks up, it picks up very rapidly. And it ain't going to be in the direction you think it is. Never is. If you actually have a bet on it.

It could be both. I mean, that's the thing that people- You get liquidated both ways. You get whipsawed both ways. I mean, you know, especially- Absolutely. Absolutely. You get whipsawed all the way up to 70, back to 60.

Yeah. Absolutely. One fact. In 2007, when the Fed eased the first time in September, the stock market cap to GDP was 1.3. Now it's two. All right, good luck. Seen it happen, just a little reversion.

Some of us will make money in that environment by being tactical traders or not losing money. And that's the number one thing is not lose money. Exactly right. I mean, the wealth effect is so important. But think about what that means. I mean, the wealth effect is so important. But think about what that means. I mean, you just blithely tossed off a statistic, right? That statistic is massive, right? It's basically telling you that's how come everyone says the US consumer is resilient. It's like, well, the US consumer is resilient because the people who are spending money have effectively, you know, more than 50% of their wealth is in historic, you know, valuations.

Not to mention the boomers who bought their houses for, you know, two almonds and a grape, and now they're worth $2 million. You've got this wealth effect that people are staring at their net worth and they're like, well, I can spend my whole paycheck because I'm wealthy. I want to ask a question. In terms of the stock market that is true in terms of capitalization. I just wonder in terms of net money, in terms of the money supply back then versus the money supply now, the dollar is the denominator. I mean, valuations that are relative to corporate earnings being stretched are crazy. And GDP feels a lot like, because it's nominal, feels a lot like that, that, that measure, I understand, but the houses are different because while the affordability isn't there, the, the simple fact is there's a lot more money, right? You know, things, you know, the denominator has, has changed. And so I just wonder if that's the apt comparison, although, yeah, I mean, you know, it certainly has been in

every look, the 29 crash that everyone might like to go back to, that was Florida real estate. Another real estate was the tip of the spear back then, right? Of course, I live in Florida. I don't have a condo here, so I'm basically saying, oh, my God. Yeah, you probably live in one of those condos that was half built in 2008. Good job. And you've had an illiquidity effect because of 10 years of ZERP, zero interest rate policy. And all of a sudden people are like, well, I'm not going to give up my 2.75% mortgage for a 6% or 7% one.

It's just, you know, I can't afford the same amount of house. And so there's a lot of complexity around the housing market that we're definitely shaking out. That's it. Just stay on your toes, everyone. It's going to be a fun summer.

Dave, ever since you brought up Animal House and then Mike said returning Japanese, I just had to find this clip i had to i just lying around what the hell is supposed to do you war is over man wormer dropped a big one right here what over did you say over nothing is over until we decide it is. Was it over when the Germans bombed Pearl Harbor? Hell no! German, forget it. He's rolling.

Okay, there you go. Was it over when the Germans bombed Pearl Harbor? Made me think of both Japan and movies. Such a classic. One of the best gross scene movies ever. I'm not checking the budget, but the budget was $3 million. And I think they pulled in $1411 initially and it's still making money. Great.

Better than Bitcoin. All right, guys, that's all we got for you today. Thank you. 1004. We're getting later each time. Appreciate it. All right. We will see you guys obviously next Monday.

See you soon. Bye-bye. Let's go.