The Wolf Of All Streets - How Big Will The Next Rate Cut Be? Major Implications For Bitcoin & The US Economy | Macro Monday

Episode Date: October 7, 2024

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How big will the next rate cut be? Major implications for Bitcoin and the US economy. There is a lot of debate, confusion, bipolar opinions on what is coming from the Fed in November, largely because we just had the strongest jobs report in ages. And that's saying to many people that the Fed won't cut again. Still some saying they need to cut 50 bids. We're going to sort that all out and what it means for markets. And of course, everything else macro here on Macro Monday with James Lavish, Dave Weisberger and Mike McGlone. It's the best hour of the week, guys.

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. Hit that like button. We've got rate cuts, not immediate, but we are getting some news from the Fed and we're seeing interest rates flying, bonds dumping again, strong job reports every week. It seems like we've got this sort of schizophrenia with what to expect with markets. Mike, what'd you guys have on the meeting? We'll start there. How are you viewing this now? Good morning. Well, from Anna Wong, her quote was she expects a non-farm parallel number to be adjusted down in February like we had before. Didn't take much signals from non-farm,

think it's a bit of an aberration. She thinks the next report's going to be possibly around 100, a bit weaker. Pointed out there's been some decent seasonals. Here's her quotes where she still thinks it's consistent with a 25 basis point cut at the next meeting. There's a massive increase in government jobs, which is more effective of the household survey. Long-term unemployment's continuing to decline. So still sticking with the overall macro picture. One number didn't really change the views. Our senior interest rate strategist, Ira Jersey, pointed out we're back up at significant yield resistance in the 10-year note, 4.03. His fear was that we can go through that. My thought is from commodities, I see same resistance in crude oil and copper. But his point was a lot of this has been positioning unwind, which is clearly what we all have seen.

A lot of position unwind. It looks like markets are a little bit way too overweight, long that treasury, long bond market for the deflation, which I think it's just a shorter term wipeout. But the key thing also from the equity persons is for the first time in a while, they're pointing out earnings outlooks are starting to deteriorate. Our equity strategist, Jillian Wolf, came back on and still shows the upside, but the global market bounce and the global index has been mostly because of Chinese equities bouncing, which we all knew were just way oversold. But they're pointing out they're

getting somewhat bearish on the equity market, partly because it looks like deterioration of earnings growth. So a lot of that strength was just coming from this massive sort of bounce in the Chinese equity market, which we saw when they started stimulus and that sort of booing everything else. Stimulus, and just what our ETFs team predicted months ago is they're going to just do what Japan did. They're turning Japanese. They're buying ETFs. Japan started buying their own domestic ETFs in 2010. And China will, when you tell them we're going to lend money to buy stocks, sure, I get it. Thank you very much. So they're

going to at least put in a floor underneath the stock market. Yeah. I mean, James, that leads me to pivot to you. Obviously, we have this sort of story here. We just alluded to it. Let me share the screen there. Key U.S. yields hit 4%. He mentioned that for the first time since August on FedRethink. Of course, this is sort of what we alluded to with the schizophrenia, right? Bonds are selling off. Markets now pricing fewer than 50 bps of Fed putts by year end. If you'd gone back a couple of weeks, it was 50 in November and it was going to keep going from there. Bond traders now talking about no landing. Right. And this kind of leads me to your newsletter from yesterday, which is the intangible neutral rate. I think it's sort of a good opportunity to talk about, I guess, what the Fed is aiming for here, what that neutral rate would be and what the odds are of getting

there and how they would do that. Yeah. So, I mean, what is the neutral rate? The neutral rate is, is it's kind of where the, the, the Fed wants to hold rates long-term, like where they see rates going long-term, where they're at a level, the, the, their target rate is at a level where it's kind of neutral. It's not, it's a sweet spot. So it's not, it's not high enough. So it's high enough to prevent overheating, but not so high that it causes recessionary pressure. And it's just like just right. And they can hold it there for a very long time. So if you look at the Fed dot plot, that all the way at the end of the dot plot, they have something that's called longer term. So you've got like,

the dot plot will stop at each end of the year, right? But then longer term, there's kind of the, their terminal rate where they think that they're going to hold. And that would be what they would, you know, that sensibly would be what they believe the neutral rate is, where that's where the economy holds steady. And you could see there that kind of the median there is just about 3%. And so that's what people were, that's what the Fed officials were thinking on September 18th, before, actually, before they got some inflation numbers. So then we've had a number of job numbers and we've had, you know, the unemployment, not just the unemployment, but the, the, the challenger numbers and some other economic,

plenty of other economic numbers since then. And obviously people are not talking about soft landing. Now they're talking about no landing where they're just, the economy just keeps going. so um question really is is three percent three point two five percent if you look at the um if you look at the interest rate probabilities of the uh off of the the fed futures it looks like traders and investors think it's gonna it's to top out or bottom out at about 3.25%-ish before long, long term 2027. It gets to just about 2.9% or 3%. Mike has the exact number this morning, but that's where they kind of were this weekend.

So that's what the market is kind of expecting, 3%. But then you look at the 10-year, and the 10-year is trading now up at 4%. So there's a little bit of a disconnect there, meaning that there's some rate premium in there. And so the 10-year is telling you that investors and traders expect higher inflation longer term, you know, that either the Fed has to hold rates higher than the futures are expecting, or there's going to be more embedded inflation there and they want to be compensated for that. So it's back up to 4%. And so why would the market think that? Would the market think that we're just going to have a no landing? Well, yeah, that's a pretty good reason for that.

If you look at the job numbers from Friday, if you actually dig into them and talks to people versus the other survey, the Establishment Survey. Sorry, it's super early still here. I've only had one and a half espressos. You need Dave's drinks. I guess you need a piece of whatever Dave's drinks is. Establishment Survey. And they've been diverging. Establishment survey. And there's been, and they've been diverging,

you know, I need one of those. So, but if you look at the establishment survey, the number of jobs that were created over the last month were 984,000. Now, some of that is a lot of that is just the end of summer school hiring, you know, because teachers go off the payroll, they come back on the payroll officially. But the private numbers were down 400,000. So there's clearly a massive amount of government spending still going on here. And that's a big number that's thatized, that 984 is outsized. So there's clearly government-driven, fiscal spending-driven economic support here, even if it's not expansion. So it's confusing people and it's difficult to kind of play out. But it's clear that the government does not want this economy to land.

It doesn't want it to even have a soft landing. It just wants to keep going. But no landing does imply reignited inflation. This is what it says. The no landing scenario, a situation where the US economy keeps growing, inflation reignites, and the Federal Reserve has little room to cut interest rates, had largely disappeared as a bond market talking point in recent months. So obviously, this job report changed that, but this does imply a rise in inflation and the Fed no longer cutting and even potentially raising rates in that scenario, correct? Well, and then you saw the futures where they were pricing in over another 75 basis points of cuts through the year end here. And that's all the way back down to just under 50 basis points. So there's not even a certainty now of two basis, two 25 basis point cuts in the next two meetings

in November and December where, you know, just before this number, it was up around, it was closer to a full percent. So it was over 75 basis points. So it's interesting that, that traders are now that that's exactly right. That's the punchline, Scott. That if we continue with these kind of numbers, then the Fed's not going to cut again. And eventually they may have to raise again. I don't think that's the case. I think they will be cutting.

But it's certainly confusing the market a little bit and longer term uh traders and in longer duration traders are they're protecting themselves i mean mike what's this mean for the tlt trade oh i still am a bullish macro bigger picture particularly as we're back up with this significant resistance and seeing pretty significant position unload. And it's the next payroll numbers, next few are going to matter. And particularly from a commodity standpoint, let's just look at it on a one-year basis, crude oil is down about 10% and gold's up about 40%. And to me, this is the overall global trajectory that is just got a little bump in the road, but it's towards pretty severe deflation. In the U.S., as we mentioned, the next rate cut is supposed to be maybe 25 basis points in November

7 after the election, but that's below 90% now. So now this is an area where I think the people who are way overweight, leveraged long are getting flushed out and more long-term buying hold patterns will be getting in, i.e. potentially selling crude around 80, potentially selling copper around $10,000 a ton, up in the range, commodities, even grains near the upper end of the range, and buying long bonds around 10, you know, it's around 4%. To me, this is part of that transition is why I don't trade anymore. But I have a great way, I think, to transition. I want to tee off Dave a little. Because I think what I saw you drinking, Dave, this is a good morning to fire you up. So let's do that. So let's do some

conspiracy. So here's my here was my thinking and conspiracy. So we did see a 50 basis point cut. Now the markets, as you're saying, maybe we didn't need that. Oh, we do have election coming out. And it seems like most of the establishment does not like this. They kind of like the people in power at the moment, that party. And also we have these issues with just rapidly accelerating hot wars, particularly in the Middle East. It's keeping oil prices bid. And the key risk lately now is will Israel hit Iran's oil facilities? And to me, that's a very unlikely thing, particularly as we head towards the election, particularly because, as we know, with number one, two factors for consumer sentiment is once you get to election, you want consumer sentiment high if you're in power, because

it's certainly similar with the current administration. And two key factors are strong stock market, which we got, labor market, which is OK, and low, low gasoline prices. So my thought is the people are getting really bullish crude oil here, about 80 in Brent, I think, are at really high risk of missing the politics. And maybe that's we should tilt over to Dave and what he's thinking and that space and obviously get other things to offer well the first thing is that you know james talked about the 10-year i mean the two-year since a week ago when we all talked is up 35 basis points now put that in context rates come down 50 uh and the two-year backs up 35 basis points so basically the bond market is telling the fed f F you. And, you know, there is inflation. You know, we understand you're political. We understand you're going to do what you had to do.

You had to do, you know, a bigger rate cut. Yeah, you could say it was because of, you know, we were catching up to July or other bullshit. But the fact of the matter is, is this was politics. And we wanted to have the, we didn't want to have restrictive conditions going into the election, full stop. So that's what happened. And the bond market is basically calling bullshit on it. And I think the bond market is probably right because you can't have $2 trillion deficits and going into an economic slowdown before the economic slowdown happens and no chance of cutting spending and expect something different than inflation. It's just that simple. And if we do get four more years

of hot wars all around the world, excessive government spending with choking regulations that the private sector can't grow, then you're going to continue to have a manipulative economy for the next four years. And in that environment, I want to own gold, I want to own Bitcoin, and not a whole lot of anything else. And I want to be digging a bunker in the backyard that I don't have, because the world is going into a ridiculous place. And for the record, Israel is pretty damn smart. And they have no interest in seeing oil prices spike higher, particularly. But if there's any, or if they know where Iran's

nuclear facilities and centrifuges are, I think that those are the ones that are going to go boom. And I'd be really surprised if almost at this point, I'd be surprised if that didn't happen. Remember, they did that in the 80s. The last time Iran was close to developing nuclear capability, Israel took it out and said to the U.S., sorry, but not sorry. This case, they had 400 missiles directed at their civilians, and they're going to respond. I'm not commenting on the politics of the situation. I'm not commenting on whether they should or shouldn't. This is not ish. We're talking about markets.

So we're trying to decide would or wouldn't. And whatever you think, I mean, you know, I keep my opinions on the subject to myself. I'll continue to keep my opinions on the subject itself. But I think that the notion that they would go after the oil facilities are slim. Now, what could happen for oil prices is Iran, realizing that they're getting crushed, threatens the world with closing the Straits of Hormuz. And that is what would send crude oil up over 100, full stop. I got a comment on that one. Yep.

Go. Well, when people say that, it's never happened significantly. And the last time it was significantly somewhat threatened was 1988. We had Operation Praying Mantis. The U.S. eliminated the Iranian Navy in about eight hours. So I like when people say that. That's why I wanted to tilt over it. It's so much priced in.

I heard it on the weekend press. Yes, if they do this and they do that. I think overall, that could happen. Low probability. But overall, the macro and crude oil is just oversupplied, declining demand from the world's largest source of demand in China, increasing supply from the world's largest source and producer, U.S., and excess capacity in OPEC. So that's why that's kind of, I wanted to tilt that and make sure our viewers know that's a very low probability event. It's never happened. And in the past, when it got close, the U.S. took it out in a few hours.

I don't dispute that. But as you're trying to do, if you want to understand what is the black swan, that's the black swan. Is it a likely black swan? Actually, no. If it were likely, then it wouldn't be a black swan. So you and I are on the same page there. I'm just pointing out what is it that could be the issue. So, okay, so let's take the Middle East out.

And now let's talk about, you know, the election. Look, first, I'm going to push back on one thing you said, because I agree with you. And it's a point that's really important for people to understand. Yes, the establishment wants Harris walls to win. That's because Democrats control over 70% of the wealth in this country. Democrats have become the corporate party, full stop. And that is something that most people who are actual Democrat voters don't know. And it's a fact that people don't want them to know. And there's reasons for that. What do corporatists want? Corporatists want to be the modern day aristocrats. They want regulation to stop people from becoming new competitors. Okay, check, got that. And they want excessive government spending to prop up the economy and make their stocks more valuable and make well assets go up while consumer inflation is kept as much under control as possible. Check. That's what they're trying to do.

So my thesis is assuming a Harris-Wallace to engineer higher asset prices, including that would be lower bond yields because if bonds go up, yields go down. We all understand that. Then that's what they're trying to engineer. And how do you engineer that? Well, you free up big companies to be able to outsource and provide cheaper stuff so that people are happy with their iPhones and their cheaper cars and et cetera. And one of those things they want to be cheap, even though they don't think about it as much, is gas. And I think that, you know, you can see that if anyone is surprised that the sharpest move downward in gas prices is happening in the six weeks to two months before the election,

then, well, you know, you haven't been listening to us on Macro Monday for the last two years. That's exactly what's been happening. And, you know, when you predict a conspiracy theory, the conspiracies all start coming true and all the visible evidence of it is happening in front of your eyes. It's not an accident. And a lot of this stuff is happening. So what's the base case here? The base case is the same as we've been talking about. The only difference between you and I, Mike, is that you think gold is a risk asset and not building a groundswell of acceptance, which would indicate the S-curve. And it's just the beginning. But, you know, since you like to point it out, I just checked. Bitcoin.

I mean, Bitcoin. Bitcoin is up. Where are we oh it might count that way it's up over 125 while gold is up 40 from exactly one year ago today and so you know look do we care do i care about that in points in time not really what we care about is something on this show that matters and being a macro show what are the biggest macro stories as far as crypto? Well, the single biggest macro story, I think, is China. And there are multiple scenarios now which are so far from being priced in as to be people thinking they're assigning them zero probability. So you talked about oil. And you and I both agree, it's, I don't know if we're going to put a number on it, but probably you'd say less than 1%

chance of the Straits of Hormuz getting closed. Is that fair? Small chance, right? Pretty low, yeah. Right. So low chance it's actually material in the price of oil. There is, we had people from, you know, one of the former members, the former members, still high in the party, but former members of the Economic Council in China saying they're going to open up crypto. And yet it is not priced in. But imagine a scenario where China says, you know, we've been mining Bitcoin a little bit for ourselves, and now we're going to allow mining by our favorite companies, and we're going to allow mining by our favorite companies.

And we're going to allow our wealthy individuals to buy Bitcoin. Imagine what that does to the price of Bitcoin. If you think it's priced in, then you're smoking something because it's not even close. And so the real question is,

imagine that at the same time as, and there are Democrats who are on board with this, as the Loomis idea gets serious consideration at the same time, and there are Democrats who are on board with this, as the Loomis idea gets serious consideration at the same time as corporations can buy it. Look, Bitcoin, in that scenario, Bitcoin starts equaling gold's market cap, or at least gets to half of gold's market cap, almost in a blink. Now, is that priced in? Of course not. It's not priced in. We're still literally in the same trading range we've been for eight months. And so last night people got excited. Oh, it went to 64,000 and now it's at what, 63? 63,140 or something,

whatever. It's bouncing around. Yeah. Okay. It's slightly higher than the middle of the trading range, but it's still in the trading range. And until it breaks out of that trading range, we don't know what's going on. So that's really the point. And so from a macro point of view, we have to look at what are white swans, what are black swans, what's priced in, what's not priced in. And I'm going to say that that news out of China, which happened over the last week is not priced in. So let me piggyback on that. And Scott, James, wherever you want, it looks like we lost James. I pointed that out. This is a common thing I push back a little bit on with astute macro analysis of when people make significant if statements. And I agree with your if statements. Problem is they're very low probability and you have to hope that they will happen for this scenario that you're playing out to work. And I just I'll point out a fact currently the 200-day moving average

of bitcoin is pointing lower that's very rare that's actually never happened with the gold and and as in beta still moving higher in 200-day moving average currently if we end the month right now bitcoin is um at a much lower level than it's not the only market of those three that's at a new high is gold so i stick with the bullish scenario going, I think I know what you meant. Bitcoin, I'd say, is a risk-on asset. Gold's a risk-off asset. U.S. Treasuries are still risk-off. They're just getting a little bounce here.

But the point is, from a pattern recognition standpoint, Bitcoin is underperforming after a significant event of which most of us thought was a pretty significant high. I just think it's going to be more enduring. So if statements, I agree with you, they could happen. But overall, it's not it's not showing up in price. So maybe that's an option strategy. But you have to play for that. The point is, it's still showing divergent weakness. So I love to look at versus gold still trending lower versus S&P 500 still trending lower. And then I look at to me the number one factor that's realistic in any type of I know you don't like that word value risk model, but any type of normal market movement right now is if you're buying gold, Bitcoin now, and you're a typical

US speculator, you have to bet that it's basically the way I look at it, it's a bet that the beta is going to continue to go higher and the gold might catch up. But if we get a normal correction beta, which we haven't, maybe it's rolling over now, Bitcoin's going to drop it three times. It's three times the volatility. It's just normally what happens. So I'm pointing out these facts in big picture. I can't wait to get bullish again, but it's either going to be from higher level, which I haven't seen yet. And we probably have to see some kind of change in that trajectory of divergent weakness or from a lower level questions, which one's going to be next. I don't think, I don't think really quickly, Dave, I don't think that what Dave and Mike are saying is actually in conflict because, yeah, I mean, Mike, you're speaking, I think, very accurately with the present situation. And Dave is talking about events that could change that and decouple Bitcoin from other markets.

And I think both of those positions hold water. Mike, you're certainly not pricing in everyone in China deciding to buy Bitcoin or Bitcoin becoming a strategic reserve asset to the United States. But I think even you would admit that that might change your base case if all of a sudden we're buying Bitcoin from central bank. When the facts change, we have to anticipate the facts change. And I point out, I was really, really bullish Bitcoin for quite a while when until we got to the point of ETS, we got things that those of us are all predicting. And, you know, we had to get through the, if it doesn't kill us, it makes us better. The thing about the politicians finally realizing once Trump went on stage and said, oh, this is

great. I realized, okay, we wrote about that five years ago. We got to those things we were looking forward to. We got to those dangling carrots. You're pointing out a lot of other dangling carrots that I think are lower probability events. I'm like, yes, we might get there. So let's pick a point in time. To me, the world changed on February 4, 2022. That was the unlimited friendship. Since that time, gold and Bitcoin are both up about 50%. The total return of the S&P 500 is 33%.

So the rock is beating stocks is a problem. And the Bloomberg Commodity Index is down about 10%. Those are, thank God, you know, the stock market is still high. To me, that's where the number one risk in everything comes into play. The U.S. stock market has to stay elevated or we're going to see who's wearing clothes when the tide goes out. And I just pointed out that I think Bitcoin is still not wearing clothes when the tide goes out. It's still a high volatility risk speculative digital asset. So I want to make two points. Point number one, would any human, do you know any technicians that successfully trade individual biotech stocks? Anybody? The answer to this is a trick question. The fact is, you don't trade stocks that have episodic news that dramatically impacts its volatility, and they're very high volatility.

And you don't worry about the invaluable risk models. Yes, you keep the volatility in there, so you keep your weights relatively low. But technical traders, market makers are extremely careful on biotech stocks because of the news effect and the fact that their fundamentals could switch like that. That is relevant here because Bitcoin's fundamentals are a, I mean, it's basically, whether it's a binary or whatever option, it's basically acceptance. Now, you mentioned the unlimited friendship. Consider something. If China, which has the world's largest excess hydropower, which Bitcoin is one of the only things they could use it for beyond the actual demand in the area, and Russia, which we know has one of the largest natural gas and flaring of gas reserves decide, you know, we really should be mining this stuff because there's geopolitical reasons for doing so, even if it's small right now. That is completely consistent with a thesis that is a white swan event for Bitcoin. Now,

is it going to happen? I don't know. All I know is, is that when you have high ranking Chinese officials talking about this, it's a big deal. We all know, I mean, for how many years did Bitcoin's live or die based on China Fund? I mean, come on. I mean, anyone who remembers when they banned mining, and you know, Xi is not they're not dumb. I mean, these are not dumb people. They banned mining, expecting it to be the death knell to Bitcoin, which they didn't want. And what happened? The mining, you know, mining, the hash power is now three and a half to four X where it was the day that they banned it. And it all moved offshore, all the discretionary mining. So, you know, if you can't beat them,

join them is a fairly typical human thing to do. And that is very possible. I actually think likely. So I don't think that's a low probability event. I just think that it happening on a dime is, I think it's going to dribble in and you'll hear stories and rumors and whatnot. And then one day we'll look back and say, oh, look, this is what's happened. That's what I think, which is a little bit different than a binary event. That's all I want to say. Well one comment i have to point out i think history will view the unlimited friendship as dumb as the molotov-rippenthal compact in 1939 i think between russia and the soviet union i think most chinese people view it as dumb right now and history and it's going that way that's why we have unlimited they're kicking in fiscal monetary stimulus because they have to the economy is collapsing just like japan did and soviet union did 30 years

ago so i think history will judge it that way but the key thing i want to point out is so what part of china mining bitcoin is going to make price go up i okay if they hoard it and they buy it i get it but again we're just talking about um typically in the past when you say there's going to be more people on a supply side that's usually bad okay so we know bitcoin's limited but sure if they hoard it and buy it and hold it um but then again what's it do for all the miners i mean i would be short in the miners and they're getting out of those positions because it's going to add competition it's it's a question of creating a strategic asset and allowing their people to buy it. Which is gold right now.

Look, once upon a time, I sold them for Bitcoin and it was a good trade. I owned a lot of Chinese gold coins. I had bought them at a period of time when Chinese citizens were not allowed to buy gold coins. They were created for export. They were able to buy them at spot. They were beautiful. They're there, et cetera. And it took a while, but China finally, one of the reasons gold has moved higher in addition to everything else is Chinese citizens can now buy limited amounts of gold coins. So They've kept it limited. The difference is Chinese citizens or Chinese expats have been buying Bitcoin forever

and are driving and always drive it. Now they have to jump through hoops and keep it small and keep the government, the ones that are connected, know what they're allowed to do versus what they're not allowed to do. If it becomes something where they don't have to do that, that is a major source of demand. Full stop. And that's really the point that I'm making. The reason I'm talking about mining is because the best way to establish a strategic reserve is to mine it and not have to buy it in the open market. What?

At a national level. At a national level. Once again, that would be Bitcoin being mined and taken off the market. What? At a national level. At a national level. So once again, that would be Bitcoin being mined and taken off the market. And so strangely, you know, I know it sounds weird, but remember, mining isn't the same thing as creating. It's basically there's a supply schedule that's going to exist. It's a question of how expensive is it going to be to get it? Exactly. But the point that I'm trying to make here about Bitcoin in particular, without not talking about crypto, which

I think everything you're saying is true in a sense, although, you know, disruptive technologies do follow a different path than the legacy technologies in all things. I mean, for example, you know, in post-internet bubble, know in at post internet bubble i mean the internet bubble happened because people were saying oh we have a new paradigm which you know at the end of the day you got to translate eyeballs in the cash right you know if you're not making money then these companies that went up until they started making profits and as soon as they made profit but they were tiny profits people said well what the hell are we buying this thing for uh you know that sort of paradigm you and i both would shake our heads and say that makes no sense. And so we can talk about the rest of crypto and

the effect, but the Bitcoin versus value at risk, my problem is, is there's episodic issues here. And you have people like, not just me, I mean, I've been saying this for five years or six years, I already think it's now going out on a marketing tour, telling people this exact thesis that you need to have this as part of your portfolio because it's not just a risk-off asset. It's a risk-on asset that will become a risk-off asset and in so doing will 10 to 15x. And that's what he's telling people. That's what their salespeople are saying. And 10 to 15x is not a number I'm tossing off blithely. It's we're basically saying, can Bitcoin get to three quarters of gold's market cap? And most people who are gold bucks will tell you, Mike, that gold is dramatically undervalued compared to what it

would be if people would believe that it was a demonetary asset because of monetary inflation, asset inflation. With consumer inflation and purchasing power parity, it's done well. But it's done nothing to keep up with the financialization of our economy, right? In terms of percentage of monetary assets, yada, yada. We can talk through that. But that, to me, is the difference between what we're saying. And just to come back to the moving averages and the... Look, I don't want to shit on technical analysis because technical analysis has its time in its place but i do want to say that we've been in a trading range for eight months we all know that and and and so yes is it are we higher highs or higher lows or rsi divergences i'm sorry but we've been making these same we've come up with different ways of talking about Bitcoin.

I'm not talking about altcoins because there's some really interesting crap going on. And some of Scott shows later this week, we'll go through that. And I will be listening like I always do. And, you know, we can talk about it. But, you know, when you look at these levels that we're seeing, what you're seeing is still not a lot of long side. We got a little sniff for a few days of long side speculation and a $500 million liquidation to smack those people in the teeth. And then we bounce right back. It's like taking a rolled up newspaper and smacking the dog by the nose.

By the way, I've owned three dogs for the last God knows how many years. I have never done that. So I don't want any animal. I mean, I've owned three dogs for the last God knows how many years. I have never done that. So I don't want any animal. I mean, I'm a dog lover. I wouldn't do it. But there's that old thing about it. It's like long speculators have been continually trained that if they get too leveraged in Bitcoin, they're going to get crushed. And yet they keep trying.

But then they stop. And so we're probably another week or two period where you're not going to see that. When Bitcoin goes up, it's not going to be driven by long-sight speculation. It may FOMO it higher, but it won't be driven by it. It will be driven by underlying demand. I agree. I agree. James, it's been approximately 29 minutes since you've been allowed to speak. And I see you have a chart pulled up. So I know there's something you want to talk about. I mean, look, Bitcoin, let's be clear. And we're talking about shorter

term event driven possibilities here in Bitcoin, which Bitcoin has experienced. You could see this is Bitcoin versus global liquidity. And if you go back to first principles, Bitcoin follows global liquidity. That is just reality. I mean, long-term, that's what it does. It's very volatile around it. You can see how there are periods of volatility where there's exuberance in 2017, 2019. And then there's a period of depression when we had all of the crypto washout and FTX and the fraud and illegal activity in 2022 leading into 2023. So we're right on target here. And for long, long term, Bitcoin is not a trade. Technicals are helpful for entry and exit points, trading around your core position in my personal opinion. And that's how we work around it in the

hedge fund. But you have your core position that you're holding onto for very, very long term. And this is why. It's not an event-driven trade. It's a long term. And just like, Dave, I like the way that you framed it out and how Larry Fink is framing it out is this is a risk on asset. I agree with Mike. This is a risk on asset right now. At least that's the way it is acting in the market. That's, that's what people perceive it as. Dave talks longer term where it is not a risk on asset. It's a risk off asset. And you could you could see evidence of that. And we've talked about it before. And when Silicon Valley Bank, when that dissolved, Bitcoin rallied, you know, 80 percent or something in just a few weeks because it this it it was suddenly realized, oh, God, it's risky risky to have all my money in fiat. Maybe I want to own

something else. Can I ask a question about this chart, James? Because this is really good. Yes. The left side looks like it's an analog scale and the right side looks like a log scale. Am I getting that right? Yeah, that is right. Yeah. But the reality is that Bitcoin, it does follow liquidity and there are lots of charts like this. We could but the reality is that Bitcoin, it does follow liquidity. And there are lots of charts like this. We could pick up the one that Lynn Alden did with with Sam Callahan, and they have lots of charts around it and it shows the volatility around it. But it proves the point that long term correlation is very close. It's like over 80 percent short term correlations correlations a lot lower and it's because bitcoin

has volatile moments you know and so yeah exactly right in here and these they did a fantastic uh review of global equity and and bitcoin following it and you know there's lots and lots of charts around this so the reality is that this is what you're looking at long-term. Okay. Does it matter short-term? It could, if you're trying to find entry points and exit points and you're trying to trade around it 100%, you know, but this is the other reality. And here's the other, here's the other chart that I want to, to share. And this is what we talked about this weekend. I posted something about this and the federal government borrowed $382 billion in the last five days. This is not stopping. This is going to continue. And so the fiscal spending is going to continue. Monetary

expansion is going to continue. That's just reality. And we could be experiencing the beginnings or the front end of a melt up here. And that concerns me. The concern of the melt up. And now you're seeing just hints of it in the long term bonds that they're saying, I don't believe that inflation is dead. And that's something to be aware of and to be concerned about. So I personally wouldn't be going all into cash. I would have my pillars of exposure and I do include gold in it personally, because it is important as a pillar. But I also include a big pillar of Bitcoin. So let's tilt over to melt ups. We are having a significant way overdue melt up in gold. It's stuck up about $2,000 an ounce for three years. People know I was bullish way too long. And it's melting up for good, solid global political reasons.

Yes, it's getting a little bit overdone. But geopolitics and everything, it's melting up. Stock market has been melting up. Potentially it's peaking. We market has been melting up. Potentially it's peaking. We'll see. We do have a risk of an election. Bitcoin has been melting up. Let's remember the history of Bitcoin. It came out in 2009 during the biggest money printing period in history. And what Dave said really struck home is we did have a bubble bursting in internet stocks. And I just don't think it's done yet. I don't think we've had

that bubble bursting sign. I think what I'm showing is all the signs of the bubble is just starting to tilt over to get a little bit popped. And that's why I like to see, prove me wrong, market, prove me wrong. Prove me that 200-day moving average rolling over is not right. Prove me the fact that Bitcoin underperforming S&P 500 and underperforming gold is going to be wrong and below those peaks from the past. Prove it. And prove me the S&P 500 can stay 23% above its 100-week moving average a longer period. Historically, it's never happened without. You always go back. There's a question of time. So I look at it as, give me those. Show the proof. And right now, I'm showing the proof otherwise. Let me see it. And that's why I keep trying to show me the proof. But I like the big

picture. I'll end with this. I remember on the trading desk with friends and colleagues and customers we always use that word everybody's in it for long haul as long as it's going up pull that chart up again the one with the log scale on the right global liquidity chart yeah so when you look at the one that Scott had, the one you had, when you had, I just point out, I'm still thinking, you know, Q's are the better, better, better risk at the moment, risk reward than Bitcoin. I get the big picture macro, but we've been pointing out for years. I just, it's got to tilt over.

It's got to show that. This literally encapsulates exactly the point that I've been making. If you look in terms of log scale, what would happen if we got even two-thirds or half of the irrational exuberance of 2017 at the end of this cycle? If we even did that, the number, and you can just look at it, is somewhere between two and 400,000. So why won't that happen, Dave? You know why. There's too many people involved in it. By the way, look at global liquidity tilting up. Let's ask you this. Do you think that this global liquidity index will be higher or lower six months from now? It all depends on the U.S. stock market.

It's the most significant inordinate burden on US stock market going up in my entire lifetime. I've been pointing out about commodities for a couple of years, two times GDP. It's just the most stretched in my life and it's got to keep going up and Bitcoin will be okay. That's the point. It's showing me that this might be over soon. I'm not sure how they, let me phrase the question, James, given what's going on in the fiscal situation and that's what drives total liquidity, I think. Is there any chance that the global liquidity index is lower a year from now than it is today? No.

If you believe that and we believe it will be higher, then you need to be you need to understand that the upside potential of Bitcoin is effectively a quadruple or more. And the downside is maybe a half. Yeah, look, I think the U.S. is driving global liquidity. The U.S. is driving global liquidity, you know, and you've got China driving it as well now, right? So you've got two massive superpowers that are driving global liquidity in the G20. And now you've got this election that it doesn't matter who's elected. We're going to continue spending. It's clear.

And liquidity is going to be driven higher. That's obvious. And while one side will allow unfettered buying of crypto, and the other side will allow unfettered buying of Bitcoin just and the other side the other side will allow unfettered buying of bitcoin just in the way they want to do it they may not like self-custody they may want to tax it differently but you know it's it's a big deal and you know don't underestimate another small my a small move that was made over the past uh week I mean, it's small because the economy there is small right now, but we know what they're trying to do. The fact that the UAE decided that transactions

in Bitcoin won't be taxed because it's, after all, a store of value. I think it wasn't just Bitcoin. I think it was crypto, but I can hear that. That to me is insane, because there's a difference. I mean, if you're buying something for speculative purposes, it's one thing. So, you know, maybe it doesn't matter. But look, the point that's worth knowing, and I'm trying to say this this week because I think that things next – maybe next week is too early, but the next couple of weeks will start getting interesting. This week I think is going to be boring as hell.

So that's what I think. I suspect that the next week will be boring. But I think that when we come in next week, I think things will start to get interesting. Now something's going to happen. Way to go, Dave. Thanks. What? Yeah, it's going to be boring. So now something's going to happen. Yeah, usually when I say there's going to be a hurricane. Well, you're going to get that. I mean, or I'm going to get that. Someone's going to get that.

We're going to see. But yeah, the point here is when we look at these, there are lots of news stories. And the market for the last eight months has ignored a lot of news as it's traded in this range. I mean, yes, we've had very sharp sell-offs down, ticking 49,000 to get slightly below the bottom of the range. But at the end of the day, we're still in the same basic place that we've been through a lot of stuff. And Mike made a point a few minutes ago, which I think is exceedingly important and not stressed enough.

The importance of the stock market is at an all-time high. You should broaden that and say the importance of asset prices to the American political establishment is at an all-time high. Would you agree that that's probably a better way of phrasing it? Yeah, absolutely. So what you have is the grandfather, the grandmother, the daddy, whatever, of all manipulated markets. We now know that our political establishment believes to their core that keeping asset prices high is vitally important. And so to expect them to make moves

that are going to go against that is, well, I mean, it's not going to happen. Now, it doesn't mean they're going to succeed. If in fact, I'm right that we're at the relatively early stages of inevitable, might this describe crack-up boom, which will happen as fiat currencies devolve, we have a lot of interesting things that are going to happen over the next few years. So we are getting a crack-up boom in gold. I'm just pointing out facts and trends. Yeah, no, look, I wouldn't be surprised. Look, I own some and I've always owned some. I used to own more.

Honestly, if gold were starting to map asset and not consumer prices, it should be over 5,000 right now. And, you know, there have been many times, I mean, silver to me, you know, there are still people, especially in China, which silver was money for thousands of years. You know, I still think that silver has a lot of room to run, but it's also used as industrial uses. It's sort of like silver reminds me of those internet companies that started to make profits. So let's just point out one key fact about global liquidity. Don't miss the number one iteration of what forces the government to do

what would be considered irresponsible things to keep everything safe and elevated. The Hong Kong Shanghai Index dropped 55% from that peak in 2018, which was right before there was a big typhoon and the riots. Okay. When you turn on the stimulus, that's what's missing. Yes, we have this massive deficit spending and Dave or James points at it all the time, but you get to a point at some time where you realize, okay, well, risk assets are so high at some point, it might not matter much anymore. They're just going to do what they're always going to do, come back to a mean. It just has always happened. And there's certain points I'm saying, you're probably supposed to lay low on risk assets and just point out facts. Bitcoin is the riskiest, much more riskier than pitbulls and stuff, much more riskier than Q's if you're being told by all these sell-side guys to buy it.

And it just has to keep going up. I just point out facts. Show me the beef. It's showing divergent weakness for months now. I don't have the data at my fingertips, but it'd be an interesting one. If you were to get a reversion to the last several hundred year historical mean of percent of GDP that financial services companies and the orbit around them is, what would that be? Well, that's a demographic change. It's a good point, Dale. I like it. And I also love how you really point out the demonetization of silver throughout history.

That's why silver is not as significant anymore. But it's the point of, sure, it's all about financial assets, but you just that's just one measure. There's so many other measures. Let's look at the U.S. versus the rest of the world. The highest ever. Let's look at the U.S. stock market versus commodities. The highest in 25 years versus gold. You point out going to 5000 gold, the S&P 500,

that same ratio per ounces has been the one, one over history. And right now it's about less than a half an ounce of, I'm sorry, less than half an S&P 500. Yeah. That'll normalize. That's why I just keep thinking and pointing out that gold's probably going to be the better performer. I hate to say that. I wish it wasn't, but I'm just pointing out facts of trends and what usually happens. The funny part is, is you and I agree. Gold, I think, will outperform. Oxford is after that reason.

Dave, can I bring something up? I'm looking sort of through Lynn Alden's charts here, and this was something I was Googling and then realized it was probably here. We talk about Bitcoin's relationship to global M2, obviously driven by liquidity, but that's also the same, obviously, here for the S&P 500. So to take Bitcoin in a vacuum, and listen, this is one of my narratives, but to take it in a vacuum and pretend that it's the only risk on, risk off, however you find it, but this would imply risk on asset that rises with liquidity is wrong. So Mike, if liquidity is going to go up based on this chart, you would expect stocks to continue in this crack up boom, right? So that's the point. They have to. So liquidity is all related. So it's also that U.S. stock market is the most expensive U.S. versus U.S. housing ever. That's my point is everything has

to come down to that absolute necessity for U.S. stock market to stay strong, to keep people spending, to keep the animals spares, to keep the liquidity. And then we're talking about a different type of liquidity. When the stock market goes down, which will happen is what's happened in China. We have the housing market declining. We have all risk assets declining. We have people losing jobs. That's when you turn on the liquidity

because you have to. The point is the risk assets go down. To me, that's the iteration that's missing. The risk asset, which is number one measure of beta in the planet is the S&P 500. And a good connection driving that up for the last 12 years or so has been leading the way is Bitcoin. I'm just pointing out there's a potential that this risk asset is leading the way back down at some point. And just a key point is it's just so expensive, so risky to hold. And you're seeing, by the way,

I'm seeing it everywhere in housing now. Housing like, oh, that house that listed at 1.3 now, it's tricking down to 1.1 and still not selling. It's just the way it happened in 2006. So let's remember that. You got a certain time when risk assets just get too expensive. And to me, that's just what happened with Bitcoin. The difference is, the fundamental difference between where James and I come out on Bitcoin and where Mike is out on Bitcoin is very simple. And that is, you're buying Bitcoin for two reasons. One, we would agree with Mike, which is as it is what it is. And, you know, you've got to rebase it where it is as its percentage of monetary assets. But the other is it will gain acceptance and become something that it is not because it's only a trillion dollar asset, give or take. Right. You know, we think that when it, quote, grows up within this thing, it should be 10 times, 15 times this. It should be

alongside gold as representative. I mean, it should fill in the gap between gold's representation of assets and gold's maintenance of purchasing power parity. And then the appreciation to make that happen is what we're talking about. That said, if you look at that chart that Scott just had up on the S&P, what you also notice is there are some, you know, pull that Linn-Aldin chart back up again, Scott. You'll notice that while the correlation in the long run is really good, you'll notice that there are multiple times here so right now the s p is is is caught back up but look at how many times the s p has exaggerated to

the downside always yeah and and so it always tracks below right i mean as you can see uh right and so so right now and now it's not right now it looks like a this looks like a very risky period in time which is which is your point right true because it never catches up so if a mean reversion here would be for it to be trailing m2 look at the magnitude of of where it would go huge gaps yeah so let's point out about gaining acceptance i mean i wrote about that for five years what was a significant plateau in gaming of where it would go. Huge gaps. Yeah. So let's point out about gaining acceptance. I mean, I wrote about that for five years. What was a significant plateau in gaining acceptance?

The launch of ETFs. It's in the mainstream. Anybody who can buy Qs with a button now can buy Bitcoin with ETFs. We've had the best ETF launch ever in Bitcoin. And I just look at it like, thank you. That was a great signal. Show me the next beef, the next key thing for gaining acceptance. I agree with you.

Big picture. Macro, completely. We all agree. Micro, I'm seeing still signs that I'm afraid that the speculators are getting in and being told, oh, I'm going to get 10x, no problem. And yet we're seeing an asset that's still 3x the volatility. It's going to drop down to 1 or 2x. It's going to become boring and trade more like gold. In the meantime, I think the best way to really have this scenario that you have talked about playing out is to get the normal backup in risk assets that used to

happen in bull markets. I'm talking about the S&P 500. Just get it near its 100-week moving average and see how Bitcoin performs. Now, we all agree it'll go down. The question is how much? We'll go down less on a risk-adjusted basis. Perfect. That'll be a sign like what James nailed when it was down to 50. The ad to positions right now now i think we're seeing from your regular money managers saying hey i'm doing much better in cues i have less risk we've seen this big launch in this bitcoin thing and by the way since the big launch this year the average starting to tilt lower it's going it's doing a meh and show me the show me some divergent strength to buy into and that's what you're seeing in gold james i see you have something brought yeah this is to today's's point. This is why, part of the reason it's just

so volatile. I mean, it's one out of $900 trillion of investable assets in the world. It's one of them. It's less than 0.1%. It's 0.1%, 0.11% of all global assets. I mean, and this is a little bit old because gold is actually closer to 15, 16 trillion now, right? So, I mean, look, Bitcoin is just, it's a tiny little baby asset here in this chart. And it's going to continue to be volatile until it gets closer to the size of gold, in my opinion. It's just going to continue this way. And yeah. And this is when Dave tells you that it's an option on

its own future adoption. I'm tired of saying it. At some point, people will realize what it is or what will happen to somebody with substantially more gravitas than me will start saying it. And then you'll see it. You'll see it the next time at some point when we go on the bull run that I've anticipated that I think will happen. People will start talking about that narrative again. The point that I want to make is the reason I point out the stories that I point out from the past week are all of them are relative to that exact question of adoption. So to me, that's when I start. I'm not going to talk about it every week, but this past week, we've had, you know, we had the story in the UAE,

we had the story out of China. You know, we had Ro Khanna, who's a Democrat, basically saying, hmm, maybe this idea of a strategic reserve isn't so stupid. You know, we've had interesting adoption stories that are coming out. And every time we get one of those. Can I get your view on that? Can I get your view? Do you think we should borrow more of tax paper's money that we're already borrowing too much of just for normal spending and put it into a highly volatile risk asset? There's no risk in that. I mean, we can do it for the SPR. But honestly, I want your honest review of that.

I just think it's completely silly. If we have some savings, sure. But we still are. So we're going to borrow more to buy Bitcoin. That's what they're saying. I just don't get it. I'm reminded of the cartoon or the movie story where the guy who doesn't have enough money to save his grandma's house, whatever, goes to Las Vegas and goes to gamble and tries to get it. And that's how you're painting the picture.

What I would say is, you know, if someone like, you know, like Robert Rubin were running, you know, were trading the, you know, the central bank balance sheet, they would say, OK, wait a minute. There's this asset that I could probably quietly buy for a while and accumulate a fair amount of it and then tell people. And by telling people, get everybody else to try to buy it, which will make my buys make us money. To me, it's like the great thing. You point out, but you do. But you do point out, I have to point out, you do point out a lot of low probability, somewhat illogical risk events. No, no, no. I'm telling you, if I were looking to try to make the government billions upon billions of dollars, the easiest way to do that

would be to accumulate as quietly as possible, as much Bitcoin as you can quietly, and then claim it to be a strategic reserve so every other central bank around the world decides to do it. Let's face the reality. If the United States bought Bitcoin quietly and then announced that it was a strategic reserve,

what do you think, Mike, would happen to Bitcoin? Of course. Do you think it would continue to be on the front end of the risk curve? No, of course. Or do you think it would become the ultimate end of the risk curve? No, of course. It would become the ultimate store value. We're talking about the government, and that's a significantly low probability risk. Absolutely. Hang on.

But it's just silly. I get that. You have to play it all the way to the end, Mike. You can't just say, oh, it's the guy going to the casino to make up because he's borrowing it. You have to play it all to the end, Mike. You can't just say, oh, it's the guy going to the casino to make up, you know, because he's borrowing it. You have to play it all over the end. And this is where game theory is played out. The game theory is if the United States doesn't do it first, somebody else does, and it does become a store of value asset, then they missed out. But if they do

it before them and then they've won the game. What's the key thing? NGU. Numbers got to go up, but what if it goes down? There's so much risk of it not going up. Not if the United States announced that it was a strategic reserve. It would not go down. I get it. Let's do an even crazier theory. Let's do a crazier one.

You have one minute. You have one minute, Dave. Let's say it turns out that the 1 million Satoshi coins are in a wallet controlled by the U.S. government that they can then say is our strategic reserve. Obviously, I don't believe this to be true. Obviously, that's a wild-ass theory. Game theory is out. HBO? Game theory is out.

Oh, come on. It's completely ludicrous to say that that will happen this week or anything. That's fine. But if you game theory it out, you ask me would it make sense, and my answer is if I could do a trade, which would legally front run the entire world and make the United States tens, if not hundreds of billions of dollars, would I do it? The answer is yes, I would do that if I were in the United States government. As an individual, I will never do anything that's front running because it's

called market manipulation. And if a person does that, we go to jail. But if the governor does it, we say, hey. If the senator does it, it's okay. Okay, Congresswoman. Congresswoman. Well, I wasn't going to go there, but okay. You're right. No, I agree. Yeah. I mean, it's interesting, Mike, because, and Dave, to your point, we joked for years that this was the first opportunity in history for retail to front run institutional adoption of an asset class. And we were right, right? Because the ETFs did eventually

come and we did eventually get the BlackRocks and we did eventually get, you know, obviously the Fidelities and such, and they came in and you could buy this asset ahead of that institutional adoption. So you have to say there's a non-zero chance, I'm not saying high probability, that you're also now getting the opportunity as retail or an institution to front run government. So here's, again, here's what I think the highest probability event is. We have some normal reversion in risk assets, most know the equity market. Bitcoin leads the way, which it has been. And at some point there'll be a chance to buy it at much better prices. One day, I'll take that. One day we're going to get Mike to say, well, Mike, I want you to give your I have a dream speech.

And what's our best case scenario? Like, you know, if this all goes well, what could Bitcoin become? We're going to get it. And I do remember people, it's funny that I see always in the chat that Mike's such a bear. I mean, Mike, you and I met because we were, I think, on Cointelegraph or Coindesk doing extremely bullish pro-Bitcoin conversations over and over. And that's when Trump hated it. Now that this guy loves it, that's like, thank you very much. We've seen this before. When it's in the mainstream like that, okay, great trade.

Next. Yeah. And one final piece of news on the way out that, Dave, we're going to talk about next time. But the Republicans hear Trump for the first time floating the name of a SEC chair, which we've talked about from which would be extremely bullish for crypto. I've actually seen the Dems float his name. Let's put it this way. I know Dan. And Dan would be incredible. I mean, he made some of my all-time, and I told him this and he laughed,

but he's made some of my all-time favorite speeches when he was an SEC commissioner about the various things that he perceived as idiotic. He pulls no punches and understands things and is extremely pragmatic. So that would be incredible. But that would be incredible for a lot of reasons. I mean, having somebody who is pragmatic about markets in general,

forget just Bitcoin, because I don't even think it impacts Bitcoin's price. What it impacts is, you know, the problem with that, Gensler is a lot of things, but he's a very smart man. He is as far from a clown as possible. What he is is driven to implement an agenda that we all fundamentally disagree with. I mean, I understand where Gary is coming from. I mean, you know, he's been unbelievably consistent in what he's tried to do, which is, you know, push a political agenda.

And he's been great at it. And you can't really argue that. You know, calling him, you know, making making fun of him there's no point in that i mean you know smart man's local agenda i just don't agree with his agenda and and that's fair but you know and i want that to be clear because i criticize the crap out of him on various market structure and other sort of things but you know i don't like the the clown stuff because people aren't really afraid of clowns. Well, maybe my wife is, I guess. And I know that with it you are.

That's not the issue. But yes, I just saw that news story too, just that you did. Dan would be awesome. No question about it. We got to go. Dan, I saw someone make this joke on the way out the door. There was Dan Gallagher, and then there's Gallagher, the guy who smashed watermelons.

All right, guys. We've gone off the rails, and we've taken six extra minutes of your life. I got to go hurricane prep. Guys, we'll be back, obviously, next Monday, 9 a.m. Eastern Standard Time and Space is at 10.15. Thanks, guys. Talk to you soon. Bye, everyone.

Thank you.