The Wolf Of All Streets - Bitcoin Hits $42K - INFLATION IS YOUR FAULT!!! Macro Monday

Episode Date: December 4, 2023

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Unless you've been living under a rock, you know that Bitcoin just hit $42,000. It was big news yesterday when it broke $40,000, but as it tends to do, it continued on up. We're obviously going to talk about Bitcoin price action today, what's driving it and why we're seeing these high prices. But we also want to talk about incredible gaslighting coming from the mainstream media and from the president, White House himself, saying that inflation effectively is over. But even an article in The Atlantic saying inflation is your fault. Can't wait to talk about this gold's all time high temporarily with Mike McGlone, James Lavish and Dave Weisberger. This promises to be

the most exciting Macro Monday ever. Let's go. What is up, everybody? I'm Scott Melker, also known as the Wolf of All Streets. Before we get started, please subscribe to the channel and fist pump $42,000 Bitcoin on that like button. Pretty exciting day. You guys may not really remember the significance of $42,000 Bitcoin. I can actually kind of show you on a chart. I have a chart here that's all the weekly levels I've laid out. But $42,000 right here, that was the top of the bull market very temporarily after Tesla bought Bitcoin. We had that huge move from $20,000 up to $42,000 when Tesla put Bitcoin on the balance sheet, a retracement broke. And you can see that prices danced around that level as support and resistance. For many years, I kind of joked that that was the natural price of Bitcoin was $42,000. And here we are again.

You may have seen that right when Bitcoin tapped $42,000, there was a slight sell-off, but alts dropped like 15% or 20%, showing you that right now, Bitcoin, the honey badger, remains the king. I'm going to bring on our guests. I should say co-hosts at this point. Right now, I've got Mike McGlone, James Lavish, and a walking Dave Weisberger, who will inevitably be in the office momentarily. We had him in the car a second ago. I'm going to give him a second to get in his seat, actually, because it seems

like he's frozen there. But once he's unfrozen, we're going to talk. First, Mike, before we get into it with Dave on Bitcoin price action, can you just give us the quick rundown on what the morning call was, what you guys are looking at, and then we'll get into the topics of the day. Well, I enjoy my colleague in Bloomberg Economics, Ana Wong, the one-handed economist, which was the dream of Harry Truman. As you said, this recession has probably started already. If you look at retail sales and things from, yes, people are hyped up about online sales, but typically it's credit card data that matters. And it's showing basically flat, which is next inflation, which is not good. But expecting the SOM rule to kick in, expecting unemployment to edge up to 4% by next March. And she really thinks the Fed's probably going to start cutting rates because expecting inflation to decline. She's sticking with the Fed fund futures already show cuts of

about 100 basis points for next year, but because of a recession, not because the bond market thing is just slowing economic growth. I did enjoy from our more quant person in equities pointing out they have an economic regime model, fits well with Bloomberg economics and recession. We have a great analyst who's our chief derivative strategist. His quote was Tanvir Sandhu said, equity vol current levels is compelling. I think everybody gets that. Volatility and equities, 13 VIX is like, well, you're not going to short it, so might as well buy it. I think that's what's happening. My mantra is that I pointed out earlier, you've got to be careful what the farmers warn when in equities, when the bulls get turkey for Thanksgiving, bears get it for Christmas. That might be kicking in.

We'll see. But from my standpoint, the biggest surprise this morning, as I just pointed out, the all-time new high for gold, which printed about 650 Eastern time last night, is $2,135 an ounce. Now it's pulled back. How strange was that on a Sunday, by the way? Yeah, it was very strange. I'm sure there are some shorts who got stud up the highs. I remember doing that and having customers having that happen. It's not fun. But that's just how markets work. But the key thing I think that's significant today is I think a main reason gold's pulling back now, it's down about $20, down about a percent, down to $20.50, $2,050, is because Bitcoin has taken off. That, to me, is the most impressive thing I've seen in a while for Bitcoin. Now, yes, you point out 42,000 is great resistance.

But just the fact that this high volatility asset is doing that much better in this kind of risk-off day in market is pretty significant indication of just in time for Dave to pop on and what James had been saying. But it's showing the meat. It's showing the beef of actually showing that divergent strength versus everything else declining. So I'll end with this. From my standpoint, from a commodity standpoint, we're showing clear global recession. We have energy sector down almost 20% this year, industrial metals down almost 15% this year, grains down almost 15% this year. And the only one that's up is gold. And the key question is what stops that?

So to me, the biggest risk for the macro is next year. We just get a little baby reversion in the stock market rally this year. And only one that's up is gold. And the key question is what stops that? So to me, the biggest risk for the macro is next year. We just get a little baby reversion in the stock market rally this year. And that's the whole, all the dominoes tilting towards deflationary recession. And Bitcoin is doing well so far in that environment. Before we jump to Bitcoin, I do want to say this is the gold chart XAU on forex.com. You can see it pumped up to about 2146 there. The all time high was 2081. But the high from, you know, back in 2020, the range high everyone was looking at was kind of 2075. It got savagely rejected here. I mean, that's a weekly candle doesn't matter. But a daily candle like this tends to look like you're going to sweep the highs and head back down. So

maybe this was just a massive fake out on gold. I don't know. It's going to be really interesting in my mind to see if gold continues to push and can actually start closing above those levels I think would be significant for a lot of people. Okay, Dave, victory lap. Enjoy. I'm glad you said, where's the beef? We'll have to figure out.

I think because we're in Miami, we should try to find the best churrascaria. But we'll have to figure out what the time is. The Argentinian beef where you can like uh eat a year's worth of steak in five minutes we don't want one nice place that's good but it's like okay i like to find something a little bit more uh we might be able to film a little bit a little segment there but look the simple reality is that my thesis and the reason I think we were going to get here is not to disagree with you and James on the macro side, but actually it's because of the macro side. The fact is Bitcoin, if it succeeds, becomes the ultimate counter cultural, counter government, lack of confidence asset. The whole point of Bitcoin and

all the adherence is that the fiat experiment needs a better measuring stick than boomer rocks. And look, I'm a boomer, and I was a gold bug for years. And the thesis is that there has to be some measuring stick to measure profligate spending. It always has been. The problem is, is gold in 71 was 100% of monetary aggregates. Gold in 2010 was 10% of monetary aggregates. And now I'm not even sure what it is. I think it's like down to six or seven. But, you know, the fact of the matter is, is that it's easier to depress the gold price if you want by creating paper gold.

And we know that, right? There's no, it's much easier. It's much harder to understand what's there. Plus, gold doesn't really work very well in a digital world. It just doesn't, right? You can't send gold. Yes, I know you can do, you know, RWA assets on web. And there are various people who have created that.

But at the end of the day, you're still trusting a vault and you're trusting that there is an audit to the gold bars that are in said vault. And it's not nearly it's not the same sort of thing as Bitcoin. So why does that matter? Well, you keep using that word volatility. And every single week, I still argue that it's a feature, not a bug. And the reason it's a feature, not a bug, is it's because of the optionality on what Bitcoin could be. I mean, $42,000 is a very important technical level. There's no doubt. Scott has explained why.

I fully expect it to take a while to get through that. I fully expect that we could get rejected here. And there's some other technical reasons we'll talk about later. But understand that what we're really talking about is will Bitcoin become digital gold? Meaning, will it get to, depending on who you want to listen to, and there's various reasons for it, between 250 and 500,000. That's literally what we're debating. So it's either a 5x or a 10x from here is the next real stop if it's going to get there. And if it isn't going to get there, well, okay, then it's a niche product. And that's the issue. So yeah, it's going to be volatile when

you have that sort of a background and we can talk about it. But the fact is, is the volatility. Now, you can't look at Bitcoin without understanding supply and demand. And right now, the demand is from speculators, full stop. The demand will come from asset allocators at some point next year. And so speculators and sub-asset allocators are trying to get ahead of it. Now, you know that they're trying to get ahead of it because you can look at the premium on the futures, the CME futures, and it's still between $500 and $600. It's been as high as $800 or $900 this morning. And when it gets to that level, you know the speculation is sort of intense.

And so you expect a retracement, and it's happened every single time. I'll show charts later. Anyway, that's enough of a victory lap. The fact is, is we could both be right. One last point on macro. You mentioned the Fed cutting rates a bit. As I've said repeatedly for the last year, I fully expect that in an election year, there is a 0% probability that the Fed is going to allow the economy to tip into a massive recession because they would be, if they were the ones doing it, they would be blamed for the outcome of the 2024 elections, which is so screwed up for so many reasons. It's not worth discussing. But the truth is, is I've always said that their can kicking is going to get extreme.

So that is not a surprise. Yeah. If anyone's wondering what we were talking about there, there was a bet on this show not so long ago. And I think it was 15,000 versus 40,000 when we were at about 25,000. Is that correct? So Mike theoretically has to buy Dave a steak. But I have graciously offered since these gentlemen wake up every morning for free. I'll buy these guys literally 100 steaks. We'll go for A1 Wagyu in Japan if Bitcoin keeps going up, guys. I'm going to fly. A5, excuse me.

And I will fly you guys there. But yes, that was the bet. And it's interesting that it's happened, I think, in this environment. Dave, you just talked about an election year. We've only had three election years since 1928 by this Bloomberg by this Bloomberg chart where we've had a down year for the market. Right. Obviously doesn't mean it can't happen again. And let's be frank. That was 1940, 2000, 2008,-2008 are pretty recent. So if you do it since 2000, the statistics, I think, are vastly different. But 83% of election years, you see positive returns in the S&P. And I think that that's sort of what Dave's alluding to as to what will happen. Before we move on to inflation, James, just your take on all of this, where Bitcoin is standing, how we got to 42,000,

what the hell's happening here? Well, first of all, I've got to give a nod to those longhorns for making the playoff. That's going to become steak, I think. My daughter's a senior there, so we get to celebrate. It's finally happening for them. Texas is back. So a few things. First you know, first of all, going back to just on Bitcoin itself, I don't I don't really I haven't been thinking about the 40,000, 41,000 dollar level, 42,000 level, because that's where Bitcoin was before we started that steep drop off in May of 2022 that ended in that 16,000 and change price of Bitcoin back in late 2022. So that is the mental level for me that Bitcoin holds this mental level. It is hugely significant that we pushed through that and we not only held it, but we jumped all the way up to 42,000. So that's a really big level in my mind. So that's the significance for me. As far as the overall backdrop of it,

I believe that Bitcoin is marching to its own tune. It has to do with the ETFs. And there's a lot of speculation that ETFs will get approved in January and that there will be multiples of them. I believe that people are starting to realize that when these ETFs get approved, it's not just like gold where you can create paper gold underlying. I mean, if the ETFs are structured the way we believe they will be, it's going to be difficult to just layer paper on top of it and suppress the price with paper Bitcoin because you're going

to have an actual, the ability to actually audit the underlying NAV of that ETF to see that it does match. You know, we've seen, I watched a video this weekend and I own gold. I mean, it's a good defensive asset, you know, but it is just like Dave said, it's nowhere near the asset that Bitcoin is for the future. So as far as a store of value, I mean, I was watching a video this weekend of a guy doing a test on a one ounce gold coin and they pass all these tests. And the reality was when he cracked it open, it was just a thick coating of gold, a plate of gold that allowed it just enough gold to allow it to pass the test. And it tungsten underneath i mean it's just it's um that it's difficult you know we saw it in jp morgan i think had had uh nickel plated or gold

plated nickel in its all i mean so it's it's different uh and it is it i think it's going to be much uh more resilient to to uh those those kinds of those kinds of paper and fraudulent attacks as far as ETFs are concerned. But with the economy, I mean, just reading the different articles this weekend or just this morning and what the market is doing, it seems confused. The market is now, the futures are down because people are expecting the Fed is going to hold rates higher for longer. Well, it just doesn't make sense for that to be true if rates are coming down at the same time. The reality is, I think that some people are starting to sniff out that, and the rates are up slightly this morning, but I think some people are starting to sniff out that

this may be the end of the trail for equities. And that if the Fed cuts rates, there's no scenario that I've seen that the Fed cuts rates and the market rallies for months on end after that. It doesn't happen. It's the Fed cuts rates because they're looking in the rearview mirror. They're using stale, lagging indicators to make their decisions. They have said this over and over and over and over again, and they will overstay their welcome on rates and push us into a recession. It's just reality. And so as we see jobless rates tick up and some of these other indicators that we have a number of indicators that are conflicting each other, but the ones you have to pay attention to are showing that we are turning over. And Mike

has got endless charts on this, but that's the issue is that I don't see that the markets are going to rally into this because of a strong rally into this because of the Fed pausing and we're going to get this Goldilocks, beautiful soft landing. I just can't see it. And maybe I'm blind to it and I'm just too much of a pessimist on equities, but I just can't see it. And maybe I'm blind to it and I'm just too much of a pessimist on equities, but I just can't see it. Yeah, there's also been, I saw some conjecture this weekend that the Fed would tighten again. Did any of you see that? Mr. Powell said that.

It was a quote, but the markets are double-dog daring him. Yeah, because he knows he cannot continue to have equity asset inflation and get prices down. He understands that. It's the wealth effect. We all know it. Just look around out my window at these condos in Florida. The average home in this country has doubled in the last 10 years, and people feel wealthy. And their mortgage rates are low.

But the tilt towards recession, as James mentioned, is just unprecedented. It's not unprecedented. It's just so significant. I'm really concerned. I mean, in commodities, it's really significant. Just see what's happening there. Gold's the only thing up. But I want to piggyback on a few things that Dave and James said.

One thing was what Dave said is gold does not work well in the digital world. Now, I've been taking a few notes, and it's proving that. I mean, we knew that kind of before, but it's really proving it today. And if we get this proof of a normal correction in the stock market, everybody tells me it's not supposed to happen. And Dave and I recognize, well, if you look at value at risk models and the history of markets, the stock markets go down in recessions, and we do have deflation. And particularly one,

if you look at how elevated is the market, well, versus GDP just a few, a year ago was most elevated since the 1930s. But one thing that struck me that Dave said is the Bitcoin futures curve. And I was impressed this morning, as you look out to listed futures, we now, you can now look at a listed futures going at one year. To me, that's a Holy grail. That means liquidity coming in because when you can measure one year, you have an annualized measure. And if you look at Bitcoin futures where they settled on Friday in one year, it was 42,000 December. But that's not indicative of the price expectation. That's indicative of what it expects for interest rates.

So that's a 7% premium. Just letting you know, compare that to gold. Gold in one year is a 7% premium. Just letting you know, compare that to gold. Gold's in one year, it's a 5% premium. So there's much more of a bullish pull for Bitcoin, obviously, from the speculators in futures. But here's, I'll put that in context. The amount of open interest in that future is 15 Bitcoins. It's not a lot, but it's there. It's open. It's just showing what's happening. The market's really going into the mainstream. Yeah. Binance had actually repassed the CME last week. I don't know if people saw that in

futures open interest, but now the CME has surpassed Binance once again, showing probably that we're having more interest. Also on this move, I mean, it's always interested. I think this is just looking at coin glass. On the liquidations, I found this pretty fascinating. Let's switch to 24-hour because we had 309 million in liquidations roughly, but on most of the exchanges, a lot of that was longs. If you want to know how degenerate and speculative the people in this market are, there are longs that are being liquidated on these small moves down even on the way up. Now, BitMEX was almost all shorts, but it's become basically irrelevant. But Binance, OKEx, I mean, only 54%, 58% short. I mean, this is, to Dave's point, this is a lot of speculators

in the market right now because that doesn't happen and doesn't squeeze up. And you don't see longs liquidated on a move to 42,000 unless that's the case. I do want to pivot, though, to inflation because the gaslighting right now is absolutely astounding. And Mike talked about the the wealth effect. This is my favorite article of the year. Bar none. You don't even need to read it because you just have to see the headline. Because one of those cases, inflation is your fault. If people are so mad about high prices, why do they keep buying so many expensive things? That's one. OK. And then we as you saw in the thumbnail, I made Joe Biden into a clown. I told the designer to do that. She designed it. And then she said, are you sure

you can't get in trouble? And I said, yes, I live in America. And she said, where I live, I would go to jail for making a thumbnail like this. And I said, go ahead and do it anyways. But here we go. Biden, inflation was 0% last month and our economy grew by more than 5% last quarter. Bidenomics, of course, he got immediately community noted that this is a PCE index percent change from the preceding month. You guys understand this is true, 5% growth. But then we have the White House. This week, we learned monthly inflation in October was zero. And then, of course, let me be clear to any corporation that hasn't brought their prices back down, even as inflation has come down, it's time to stop the price gouging, give American

consumers a break. Of course, he got community noted there as well because inflation doesn't come down, it's inflation. Wouldn't be called inflation, it would be called deflation. And of course, we have Elizabeth Warren telling you how cheap your Thanksgiving dinner is this year because of their brilliant economic policies. The gaslighting here is astounding. What am I missing? How do they get away with this? Here's how I think history is going to view this based on the lessons of history, all lessons of economics and cycles and things is it's going to look back and say, okay, all the risk assets in the planet got very elevated because the first time in history, humans had interest rates at zero or negative for the longest period ever. Okay. That's over.

Let's change. If you look at right now, Fed funds upper bound is 5.5%. And PPI year over year is minus four tenths of a percent. Just absorb that a little bit. We have Fed funds at about 600 basis points above negative leaning PPI. Okay, now PPI is a high beta measure. I'm a commodity guy, I go there. But the typical, I think the way history books are going to say, okay, all risk assets get very elevated. Cryptos were an awesome, I would say, asset net environment, but now everything's changed. Now that to me is bad for all. It's good for Bitcoin and some of the things that really support crypto dollars and stuff, but it's when we get a little reversion of that, which we haven't yet. Just a normal reversion when money supply declines, which it's doing, when the Fed raises

rates, and then we just have a little bit of a normal hangover from that big pump. History's going to say, okay, well, risk assets went down and things like risk off assets did well like that to you know is no longer five percent five percent but to me this is where it's gonna view um it's gonna view it and that's why i see this okay we've seen a little weakness in equity market today but just a normal correction that most people have traded have never has not happened the entire um length of cryptos we haven't had a normal bear market stock marks have traded, has not happened the entire length of cryptos. We haven't had a normal bear market, stock markets. It drops 20% in FedEase as it goes up. That's not a bear market. It's got to go down, stay down for a couple of years, maybe 50%. Those are the bear

markets I'm used to. And if we don't get one of those, it's just because we're pumping the system too much. And at some point it's going to dump. Now, I think that's what's happening now. Commodities are clearly showing that dump phase and yield curve is, and as Dave and James both said, well, Bitcoin is going through a pretty significant transition here being one thing that traders, investors love is anything, something that's obviously great to trade and it's uncorrelated to other assets. But the gaslighting, I agree. But James, I mean, James, come on. How do you read the Dave? You're muted. So James, go ahead. And then Dave. Yeah. I mean, come on. The gaslighting is just ridiculous. They know, they understand that they can use the word disinflation and that the vast majority of Americans aren't, aren't economists and they hear disinflation. They think, oh, that's anti-inflation.

That means inflation is coming down. It means the prices are coming down. But the difference here is, look, we're heading into an election year. This is going to get hairy. But the difference here is people already feel it. They know what they feel. And when they hear somebody telling them, you know, prices are not up, yet they go to the store and prices are up. It's just making them more and more angry. It's frustrating them. So the gaslighting, I think it actually hurts them. It just continues to wear on the credibility of our politicians and the executive office and the White House. It just continues. And I don't understand who is advising Biden or the executive office to put these tweets out.

This is just absolutely, it's comical. I mean, you're putting a clown face on Biden. It actually is fitting. It's comical. I can't believe you're doing it. And then if you look, if you dig deep at all into the numbers and you look at GDP, something like 12 to 14 percent of spending in this last quarter was from the government. I mean, so where's that where's that rise in GDP coming and how much of that 5 percent was driven by excess government spending, the bloat in the government? I mean, so that is not even gaslighting.

That's just saying, yes, spending was up. Oh yeah. It's because we're being irresponsible. It's because we're running, you know, a deficit or deficits that are North of $2 trillion and we're driving the economy and inflation higher while on this side, we tell you inflation's coming down. So part of it's truth without telling you the whole truth. And part of it is just pure gaslighting. And I just think it's going to backfire. I just take over the headline. Go ahead, Dave. I mean, I'm just going to leave this up here for a minute. The headline is exactly, it is so descriptive of what's actually happening in this administration. I mean, let's face it.

I mean, one could argue with many of the things that comes out of Vivek's mouth, and certainly on foreign policy, I think that he's a neophyte. But when he says that the administration, that the president isn't running the country, that the country is being run by unelected staffers, mostly in their late 20s and 30s, who graduated from colleges that effectively we know that more than half college graduates believe that communism and socialism is a better economic system than capitalism. Or they were in the Obama administration. I'm here.

What was that? Or they were in the Obama administration, right? Yeah, I'm sorry. I think Siri somehow thought I was talking to her. It did. She said, I was like, there's a woman's voice here and four men. I don't go. Go ahead, Dave.

That's funny. So, I mean, look, at the end of the day, you know, they're teaching this crap in college now. They're teaching, you know, stuff in universities, and they actually believe something that's, I mean, there's 5,000 years of human history, and there's never once been an exception in peacetime of government setting prices that's ever worked. I mean, literally ever. There is not one example. In wartime, sure, government can get people, rah, rah, rah, rally around the flag. We're going to commandeer your factories. We're going to set your prices. Yeah, sure, government can get people, rah, rah, rah, rally around the flag. We're going to commandeer your factories. We're going to set your prices.

Yeah, sure. But in peacetime, it has never worked without causing massive misinvestment, massive misery. I mean, we're only a millennial away. I mean, last decade, last millennia, we saw over 100 million people die because of things like the five-year plans in Russia and Mao's glorious revolution, all of which, most of those deaths were starvation. I mean, people don't realize that. Caused by misaligned incentives. I mean, it sounds like a very, you know, economic thing. Misaligned incentives. People think, oh, who cares? That's a very cautious term. It has actually resulted in millions of people dying. So when we have people

running the country that actually think they can set prices, well, that's very dangerous. And those are the same people that have a budget. I mean, Cynthia Lummis made a tweet yesterday, which was actually kind of funny. So if you have inflation that's really not there, her comment is we'd have a balanced budget if we went back to 2019 spending. That's only four years ago. So think about that. Think about the size of government it takes. Now, honestly, she has a huge problem there because of the interest rate component. The debt service component is so large.

But even then, just the magnitude of the increase in spending that we've had, both because of the pandemic under Trump. So this is not a Democrat-Republican thing. This is a fact. Both because of the pandemic spending and because of what's gone on. We haven't cut back any of that spending, like nothing. So, you know, when you have that high amount of government spending from people who believe the government can control, I mean, look, you know, Mike, last week was referred to the win buttons, which, boy, did that bring back deja vu. I mean, that was under Nixon, right, and Ford, whip inflation now, right? And so it's, once again, not Democrat versus Republican as much as people might like to think that this is a political message.

But the fact is that the party in power always wants to argue they can control things. And the reality is they can't. And so the reason my investment thesis has been what it's been, because I think that the Federal Reserve will ultimately be forced to roll over. And they're hoping, hoping that they can encourage asset inflation instead of consumer inflation, like there was before we unleashed the hounds in the pandemic, when we both gave helicopter money to people at the same time as screwing over supply chains. I don't believe they're going to necessarily be successful. So Mike and I agree that I think a recession is in the cards. But the truth is, is that's why my, I have probably almost a degen over allocation to crypto,

nothing leveraged, because we all know, I we all know I don't believe that you should use leverage in an asset that has an 80 vol. But I just don't see any other assets that are investable other than niche technologies that I would understand, and we can talk about what technologies, but other than niche technologies that will survive what's coming, and Bitcoin, because Bitcoin is an investment against and basically betting on distrusting government institutions. And I do think that that D-Link will happen much faster than the three months that it took gold to D-Link in 2008, if it's not happening already. It doesn't mean that it won't get sold when people need to sell it, but it does mean that that longer term, the D-Link is going to

happen. Mike, since you obviously believe that a recession is here or coming, even potentially a depression, do these prices come down? Consumer prices? This time next year, if you want someone to blame, we will see pretty severe deflationary forces across the global economy. In the U.S., you've already seen, I said, PPI. Here's a fact. The low for PPI this year is minus 3.1%. The high from 2008 was 9.9%. Most people don't know that, but that's just how distorted things are. We're showing more deflationary factors now than before.

Now, what was the biggest driver of global economic GDP for the last 20 years is China. What Dave described now is exactly what's happening in China. It's worse than what I read in Atlas Shrugged. It's probably read the latest Goldman Sachs outlook. The property crisis outlook is probably worse than it was in Japan at the peak. And it's just starting to tilt that way. So that is all of Asia economic is kicking in. Economic slowdown is kicking in. It's just a normal reversion we've seen in China. China's GDP at of Asia economic is kicking in. Economic slowdown is kicking in.

It's just a normal reversion. We've seen in China. China's GDP at $4 trillion is the same as it was in 1989. We'll probably see that in China just a little. I'm sorry. That was Japan. Japan. China is probably going to see the same. So there's the Asian bent. Now we have Europe. It's already in recession if you look at retail sales, PMI services, and GDP. And they just hiked just a few months ago. In the US, it's just a matter of time. So this is the greatest reset of our lifetimes. But it's very logical and makes sense. The history books are going to say, well, what'd you expect if you did something that has never happened before? We pumped up so much liquidity, we shut down economies, and then we repumped them up, and then we flushed out all that money. It's just

all the lessons of history, the book, the boom and bust, that that's what's supposed to happen. So to me, that's where the tilt is. And the key thing, there's only the one main thing that's holding everything up. The one main thing that's holding that tight is the U.S. stock market. I mean, if you look at the U.S. stock market versus MSCI, ex-U.S. stock market for the last 30 years, 20 years, the U.S US is just blowing everything away. The question is, do we just get a little reversion in that? And that to me is what I'm afraid we're going to have. And when you showed that little chart earlier about markets not going down in election years, I've been pointing out this, I think period's going to be like the 1930s. And

we did drop about 12% in the S&P in 1932, but it already went down. The big drop was in 29 and 30 was actually a bounce. But to me, this is what we're tilting. And the key thing is we need that Fed ease and you need that US. I look at it this way as a trader. When you need that stock market to go up, just to stabilize everything, you know where your risk is. The only thing I can say to that, and it's very simple, is it's funny because I agree with everything Mike says in the antecedent, but disagree on the conclusions. And I want to explain why. Because I think, look, there's no way you're going to get James or I to think that what we're doing is rational. Okay. I just, because what we're doing is we're basically, we're migrating from, oh, those people in Japan,

the way they managed their policy was so horrible. That was Greenspan. And we're never going to let that happen here to, oh my God, that's their best case scenario. We need to do something like that here. I mean, literally that's what's happening in, you know, the adults in the room who aren't pom pomming and telling people in the Atlantic to write stupid articles to try to gaslight people are saying, listen, you know, we have a huge problem. So we need to convince people that that will never happen, that we'll just continue to motor along. And we need to reestablish U.S. assets as the place to go. Now, remember, when you look at rates, I mean, the funny thing

is, as we talk about rates here, it's really important to look at rates. I mean, our 10-year down to 4.3. Remember, we were butting up against 5% not too long ago, right? So they've managed to engineer exactly what they want, which is the US rate going down. But it's still higher than Germany. It's still slightly higher than the UK. Only Australia, of all the markets that I look at have a higher 10-year rate. I mean, Japan is still under 0.7. So I mean, you know, basically, you have to understand, I mean, we no longer can afford long rates to be high. So we're going to do everything we can to lower them. So the real question when you look at it is what companies can actually, in the fake dollars that are going to get getting printed, continue to justify multiples that they

have. And I think you're going to see much more rotation. I don't think that the stock market monolithically goes down like Mike is talking about, although I do think a lot of companies, most probably probably won't be able to justify those valuations, you know, with what's going on. But that's why I keep coming back to investments in counter assets, you know, like Bitcoin, because it becomes interesting. But yeah, I mean, the fact of the matter is we had this huge pump in liquidity. And guess what? When you're an alcoholic and our government is an alcoholic or you're an addict, what are you going to do? So over the last year and a half,

Powell put them into rehab. I think that you are far more likely to see them fall off the wagon than you are for rehab to take and to stay square off liquidity pumping. That's the difference between Mike and I. Because historically, you would think that, OK, well, the Fed is going to see it through day swear off uh you know liquidity pumping that's the difference between mike and i because historically you would think that okay well the fed is going to see it through to the end of this cycle i just basically if we're playing the game i just call on that i don't think they're going to be allowed to do that that's my point that's where we disagree is i do not believe the federal reserve is going to be able to put the u.s political system which is clearly an addict back in the rehab I think they're going

to be told not to. And I think that's the difference. And so, yeah. And so you go back to that article of inflation is your fault, right? If that is a plant, if that's an actual plant of a story from the White House, why would they put that out there? They would put that out there to take the blame off themselves and to start this narrative of it's your fault. So if prices stay high, it's your fault. And so if we allow, if we then change our target at the Fed from 2% to some range of 2% to 3% or 2% to 4%, then that kind of helps the Fed manage these cycles and allow for inflation to just take off. And then they can rah-rah around the GDP numbers where in reality, you're just taxing higher,

you're taxing dollars that are worth less and start and start keeping that from that gap from you know exploding higher debt to gdp and this is part of i think i've been talking about this for for over a year now i think that we're going to change it we're going to change our target to do exactly what Dave is saying, where you cannot get off this. You can't get off of this addiction to liquidity. And whether we push, whether we drive the economy into a recession, we have some sort of credit event and we have a V sell off and recovery because of this. You know, we've got to hurry up, get that liquidity in because I'm Goldman Sachs, I'm JP Morgan, we're going to fail. If you don't get us liquidity, we're going

to fail. And then we're going to take down the whole system with us. They've done it twice already. It's three times. It's exactly what happened in 1998. It's what happened in 2001. And it's what happened in 2008. And then, of course, everybody knew it. They didn't even have to come. They didn't have to go into the Fed's office to say we're going to fail in 2020. They knew it. They had to immediately inject liquidity into the system. I mean, come on.

You can't be rational if you think that what happens time and time and time again and is only getting exponentially worse each time is not going to happen again this time this is where we're headed we're headed to more liquidity period i don't know when it happens and how painful it's going to be between now and then but that's where we're headed and that and that's going to happen knows that i'm sorry but that is the laser sharp difference between Mike and I, and I think James is on my side on this one, which is we all agree that we're effed.

Okay. We all agree that this government and our policies and where we are needs a reset. We all agree with that. The difference is, is James and I both think that the government will try to administer more of the same drugs that got them into the problem in the first place. Especially in an election year. And the standard economists are out there saying, nah, they're not going to do that. Of course they're not going to do that.

And I just think the human nature is what it is. And we'll see in a year. But, you know, I don't know what's going to happen. I mean, this is the strangest election ever. We have literally two leading candidates, both where neither one willing to debate challengers and neither one, neither one is backed by even close to a majority, even in their own party. If you don't talk a lot, if you don't look at primary voters, you look at the bigger set. Nobody wants that election, but that's what we're going to get at the same time as we're coming into what could be, as Mike said, the greatest economic reset of our lifetime. And he's not wrong, right? So it is a very interesting situation. And we don't even talk about geopolitics where there's all sorts of interesting things happening.

So I think the most important thing in markets, and certainly from us who've run money, is never forget where you're from. And what James points out has already happened. We've already had the most significant historical example of massive fiscal stimulus outside of a war where we increased the debt or a recession ever in most data. Typically, you're supposed to get the fiscal stimulus as it's the classic Keyesian model, and the market collapses and you pump the system with money. So we've already had that. And we've got assets so elevated. What has been the result of that with the wealth effect? The Fed added another 100 basis points this year. Have we seen the effect at 100 basis points?

It's just getting started. So also, and then we've also just recently gone through the biggest inflation most people have ever experienced in their lives. Now, some of us experienced worse in the 70s, and it's dropping as fast as it went up for obvious reasons. But that lesson, every lesson in history is when a society experiences inflation, they're emboldened to not be idiots, which is like a German in the Weimar Republic. We all learned how German bundles bank would never cut rates a lot. They waited till the whites of the eyes of deflation. Now that's what I think is going to happen. Now, that's my point is I think what's going to happen now is the feds can be very reluctant to cut.

This is the most historic example in the possible. We've already had the fiscal stimulus. We can't do much more of that because we're running up against the major issues with the bond vigilantes. We're way past that. And the Fed's going to say, yeah, we'll cut. But it's going to be following the correction and deflationary trends, which have already started significantly. I'll mention one little fact, PPI is minus four tenths of a percent and Fed funds are up 5.5%. Is that good or bad? If you come another planet and just see those, what's going on right now. Yeah, but,

but yeah, that you're right, but we've been there, right? You called it, you know, almost a year ago. I mean, it was, it was actually a little bit less than a year ago. Last winter, I'll never forget on this show, you basically pointed out that your economist said PPI would go negative by the summer and what that would mean. And it was fascinating because you were dead right on the prediction and dead wrong on what that prediction would mean. All that markets, matters of markets is making money. If you're right, it's so true. You got to be right. But let's, you know, if you were on the couch and I was a psychiatrist, and I'm sorry, the only time I'm going to do this, but I'm allowed to do this today because I won the bet, right? But if you were on my couch and I would say, so, Mike, why do you think that you were right in what would happen and wrong in what that would create in investments?

And I'll tell you what I think. I think it's because human nature has changed. And people, if you look at the stock market aggregates, I haven't looked recently, James, but I saw you tweeted about this at one point. The amount of money that has, the amount of stocks, the narrowness of how the stock market is up are all on stories. They're all narratives. And you have to look at narratives because we live in a culture which sadly is being driven by narratives, true or false, many of them false. I mean, you've all noticed on Twitter how incredibly loud I am on what's going on in terms of raging Jew hatred around the world. There's a narrative that's going on, bullshit, right? I don't want to talk about it anymore, but there is a narrative. There's also a narrative about inflation, which is what this show is about. People are all trying to tell

stories and make people believe that those stories are true and they take whatever facts they want to piece into it. So if you believe that you can have a Federal Reserve pushing up interest rates while injecting liquidity in the behind and the federal government stimulating more and more and more by letting their budget deficits go crazy and that that's going to work. Well, you have to believe in some sort of weird narrative. It's a dystopian sci-fi narrative, Mike, because it can't make sense. The federal government, you know, if you continue to have these ballooning deficits and you have new infrastructure bills and pass new spending and throw, you know, $100 billion to foreign wars at the same time as doing all this other stuff. I mean, there's no way the Federal Reserve could be the only thing fighting inflation. It can't because that's the problem. And that's what I think is the issue. Here's where I think this narrative is going, by the way.

As I think about it, I just brought up this tweet, which is not so relevant. But Elizabeth Warren, we don't need another private equity deal that can lead to higher food prices for consumers. The FTC has right to investigate whether the purchase of Subway by the same friend that owns Jimmy John's and McAllister's Deli creates a sandwich shop monopoly, right? We're worried about the sandwich shop monopolies right now. Okay, listen, that doesn't have to do with inflation, but what I feel this narrative is headed with articles like inflation is your fault. If you actually read the article and read more into it, if people are so mad about high prices,

why do they keep buying so many expensive things? What's going to happen here is you're going to have the anger of the bottom 99%. Prices are going up. This is bullshit. This can't be our fault. What this is going to happen when you have Elizabeth Warren and Biden in control is they're going to blame rich people for inflation. It's not going to be blaming people for inflation. It's going to be blaming billionaires and corporations and Wall Street for inflation. That's going to be the ticket, regardless of what happens to the markets, in my opinion. Can I play you guys a real quick, Dave? You're going to love this. Really quick, and then we can talk about it because this is your guy. I know you went to Northwestern, but of the Milton Friedman School of Economics,

here's Milton Friedman on inflation. Really quick, I found this video. In the modern era, the important next step is to recognize that today governments control the quantity of money so that as a result, inflation in the United States is made in Washington and nowhere else. Of course, no government any more than any one of us likes to take responsibility for bad things. We're all of us human. If something bad happens, it wasn't our fault. And the government is the same way. So it doesn't accept responsibility for inflation. If you listen to people in Washington talk, they will tell you that inflation is produced by greedy businessmen, or it's

produced by grasping unions, or it's produced by spendthrift consumers, or maybe it's those terrible Arab sheiks who are producing it. Now, of course, businessmen are greedy. Who of us isn't? Trade unions are grasping. Who of us isn't? And there's no doubt that the consumer is a spendthrift. At least every man knows that about his wife.

But none of them produce inflation for the very simple reason that neither the businessman nor the trade union nor the housewife has a printing press in their basement on which they can turn out those green pieces of paper we call money. Only Washington has that printing press, and therefore only Washington can produce inflation. I mean, I wasn't even thinking of the clip when I did that little diatribe on blaming the rich. I just happened to have brought it up and listened to it again. But yeah, go ahead, Dave. I was going to say, but the point is incredibly valid. And part of the reason, and I hate to do this, you know, to bring the two together. But if you look at the factors that happened in the 20s in Germany, what actually

occurred? What actually occurred was a massive economic crisis caused by way too much spending and allowing the central bank to let things get out of control at the same time. And what rose to power was the Nazis. We understand, but what were the Nazis? They were national socialists. What are the two things that they did? Well, they basically appealed to German pride. And so that sounds like right wing. And they also appealed to blame the rich and nationalize everything and take the money away from the rich and give back to the average person. And so you had this metastasizing thing that became incredibly evil. So anyone who wants to know why I'm so worried about the future direction of this country, it's literally the exact same thing that we're seeing, right?

Blaming the rich ultimately ends up being blamed on certain groups, I being one of them, right? You know, Jews get blamed when people blame the rich. Now, is that right? No, of course it's not right. We are not nearly as much of a majority in rich people as people think, but it doesn't matter. But when you start blaming the rich, it is a very short line to blaming the Jews. And that's why I care about that. So let's push that aside. But blaming the rich, scapegoating, is literally what Milton Friedman was talking about. What he's saying is, listen, the government is going to blame everybody but themselves. And so that is where, but we're in a culture now where people don't read articles, they read headlines. And narratives are done by anecdote and not by actual analysis. And so you have to ask yourself,

what's going to happen. And I don't know what's going to happen. I have no idea. But I do know that the amount of discontent when someone tells people that inflation is zero and they get there and you're sitting in a board of a condo and you know what utility prices have done, you know what insurance prices have done, you know what the workers are asking for, and you see double digit, dramatic double digit increases in HOA fees. Now, part of it is Floridian because of insurance and what's going on there. But a lot of it is just national. I'm hearing the same thing in other places. That is a real problem. So people say, well, you know, housing prices are going to fall, yada, yada, yada. But the cost to build it,

the cost to maintain it are going up. And that's what happened in the 70s. That is the last time we saw anything like this, where a lot of the base costs, things like things that you can't outsource, things that technology can't make more productive, those things prices are increasing dramatically higher than the things where you can outsource and technology can make you more productive. And so it's hard because a lot of people care about those things, right? So maybe it's a selection bias thing. Maybe, you know, you can actually live perfectly fine and it doesn't have to be, but people would have to change their lifestyles.

And people don't like changing their lifestyle. I mean, it's inflation is your fault. If people are so mad about high prices, why do they keep buying so many expensive things? Like what, milk and eggs and and bread but it implies that you can live without buying things that have been that have increased in price i mean james yeah that's it yeah this this article implies that you know if you shouldn't be going to starbucks you shouldn't be going to you know mcdonald's because mcdonald's french fries are French fries are $7. Stop buying them. Just stop buying them.

But if you have to feed a family of four and the fresh vegetables and fruits are too expensive in the grocery aisle, what are you going to do? You're going to go to McDonald's. And yet it's still too expensive. So it's nonsensical. They're going to continue to push the narrative. That's a really good point, Scott, about shifting that narrative to blame the 1%. But this is where we're at because they can't take responsibility themselves. And they know that they're going to have to do it, even more when we hit the next cycle. Now, I think this is the point where Mike and I may disagree is that I don't think that this administration, I don't think that the government as a whole, the system, I don't believe the system is rewarded enough for us to go through a hard time, for us to go through a long, prolonged recession

that will be necessary in order to get prices back down and to fix this structural inflation problem. Because they know that in reality, they can't stop spending. So in order to do that, you have to stop spending in order to bring down the deficit. And there is no incentive on either side of the aisle. It's just the system. The system is set up that the incentives are not there for us to go through that. So as much as I think that we should take the pain, you know, we should have let the banks fail. We should go through that hard time in order to reset the system and get us to where we need to be and

bring down the spending to cut that deficit down. The incentives are not there. The system is not set up for it. And that's the problem. Both sides of the aisle. Mike, you get to wrap this in a bow for us with two minutes left. Oh, boy, that's a tough one. Well, the fact that we're 11 months from the election and this is getting political already shows you, I think, the tilt for next year. And I I'll stick with my premise that, yes, the government's already done what they we've already pumped up too much. The current government in place they already lately said just recently said no more money for ukraine we have no more money for anything at the moment and particularly recession so i i would be delighted if i can lose a stake to dave next year and to say that the stock market was actually up another five percent and we're

all i'm not betting that bet don't don't don't. I had to get that reaction. So then to me, here's the simplistic tilt is if we have just a normal, just imagine the dominoes, if we just get a normal maybe 10% drop, if the NASDAQ just gives back 50% of what it did this year, imagine what the tilt is next year. You have to depend on massive fiscal monetary stimulus

or we're going to, and they'll get that anyhow, but we're going to, and they'll get that anyhow, but we're going to get that normal cycle that we're way overdue that might have, we pushed ourselves, pushed and pushed later on during the great recession because of all that massive stimulus. It's just so overdue. And then I just look at the average price of the U.S. stock market versus the measures of global and U.S. GDP over time.

And yeah, it's very's very very expensive just a little reversion and that's what usually happens is people under underestimate just normal reversion in risk assets and bitcoin is a shiny star at the moment like dave said it's in a world going digital gold is just not as good as bitcoin and the only point scott that I'll make is I still maintain Bitcoin is not a traditional risk asset. It may trade like one now, but it's like the caterpillar going into its cocoon. It will not be a risk asset. That is not what it is. Yes, it's high vol until it gets to where it's going to go. But understand that that's the fundamental. That's really where you get to the difference. This whole notion of risk asset versus non-risk asset is as asinine as the whole notion of Democrat versus Republican to identify human beings.

I mean, there are hundreds of issues that we all care about. And trying to make that into not just two-dimensional space, but two points is insane. Yeah, but Dave, I think you can break that down to even more simplicity, which is risk asset versus risk off asset is really understanding versus not yet understanding. It's as simple as that. That's fair. I think we just need more buckets, just like we need more parties, as Dave said. By the way, if you guys are just paying attention, you'll see this is Bitcoin dominance. If you're wondering what Bitcoin is doing to altcoins in relative Bitcoin terms,

get ready for a real Bitcoin bull market where your altcoins don't behave that well. Guys, that was an awesome show. I really enjoyed it. I hope we're still doing this next year at election time and we can look back at who was right and who was wrong. For everyone else, we've got an awesome week this week, actually. Tomorrow, John Najarian is coming on at 9 a.m. and on Wednesday

I have Udi Wertheimer, so we're going to talk about Bitcoin and ordinals and, I guess, wizards. So that should be relatively entertaining at the very least. Sorry, James. You can come too if you want. All right, guys, that's all we got.

We're going to have some stakes incoming for sure. I'm sure we'll have more bets and maybe we'll just end up with stake parody and everybody will pay for themselves down the road. Thanks guys. I'll see you all tomorrow morning, 9am Eastern standard time. Bye guys. Thank you.