The Wolf Of All Streets - Bitcoin Faces Recession | Macro Monday

Episode Date: October 2, 2023

Join Dave Weisberger, Mike McGlone and James Lavish as we break down what's going on in macro and crypto! Dave Weisberger: https://x.com/daveweisberger1 James Lavish: https://x.com/jameslavish Mike McGlone: https://x.com/mikemcglone11 ►► JOIN THE FREE WOLF DEN NEWSLETTER, DELIVERED EVERY WEEK DAY! 👉https://thewolfden.substack.com/   ►►OKX Sign up for an OKX Trading Account then deposit & trade to unlock mystery box rewards of up to $60,000!  👉 https://www.okx.com/join/SCOTTMELKER  ►►THE DAILY CLOSE BRAND NEW NEWSLETTER! INSTITUTIONAL GRADE INDICATORS AND DATA DELIVERED DIRECTLY TO YOUR INBOX, EVERY DAY AT THE DAILY CLOSE. TRADE LIKE THE BIG BOYS. 👉 https://www.thedailyclose.io/   ►►NORD VPN  GET EXCLUSIVE NORDVPN DEAL - 40% DISCOUNT! IT’S RISK-FREE WITH NORD’S 30-DAY MONEY-BACK GUARANTEE. PROTECT YOUR PRIVACY! 👉 https://nordvpn.com/WolfOfAllStreets   ►►COINROUTES TRADE SPOT & DERIVATIVES ACROSS CEFI AND DEFI USING YOUR OWN ACCOUNTS WITH THIS ADVANCED ALGORITHMIC PLATFORM. SAVE TONS OF MONEY ON TRADING FEES LIKE THE PROS! 👉 http://bit.ly/3ZXeYKd  Follow Scott Melker: Twitter: https://twitter.com/scottmelker   Web: https://www.thewolfofallstreets.io   Spotify: https://spoti.fi/30N5FDe   Apple podcast: https://apple.co/3FASB2c   #Bitcoin #Crypto #Trading The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

Bond yields are way up today, making new highs after decades when we just thought they were going to go down. What does that mean for stock market? And how is Bitcoin having an October moment and continuing to rage even in the face of high bond yields? I wasn't going to show up today, but here I am on the West Coast trying to sympathize with James Lavish and see what it's like to be awake at 6 o'clock a.m. to do these streams. I've got James, Mike McGglone and dave weisberger as usual you guys don't want to miss this one let's go let's go what is up everybody i'm scott melker also known as the wolf of all streets before we get started Let's go. like Dave, do the show by themselves. Of course, I was awake and I decided, come hell or high wire, I was going to be showing up. But I am going to bring them on because they have much better quality than me. I've got Mike, James, and Dave. Good morning, gentlemen. Mike, yields are ripping. What's going on here, man? Well, good morning. Maybe I can share a screen.

I'm glad you showed up because I love that look. I just want to show a few shines first. And just take two minutes to show you this. Part of the reason yields are going up is what you're seeing is a significant pickup, massive more supply in government deficits. And one thing I want to show that what's happening is what I'm really worried about is great reset is almost every time we've had deficits increase as much, you have a recession. Why? Because you prime the pump, revenue increases, deficit goes up. This is the first time since 1970 deficits are going up this much. Stock market's not going down or not in recession yet. What I want to point out is this is the great reset I see happening is this great gaping jaw situation started in 2015. Deficits increase and the stock market's still going up. To me, that's the problem. And to me, that's what's kicking in this morning. I still want to

show a little bit of what's happening in our view in the stock market. This is going back to 1920, how expensive the stock market is versus GDP. And to me, that's what's kicking in this morning. The market's starting to realize it's awesome that Bitcoin's up. I hope that continues. But if we get a normal correction in the stock market for a normal recession, this is going to be a problem. And that's where everything's starting to tilt this morning. You mentioned bond yields. I had to show you this chart of bond yields.

Ten-year note yields reaching the highest since right around, let's see, 2007 this morning right there. It's 2007, yeah. Yeah, but I want to show you this one thing. If you take this and you make it in log format, which shows the rate of change, see how big that move is? I wanted to compare it to the stock market crash of 1987. See this? That's when bond yields peaked, the weekend before the stock market crash. And to me, that's so significant to show what's happening.

Bond yields spiking. Crude oil spiking is bad for risk assets to stock market. And I just want to also bring in crude oil. Crude oil is just spiking recently. I do love when people point out how significant it is. It's the worst performing commodity. In white, I show you the bloom. It is.

I mean, it's just a fact. And there's good reasons for that. When we have time, I'll dig in later. I just want to point out this little bounce we had in crude oil last year was below the recent high and well underneath the Bloomberg Commodity Index making new highs. So what happens every time commodities spike like that? They crash. Why? Because their own worst enemy, they bring on that supply and they reduce demand. So I just want to show you one out of things we're opening Bitcoin. The key problem I have in Bitcoin is liquidity. That's what I show you in white. That is the Fed fund futures in one year, basically showing you when that kicks up,

that means the Fed is going to start pivoting. The market starts pricing for it. Here's what's changed. The last two times we had pivots from the Fed, it was after Bitcoin swooned, after Bitcoin declined. No, the Fed doesn't care about Bitcoin, but it's a good leading indicator. So I'm hoping maybe as Dave,

I know Dave's going to be right eventually about this, Bitcoin can start showing strength above that 30,000 level and reject that downward sloping 100 week moving average, but it typically doesn't happen without a Fed pivot. Now there might be a reason for that to do that, but here's one thing I want to point out in a broader market in terms of you take the Russell 2000 to its small caps. It's bouncing right on, almost tilting over down on the year just about there. And if you overlay that with the Bloomberg crypto index, it's been way underperforming.

The crypto has been way underperforming just the stock market since the peak in 2017 and most recently. But now they're both kind of hovering at this level and it's both tilting lower. And that's the key thing I'm worried about. And this is what I'll end with is my morning thing. I just want to show it a few charts. This came out from our economics team on Sunday. And it's completely counter to what most people were thinking six months ago. And this is our economic team is main steadfast as I have that this recession is going to be a great reset. Now they're starting, you know, everybody kind of gave up on it. They never did. Now they're starting to tilt over. Yes, it might be as bad as some people think, even though the Fed

thinks it's going to be a soft landing. So to me, that's where I want to end with. And to me, that's where the macro is so important is if the stock market drops to a normal recession, it'd be wonderful for Bitcoin not to fall. Right now, it's showing divergent strength. That's great. But if we get the normal 30, 40% correction, risk assets go down and Bitcoin is one of the riskiest. Back to you. I do have to say, Mike, in Dave's defense of maybe he'll be right, we have seen, I guess, Divergent's strength was stopped dropping and Bitcoin trading sideways. It's at very low historical correlations. And now we get the seemingly inevitable, at this point, October 1st move to the upside.

We didn't see it in 22, but I think it was 21. We were just talking about it went from 43,000 to 48,000 on October 1st. In 2020, it made an equally sizable move now making the same and sort of showing that divergent strength you mentioned. And in Dave's defense here too, for pulling up these charts, we have the 200 MA on the weekly. We haven't broken it yet, but if we break above it, that is a major trend change with 50 and 200 MA pointing up. And we now have price trading, we'll see where it closes today, above the 200 on the daily, above the 100 on the daily and hitting that key resistance. So some of those trends you're talking about, we are now starting to attack, which makes it possible that we will get those indicators you're talking about. But James, I do want to go,

I remember you wrote this amazing thread going back to bond yields on why they're spiking high. Sounds ominous, but why can you give us your rundown on what you think is happening here with yields before we move on fully to Bitcoin? Yeah. You know, I mean, the bottom line is we're, we're, we're at a point here where people realize that we have a wall of treasuries coming. You know, we, we're, we have, we're running such large deficits and we've talked about it ad nauseum about the debt spiral for you and I have talked about it for over a year and Dave and now Mike, but, um, you know, the problem is we have, we were running such large deficits, uh, with interest rates continue to be high and the

fed talking higher for longer. We know that rates are going to remain higher. We've got 40% of treasuries that are maturing in the next year and a half. We've got, you know, just we've issued $1.7 trillion or we've actually added $1.7 trillion to the debt in the last 16 weeks. And so what's happening is investors are demanding higher premiums they know that there's going to be volatility going forward uh investors are expecting the this uh the just a a tsunami of debt coming at them long-term debt the treasury can't continue to just issue t-bills forever you know, they mature within a month to three months. And so they, they're, they're, they've been teasing money out of the reverse repo, but that's, that is only going to go for so long. They've got to start issuing a long-term treasury. So

if you, I did pull up a chart, I don't know if you can access it, Scott, but you know, there's, there, and it comes from Bloomberg. I was just looking around Bloomberg this morning and there's a bunch of stories about how investors are looking for premium now. Here's a 10-year. You can see right here in this little dot all the way to the right, it's finally turned positive where investors are demanding a premium, right? And what is that premium? Well, it's a few things, right? So you've got your expected policy rate, which is the terminal rate where the Fed's going to stop, right?

That terminal rate is where the Fed stops. And you could see just how this has picked up dramatically in the last few months. And the reason is all of the deficits we were running and the amount of debt that people are expecting to come to the market, the investors are expecting. And so you can see that light orange is that's the premium that investors are demanding for these bonds. And that's how much we're expecting. This is where yields are expected to kind of go. And if you listen to Bill Ackman, he's saying that we could reach 7%. And actually, I think Jamie Dimon said that as well. And if you reach that level, I mean, that's a massive move in these long-term

bonds. And so they're selling off. And you could see that investors are worried about holding these because of the duration risk you've got. And what that means is the longer it takes for a bond to mature, the more that higher interest rate compounds on the price. And so that price drops a lot more dramatically, right? And so that's a big deal and so that's that's kind of what we're seeing and now now we're talking about hard landing soft landings uh the the the fact that uh yeah that people start talking about soft landings you know you guys remember um i know that dave and mike remember you probably remember the scott when when uh this was back in 2007, I think, or 2008, when Yellen was saying soft landing literally weeks before we hit the recession.

And so it happens every single time. This is the number of times that soft landings is being mentioned in mainstream media. And people get complacent and they don't realize that there's a lagging effect. There's this 18 month lag of when policy rates kick in. And so here we are, we've raised rates up to over 5% and we haven't really felt those effects yet. We're starting to feel them now. And really, the reality is, I think we've already gone too far. And at some point here, we're going to just have some sort of credit event or something that kicks in. And that's the big issue. And so people are really concerned about

that. So if you look at the Fed funds rate, and when we pause and when recessions hit, you know, you could see here that there's a pause recession, pause recession, pause recession, pause in the middle of recession, pause recession. I mean, it's a little bit of a lag, but it happens just about every single time. This is no news to us. I think you're on mute, Scott. That chart you showed with the soft landing mentions was astounding. Right? I've never seen that before.

That was a crazy, crazy chart. I just saw this morning. I mean, look at how many soft landing mentions there are in 2023 here. I mean, look at that. Look how many how many soft landing mentions there are in 2023 here. I mean, I don't know, but just look at the past. I mean, you know, a huge spike. Mike, tell me, how does how's how's a hundred dollar oil? How is hundred dollar oil going to help a soft landing? Exactly what it's funny, you know, you funny how history rhymes. It was one of those trades I got right. I'd rather talk about those. But 2008 was such a classic example. I never really still haven't got a good reason for that spike up to 145, but it made a lot of sense when it dropped to 40 bucks a barrel. And that to me would make a lot of sense if it still drops to 40 bucks a barrel as the whole world tilts toward a recession. The thing is that spiking oil and spiking bond yields can accelerate those recessionary problems. Now, we're not all doom and gloom. We're pointing out facts. And maybe Dave will come back on some counter on this. And it's just the thing about

Dave being right. I know he will be eventually about Bitcoin being that digital goon. But I'm just we got to get through this this period of maybe we won't go down of a normal risk asset decline in a normal recession. And this isn't going to be normal. Remember, this was in the back of the longest period in history of zero interest rates, which was where we came up with Bitcoin. Dave, you get to unpack all of that. Godspeed. First of all, let's be very clear. The Fed is totally effed. I've been saying this for, well, pretty much since we started this podcast. And, you know, if I'm Jerome Powell, I am I will be one foot out the door.

I mean, he's been talking about inflationary expectations. He's been trying to get monitor and decrease aggregate demand in order to do that. And we are on pace if the fourth quarter has the same for going. You know, we could hit 500,000 workers on strike for double digit pay increases. Now, people who have watched your podcast are pissed off at me because I said the UAW was looking for 36%.

It is over four years. That would be 9% per year. 9% per year is triple what people think the target rate is and four and a half times the Fed's actual target rate. Every single one of these striking unions are demanding double to five times what the Fed's target rate of inflation is. Wage push inflation is Powell's worst fear. Just remember that. Repeat it. Because if you don't understand it, then you don't know what the hell he's trying to do. At the end of the day, monetarists who believe that monetary policy is the only thing to be able to deal with inflation and the only was because we had this thing called stagflation. People don't want to mention that.

I believe we are set up for stagflation. I believe we are set up for much higher long rates until the Fed, until the federal government comes in and either does one of two things. They only have two choices. There are only two things they can do. Thing number one, they could massively deregulate to spur economic growth. That's what Trump was trying to do. That's what Vivek wants to do. That is what some of the damn currency and have a massive inflationary spike over a couple of years in order to relieve the pressure which is exactly what roosevelt did when he devout when he confiscated gold and then revalued it upwards by you know a ridiculous amount from 20 to 35 plus after he stole the gold for everybody now is there enough stuff that he did i mean there's no other word for it. And of course, in the period of the Great Depression, courts go along with, quote, emergency powers. We could talk about whether it's constitutional.

Now, the good news for Bitcoin is it is so small as to be irrelevant for any of this stuff. So keep in mind what you're talking about. I mean, the numbers that James is talking about of federal deficit, we have spent more T-bills, more T-bills, more than double Bitcoin's entire market cap in T-bills since they quote, you know, up the spending limit. Right. Just think about that for a second. You're shaking your head, James. Is my number wrong? No, it's just insane. It's absolutely insane. Exactly right. So we are in a situation where the reason I think Bitcoin delinks, and I think it delinks from demand, from people who want to opt out of the system, is that it should delink. Actually, Bitcoin is, if anything, at its core, it is an attempt to create hard money out of that backed by energy.

And I'm tired of people saying it's not backed by anything. That's bullshit. You can't say Bitcoin uses more electricity than Sweden and say, which it doesn't, but you know, whatever. You can't make the outrageous claims they make on the environment and claim it's backed by nothing. It is backed by energy. We understand that. Michael Saylor says every single time someone asks him, it's tiresome to hear people say that it isn't. So the question is, what should it be?

Bitcoin is backed by energy. It is the hardest money ever created. It has most of the best characteristics of money, and we can debate that. At the end of the day, the market is giving the probability of Bitcoin making and becoming digital gold and beyond in the world that we live in of probably less than 4%. So you're talking about an option. And so, yes, Mike, I do think that Bitcoin can de-link under this sort of a scenario. In point of fact, I think recognition of stagflation and economic disaster is what would cause Bitcoin to de-link. Now, does it de-link on day one? Of course not. That's not the way it works. If we do get a 87 style crash or even some slow motion version of that, then yeah, everything will go down.

That's true. I don't know if that will happen. I think people are trying to put money in growth stocks in at ridiculous valuations. People look at the affordability of housing and they say, well, it can't go. You know, it can't keep going up. And then, you know, they can't afford it because we're right now at all time lows. We have a problem. Right. It is a serious problem. When you start looking at bond yields, I mean, look, the rest of the world has been living this for a while. I mean, when you compare the U.S., you know, the fact that the U.S. is 4.6 on the 10-year and, you know, and the U.K. is less than that, 4.492, and it was just there, and they don't believe their government even has

a way to grow their way out of it, compared to Japan, where the 10-year yield is 0.776. Now, we know it's manipulated, but understand that's what's coming here. Coming to an economy near you is the need to manipulate the long end of the curve. I'll say it's slower. They need to manipulate the long end of the curve downward, a la Japan, or the federal government does not have any room left for any discretionary spending. If we get 7%, then there is no balanced budget unless the federal government ceases to spend on pretty much everything they have that's discretionary. Yeah, they just shut down the Social Security program, some mandatory expenses.

There's just no way around it, right? They still wouldn't get there, though. But they still wouldn't get there. That wouldn't even be enough. If you look at the numbers, they could literally spend nothing, and the debt service would be too much. The entire world knows they have to inflate away the debt. So this is that, and I'm going to do it again, Scott.

This is classic Princess Bride. You surely can't choose the glass in front of me. The whole world is looking at this saying, okay, the U.S. government debt, and it's not just the U.S. government, it's outside of Germany. It's pretty much the entire G7 debt is unsustainable. We know that. And so what's going to happen? Well, what's going to happen is they're going to keep kicking the can down the road, and

that's what they do. And they've been doing it. Whether they will continue to be able to do it, we'll see. The problem that we have that's different today is we have no leadership in our country. None. Full stop. This isn't political. This isn't, you know, Democrats versus Republicans.

We have a country being run by a shell. And there are people who are making economic policy couldn't understand this conversation. Don't understand what you're saying, what James is saying, what I'm saying, or they didn't learn it. They don't understand it. And so we don't have anybody who can take decisive action. And that is a problem. Even the ones who do understand, if you listen to Jeff Booth, they'll just say, look at the incentives. you know, look at the incentives of the system. The system is, is broken and the incentives are another four years. That's it. Period. Those are the incentives. And you know, why wouldn't you want another four years? If you can, if you can get 120 to $180,000 salary and be worth a hundred million dollars,

why not? You know, I mean like that's a great deal right and so yeah i mean the one point i want to make here is look bitcoin october all the stuff you know look it's a squiggle you know in a long-term chart if you're looking at the difference between what you know point you know whatever say 3.8 percent or 3.8001% probability of becoming digital gold. These are trivial numbers in the long run. Unfortunately, I look at Bitcoin very different than the rest of crypto. The rest of the Bloomberg Galaxy Index, there's a lot of stuff in there that are tech stocks and are going to move as NASDAQ or should move as NASDAQ. So, you know, it is what it is. Look, I don't disagree. I've never disagreed with Mike's fundamental thesis that the economy is barreling towards a cliff.

The question is, will they be able to quickly build the road out connecting that cliff to the next the next high point so that, you know, up further so the cliff gets higher and higher. That's really the question, always has been the question. One last point. There are still a majority of people in this administration who subscribe to modern monetary theory. And we could wish that it isn't so, but it is true. So at the end of the day, what does modern monetary theory say about all this? Well, it says that we can print money in order to paper over this. And the most important thing, and there are some very smart people who will make the following statement. They will say that if we can incentivize capital back over labor, which of course, this genie is very hard to push back in the bottle, you've heard me say it, that we could remove inflationary

pressures. That's why you can get things like, you know, oil going down in an environment where, you know, where all this stuff is happening. It hasn't happened because the fact is, is the regulatory state has made it really, really hard to pump oil. And people are forward looking, looking at it. The same thing is true about all the aspects of supply chains across the economy. And that's something that's important. So, you know, these things are all connected. But I listen to Mike every week. And every week, I think, oh, my God, he's absolutely right. And then the question is, I then think, okay, will they be able to kick the can down the road? Will we be able to sustain this seemingly wily coyote over the cliff of valuations on home prices, on general equities, on whatever, vis-a-vis bond yields, where usually you would expect the S&P dividend yield to be higher than

long-term bond yields. Not so anymore. You haven't mentioned that one today, Mike. Well, it really comes down to, Dave, what it comes down to. And, Mike, you're itching to respond to like seven things that Dave said here. But what it really comes down to is how bad does the economy, you know, does the economy seize up? And really what the issue is, does the treasury market seize up? That's the problem, is if the treasury market seizes up, we know we're going to have QE infinity instantly. It is an instantaneous process where

they're going to print money and monetize debt because they have no choice but to keep the treasury market liquid period full stop. That's the biggest problem. And so the question is how many times can they do that? And how big is that print going to be? That's really all it comes down to because you only have maybe one or two more cycles of this. And then you're literally, why am I a republic? There's no way out of that. But can they kick this down the road, like you're saying, long enough with high enough inflation that we sustain it and bridge that gap before we have a treasury market seize up, where we have illiquidity and

they have to step in? That's the big question for me. So I got to follow up, and that's a lot of good stuff there. I want to follow up with a few good charts, if I can share a screen on those. And that is, first of all, we know what's happening with the deficit. It's increasing rapidly and bond yields are going up. But what's not happening yet is the dollar's hanging in there. Why? Because dollar is the least worst of all the other fiat currencies. And higher interest rates here, just the interest rate parity, right? So that's what I show you here. Exactly. Interest rate parity. And what you showed is it's unstoppable force right now, stoppable force, particularly when it's yielding so much higher than the top leading economies in the world, China, Japan, Germany. So here's the dollar,

but what you do is overlay the dollar with the stock market. That to me is part of that lose-lose. The stock market has to go down basically for the dollar to give up the ghost to not break the global economy. And to me, that's where you see that spiking in bond yields where you see this spike is the most significant ever in in um in log but what i wanted also point out is what a few things that dave said about um i'm expecting severe deflation which is a normal situation after you have a massive spike in m2 like we did this is m2 money supply and also i overlaid this in the same scale with pPI. Now, here's a fact about PPI, the producer price index. It's basically synonymous economies

with commodities. The high from 2008 was plus 9.9%, so about 10%. You know what the low is this year? Minus 3.1. It's tilting towards deflation because the plateau is so high now. Like the average home, we talked about this last week, the home average is around 400 before a couple of years ago it was 200. Now there's only a lot of room for that to go down, which shows deflation. And to me, that's the main thing that's going to be happening, is kicking off to normal deflationary trends. And there's one thing I also want to show is there's a big problem with alts. What I show you in white is just that this is the market vector digital assets, 100 small cap index divided by Bitcoin.

I mean, it's just trading lower. That makes sense. I mean, Bitcoin is the benchmark crypto. But what is the overlay with liquidity from Fed funds? It's heading lower. The key thing I'm worried about is what happens if the stock market takes that lead and heads lower. And one thing I want to point out is when you talk about crude oil and commodities, this is the number one chart that's been pressuring crude oil for the last 15 years. What I show you in white, that's the excess of

liquid fuel production versus consumption in the US.S. and Canada running around 6 million barrels a day. That's enough to fill up the SPR in about 70 days if we just cut off exports. Sorry, rest of the world, but we can do that. Right before this massive spike in 2008, it was running a deficit of 11 million barrels a day. What is that about? That was during the Obama administration. It's just fracking and horizontal drilling, the ability to create more with less and use more. That's the significant thing. But to me, what I just put in this little chart too is Fed funds. Bottom line is the liquidity is just pointing very negative. So that's why I kind of push back and anybody

who talks about, I think, yes, stagflation in the short term, tilting over to deflation. And what's going to be the best way to show that is if the stock market goes down and we'll see those deflationary forces. If it doesn't, that's so much stagflation. And I'll end with this. This weekend, I was going to publish something that I think is going to be profound. You know what will make all this stuff work out is the markets will make our leaders come to terms. The markets will make, okay, fine. We can't, this deficit is unsustainable. So the markets and markets collapse. Yeah. They'll do something about it if it's because of the stock market going down and deficits increasing, but that's the problem. It might mean markets might need to make our leaders

be rational and do something about these unstoppable negative forces. Be rational. I mean, looking at the dollar, this is an astounding run that the dollar is now on. It's basically ended any argument that it's in a bear trend here, bear market. I mean, it's making higher highs. And I mean, was that one, two, three, four, five? It's like 12 weeks in a row. Great.

So, I mean, there's's something but that chart is is literally the the part where my thesis comes from scott with all due respect i know i'm i know you know monetarists like milton friedman and the people who i believe with are you know whatever we're dinosaurs inflation is a monetary phenomena and the amount of money being printed globally is absolutely off the charts the amount of money being printed globally is absolutely off the charts. The amount of everything in terms of money is off the charts. You don't get deflation if the denominator continues, you know, if the numerator or however you want to look at it in that environment. And the reason the dollar is going up is because it's the best damn worthless piece of fiat out there.

Right. You know, it's like, where are you going to put your money? You're going to put your money in the pound. You're going to put your, you know, post Brexit, what's going on there. You're going to put your money in the Euro where their economies are, you know, well, let's just say not as vibrant. You're going to put your money in China, which has built multiple cities that are standing empty and, you know, massive misallocation of capital on an epic scale. You're going to put your money in the yen where we've talked about they have 0.77 long term yields despite a debt to GDP at around 230, is it?

I think, James. You know, it's like, where the hell are you putting your money? The answer is, is we're all playing Monopoly. And at some point, you know, it's game over. But, you know, it's game over. But, you know, maybe the game continues. Just remember, on a global scale and on a historical scale, 1971, that's when this started. When Nixon de-pegged from gold. And it doesn't matter that it's gold. It matters that it's something, right?

When Nixon de-pegged from gold, the world went on a fiat standard. We are literally not even 75 years into a monetary experiment compared to 5,000 years of human history. I mean, when you look at, there's a chart, you know, the Fred, the St. Louis Fed does a great job with charts. And I'm sure it's the same thing. When you look at the up and to the right nature of consumer credit, and you ask yourself, where is the economic strength, the resilient American consumer, the resilient American consumer is resilient because they keep

getting offers in their mail to refinance this and finance that refinance that and consumer credit keeps going up. That's actually great to pull up the chart. You can just talk to this, Dave. It's exactly what we're talking about, right exactly you're looking at the same one on my screen exactly that matters so you know it's everyone when you start saying that you're expecting deflation i mean sure commodity deflation if we continue to invest in excess capacity sure that will happen but there is no way that you could put the genie back in the bottle when it comes to services and people working. And wage push inflation is literally what happened in the 70s. And there were people talking about deflation once OPEC decided to stop

screwing us in the 70s. And guess what? It doesn't work like that. People are demanding more. And just never forget that the Federal Reserve is, as I keep saying, out on an island. Basically, there are people in both parties. This is not a Democrat-Republican thing, although it's definitely more our current leaders cheerleading wages and cheerleading people saying they need to get more money. And that is inflationary. So yeah, you might get things like oil, which we can produce more of if you deregulate. That's true. We certainly can induce energy deflation. We can unleash productivity, but we haven't done it. And so I'll keep saying the same thing. The fact of the matter is consumer debt, just consumer credit, you know, not even we're not even talking mortgages that are revolving debt. From my view on that chart is approaching, you know, probably now $1.3 trillion.

That's double the market cap of Bitcoin. Double. That's just America. And so that's kind of my point. My point is the paper, I'm talking about the paper game being worth less. I don't know in real terms what could go up. I think Bitcoin is your best bet if, because it's enormously speculative, right? You know, you want to talk about risk asset,

it's an option. And I'm telling you, the numbers are around 4% probability of it becoming something, right? You know, people in Bitcoin land hate when I say that because like, oh, it already is something. And yeah, it's something if you're in Venezuela, maybe, or in Argentina, maybe, or in Turkey, maybe. But in the rest of the world, it is not. People want to be able to buy stuff in dollars and they want something stable. It is, however, a potential hedge against all this stuff blowing up. And everything in this conversation, literally everything you've said, Mike, everything James has said, everything I'm saying are all reasons why a small portfolio allocation to an asset that is essentially a put against trust in institutions makes sense.

Now you look at supply and demand. And there isn't enough at prices even close to this for people to have a 2% allocation across standard portfolios. It's not even close. And so that's my reasoning. Does that mean that it will happen? No, I actually expect that there's a very real chance could happen the next three weeks literally could because october next four weeks october is traditionally the time when the stars align for uh people who get this nervous and start pulling and remember this is a competitive game you know it's it's like what james talks about a credit event i think it'd be really useful to hear it what why and the mechanics that happening if that happens everything drops at the same time there's no question right this is not this is not rocket. Correlations go to one on the downside. What I'm talking about is inevitably where does it go and what's the likely best port in the storm. That's all I'm saying. I want to be really clear about that.

Yeah. And where does it go really depends on, again, how big the credit event is, whichasuries. But when you have a credit event, that's exactly what you just said, where it's just, everything correlates to one. We've said it over and over again, just so people can actually hear it and get it in their heads that when a portfolio manager walks onto the floor and he's looking at his book and he knows he's going to get a margin call over here because every fund, every investment fund has some sort of borrowing capacity. And once they just take a peek at their book and they just say, look, sell 10, 15, 20% across the board. Just give me liquidity so I don't have a problem. And when that happens, it doesn't matter what the asset is. It's getting sold off.

So that is the big question. But look, you're exactly right. And I think people have become complacent. And that is my worry, is that we're all just kind of like, oh, yeah, we're going to get through this fall and everything is going to be great. We have a soft landing. But meanwhile, you know, Scott, I brought up that, that chart on delinquencies, delinquencies are rising, you know, on auto loans and credit cards.

They're not at, they're not in anywhere near peak level yet, you know, but they are rising. And that is the, that's kind of the, the stop sign that we're, that we're charging right through here. And look at the student loans. They haven't even kicked in yet. I predict that those go between 5% and 10% delinquency immediately. That is not going to be like, oh, people have been saving money. You just saw, people are not saving their money for the student loans. You know, who has student loans, not the top 20%. They, the middle 40 and the bottom 40%, mostly the middle 40, because they, they don't take, they have to take out loans because they don't get, you know, financial aid. And so that's going to be a problem. You know, it's, it's kind of funny because this is another quote I read on Bloomberg this morning. It was almost laughable, but it's true. And this is where it's between Barbenheimer,

Beyonce, and Taylor Swift, $8.5 billion were added to GDP in the third quarter, $8.5 billion. And so when you think about these consumers who were borrowing on credit cards and now they're like, okay, well, I got that Taylor Swift ticket for 1200 bucks and I can't really pay for it. You know, that's where it starts kicking in, but they're all lagging effects. And so, you know, you go back to this chart and this chart, it's the lagging effects that we're going to start feeling. And welcome to October, you know. Mike, go ahead. Mike, I want to go ahead, but I do want to ask you a question before you get too mcgloomy, which is to talk about Bitcoin.

Is there a price that Bitcoin could hit here in this environment that would make you rethink the thesis? If we were above 31K, if we were at 35 or 40? Yeah, it would. Exactly. It's a lesson I learned in the trading pits. And that is, show me the chart. Let the chart, it's like, does it show good chart? Let me the market tell you. And that's what I'm pointing out here is if it can at least sustain, a day like today is great. What we've seen the last few weeks is great. What we've seen in Q3 is not good because Bitcoin was the first one to go down.

Now look, stock market's rolling over and falling. Yeah, Bitcoin's bouncing a little bit. I get it. But absolutely, that's every day you look at this. So this is what I keep showing here is if Bitcoin can show divergence strength versus negative liquidity and the stock market going down, there you have these theses kicking in. It's going to kick in someday. But so far this year, just remember what's happened. All risk assets went down last year. All risk assets have gone up this year. Bitcoin has started going down before the other ones have. Yes, it's bounced the last few days. That's the fact of what's happening. So absolutely, that's where we're going. But it's the key thing I want to put some levels on this without just

trying to be the doom and gloom guy. Let's take a talk about, and to me, not only this is not doom and gloom, this is from someone who spent his whole life on the phones with clients and running money. And this is an awesome opportunity for people who trade, who manage money, who are not just, oh, I'm going long for the last 10 years and I buy every dip. That's what's going to change. And that's why I'm going to show one more chart. I want to point out, this is the key thing, putting some numbers on it. I overlay here, it's again, my main liquidity thing, Fed fund futures a year from now. I can't emphasize that enough. Once that keeps going down, that's price going down, it means they're not going to provide that liquidity.

What's the number one rule in markets? It's liquidity. What's the key thing that's kept the stock market going up for the last 50 years? Every time it goes down, the Fed would ease. Here's a simple measure of what's happened since 2015. If you overlay the S&P 500 with copper, just take the S&P 500, divide by 1,000. It's the same price as the dollar price of copper. Copper is going to three, in my view, in a normal global contraction. It's happening in China. It's happening in Europe. It's happening here.

And we're still hiking rates. That means to me, simplistically, S&P 500 should go back to 3,000. Now, for people who've traded for the last 10 years, that's a big deal. For people who've traded for 20 or 30 years, that's normal correction in a recession. We haven't seen kick in since 2008. It's just the way things work. But then you add into the human nature, which Dave and James have mentioned. That human nature is the thing that I find so intriguing in this market. People will not believe it, I think, until they have to sell at lower levels, until their brokers give up. And I think this will be one of those cases in history. The only time will be to go in to buy risk assets with the exception of maybe Bitcoin or gold or

treasury bonds are not risk assets is when everybody gives up. And I didn't say if, it's just the way it's always happened in history after you have the biggest pump in liquidity ever. That's just in the early days of dumping. Let's remember this, M2 is still negative. I mean, it does feel like people gave up on crypto though. I know they didn't give up on the stock market at the bottom, but it certainly felt like a year ago at FTX that we had true capitulation in this market. I mean, look, the problem that I have with this narrative, and by the way, I agree with know, other risk assets and most notably equities and more and more particularly probably biased 130 30 or whatever with some ratio, I would probably be more short than long where I running money. Now I am not running money. So I am just sitting with

my own, you know, very, very unlevered. I always say this is my public service announcement for all the morons out there that think that they're going to cap this, this, this, this move. My unlevered long position in Bitcoin, my belief in my own company and what that's worth. Some real estate that I suspect in nominal terms could could drop in in real terms could drop. But in nominal terms will probably stay where it is because we are going to see raging inflation unless we get unanimity on between the fiscal and monetary policy. There is no way the Fed on its own could do a damn thing to stop what's happening when everybody, and it doesn't matter where you are, you find somebody who believes that their purchasing power hasn't been hurt, that people

think it's not fair. And, you know, the educational system, the youth, there's so many different things we could talk about. But the fact of the matter is, I do believe Bitcoin will de-link. I think it already is de-linked. I think that, you know, that this is exactly the kind of cauldron which will help, you know, the second stage or third stage of the rocket to accelerate, but it won't be a rocket. It will be in terms of, the metaphor is 2008 birth Bitcoin and all the machinations since then have helped the monetary network grow in power. But the point that I wanted to make is within the crypto sphere, you're already seeing what Mike has said, NFT values, which were insane. I mean, let's face it, a million dollars for a fricking rock,

millions of dollars for JPEG pictures that a child could create. I mean, and an infinite supply of these things, of course that had to crash. We may have printed too much money. That is the leading indicator that says it's already happened. But literally even talking about JPEG NFTs and Bitcoin in the same sentence is malpractice. They are totally different things. And it's problematic when you talk about meme coins and Bitcoin in the same sentence. Arguably, they're totally different things. And it's borderline malpractice. And people, I know I'm going to rile up your audience, Scott. Good. The fact of the matter is there are still, of the thousands of and people are, I know I'm going to rile up your audience, Scott. Good. The fact of the matter is there are still of the thousands of projects there are, there probably are a hundred that bode incredibly well for the future of, of, of markets where they are niche. So gaming is a real use case and it is larger than Hollywood. And it is larger than that GDP spike that James

taught. We're talking double digit trillions. So yeah, there will be some, the possibility for level layer ones and twos to help scale a new financial system. Sure. How, what percentage of the current tokens in the, in, in whichever index you use are actually part of that? I have no idea. I honestly don't. I know Bitcoin. 1% of 1%. Yeah, that's kind of the thing. So yes, what you're saying, Mike, is absolutely true. And the best possible outcome, it won't happen because we never get things as nice and neat. The best possible outcome would be Bitcoin delinking from the rest of crypto and potentially Ether delinking. But Ether's use case is part of its use case now

is to support all this crap and so ether has to take a hit relative to if if the rest of crypto which was liquidity fueled finally dies out that doesn't mean there is an enormous potential for ether to be used in financial markets and other use cases that are real. It just means that a lot of what has sustained Ether over the last three years have been NFTs and meme coins. So that's kind of my point. My point is looking crypto monolithically is like looking at the stock market monolithically and comparing a utility paying, okay, if they're paying less than T-bill yields, probably you don't like it too much. And maybe they have regulatory issues with global warming. But when you look at certain stocks,

there is massive dispersion in yields in the stock market, right? And massive dispersion in valuations in the stock market. It is actually probably larger in crypto. That's kind of my- By the way, Dave, you brought up earlier, obviously the arguments of energy FUD against Bitcoin. I don't know if you guys saw, but there was a slew of articles this week, basically that you could have replaced the word AI or Bitcoin with AI. And we're getting a whole slew of articles now

saying that AI is going to boil the oceans and is using more energy than the country of Argentina. It's literally the exact same articles we got about Bitcoin for years now on the newest emerging technology. And you even see like Gensler and the SEC now saying, forget crypto, AI. Here's the good news. It's almost like any new technological advancement now is going to get the same checklist of fear, your uncertainty and doubt. But if we boil the oceans, then we won't have a water shortage, which is the next thing, right?

That's right. That's called desalinization. What you're describing also is one of those wonderful things about human nature. It'll never change. It's so entertaining in markets, just sensing that and seeing it. And I remember, I'm sure when you're trading, sometimes you look for those signals like, oh, OK. So they point out there's a double cross bear signal in Bitcoin. Well, then I'll buy some. I mean, that's just the way it works. But I want to just show you one key chart. I'm going to admit it. No, no, it is. It is emotion.

It is emotion materialized. That's what the market is. It's literally human emotion materialized. That's what the market is. It's literally human emotion materialized, period. But I want to just take out, I showed you the shorter term. I think the S&P is going to 3000. I think, I'll show you this next chart. I think by the end of this year, we're going to have some clear signals that the stock market is in a bear market. And that'll be, so by come December, if we're not, McGloom's going to have to really change, but I think it's already starting to kick over.

But to me, it's also when you see 100-year patterns, which is what I show you here, in orange, that is just the S&P 500, S&P 500 divided by GDP. You just take trillions, add to zeros, you got the S&P 500. So it got the most expensive ever when rates were in the longest period in history of zero

and globally negative. And it got very cheap back in the 80s when rates were really high. All we're doing is reverting that. It's that simple. It's not going to be easy. It's not a short term. It's not a day trade. But to me, that's what's happening in the macro. This is why Bitcoin was born. It was born in this environment. That's why I'm worried. This is where all cryptos were born. That's what we all agree on. Most of those 30,000 cryptos are are probably they might not go to zero but they've got a lot to still give up um and sorry but people holding their bags what did you buy and why you bought it for speculation come on we all know that um but this to me is what's happening all

those are going to do is go back to normal we have always over history go back to parity with gdp and it's going to seem horrible. But key thing is right now, there's nothing to stop it. Fiscal spending has already given up. We've hit diminishing returns. The Fed is still tightening and they said they'll keep tightening. Yes. What? You know what they're going to stop tightening? Probably when we start heading towards. Because if they don't, if they, if they step in too early, that's our, that's our path to hyperinflation. And that's the key thing I want to point out. I forgot to mention, this is the path back to deflation. Just taking this most unprecedented period in history, you find out everybody who wasn't wearing clothes and has 14

Airbnb's and all these condos and everything, taking that back down a little, a notch, sorry, it's just the way human nature's always worked and that's the massive deflation because we just pumped the system to the most expensive ever and only actually 1929 was the only time we got more higher than this versus gdp and we all know one problem i i'm sorry every time you say deflation i want to be clear the u.s government the Japanese government, the U.K. government, the government of most of Europe, not necessarily Germany, literally can't pay their debt back now. We've reached, we've gone through, there was a great article, I can't remember who wrote it. It was talking about the black hole and it's someone that you follow, James, or maybe even it was you, I don't know. But they were talking about the event horizon.

And the fact of the matter is they can't pay it back. With deflation, that's impossible. The only way the governments are going to be able to pay back the debt they have, or as opposed to kicking the can down the road, is with inflation. So you might see deflation in commodities. You might see a massive recession or even depression, which causes, you know, people that, you know, which causes more misery, but in adjusted misery for what's going on, the government can't afford to pay back their debts unless there's, unless there is some version of inflation. That's just, that's just math. And so, yes, and that's actually bleaker than anything else. Scott, one other thing I wanted to say is there's one of my favorite lectures ever given by Isaac Asimov.

It's called The Future of Humanity. You can look it up. I have the link here. I can share it. He actually talks about human historylli's principle and the canal operators railing against horse-drawn carriages for delivering stuff. It's very funny, but it's very good. And when you talk about AI, that's all I could think of. It's like, okay, what is the way out of this mess? There's only one. It's deregulation and a massive increase in GDP,

kind of aka the next industrial revolution. That's it. That is the only way for Mike to be right. They have massive deflation in the ability to provide stuff to people because it costs less to do so. And that's why, you know, and so that's literally the only way out. But the big point here is, yes, the government needs inflation of a sort, monetary inflation. Government does not need consumer inflation. They want monetary inflation. That's right. They want to get back to where we were before the morons decided that you could throw helicopter money at human beings when supply chains are being constricted and not increase and not switch from monetary inflation to consumer inflation. Right. And by the way, once again, both parties, this is not a political anything. I mean, this Trump is the one who started with that and it's just been continued. That dichotomy is is extremely important and very few people talk about it. There are a few,

but it is a big deal because, you know, inflation expectations, and we're seeing it, is what matters. If people think they need to be paid more to do something because they can't afford their current world, that's going to be inflationary on the consumer side. It might be deflationary on the asset side. And that's exactly the opposite of what we want. What we want is asset inflation and consumer deflation. What we're likely to get is asset deflation and consumer inflation, which is literally the opposite. Seriously, that to me is the key because everything that Mike is saying is leading towards that outcome, not saying it's baked in the cake. They might be able to kick the can again,

but the truth of the matter is that is the situation we face. And they know. A good example in history of a rhyme, the deflation in 1933 ended when we debased the currency versus gold. What did it take to get to that inflation? Severe deflation. To me, that's the scenario you mentioned Japan. So I have to show this chart. Right now, the current situation for u.s trajectory is severe deflation we're already showing it in ppi money supply is negative the dollar is unstoppable that's the case right now yes the deficit i get all that but to me here's the trend okay so we've seen what's happened japan in the last two decades since 1989 typically negative zero interest rates massive deficits they've been able to manage it.

Here's a scenario I'm thinking. We're going to get to that severe great reset, and then at some point, markets and governments will have to do something to re-inflate. But the first thing is you deflate what's already happening, and that means everybody, everything. And here's a key bridge you've got to get across. You have to at least have money supply increase. If you have a declined supply of money, there's no way prices can go up. It's just the way it always works. You get that, how the math goes. And as I pointed out, PPI this

year has dropped at a greater pace than any time in history. So from an aberration, it's that next step. And like I say, what's the next step? To me, the first step is here. I'll show you this one screen. This is the one screen I want to say that we have to watch. The number one first step is we have to at least take tightening out of the system. So right now, Fed fund futures are priced for 32% per chance that they'll hike by the end of this year. 5.46 is the rate expected from futures versus effective rate of 5.33. That's my point is the fiscal, the monetary phenomenon is still reducing that liquidity, which is deflationary. And until that spigot gets turned back on, we should expect risk assets to continue to decline. You can see that obviously in broad cryptos, particularly today. Like every other money, barely nothing's up like Bitcoin is. So maybe Bitcoin's finally doing that digital gold

thing. But this to me, it's the number one thing we have to at least get past this before we can start talking about inflation. The Fed has still got his hammer on that button, which is the number one thing in history to push back on the money supply. I mean, just reducing that supply of money, which we pumped up too much in the last three years. Right. And so if you've got the last chart to put an action. Yeah, and then I got to go because I'm literally setting up breakfast around me

and cleaning around my feet. And this right here, it puts an accent on what Mike is saying, is that you're watching the banks tightening their lending standards. And, and this is always happens right before recession or into recession and look at where it is now. And so we're, we're getting there guys. And that's, and that's where deflation occurs. Agreed. There won't be a soft landing, guys. The moral of the story is we have four people here who think of recession at the very least as coming. See, now they're cleaning right

around. Mike has been walking behind the whole time. Yeah. I know, Mike. I want to make one joke, by the way, because you sort of made the joke about, oh, the double death, whatever cross and price. If you guys were following one of the big analysis the other day was this death cross right here that was going to crush us all. And if you had bought that death cross, instead of selling it, you bought exactly at 24,927 with price now currently breaking through resistance at 28,500. Right. So that was that was the ultimate bottom signal was the death cross of the 50 and 200 MA that was so much disgusting. Well, is amazing first of all i i saw in the chat i have to do it real quick des i saw that you said to give your wife a shout out for uh

her birthday is tomorrow and des is here every single day and his wife he said allows him to be here and to join us so thank you to her huge shout out to her somebody else in there also said it was her birthday today 43 years old happy birthday happy so guys listen i got the sun to rise behind me james we did it it's it's i feel like one of us nice we did it all right guys thank you so much i gotta run they're gonna they're gonna check me out bye everyone see oh i'm gonna be here the next three days everybody will be back friday bye everyone peace Bye, everyone. Peace.