The Wolf Of All Streets - Buy Bitcoin Now Before The Macro Meltdown!

Episode Date: November 13, 2023

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Buy Bitcoin Now Before the Macro Meltdown, hyperbolic title. Yesterday when I was hitting up the gentleman here saying, hey, what should we talk about tomorrow? James said, bond market meltdown, treasury implosion, buy Bitcoin to save yourselves now. And there were a couple of emojis. I think we had a smiling face and a laughing face after that. So that's where we got the title, Buy Bitcoin Now Before the Macro Meltdown. Not financial advice, but I think if we think that what could be coming is coming, then is now a good time to start diversifying and to buy Bitcoin or any other hard asset of your liking to diversify your portfolio. I've got James Lavish, Mike McGlone, and of course, Dave Weisberger here to discuss that and everything happening in the macro. It's Macro Monday. Let's go.

What's up, everybody? I'm Scott Melker, also known as the Wolf of Wall Street. Before we get started, please subscribe to the channel and gently caress the like button. I'm going to go ahead and bring Mike and James on right now. James, the title idea, it was yours. I know you were kind of kidding, but bond market meltdown, treasury implosion, buy Bitcoin to save yourselves now. We needed like the, this is fine emoji dog with the fire all around him. But you were only half kidding, right? Yeah. I'm only half kidding. The part I'm not kidding about is the treasury bond, the auction meltdown. That was just, it was almost, it was astounding. It was very surprising to me how bad that was.

So that is not a joke. It's real. We've been talking about it for days now. And now, like you said, this is not investment advice to put your old portfolio into Bitcoin, but the reality is the treasury, they're running into some problems. And that was made clear last week. Yeah, I think that was made clear. Can you just give us the highlights of that bond auction? Maybe people here don't understand how that works, even just the broad strokes and why it's problematic. Yeah, so just super simply, the way the Treasury bond auctions work is they're what is called the Dutch auction. So if you're a bidder and you want to buy some of the bonds that are going to be offered by the treasury, they give you an idea.

They say, this is how much money we want to raise. This is the issue. And they said $24 billion. billion dollars. And, and then the the investors will put in the rate that they're willing to pay for the amount that they want, they're willing to buy. And so but and then they'll look at all of those levels. And they'll basically fill all the levels up to the point where they need to in order to get the full $24 billion at a reasonable price, meaning at a reasonable yield for the treasury. So that's how these auctions kind of work.

If you're an individual, you put in your bid early or you just say that you want to buy and you're going to get the market price. You can't determine what yield you want. Scott, you and I went in as individuals who just say, okay, we want to buy $1,000 or $10,000 or whatever it is, and we would get the price and that's it. But institutions and banks and hedge funds, they can put in where they want to buy. So why was this auction really bad? Well, they do trade these bonds pre-market. It's called the win issued market. And so that's something that happens.

We'll just put that over there for a second. But there are a few really kind of eye-opening things here. First of all, the bid to cover on this auction was, it was a little light. So usually the big bid to cover in the 30-year treasury auction comes at about 2.3, 2.4. This came into 2.24. And so what does that mean? It means the number of bids that they got for the number of bonds that they're selling only came in at 2.2 times. And that's pretty bad. It's like a C or a C- in my mind. That's one thing.

The second thing is the foreign demand, like the international bidders. They call them indirect bidders. When the Treasury shows the information on their website, they'll pull out the indirect bidders, and you can see what that is. And in this auction, it fell all the way down to 60%. information on their website. They'll pull out the indirect bidders and you can see what that is. And in this auction, it fell all the way down to 60%. And just to give context, it's usually about 65%, 70%. At the beginning of the year, it was 74%, 75%. And now it was 60%. Well, why does that matter? It matters because that means that the primary dealers, the major banks that the treasury relies on to take down this issue and then resell it in the market, basically,

they were saddled with almost 25% of this issue, which is just, it's crazy how much they had to sit on. And so they're stuck with all of this inventory that, you know, was not really bid for at prices that the treasury wanted. But that wasn't really even the biggest thing. And everybody's been hearing about this part, which is the part that people get confused about. The biggest part is that when you look at the when issued market versus what actually what actual price the the investors got when they and when they were issued these bonds it's called the

there's the difference there is called the tail and if it's a positive tail meaning meaning that the interest rate, the yield that investors were trading these at was higher than, or it was lower than the actual auction, meaning that the investors were more optimistic about the auction than it turned out to be, then you have a positive tail. And if you, you know, these tails are normally somewhere two, three basis points. And if you get a tail that's in the four or five, six basis point range, it's it that's, that's pretty near catastrophic. I mean, it's just, it is awful, just abysmal. Well, this auction came in at a tail of 5.3. 5.3 basis points. So it kind of put everybody on notice. It's the worst tail. It's the worst tail in 30-year auctions since 2011. And what happened in 2011? The S&P downgraded federal debt from

AAA to AA+. And Dave and Mike remember this day. And the bond market freaked the fuck out. And so that's – but we didn't even have that event on Thursday. It just happened. The next day. I mean, it just happened. And then the next day, Moody's came in and said, oh, yeah, we're going to take a look at this debt.

It's kind of on double secret probation right now. We're going to see. They're the last ones who are holding a AAA. We're going to see if we're going to downgrade it because there's some uncertainty about the budget. You know, we may we may go into another shutdown. And look, the bottom line is, and one more thing, and we can talk about this, you know, the malware thing. But look, the bond market reacted to this. So some people say, oh, it wasn't catastrophic. Well, the bond market reacted to this. The bonds moved over 4% in less than a day, in just a few hours.

This is like, this is the premier asset of the world. You're talking about treasuries, US treasuries. It would be more than Bitcoin in a day. This is just insanity. The whole index dropped the most since May. I mean, it was a big day. It was a big, ugly day. There's a lot of things you can look at.

It's just showing. Now, to make it clear, this wasn't absolutely catastrophic. It wasn't a, it wasn't a failed auction. A failed auction would be if you didn't have enough bids for the bonds, you know, if that happens, the entire world melts down,

but you know this was just not good. It's a major red flag and traders are on notice. Investors are on notice about treasuries. Hey, James question. Yeah. Wasn't it really actually failed? And the only reason that it isn't a failed auction is because the primary dealers sucked up a huge amount. Yeah. So I kind of explained it this way to Natalie Brunel on Friday is like, all right look imagine the softball dude because i saw you explain it i said i threw you the softball because i saw you explain

it oh thank you so uh yeah that's right you and i talked about it so you know um imagine you're you're you're a seller of art you know you've you're a collector you've got a bunch of art you've got some bangos you're getting some matisse and you go to sotheby's and you want to sell this right and you have the auction and uh and you and you're determining what you're going to accept for these paintings. And at the end of the auction, you don't get enough bids at the prices you want. And so you're like, oh, well, okay, well, Sotheby's, you have to buy it at this price. And then Sotheby's has to buy it from you. And then Sotheby's is sitting there stuck with all this inventory that nobody else wanted at these prices. And they're like, well, shit, now I own it. I've got to do something with it. Well, that's JP

Morgan, Citigroup, Wells Fargo right now. Yeah, that makes perfect sense. A few things, by the way, you mentioned Moody's. Moody's just cut the US outlook to negative, citing deficits and political polarization. So here you are, you're already going from stable to negative after you invoked Moodies. The other thing, just talking about this option, you talked about obviously the decrease in foreign players looking. China was at over 1.3 trillion and now sub 900. I think it was 870 million last I checked, something like that. So obviously, China being one of the larger holders has been dumping our treasuries, which probably has to do with stabilizing their own currency. There are numerous reasons that could happen, but it just doesn't look great all around,

right? Yeah. So there were rumblings about a malware hack at ICBC, Industrial and Commercial Bank of China. It's one of the largest banks in the world, true. But the unit that deals with the treasuries there has only about $23 or $24 billion of assets, from what we can tell. And so even if it did have an impact, what they're saying is that they had to use USB sticks to go settle trades and move capital because they couldn't get online. And so, okay, that is ridiculous in this day and age. Absolutely. But I just couldn't, I can't see it being a material impact with one bank in China that only has $23 billion of assets.

That's like the entire, like, that just, it just doesn't make sense. I mean, how much, how much of a bid could they have been? Number one, you know, and number two, even Yellen came out herself and said, we've not seen impact on the treasury market from this malware attack. So I don't, I don't buy that. I think it's just, it's maybe there was some people trying to make excuses. So yeah, so that's kind of, there were some people trying to make excuses. So yeah, so that's kind of where it leaves us. Mike, I mean, like you said, this is the worst in,

I don't know how long you said, 30 years, something like that, but exceptionally long time since we've seen this low of a bid, I guess, on treasuries. I mean, I know where you stand on this. But is this yet another canary in the coal mine? How big of a signal is this in your mind? That was a headline for my colleague, Gina Martin Adams on Friday. The small caps are collapsing versus the S&P 500. And this is just another canary in the coal mine, including declining demand for diesel, unleaded gas, natural gas, container boards. I mean, the quote this morning from our economists is that most economists think it's going to be different this time. And you look at it as a hedge fund manager. Is it a hedge fund manager?

That's your option and opportunity. So I just want to point out since the end of October, Bitcoin, the S&P 500, TLT are all up about 5%. TLT is the number one kind of ETF that tracks the bond market. I think that's somewhat unsustainable. And crude oil is down 5%. To me, that's sustainable. What's unsustainable, I think, is both the SPY and TLT going up the same pace. Now, James pointed out to me what part of what I think is happening in this great reset I started talking about a year ago, which I think now is entering the end of the beginning stage.

We're just getting started. All the central banks are done hiking. We're seeing the problem with the auctions with way too much supply. Why do we have way too much supply? Because we did way too much fiscal stimulus, which was offset with more restraint from hiking rates. And I look at this as just the tilt starting to kick lower. So let's just see what's happened in the last few weeks. Bloomberg Energy Index is down about 10% on the year. That's all energy prices. The Bloomberg Industrial Metals Index is down about 14% a year. Energy was up, now it's catching up downward. And I don't see what really stops that downward trajectory, and it's just getting started. So also a key thing I've enjoyed doing a little research on, if you look at the Russell

2K and the Russell 2000 index, or just basically Russell 2K index divided by S&P 500, it's the lowest since 2001. You've overlaid it with crude oil. Crude oil going to $40 a barrel, which has been almost tick for tick for that ratio for 20, 30 years, is nothing. It's just what usually happens. And another headline that I really enjoyed reading this weekend was China's consumption recovery is losing momentum data show. That's from a Bloomberg story. And to me, it's just these are all the dominoes starting to kick in. We have the ideal state where everybody was looking for recession.

The consensus six months ago is tilted towards it's not going to happen. And the S&P 500 is up 15% on the year. The Russell is down 3%. I'm going with Russell. Yeah, I was just trying to make that chart as you were kind of talking here. But this is obviously the Russell. I just laid the SPX over it. You can see it's been dropping massively while this is basically going up. I mean, that's

what you're saying, right? I mean, that's really the point is that this is being carried by a few huge companies. We've all heard it, right? The tech is driving this. If Atlas shrugs and Nvidia or Apple or one of these sort of fall off, everything's going to follow because you can't sustain an entire market run with only seven companies. Well, the other thing I want to point out as I was, you might have saw me typing when we were looking at this is you look at volatility in Bitcoin versus TLT annualized or annual measure, it's the lowest ever, it's about 2%. So that's one key problem I've had with Bitcoin versus Bitcoin versus SPY. It's about 3% times, I mean, three times that volatility, but it's just dropped to a new low. In Bitcoin versus gold, it's about three

times. So that's one thing I'm really worried about. When we get this normal correction in the stock market for a recession, we still haven't had it. And that's why I like to point out is on the, since the month is great, it's great to be bullish Bitcoin, but the S and P 500 on a risk adjusted basis is up a lot more because it trades, you know, um, Bitcoin's three times the volatility up about the same. Now that's in October. That's a key thing. I mean, I'm, I'm obviously tilt a little bit more bullish Bitcoin, but I'm really concerned of, of there's so much of that. Hoping that Bitcoin is going to go up for an ETF. And I look at it.

Well, TLT is up and SPO is is up and they traded a fraction of the volatility that Bitcoin does. I have to respond. I mean, I knew you would. I mean, look, you know, first of all, Bitcoin's volatility compared to the S&P, if you take out about, I don't know, four hours now, it was about 20 minutes before the last rally. Take four hours out. It's actually lower. Bitcoin's intraday volatility when there's nothing when you get rid of the gaps and is actually much lower. But that doesn't matter know, the old story, the blind man and the elephant. Right. You know, depending on what you're looking at, you think, you know, you come up with five different answers. The fact is, and I've said this a billion times now.

OK, that's hyperbole. I've said it several hundred times. Bitcoin trades like an option on its future adoption. Full stop. It is a freaking perpetual option. That's what it is. If the Bitcoin hodlers are right, it will be it will it will at a minimum reach 20 times the current price. If they're wrong, it will either slide back to zero or more likely a niche product. And that's fine. But when you're evaluating the volatility of an option as opposed to the volatility of an underlying, do not.

Well, first of all, that of an underlying do not. Well, first of all, that's insane to do so. Nobody would. You don't value the volatility of an option the same as you value the volatility. That's called the gamma of an option. I mean, obviously, it's a derivative. So the truth of the matter is, yes, the Bitcoin's price movements, aka gamma on its underlying option is larger than the S&P. But that's a feature. It's not a bug because of the asymmetric upside potential. So that is not a way to look at it. Every time you say, oh, on a risk adjusted basis, horseshit. If you look at it on a risk adjusted basis in any diversified portfolio at any small percentage over any time period, it adds to the portfolio. Literally every single one of them.

You can't, you know, maybe I suppose, well, now today you couldn't, but if you look at from one time to another time and you try to cherry pick it, you won't. But that's besides the point, because I don't think you and I really disagree on that. I just, I have to respond. The thing that's really fascinating here is to put your view and Arthur Hayes' view side by side. You both have the exact same setup. You both see exactly the same train wreck and come to completely divergent conclusions. Only on Bitcoin now. Only on Bitcoin. Let's point out one key thing that I failed to mention is GBTC is up 12% since the end of October. I think it's 11%.

They're in direct conversations with the SEC. The widowmaker is finally going to get married, basically. Seriously, this trade is the same one that took out. I won't mention all the things it took out because it's pretty bad. But, you know, look, 2022, because of the failures at the SEC, and there just really were, and at the same, when I say failures of the SEC, I literally mean it in two ways. One, what they didn't, what they did do, which was stonewall allow that premium to hurt investors when there was no reason

for it to do so. But arguably, more importantly, not go after the fraudsters who actually were committing. And there was a whole raft of fraud that was in the industry that they didn't go after and said they went after library and XRP and, you know, et cetera. But what we all suffered through in 2022 is fascinating. And that's one of the reasons for the bull case for Bitcoin, because at the end of the day, none of it had anything to do with Bitcoin's investment thesis, which is why when all the force selling is done, we've seen a bounce back to the very first level post-Luna. And that's now resistance, but we'll see how long it lasts as resistance.

So just to follow up- It's important, but let me make one more point. Everything you're saying, Mike, everything, it points to the fact that the Fed is in a box and going into an election year is likely to crank up the printing press. They may do it in different ways to try to not lose control completely, but they need to inject liquidity. I mean, you know, the favorite that everyone talks about is the reverse repo market, but it doesn't matter. But I'd love to hear yours and James' comment on that. Well, they're going to need to buy a lot of bonds based on what James was saying before, so you'd have to find a way to pay for that. Just to follow up on that is the Fed always has injected liquidity since 1950. See, every time the S&P 500 is down 20% on a 12-month basis, the Fed has always eased.

One exemption, 1988, because it was after the crash. So that's what's changed. But you have to be assuming and expecting that'll happen. But you need the risk assets to go down first. That hasn't happened. That's just been my premise. Key thing is Bitcoin is broken above 30,000. That's what I needed to see a sign of strength, but it's still doing it for, to me, the wrong

reasons. All risk assets are going up. That's the problem. I want to see it go up when risk assets go down, like the S&P 500 is still up 15% on the year. So that, to me, is still what I'm worried about happening is you're just getting more gamma and you have a higher delta in Bitcoin. You want see i think what you're saying to happen that just has we haven't had the test yet that's what i'm worried about so that's why i still stick with the hardest

thing to do for i think type a's investors is not so not so do not do so much do nothing so look over that u.s government treasury two you know and the teen the 10 you know it's in the entire curve it gives you five percent say thank you very much and I think that's a hard thing, and people are not going to realize how to do that until recesses go down. I want to go back to something else you said before, because I thought it was very important and people should understand it. I think the most obvious macro trade, bar none, is only getting started if you want to bet on a Democrat win in 2024. The most obvious macro trade literally ever was S&P outperformance of Russell. Now, the reason for this is this administration is adding more regulation to the Federal Register than any in the past ever. And that regulation is written by S&P companies to create barriers to entry

against Russell companies and below. So it is incredibly obvious that large caps in a world of massively spiraling regulation, a world where Elizabeth Warren controls the financial system, you're going to see more and more regulation. And when you see more regulation, a world where Elizabeth Warren controls the financial system, you're going to see more and more regulation. And when you see more and more regulation, it means big is going to outperform small, which by the way, is disastrous for Main Street, but that's an election issue. If you think that because Orange Man is going to win in the Republican side and the Democrats are going to figure out a way to push Biden aside and have someone electable run, and we're going to get four more years of this,

then that's the trade you want to put on and back up the frigging truck on it. What I was saying is what you pointed out is very, very obvious in this scenario. But the ratio of that RTY versus SPY, the Russell Index versus S&P is now at the lowest since 2001. So yes, you're right. They put on the trade. But at a certain level, it gets pretty extreme. And I'd say 22-year low is pretty extreme. Can I ask a question?

This is a really simple one. I don't know the answer to it. So I could be wrong, right, underneath it. What does – so that's the ratio in price space. What's the ratio in earnings space? Oh, so that's a good point. And that is the, as Gina, Gina Martin Adams, our equity strategist point out the equity, the earnings bear market in S&P 500 is over and it's breaking out and the earnings bear market in Russell is accelerating. So it fits into your scenario. Yeah. Yeah. I mean, because the problem, we always, as traders, we always have a tendency

of looking at the raw numbers and you can't. It's like Bitcoin S&P ratio. Why do you and I make the bet? I, you know, on Bitcoin, my rationale is that Bitcoin's fundamentals are crazy positive. Right. You know, every single fundamental on-chain metric is up and to the right. Every one. Every consensus metric in terms of number of people looking at it, opinion leaders looking at it, up and to the right. Whereas all of the indicators on most risk assets are middling, to say the

least, and depending on the sector, pretty poor. And so to me, whenever you look at if you're trading macro, I mean, and I talked to a lot of macro traders out there, the ratios of different things matter. I mean, we have the same thing inside crypto, the Bitcoin Ether ratio or the Ether Solana ratio. Or like last week, I just did an article that I published yesterday on our CoinRoutes blog. And basically what it's looking at is what happened to the premium of the futures markets and the premium of the perpetual markets during the market action last Thursday. And what you see is very interesting. You saw that during that period of time, the premium dramatically was larger in the US. In fact, one can make the argument that futures led buying on the CME was leading the market up.

And when that kind of tapered off, that's when it was sort of, you know, that's when the 38 all the way back down to 36 happened. And so what I'm trying to get at is there's lots of financial ratios out there that people can look at. And in the short term, the price is all that matters. But in the intermediate to longer term, the things behind it matter. And so it really does. It is. That's why I said the small versus large companies. I mean, yeah, in price space, that's true. But we've had an unprecedented administration to basically allow regulations to create competitive advantages for large companies. And this is literally showing up in the price. That's all I'm trying to say. Something I want to mention, obviously, we have imminent Bitcoin ETF decision could shake

crypto market. Okay, we've all talked ETFs to death, but there's this Goldilocks window right now of two weeks that effectively started almost a week ago, where in theory, all of these could be approved because of certain deadlines. It doesn't matter, right? Even safe for it, Balchun is still saying they think they get denied here and that we get the approval in January. Regardless, there's the chance that we could see a Bitcoin spot ETF approval or all of them in this period in the next kind of week and a half. But the real question is, maybe I'll ask you, Mike, what if we get the meltdown you're talking about, but at the same time as a Bitcoin spot ETF approval, let's say in January? Oh, there you go. I mean, that's a good what if. It's obviously quite bullish for Bitcoin.

Yeah, that's a simple answer. My question is, can we at some point say there's something fundamentally different or a big enough news event for Bitcoin that be damned? Like if these things all go down, if this cracks, Bitcoin can still go up because there's an ETF and fundamental reasons, the inflows for the ETF. At what point can we say, because we've obviously had this kind of historic run here off the lows, that Bitcoin is decoupled? Exactly. Or that it can remain decoupled in a crash. I think that's the real question. So that is still my main premise that Dave pushed back on and I completely say it's okay. But comparing four-day volatility to 260- I completely say it's okay, but comparing four-day volatility to 260-day volatility is kind of strange, but I only look at long picture.

And I've sat in front of value at risk models plenty of times at hedge funds. And when you have something that has a three times value of everything else, you have to kind of make sure you don't overweight that. Be careful because that's not working. But that's the way I look at it. It's just, I used to work at a hedge fund and, you know, value at risk is what I'm watching. But the key thing, I think, is we haven't had that scenario yet. We did a little bit last year and you saw the example. Everything went down. We destroyed the altcoins and I think they're destroyed forever with the exception of maybe a few, which you've mentioned, because there's so many silly ones.

But we haven't, let's just look at this year to date. You look at the screens, you're like, okay, all risk assets are up. Bond yields, bond prices, yields are up, bond prices are down, and Bitcoin's leading. Okay, well, that's the exact opposite of last year. So I'm just pointing, yes, there's good reason for that. Now we have this ETF coming, but that's again it's i agree with the fundamental big picture like i said but we haven't had this normal correction for a recession in the stock market i think point is now we're at the stage that um since most economists think it's not going to happen and the feds kept tightening all my most of my demand indicators and look at the thing we

all love is bottoming unemployment the psalms rule, it's just getting started. That when markets are in place and most economists think it's different this time, that's your opportunity. It's funny because so many people will say, and then Dave and James, so many people will say, but employment is historically unemployment is historically low.

Right, I'm saying, so you get this sort of fed homers who support everything they're doing. They say, it is here. It's done because if you look at the economy in a vacuum and don't, I think, look forward as you are, you say unemployment's low. GDP growth is high. What do you need? What do you mean? What's wrong? Right. What's wrong? Yeah. Unemployment moves are are quite volatile in periods of recession i mean they don't go up you know a third of a percent they move by percentage points and so the people are still they're going to be standing flat foot and when this happens and because they the ones who are clamoring that unemployment still still you know and it's a very low number it's

historically though that the people who are clamoring that are going to get caught flat foot and and hit hard um to respond to uh to dave and mike's um you know a little debate is i do believe that Bitcoin joins the correlated to one party and we have volatility regardless of if there's an ETF approved or not. Even if the ETF is approved, I do think it's still going to suffer from that. Every asset correlates to one volatility if we have that kind of drawdown. That's just my take on it. Now, if that happens, it's all about timing. Let's say that we do. We get a nod in January that the Bitcoin ETFs are

approved. You have a lot of capital coming into the space. At the same time, all of a sudden, you have a downturn, a sharp downturn in the economy or the markets. Bitcoin will follow along with it. But on the backside of it, that's where Bitcoin really begins to uncorrelate with risk assets. Because then you're going to have enough capital that's flowing into it as a separate allocation. The VAR models that Mike is talking about will change. Because if you have enough capital in there, the volatility will be dampened and that's just reality. You know, it's trading. Yeah. I wonder if the ETF inflows can offset the forced selling outflows, but, but perhaps the, you know, one is a in the moment event and the other one is a over multiple years.

You won't have the same inflows because of everybody moving to cash just to just to say just to to dampen the volatility of their own books and they're not going to go into a volatile asset that that doesn't make sense if we're talking about the timing of it so sorry dave we've seen the movie right right? You know, in the 70s, it was years. In 2008, it was three months. Next time, it'll be less than three months. And the movie is all risk assets go down, sell what you can sell, not what you want to sell, raise cash to get to where you need to be. Everything looks like death and disaster. And then the assets that are hard assets in those cases previous was gold now it'll be

bitcoin and gold will uncorrelate and move higher that it that will happen it is march 2020 march 2020 bitcoin went up 17x from the bottom and stocks went up 2x from the bottom sure but bitcoin also dropped by two-thirds i'm saying after that, I'm saying after that, that correlation moment, when it hits the bottom, you know, gold also drops. Now the thing is, is markets are always trying to anticipate the next time. So we'll see how well it happens, but I think it's highly likely. I mean, no sane person thinks we could have a black Monday event and have that happen. But my pushback is this. The fact is, is, I mean, I suppose, you know, it could happen, but, you know, there are two points I want to make. One is politics.

Going into with a presidential election year, the amount of independence of the Federal Reserve, well, it isn't independent. The Federal Reserve is as independent as, you know, we are vis-a-vis, you know, okay, we're going to go do whatever the hell we want. And our wife has no saying it. I mean, you know, come on, you know, there's a leash there. You don't live like that? I mean, my wife would say, oh, you do whatever the hell you want. You ignore me. And it's like, yeah, well, okay. Yeah, you're like, they made 90% of the time of the other things I want I don't mention. But yeah, go ahead. Exactly right. But in the event, the Fed is not going to stand by and the Treasury is not going to

stand by and watch a cataclysmic market event and an unemployment spike to 10% without trying to throw gasoline on the fire, which literally because the fire is created by too much easy money and then whatever, but they're going to do what they're going to do. So I've always been saying that. And we're now really squarely into getting into the presidential election season. The first primary is less than, what, six weeks away. It's a big deal. And I think that, yes, it could happen that things will get really, really bad and the Fed will try to fight inflation and we'll end up with unemployment spiking from wherever the hell we are to double that, which is what James is saying, is that once it gets going,

it always does that. But don't expect that to be the case. I think that there will be a contra measure. The other thing that I also wanted to get Mike's opinion on is the underlying mechanics underneath the unemployment data. I read some stuff and I don't know how true it is. That's why I was asked. That the amount that the ratio of part time jobs and people working multiple jobs is skewing the figures. And it's nowhere near as good as what. And a lot of it was government jobs. So I'm glad you went there because I've read so much about this this weekend and I deliberately

ignored it because there's so much about long-term and short-term and all that stuff. And I just, the lesson I learned years ago is, okay, I just get confuzzled with those kinds of things and unemployment's going up. I mean, all this stuff in between, it's like, I let the economy deal with, but I want to really point out to me, the thing I had to publish on today, it's the idiot versus genius factor. And last year, I felt like a complete idiot for a while and saying Cruella is going to go down. Now I'm feeling like a genius, which means it's probably bottom, but you got to get to those extremes. And that's why I think next year, I feel like a complete idiot in TLT right now. And I felt that way in GBTC at the end of last year.

And look what happened. I think that's what's going to revert next. I think that TLT, since I have the complete idiot feeling, that it's going to be one of the best performers next year. And I'm hoping Bitcoin can go up with that. But the tilt is all there. Sometimes it just takes one day for the flip. Let me ask myself this question, Mike. What is the factor that drives TLT to go higher? Simple one word, recession. Yeah. Recession will cause it. And by the way,

the flip side- It doesn't, Mike, it doesn't need the Fed lowering rates for that to perform well. That's the point. You're not in control of that end of the curve. They're just not. It's also the same thing that we all know that happens when markets move too far. They just swing back the other way. That's so common in commodities. Why is crude oil at 77 the same price as 2007? Because it just gets too expensive. It gets too cheap.

It just hasn't got too cheap yet. Natural gas is TLT. It just got too damn cheap. And then what happens? It's the bridge you talk. It's the next bridge that I'm more worried about once it bounces up and we see what happens with the Fed ending. But it's so ripe for just a sharp rally that might last a year, two or six. I don't know. It's not dirty to me, man. I'm still mega long.

It looks to me like GBTC did a year ago. Different assets. Real quick, James, before you talk, just something on the crypto market, the very opposite of what you just said, Mike, I've been feeling and I was sort of expressing last week at the end of the week on Twitter to people is that people, there's clearly major FOMO right now in the altcoin market. That doesn't mean it's going to stop. I'm not making any predictions. But if you're feeling extreme FOMO, just like Mike was feeling like an idiot at the end of last year, it's not time to start buying. It's usually time to start selling. I'm just saying, know yourself and know that yourself, that your emotions, whether no matter how long you've been here,

are probably a counter indicator to what's going to happen with price. Good indication for this, Ethereum, $2,000. It's been stuck between $1,000 and $2,000. Every time it gets up to $2,000, I feel like it's going up. It, wham, it goes down. It goes to $1,000, it goes up. So where are we? Where are we?

$2,000. Okay. Yeah. James, you were about to say something. Oh, no. I was just going to say, and adding to the fuel to that, the TLT fire is just the volatility around the bond market this past year and a half. It's just been absolute insanity for the treasuries to trade like this. So yeah, they could snap back hard on a deep recession. Absolutely. I think so. Guys, if you didn't know this really quick, Dave, I just want to mention, just in case you're wondering, CPI is tomorrow. This is the schedule releases for the Consumer

Price Index. So maybe after, Dave, you make your point, I'd like to see what, Mike, you think might happen tomorrow. Well, look, the thing about TLT that I find fascinating is when Treasury yields collapsed strongly during the biggest bull market or the longest, not maybe the biggest, but the longest bull market in history in risk assets. The rationale was the U.S. economy was strong and therefore people want to invest in strength. And now we're saying that the U.S. economy going into a recession will cause bond yields to collapse because people will think it's going to bring inflation under control. But maybe it's by my upbringing in economics and studying the 70s. I worry about stagflation. I worry that you get literally the exact opposite of what you're saying. And to me, a bet on TLT coming down is a bet that the Federal Reserve is going to go engage in yield curve control, which is entirely likely. And I think

that's exactly what will happen. And so it may very well be the long end is kept down. But if so, it's going to be by massive monetary QE in order to do it. Because I don't believe in this world that a US-based recession, now, if it's a global recession where the U.S. is actually, you know, receding less than everybody else, then yeah, you're right. You know, then you get that scenario. And that's the point that you've got multiple backstops, right? We've seen it with the acronyms and the facilities that the Fed and the Treasury create to put, you know, to put Band-Aids anywhere they need to, to keep liquidity in the markets. They will keep liquidity in the markets. Bar none, they will keep liquidity in the treasury market. If you think that they're not on notice after last week's bond auction, you're nuts. They are

absolutely looking at everything and making sure, hey, what's going on in the CRE market? What's going on with the dealers? Do they have enough liquidity? What's going on in the CRE market? What's going on with the dealers? Do they have enough liquidity? What's going on in the reverse repo? How much do we have to move in short T-bills? And how much do we have to refinance in the next two weeks, in the next four weeks, in the next six weeks? What are we doing in every single iteration? Because they need this market to be liquid. And so there is a backstop there. And whether or not you want to say, well, it's different this time, the market is just their condition to it, the Fed won't do that. That's

absolutely wrong. The Fed and the Treasury will work together because the Fed has one job. It's not to make sure inflation is in check. It's to make sure that you keep confidence in the US dollar. That's their job. Why do they care about inflation? It's to keep everybody on the same page that, hey, look, if you invest in US treasuries, you're not going to lose money because we don't have runaway inflation here. You're not going to lose real dollars on real yields. That's their job. are they're going to work at figuring out how to somehow placate whatever's going on in dc to make sure that they fund all of the nonsense or whatever you know whatever uh deficits we're creating and if it means they've got to print money they're

going to do that but it sounds like but it sounds like what you're saying, just to be clear, is that they're trying to find every way to do it without printing money first. Every subversive, quiet way to do it without saying, hey, we've pivoted. Look at the release from last week. Look at the Treasury release from the week before. And they talked about this. They said, we're nearing finalizing the 2024 regular bond buyback program. Like, what's regular about it? There's nothing regular about that.

They're going to go, we talked about this, and we'll keep talking about it. They're going to be buying off the run treasuries. They're going to be picking specific yields to buy to make sure that there's liquidity in the market. They said to ensure that there's sufficient liquidity in primary dealer markets. I mean, that's quasi-yield curve control. Mike, Dave, please tell me if you think I'm wrong, but that's quasi-yield curve control to me. Well, the consensus, you're right. The consensus for more duration being issued last week came out less than expected because the treasury knows that yields have been spiking. They're very aware of it.

And they're going to issue more T-bills because they all know what's going to happen. Just like in Fed Funds futures, they'll be able to issue as many T-bills as possible, then refinance that debt at lower rates in bonds a couple of years from now. It's almost a given. But just one key little things I want to push back on a little bit. You mentioned the dollar and the Fed. And you and I both know the Fed in the minutes virtually never discussed the dollar. It's more of a treasury issue, but they will focus.

It's just only how it might affect the economy. Exactly. I love when people. It's the first order effects of what they're doing. Right. Yeah. Yeah. But it's just it's exactly it's a first order effect.

But we want you. So we do have CPI this week. It's expected to drop to three point three percent. Our firm, our economists are taking the under on that. But remember, the peak was around 9%. And what's Fed funds? 5.5%. What's the body in motion? Here's one good example. PPI is low this year. It's 3.1%. Negative. That's deflationary. You know what the high was in 2008? Plus 9.9%. We are tilting towards severe deflation and the Fed's still hiking rates. The Fed started cutting

rates in 2007. I have to push back on Dave a little bit because what he said about the 1970s is completely not true. That took decades. I've been rereading the empire of wealth for the third time. It took decades to get there. We both lived that. Remember the energy crisis. What got this inflation was one simple thing that's completely reversed. The biggest pump in liquidity in the history of mankind is now going back on the sharpest rate hikes ever. We're just getting started. That's my great reset. So it's the simple rules of Milton Friedman. And too much money creates inflation. Now we have negative M2 money supply. We have the tilt towards deflation. The Fed's still hiking. And we're just getting started. So I like to say this is the beginning of the end of the great reset.

What we're going to see starting next year is the true deflationary, true recession starting in Europe. You see the data latest out of China and all my data for US, except for the stock market, are pointing towards, OK, this is early days. Just get the roll.

Is the Fed still tightening? I guess the question then, we keep saying the Fed's still tightening, but they've paused and they may not tighten again. Well, they probably won't, but the key thing is what's the next trigger to make them ease? And we all know, here's the thing, core CPI, core is running 4%. Their target's 2%. It's very simple. Unless you get a significant crash or breakdown or something to really break, there's no reason

for them to ease, even think about it. It's just the way that's what's changed versus everything I grew up with when they would always ease when there was a reason to do it. Right now, inflation is 4.1%. To me, it's a classic lagging effect of the biggest wealth effect in history, still trickling down and one of the biggest fiscal stimulus periods ever without a war recession, just starting to tilt towards what the normal repercussions. Yeah. I don't think that they'll pivot until they see us really starting to take a dive into recession. They're not, they're not going to pivot on inflation numbers only, you know, that's not,

that's not what they're, that's not their job. Agreed. I've been, I've been calling for quasi-yield curve control for months. I'm not surprised by what you're saying. I think it's what they need to do. I think that the pump of liquidity that you talk about is true. I think that there's every single person in the halls of power on both sides, basically. It doesn't matter which. This isn't political, understand that with the pandemic, we made a big miscalculation. They totally underestimated the substitution of capital for labor, which had been going on for 30 years in that liquidity pump that you're talking about, they underestimated the disinflationary to consumer effect of having rising asset prices that was actually a Goldilocks scenario. And now

they realize it was true. And they're trying to figure out how to push that genie back in the bottle. And they realize that they can't because we started this idea in the pandemic of massive subsidies, massive fiscal stimulus in order to get around it at the same time as all the other stuff that was going on in the pandemic happened. And, you know, now we're sitting in a situation where it's like, okay, we have the biggest peacetime, no reason budget deficit ever. And it isn't even close if you take out war and pandemic or whatever. I mean, it's insane where we are. And frankly, you know, forget partisan politics. I don't believe, despite what they say, I don't believe either political party has shown that they're going to do a whole lot about that. And neither, none of this has anything to do with social security or whatever, you know, in the unfunded liabilities, which are literally impossible to get out

of without major devaluation of the currency, which is major, a major inflationary shock. So you know, you can talk about it as much as you want, but those are the facts on the ground. And so a normal Fed cycle is there's nothing normal about this. There's no way that you that you say the Fed alone can control inflation when wage push inflation is happening with unions and strikes all over the economy. It just it just you can't do that. You know, it's not only about money supply. So, yeah, M2 may be going down, but the reverse repo side and other parts of liquidity are going up. And so, you know, look, there's a lot of cross currents here. The point that I was going to make is when you look at a

gray reset, what do you want to own? Yes, at a certain point in time, everything moves together. Well, what do you want to own? Do you want to own assets that require free flowing capital, cheap capital in order for them to get to some form of profitability? I don't care if that asset is a stock or some fly-by-night new crypto. That is, you know, you need money in the casino to goose it. What do you want to own? You want to own things that are defensive. What's defensive?

Well, you know, assets. I mean, Bitcoin, I believe, because it is what it is in terms of a alternative monetary opt out. But, you know, we need to understand what it is that you're doing. I mean, last week, we didn't even talk about the biggest news which caused the rally, which is the Ethereum ETF, the notion of an Ethereum ETF. Now, is an Ethereum ETF something that can Ethereum go up in a scenario where you're going to plunge into a recession? I don't think so. Ethereum is like a tech stock as far as I'm concerned, maybe an undervalued one if you believe in its ultimate, you know, where it can go, but it's still a tech stock. And, you know, it's not really a stock, it's a tech asset,

it's a platform. And so, you know, if you're right, and there's certainly reason to believe that you might very well be, then yeah, you'd expect Bitcoin to outperform Ethereum, you know, if it was slow and steady, but, you know, forget the crash or whatever happens. I just think that any sort of crash, the plunge protection team is going to come right out and start buying risk assets in a presidential election year. That's what I genuinely think. That's my thesis. Yeah, you might get a 10% correction, but you're not going to get anything where with Black Fridays on it in the news without the people doing something about it. I agree. I agree. But we know that Japan's done yield curve controls for over decades, right? Isn't there a point where you just can't do it?

Like, I know we take for granted that the Fed will just print money. They'll buy all the bonds. But I don't see the Fed and Treasury stepping in and doing Japanese-style yield curve control. I see them doing it very surreptitiously behind the scenes, using the acronyms, using facilities. I don't see them coming out and saying, we're buying all the 10-year bonds and keep the yield at a quarter percent. I don't see them doing that. I mean, maybe I'm wrong, but that's not the way I see it. I do see them- Did that work? Would you say that worked for Japan? Do you think that worked for Japan?

It's a completely different economy, completely different demographic. It's very difficult to compare us with Japan. I mean, one of the things is, look, Japan is a net exporter. We're a net importer, all that. But one of the big things is, I mean, the biggest thing is that we are blessed with or fortunate to have the global reserve asset and the global reserve currency. So there's a lot of things we can do and a lot of legs we can lean on before we have to get to that stage. And I don't see that happening anytime soon. Personally, I do see them doing things, though. They are going to find ways to inject liquidity. And so, you know, Mike, they are

tightening still because they're letting all of those assets that the Fed bought during the crisis during 2020, 2021. They're letting those roll off the books and mature. So that is a form of tightening. They are competing with the Treasury for liquidity right now. You know, they can't actively do it. I don't think, anymore because the bond auction was almost failed. But then my question that leads to it, I don't know history well enough, and this is outside of my wheelhouse. Are they just going to keep doing these auctions? I know we saw it's going to be, whatever, $700-something billion in this quarter. But there's no demand demand if nobody's buying

them if we're getting those tails how do they just continue doing it who who's going to buy these bonds how they're going to continue moving they're going to continue moving to the short end of the curve okay and keep issuing t-bills and keep drawing money out of the reverse repo when we when we started talking about this months ago or, or when did we start doing this show, the four of us? It's been a while. The reverse repo is what? 1.5 trillion, 1.4 trillion? It's under 1 trillion now, or it's right around 1 trillion now. They've been drawing money out of that and just recycling it. And they're going to continue doing that. The treasury said, they stated that they are comfortable running more auctions than normal at the short end of the curve.

They're running over 20%, which is the number that they're comfortable with. They said they're comfortable with going above that for a while. So we'll see what that means. I guess for me, trying to work through it, we have Mike who rightfully, I think, says, hey, great reset. That's my thesis. And then you have Japan, and we're stronger than Japan. And you say, oh, we kicked this can down the road a good 10, 20 years. So why great reset now if we have the tools,

which politicians obviously would favor because nobody likes austerity, to just say, hey, well, next generation can worry about this. So I'm glad we brought in Japan. As we speak, we're pushing 152 against the yen. Yeah, we're crushing the yen, obviously. What stops that? The US dollar is the most expensive to short currency on the planet. In terms of fiat currencies, it's unstoppable. Bitcoin's a baby. I look at what we mentioned, Dave mentioned earlier, what do you do? First mean, first thing, I think it's the hardest thing for people who have been so accustomed to the Fed and all this outperformance of US equities versus everything on the planet in the last decade or so is to go over and to look at the US treasury and

say, you mean I can get 5% guaranteed? Okay. And so my base case is for the next year or two, this is, I think, treasuries, gold, and some Bitcoin, I think are great for it. But you got to expect that Bitcoin, which is a high volatility, to be volatile. And it probably will come out ahead. But I look at it as there is nothing to stop right now this US dollar wrecking ball. I mean, we think it's a shitty currency, but look at the rest of the world. It's not even close. And it's because rates are so high.

Here's the one thing that can stop it. Our FX strategy said, I'llilfriedman, that's weak economic growth in the US, which means lower rates, which means a lower stock market, which means lose-lose for all risk assets. One thing I want to end with, if you want a good example for Japan, it's China right now. Japan's GDP locked up about $4 trillion in 1989. It's still there. It's the same. China is up around $17 trillion. I think you're going to look back and, okay, it's the same as what Soviet Union and happened to Japan. China is so overdue and all the data is starting to tilt that way. And what's their autocratic leader

doing? Good luck. I mean, there's no free market. I mean, this is an all-time high for the dollar against the yen, which was only made back in 22. But I mean, this does show the wrecking ball, but then it goes back to my same question, which is when it's actually the United States doing it, you know, you see that what is happening to the yen because the United States is stronger, but when we are the global reserve and we'll have to do a get to it next time, obviously, I just wonder how far you can kick this can down the road before there's reckoning, or if you can just keep- That why i definitely agree with dave and james and then well bitcoin is a major savior it's just such a baby and um i still agree it's agree with that completely i just have to expect that you might get beat up on it if we get the normal recessionary pullback and risk assets but that

makes we haven't talked about boomer rocks but at the end of the day we don't have time to talk about boomer rocks today okay that's the of the day, we don't have time to talk about boomer rocks today. That's the point, Mike, because I think that that gives opportunity. It provides plenty of opportunity. That's my, that's my point. I like that view. That's a great way to end on optimism. James gave us the optimism with the title, right? So we'll end with James optimism guys. This is a, you're, you're probably not watching, but it's our biggest uh biggest numbers ever uh of people watching and we've continued to grow

i'm amazing to have this and just i think it's a testament that's 10 a.m and it's still the numbers are getting bigger so people are tuning in and watching you at the end so thank you guys for doing this uh i will actually i'm going to be off wednesday thursday friday but i will be back monday so we'll do this again i have to apologize for all three of these guys in my new role as a producer. I forgot to send them the link to one minute before. I'm really good at this. I really get this, but guys, really incredible insight. I appreciate it as always. I always look forward to it. Really. I come out of the weekend, just dying to get back to work. That didn't always used to be my feeling.

I don't think most people feel that way on Mondays, but I do because of a macro Monday and the opportunity to talk to you guys. So thank you for that. Looking forward to next week. Uh, I sometimes I'm like, hopefully we'll have a lot to talk about. And sometimes I'm like,

hopefully we have to talk about all the same things because nothing's exploded. So I'm going to go with nothing. Thank you, gentlemen, Mike, James, Dave,

everybody follow these guys. See you guys next week. Bye.