The Wolf Of All Streets - How Bitcoin Can Save Us From The Fed - Sven Henrich, NorthmanTrader Explains

Episode Date: February 15, 2022

The Fed is out of control and so is the monetary policy of central banks around the globe. Sven Henrich from NorthmanTrader, once a vocal skeptic of Bitcoin, now considers it to be a potential solution to the madness. He recently authored a viral manifesto called (R)evolution, articulating why he thinks Bitcoin is both an evolution and revolution of money. This exciting episode breaks down the Fed’s circus, market cycles, and Bitcoin as our inflation hedge - you can’t miss it. -- Horizen: Horizen is the zero-knowledge enabled network of blockchains powered by the largest node system with scalability and flexibility unmatched by others. Blockchains built on Horizen are enhanced by zk-SNARK privacy tech and provide massive throughput without compromising decentralization. Horizen can support up to 10,000 independent blockchains running in parallel and issue an unlimited amount of tokens. More at https://thewolfofallstreets.link/horizen -- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by Blockworks. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworks.co ーーー Join the Wolf Den newsletter: ►►https://www.getrevue.co/profile/TheWolfDen/members

This episode of the Wolf of All Streets podcast is sponsored by Horizon. Please stay tuned for more information on them later in the episode. What's up, everybody? I'm Scott Melker, and this is the Wolf of All Streets podcast, where two times a week I talk to your favorite personalities from the worlds of Bitcoin, finance, music, art, trading, sports, politics, basically anyone with a good story to tell. Now, I often talk about the idea of strong opinions loosely held and that the most intelligent people in the world actually change their opinion and view when presented with new information. I recently had Kevin O'Leary on the show.

He was a great example of that with his newfound love for crypto. Well, today's guest also has seemingly come around on Bitcoin. He is Sven Henrik. He is the founder and lead market strategist for Northman Trader and definitely one of my favorite people to follow on Twitter. I've been following him forever for his global takes. It was just a pleasant surprise and I guess a bit of sweetener on top that he came around to Bitcoin. We're going to talk about all of that. Sven, thank you so much for joining me today. Glad to be with you. Thanks for having me. So listen, people usually come around to Bitcoin sort of when they realize how bad things are getting. So I guess my first natural question is just how screwed are we right now?

Boy, that's an open-ended question. I mean, look, I've been watching this show for years now. And obviously, I've had opinions as to how far they can take this. And clearly, I've been surprised how far they can take this. We're all a part of a giant experiment, whether we like it or not. And we are beholden to the powers that be that have become ever larger parts of the economy obviously he's talking about central banks and you know i i've said before i mean i'm i'm okay with interventions when when things really fall apart right i mean that's that's when you bring the military and when you when you're in a crisis right and And so central banks have a role to play in that. The problem I see is that our global economy, specifically in the West, is becoming ever more nationalized.

The bond market got completely nationalized. Using yields, 10-year or anything like that, as a signaling mechanism is virtually impossible these days because you've got this 10,000-pound gorilla sitting on there buying every asset in sight. And it's impacting all of us. We like to cheer when markets go up, but we've also got to be discerning in the long term

why they go up and what the slight consequences are. Yeah, I love markets going up. If there's a great economy, there's great earnings, and a story to go. But what happens is we've embarked on a long-term boom and bust cycle, and these busts get ever worse as the booms get ever hotter because of undisciplined, cheap liquidity that keeps being fueled into the system. And I think just now in this last year, again, obviously COVID was a crisis, but my criticism has simply been, they stayed in too long and too hard and it distorts everything. And then when things fall

apart, they hurt a lot of people again. And we're kind of seeing this a little bit now, because last year, they kept printing while inflation was rising. They kept denying it was there and people kept chasing. There is no alternative and it creates this mania, it creates this hype. People chase unrealistic valuations and the warnings are completely ignored. Some grump like me is on the on the side saying guys be careful you know um you know have fun at it if you will but know when to get out and know when things change and you know we're we're on in our service obviously we're we're dealing with markets on a day-to-day basis and you know there's the macro view and then there's the technical practical

view but now just look at today facebook you know first they came for the you know the specs and the arcs and and the the meme stocks and now they're starting to take the generals out you know like netflix and facebook yeah google's doing great apple's doing great microsoft's doing great we'll see about amazon tonight the problem is you go from a period of hypervaluation to a bubble bursting and it's not in a one-time event it's a process it can take months it can take years and i argue that we actually started last february when when you know we had all these speculative peaks around february 19th and then the internals over months started to deteriorate. And now, what happens? Just the threat of liquidity coming out, and we see massive carnage in markets. And the risk is

now for the Fed to have to thread a really tight needle in that they may actually bring about a recession no matter what they do. I'm not predicting it, but I can certainly see it because with all the stimulus on the monetary and on the fiscal side, retail sales blew 25% above trend, above COVID, based on what? Just free money, right? So just the reversion back to trend gets you a recession from a relative basis, right?

And we've seen this in 2000, when a big bubble bursts, it hurts a lot of people. We saw it in 2007, when the housing bubble burst, it hurt a lot of people. So yeah, you can have the greatest party on the planet if you throw $12 trillion of free money at a system, but then comes the hangover. And that's the concern. And my change in view on Bitcoin is that, and this came really last year on the notion that, oh, my God, they're really that blind to what they're doing in terms of the effects of inflation. And they're actually hurting the middle class again. They're not acknowledging it. And they're, of course, hurting the poor because they're all stuck with the higher price increases. And you are in a situation where you hope this all works out in terms of what they're doing. But we can't be sure. say, either completely numb to the reality of what's going on for real people in the economy, or that it's been belligerent about the whole thing, and they're not acknowledging the damage

that they've done. And that to me, that's why my rebellion article came about, because enough, we have this imposed monetary system that we have no saying we have no control of it and there's no consequences for these guys ever being wrong at all you know they can make massive mistakes like ben benanki did in 2007 when he said subprime was contained and it wasn't it blew up in everybody's face you know and he got re-nominated and then got hero covers you know basically let the whole mess fester let it blow up and then you know throw money at it and you're the hero and now we see it with Powell again inflation transitory every freaking month dozens and dozens of speeches by Fed speakers, and they were wrong, completely wrong.

Now everybody's freaking out about inflation becoming entrenched. We can talk more about inflation separately, but I'm just saying, they let that happen. And all the warnings they had, all the advice they had from, obviously, they're not going to listen to me, but Mohamed El-Erian, widely respected, he was on this train all last year as well. Start pulling back, start pulling back. You're overdoing it. You're risking that you're going to have to slam the foot on the brakes and then cause financial market instability. And he was right. And here we are. And that's now the problem. And the other criticism just generally from a structural perspective, and I'll stop right there, is just the reality and the fact that by embarking on

this path of constant interventions and creating ever bigger assets bubbles with 89% of all stocks owned by the top 10%, they've created the biggest skewed wealthy inequality since feudal times. And I worry about this in a major way because I see evidence of society just fracturing. I mean, now we all like to blame social media and this all has a role in that, but you don't create stir or stir anger in the population if there's not anger there to begin with. And I think that's probably the biggest unspoken matter in all of this. People feel left behind. People got screwed in the housing crisis, took them years to recover. In many cases, they didn't at all, and they kept falling behind.

Real wages haven't really kept up, while all this wealth that is concentrated in a few results in market distortions, right? Because you see housing prices being bid up, not only by wealthy investors, but by corporations, you name it, it squeezes the home buyer. And in the meantime, last year, the Fed kept buying mortgage-backed securities. Why? Into a massive supply issue, you're just exacerbating all these price moves. And again, you're hurting people because they can't stay competitive with the bidding wars. It's absurd. So that's kind of the interview, kind of why I came around and said, look, enough. We got to be, I think, finding a spot where we can be independent, where we have

a say, where they cannot meddle with. And Bitcoin in that context, I think it's a very interesting play. I love the measured approach and the reasonable idea that there's a time for money printing when they need it, and then you have to cut it off. I mean, it's akin to going to the hospital, having surgery, taking some Percocet and then becoming addicted to it, right? You needed it when you were in the hospital, but you certainly didn't afterwards. And now, as you said, we have this massive asset bubble. And what always drives me crazy is that we now hang on the words of Jerome Powell, not only what the Fed is actually going to do, but now it's become markets react to what he says, not only what he says, but how he says it.

Right. And so you have this completely irrational approach where there's no real value behind the stocks. It's literally just become the words and tone of one man that's driving the markets. Well, it's more than one man. I mean, it's the whole clown show. I mean, they have Fed speaker after Fed speaker after Fed speaker. And with the ECB, it's the same thing. Where you get nuggets like from one of the ECB board members in December, Schnabel, where she openly admitted QE is exacerbating asset bubbles, really, and wealth inequality.

Well, that's what I've been saying. But yet she keeps voting for it. It's just absolutely stunning. And the other thing, and this is maybe a total side issue but i i find it just institutional um very problematic uh you just said powell you know markets hang on his every word i've put put out tweets like where you can say where powell every time he speaks markets go up right last year we had this insider trading scandal that was quickly shoved under the rug. I mean, if you get caught insider trading in any type of private setting, you get fired, you get sued.

These guys got to retire and supposedly, you know, kept all their gains and not a word was ever said about it again, you know. And Powell, and this is the other, this is now the larger issue to me, aside from this insider trading. You know, Powell is a very wealthy man, good for him, you know, and he is now the larger issue to me, aside from this insider trading. You know, Powell is a very wealthy man. Good for him. And he's invested in the market. And, you know, that's fine.

He can be invested in the market as a private person. But when you sit on the microphone of an institution which moves markets more than anything else, forget the economy, forget earnings. It doesn't matter what earnings are, folks. 2018, earnings were up, stocks dropped 20%. Why? Because at that time, they were talking about what they were actually rolling off their balance sheet, and they were raising rates, and they set set expectations and the 10-year hit 3.2%. Stocks dropped because of that. 20%. What happened? Powell immediately flip-flopped. So all the rate hike expectations, Goldman Sachs had four rate hikes penciled in for 2019. Well, what did they do? They cut rates three times and they expanded their balance sheet and guess what stocks rallied 30 in 2019

on zero earnings growth none had nothing to do with earnings growth okay it was just the complete flip-flop in policy you know and then of course 2020 happened with the crisis and earnings dropped 14 but guess what we just kept making new all-time highs because more money was thrown at this thing than ever. And then of course, last year, it continued on that path. Yes, we had great earnings last year, but as I just outlined, it had nothing to do with anything in terms of the actual organic economy.

So just to finish that point. So every time he speaks, he either makes money off the market or he loses the money market, right? So I'm human, you're human. We all have our biases. And you'd like to think there is a Chinese wall. But the reality is whether people want to acknowledge it or not, in 2018, when stocks dropped 20%, his holdings dropped, which are substantial, dropped 20%

because he's long spied and rustled. And then when he flipped policy, he basically bailed himself out, right? Sure. I mean, and then of course they go, yeah, after they finish being Fed speakers, they make millions in speaking engagements from the banks

that they were supposed to supervise. So there's an inherent conflict of interest in the entire system. And that kind of bothers me asise. So there's an inherent conflict of interest in the entire system. And that kind of bothers me as well. There's no transparency and there's no consequences on that front. So in general, I think there's issues, but no one's gonna address it or talk about it.

So it is what it is. Well, you talk about how Goldman had four price hikes priced in. Goldman currently has four price hikes or interest rate hikes priced in for this year has four price hikes or interest rate hikes, rate hikes priced in for this year. Now we're at five, right? So it's funny. Now it's good news when Powell sticks to the idea of three right now. Markets go up if you say only three, which was the bad news in December. But do you think that we're in a situation again where we're pricing in these

hikes from Goldman and the minute the market drops, they'll cease being hawkish, turn dovish again, and start printing money. Yeah, I call this the cleverly constructed Fed pot. At the beginning of the year, I wrote this piece about this whole navigating this 2022 casino. And if you're the Fed, and I'm full disclaimer, I'm speculating here. I'm just basing this on my experience and having observed this for years. I'll make an assertion here. And that assertion is that when the Fed kicked the transitory narrative away, they didn't do it on their own volition at all. In fact, I think they still think it's transitory. This whole thing happened when inflation suddenly became a hot political potato. Yeah.

All right. Because it's midterm elections. And all of a sudden, we have 50-year highs in inflation, 7% CPI. If you're a political party, you're going to get creamed in the elections with high inflation. Indeed, consumer confidence is this is one of those amazing statistics to watch. Over the last few cycles, consumer confidence moved along with markets. So markets rose, consumer confidence goes higher. Why? Because the economy is proving, right? Markets are still tied to growth and earnings. So the relationship makes sense, right?

And of course, when you get into a recession type scenario, consumer confidence drops, markets drop along with it. Totally tit for tat. It's quite an amazing chart. I put that on Twitter a couple of times. Now what's happening after COVID, you know, after the crash, yes, consumer confidence went up as markets recovered, and they went up as the economy recovered. But then guess what? Last year, consumer confidence started dropping off precipitously, while markets kept rising and rising and rising. But the consumer

confidence right now is lower than it's been in years and years and years and years. In fact, if you just look at consumer confidence as a measure vis-a-vis recessions, we are in a recession based on just consumer confidence. Why is this? Because the consumer feels the pain. They feel the pain of inflation. They feel left behind, right? Again, because this magic recovery in markets, again, benefited the very few and not the most, not the many. And so there's a big, massive disconnect between what markets have been doing up until the end of last year and what's happening with the consumer. Hence, inflation is a massive problem. But here's the other problem the Fed has and all the central banks have. Because so much market valuations was driven by excess liquidity, and we ended the year last year at an unprecedented market valuation of 210% of the stock market vis-a-vis the economy. The 2000 bubble was at 158%.

I mean, we're just so far beyond anything we've ever seen. So if you look closely at not the highlight Fed minutes, but the ones from years ago, because they are actually published five years later in great detail, you will see that they are very closely watching markets. They are very tied to this. Even Bernanke admitted, rising stock markets is what we need to get consumer confidence back, to get spending back. So they know it's all tied together. So let's make no mistake about this. And the biggest threat, and I said this last year,

the biggest threat to the economy is if the asset bubble bursts, because then you're heading in a recession no matter what the Fed does. So they have to be super careful about not seeing an asset bubble burst. And so in terms of inflation, how you thread that needle, if you raise rates too fast and withdraw liquidity real fast, you risk the asset bubble bursting that they've created in the first place. But if you don't do that, inflation is going to keep running out of control because you've continued to exacerbate retail sales and everything else. You like to think it's all COVID related. It's not. There's just been so much demand push forward in spending that it's overwhelmed the supply chain. So they have to be very careful

on how they do that. So if I were the Fed, and that's why I wrote this article in January, I said the easiest way to deal with inflation is to let markets drop a bit, but not so much that it causes a systemic event. And how do they do that? By jawboning, right? All of a sudden, they raised all these rate hike expectations. And Wall Street is doing the bidding for them. Of course, that's why Goldman says five, because three then becomes good news. Two, that's great. I mean, keep in mind, every one of these Fed speakers was talking 2023, 2024. That's when we're going to raise rates. So in essence, what we're seeing now is the polar opposite of what we saw in 2019 after the 20% market crash, right? Because they completely flip-flopped.

We're going to raise rates in 2019. No, we're not. We're going to cut rates. Now they do the opposite. We're not going to raise rates in 2022, not until 23 or 24. Oh, no, now we're going to raise rates, okay? So again, a complete flip flop. So that's why I'm saying, why are they even talking? Stop talking. These speeches that keep

setting the wrong expectations vis-a-vis what's actually going to take place. It's just misleading. It's disinformation. Stop it. If you don't know, then be quiet about it. You know, don't lead everybody astray. But as you said, they're purposely doing it because it sets a narrative and then they can beat that expectation. And it's interesting, I believe there's been 12 tightening cycles since the 1950s. Stocks have actually risen during 11 of them, right? I think people expect that there's these crashes, not the case. But in years where there's midterm elections, you tend to see a horrible performance at the beginning of the year and then markets absolutely rage into the midterm and. You tend to see a horrible performance at the beginning of the year, and then markets

absolutely rage into the midterm and for the first quarter of the next year. So what you're saying sets up perfectly with that, right? Set an expectation. Things are going to be bad. Let the market sort of dwindle down for a few months and then start printing like mad again in October, rip into the elections, incumbent wins, party starts again. Yeah, I totally agree. Listen, so what I said is let markets drop, right, but not systemically enough, and raise expectations. You're building this Fed put in where all the banks are going high wire on radar hikes, like

Bank of America is at seven now, right? If your job is to deal with inflation, but without actually tightening in a massive way, then the job owning allows you to see markets drop, which is exactly what happened in January. Worst January ever for stocks. Imagine that, right? But we are stopping again at the line where you are seeing not systemic damage.

It was brutal in small caps, 24%. It was brutal in tech, almost 20%. But the S&P, 11%, 12%. Okay. Then we got massively oversold. Now we have a rally. In 2018, when stocks dropped 20%, retail sales immediately dropped with it because that's tied with consumer

confidence, right? So by doing this, by allowing these rate high expectations to fester, you will actually be able to slow down inflation because it's impacting the consumer demand equation. It slows things down. It's tightening financial conditions without actually changing the actual policy. So that's why I said it's kind of a clever Fed put. And the other part of it is also because inflation is also psychological, right? You as a politician, for example, as a party, you need to have this solved by summer. You cannot wait until October. You cannot have October and still have high inflation headlines. So you got to have to solve, but you can also not afford a market crash.

Market crash headlines or inflation headlines. So good luck. Yeah. That's why this is the trap, right? So strategically, if you think about it, then the best way to do this is let the air out of stocks at the beginning of the year, and then create your big hurrah moment sometime in the spring or the summer, claim victory on inflation. The Fed put all of a sudden, you can say, hey, we got inflation under control. We don't need to do four rate hikes or five rate hikes or six or seven. And so all these expectations are then being pulled back.

And guess what? That is then called a dovish pivot, right? Because we're pricing in more hawkish behavior. So this, to me, you know, this is looking like a big, big gaming operation. And that's kind of how we're setting up. The question then is, where is the Fed put where the market drop becomes too much where they actually do have to pivot because it would drive the economy into a recession anyway, no matter what they did on inflation, right?

And the challenge, just to add to this, fact is growth is slowing dramatically right now. And it always was going to, because as I said earlier, if you raise retail sales, 25% above trend, if you have all this free money floating about, it's not organically sustainable unless you keep throwing free money around. That's not happening this year, right? Build back, better plan, just died as well, right? So you are now in the process of having to negotiate where the organic economy is with all that extra free money. Atlanta Fed, Q1 GDP growth.

We just had for Q4, we had 6.9%. Now they're forecasting 0.1 percent oops right because these year-over-year you know extensions are just not sustainable so you're telling me and and you're telling me everybody believes that the fed is going to aggressively hike into an economy that's dramatically slowing, you got to be joking. Of a depression instead of a recession. Yeah. I may be wrong about all of this, but I just, I just, that's just my gut feeling. Like I said, historically, historically, it makes sense. The future of cryptocurrency is a multi chain world, and you can't have a multi chain world without Horizon who allows these chains

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If you're not familiar with all the amazing things that this project is doing, check them out at the wolfofallstreets.link slash Horizon. That's H-O-R-I-Z-E-N. Do it now. We've seen what's happened when there's midterm elections with tightening cycles and that's exactly how it plays out. But as you said, it's just such a circus, right? And if it's a circus, then we have Jerome Powell in tights on the tightrope without a net, right? And he's just trying to negotiate that. And it's really terrifying because the lives of real people are at stake. And that's what, like you said, there's this massive inequality and it's terrifying.

And a lot of people who see the light on this come around to Bitcoin, right? So I want to talk about that. You obviously wrote the revolution piece, but I think the best part of the story, obviously, is that you were orange-pilled by the orange-pill legend himself, Michael Saylor. I would love to hear the story of how that happened. Well, I mean, look, I said last, I've been actually tracking Bitcoin for years on my Twitter feed, technically. I always try to be as objective as I can be. And yes, I've taken pot shots at it. I gotta take pot shots at everything. Whenever things go crazy or absurd, you know, I like to take pot shots at it. And it's a, it's a new industry. It's a young industry and it's gotten growing pains and it's

got, you know, all the craziness with it and scams and this and that and the other. That's all par for the course. And you have also excessive speculation. You know, to me, this whole thing kind of reminds me of the 2000 tech bubble, right? Back then, we also had a partially liquidity field bubble. You know, Y2K came along, Greenspan added liquidity, not anything like what we've seen recently. But we had, obviously, retail jump on board and chase ridiculous valuations to the moon. Now, you can argue some of these valuations were actually correct because the survivors of the tech bust grew to phenomenal valuations, the Apple, the Amazon.

Most important companies in the world. Right. Exactly. But they dropped 80% to 90% during the tech crash. So if you bought at the peak of the valuations, on the end of the peak, you got absolutely hammered or wiped out if you used leverage or were overexposed. And then this dragged on for years, two or three years, right? Because once the tech bubble burst, we had the recession, 2001, 2002, and it kind of started then morphing into the housing bubble thereafter.

But this is kind of my view on Bitcoin in that sense of blockchain in general is that this is a new technology. Nothing like this has been seen before. And people are behaving kind of the same way, right? So I can make the case, yeah, okay, we just had a bubble phase because of all this liquidity and maybe it's exacerbated everything. And because we see everything exacerbated, we see everything kind of get hit and hammered

on the downside, right? We see that with the ARK stocks, the SPAC stocks. We see it today in Facebook for Jesus, right? I mean, even the biggest- 22% overnight, yeah. Well, I mean, if you think about it, Facebook has taken out its entire price range over the last year and a half from August of 2020. That is a lot of buying that's underwater, right?

I mean, there's a lot of damage there. And so in terms of Sailor Orange pilling me, you know, I've had a long-term Bitcoin bull living with me, which is my wife. And she's been on that train for years, right? So I wouldn't say Saylor himself orange-pilled me, but I was obviously open to the discussion. And so last year, we had our first call podcast where we talked at length and I raised a number of issues that I had in context of maybe what I saw as a bubble or what I see as regulatory issues, you name it, right? And so that's part of the education process, right? And I kept charting it. I saw it go to 69,000. I was like, ah, maybe I missed the boat. Nope. You know, because actually during

that podcast, I said, you know, I said, I told a sailor that my wife had a hundred thousand target and she's, she's still does. And of course then it went like from 20, it was, it got into the twenties. My wife went in and then it ramped up to 69,000. And there was a beautiful inverse pattern that was building and it pointed to 100,000, right? But then November happened, right? We had new highs in small caps. We had new highs in Bitcoin. And all of a sudden, the price actually really started to smell badly from a technical perspective, right? Because I had negative divergences. I had weakening participation. I had terrible internals. It all smelled bad.

And guess what? And that was that time when all of a sudden they switched on the transitory narrative and everything started correcting under the surface. While the S&P still made a new all-time high on January 4th, Russell wasn't, Nasdaq wasn't, NYSE wasn't. I mean, there's a lot of issues in this market, hence it was a really good sell setup from that perspective. So what we see in this context, I think, is healthy, even though people may not like it. You know, if you bought higher up, you may not like it.

You may get frustrated by a bear market that lasts longer than anyone wants, right? Because these things can last for quite some time. And if you look at it from an asset bubble perspective, we went from 210% market cap to GDP to about 185. And then now we've bounced again. So we're still so far above any historic norm, you know, in price to sales on the S&P is still near all time record highs never seen sustained before. So I'm not calling, you know, for a crash, or I'm not calling for a bear market in this point. And we can still rally from

here. Like we had, you know, in, in 2000, for example, from here like we had you know in in 2000 for example right we had this initial sell-off in january february and then we had just this most ridiculous melt-up ever that then collapsed right but if you look at the s&p and the dow for example during that time it's really important to understand because you you know, everything is super easy in hindsight. When you're in the midst of it, it's a fricking jungle. And in most people think that the tech bubble burst in March, 2000, which is correct. And then everything crashed. No, that's not what happened. What happened was we had wide price ranges up and down, up and down,

up and down for six months after the S&P almost made a new high again in September of 2000. And then the recession hit, and then everything really fell apart, right? So we, you know, we look at the current price action, we are no one knows where this is going. Okay. I mean, everybody keeps saying, oh, 5,000 this or 3,000 that. Guys, everybody stay flexible, observe the action, observe the signals, and just kind of navigate your way through it. There's no straightforward answer. I think this gives, from a trading perspective, by the way, this environment is absolutely fabulous. I love volatility. I mean, last summer, I was just, you know,

this happens every single time when these central bankers are in control, volatility dies. And then you see the S&P in two, three handle price ranges for three, four, five hours on end. And you just, you know, they just kill price discovery, right? That's what they do. And so when we now have big ranges like this,

and we just dropped, what, over 500 handles on the S&P, now we ripped up 370 handles. I mean, that's just massive. And so if you're opportunistic, and you work disciplined, then you have a lot of opportunity there. But this is churning through the system, right? So it's going to be a fascinating journey this year, not only in the macro environment, but I also think for Bitcoin, because hopefully we get some regulatory clarity later this year. So that's to me one of those big pivots that I think a lot of people are waiting for. Yeah, I think we're going to get an executive order in the coming weeks from Biden, which should at least light a fire, I think, under regulators' asses to give us a bit of clarity. And so you came to Bitcoin, obviously,

a lot of people view it as a hedge against inflation, a hedge against, I believe Mark Yusko on my show called it schmuck insurance against the Fed, which I loved. I thought that was a really great term. But we've seen it obviously dump alongside sort of stocks during this correction. And many argue, not myself, that that proves that it's not an effective inflation hedge, that it's just another risk off asset that's trading like a low cap tech stock. So what do you make of that? Do you believe that it is an effective inflation hedge? Do you think it's a maturing inflation hedge? Where do you make of that? Do you believe that it is an effective inflation hedge? Do you think it's a maturing inflation hedge? Where do you see Bitcoin in that context? Well, to paraphrase a US president once who said, it depends on what is, is. And that is in context of the current liquidity

correlation in context of a larger asset bubble. Yes, if you throw excessive liquidity at everything, everything becomes correlated. And that was one of the charts I've been watching for better part of the year as well, last year, and just showed that over the last several years, Bitcoin specifically was simply highly correlated to the direction of the S&P because it was a reflection of liquidity. 2017, that was the US tax cuts, right? Everything flew higher. Then we had the correction in 2018. Everything dumped, right?

2019, when the Fed flip-flopped again, everything rallied. And then, of course, after the 2020 crash, the same thing. So, yes, for now, there is a very high correlation. I mentioned in November top when the Russell and Bitcoin, they all topped within two days of each other. And now recently they bottomed within basically the same day. So the correlation is still there. So if I'm then looking at this from a selfish point of view

where I want to increase exposure over time, and I see risks still to the asset bubble at large, then I also have to be mentally prepared for Bitcoin to have downside risk as well, still in this context. My view, however, is that there is ultimately going to be a shift in this correlation. And that's kind of a long-term bet in this sense. First of all, recognize that since 2009, we've had nothing but a global TINA effect. There is no alternative because there was no, really no alternative. And this TINA effect became perverse last year. More money flowed into stocks last year

than in the 17 previous years combined. Everybody is long, or was long, until they just recently maybe got taken out of it. But generally, the data I see on positioning is everybody is still long stocks. All the same stocks, may I add, because most of the money is concentrated in a few stocks, the Fab Five, the Untouchables. Well, some of these are getting taken out and shot, i.e. Netflix, i.e. Facebook. So you get to a point, okay, we have not seen a protracted bear market in stocks in a very long time, right, because of the constant interventions.

And I have to acknowledge the efficacy of that game has been maintained to this day. You've so completely warped everything. But inherently, you got to recognize that that is kind of a fantasy that's being propagated. The NASDAQ went up every year since 2009, with the exception of the one year with the Fed Titan, that was 2018, right? They went from accommodative in their language just for only three months since 2009. And that was in that fourth quarter of 2018 everything fell apart that's the one year where the nasdaq actually had a slight ever so slight down year right uh so you this free money equation has created this this huge allocation one way into stocks at record valuations.

And now we're at a point where, you know, between 2009 and 2020, they got away with that because of a deflationary environment. Now we're not in a deflationary environment. So all of a sudden there's the prospect that this entire extreme that was created may take years to unwind where all of a sudden stocks are not growing up growing going up 20 a year whether we're in a recession or not in a recession or whatever whether earnings are up or down it doesn't matter that that's the permanent price inflation theory

so if all of a sudden you get to a point where stocks all of a sudden struggle, not for a month or two months, but for a year or two, and all of a sudden you don't get those returns and inflation now is structurally higher than it was, you're going to try to find an alternative. You know, we also kind of live in this fantasy land where we think that we can create indefinite debt forever consequence free what what has happened in the last 15 years is insane you know i mean we all all our eyes glaze over uh you know 30 trillion debt well so last year between friends what's trillion between friends at this point right that used to be a big number yeah see a corner you know there is this you know

the human brain you know when the numbers get really big it just kind of shuts off you know you know what was it Stalin says each death is a tragedy you know a million deaths is a statistics right this is kind of an ugly reality of human psychology, right? And so, and the other thing is obviously, so far, incredible debt increases haven't mattered to anyone, right? Because they can be sustained with extremely low rates. But you're telling me that we've increased the debt fivefold in 20 years. We just doubled the debt again in five years. And we increased it by 7 trillion in two years. And yes, if you have zero rates,

you can maintain that somewhat. But the cost of carry is going to explode exponentially. I mean, we're going to get to the point just with, if they raise rates to 1.5%, 2%, which I'm kind of doubtful of, actually, but if they're forced to, just the payment of interest on the debt is going to exceed the military budget of the US.

It's already at $500, $600 billion a year. The military is about $700 billion a year. Yeah, you don't even need a full percent to get this over 700 billion. So my point is you're creating this really inefficient economy that is where all growth, all growth is completely debt financed. You know, it takes $7 trillion out of the last two years and where's growth at? It's not going to look that good. Of course. Yeah. And what's crazy is now you talk about raising rates,

these terrible rate raises that everybody's pricing in and fearful of are to levels that would have been historically low two years ago. Yeah. It's not like they're high rates. They're just higher. If you look at the effect of Fed funds rate, you know, it's been, it's been the lower highs game, Every cycle, and this, by the way, this is just mathematically is reality. It don't matter my opinion, your opinion, anyone's opinion, it's just math. rate hike cycle at a lower high is because each time around, we have so much more debt in the system. That's why I mentioned in 2018, when the 10-year got to its 30-year trend line, which was again a lower high, everything stopped. Everything fell apart. The system cannot handle higher rates. That's why maybe the biggest lie the Fed is propagating, well, they have two big lies that they're propagating. One is, you know, we don't impact wealth inequality. Unbelievable.

And the second one is to say that, you know, we have this dot plot out there. And this dot plot in the future shows certain levels of interest rates. Not a single dot plot they've published since 2009 has come even close to fruition because they capitulate always before, never happens. And it's completely incompatible with the debt levels that are out there. If we had rates today or tomorrow that were anywhere approaching 2007 levels, which were already low, everything would collapse. The entire system would straight out collapse. Couldn't handle it. So this is the other thing.

And I think this is what everybody has to worry about in the long term here. When we rely on central bankers to be the emergency crew that saves the world from big problems. That works if you have efficacy in the ammunition you throw out at the problem. And the main tool that they've been using is interest rates. Now, the secondary tool that they've brought about is QE. But by each cycle being able to do less and less and less and less in terms of the rate cuts, you're completely losing the efficacy of your tool. So in 2007, the housing crisis, they went from 5% to 0%. That made a

big difference right this time around they couldn't even get to two and a quarter percent and they had to go back to zero now if they this time can't even get to one beyond 1.5 percent what would the difference does it make ultimately so you know i know everybody wants to avoid pain and doesn't want to take the pain but I would just worry that we're setting ourselves structurally up for massive pain. And full disclaimer, as I said at the very outset, they've taken this farther than I would have thought possible, but they have.

But if you get to the point where the efficacy is no longer there, and I'll just highlight the ECB as an example here, because I think that's key. The ECB last rate hike was 11 years ago. They've been negative since 2016, and they haven't been able to raise rates once, not even during the last cycle, which was the longest cycle we ever had in terms of a recovery. And now they're still negative. And Lagarde is out there today, and she can offer nothing. Empty blanket. She has no vision, no outline, nothing about ever raising rates. So where is the efficacy in this? What ammunition do you have when we get to the next crisis? Because there will be a next crisis, but we are approaching

each crisis being ever more vulnerable because we're ever more debt laden. We have less ammunitions from the policymaker side because they're so beholden to asset markets. They are afraid to upset markets. And now in the process, they created this massive asset bubble. And so now here we are with still a, with, we're still a massive asset bubble, but slowing growth with, and now high inflation, which traditionally is called stagflation. Right. So, you know, I, I don't know where this is going to go, but I know my cash is being depreciated

big time. Right. Yep. My house is doing great. Fantastic. But now. For now. For now. That could be the next bubble, right? And then, of course, stock prices. Yeah, I can trade in and out. That works for me. It doesn't work for most people, I suppose, because most people are not traders. They're just exposed to index funds or stocks or what have you. But do I want to buy in a 200% market cap to GDP for long-term investment, knowing that that's just a valuation we've never seen before in history?

I want to bank on that continuing. Nope. So, I mean, maybe it works, you know, but I think a lot of people just found out, you know, stocks don't only go up, right? They also go down and they go down quickly and they go down brutally. So, yeah. Yeah. And the worse it gets, right. The, the, the bulls duka has no more ammunition, sort of, as you said, I I've asked this question to a number of people on the show. If somebody hands

you $5 million right now, where do you put it? If somebody says, listen, you have no money, even a million, right? Any large sum of money and says, listen, this is all you're getting for the rest of your life. Invest this for your future today. Are you going to buy stocks? You can't buy bonds. What are you going to buy? Bitcoin for me, but what's the answer for your average person? Well, I can't even buy a crappy yacht with it because apparently it's shortish in that too. 300%, yeah. You can't even buy a watch barely with a million dollars anymore. No, it's a real problem. Obviously, from my perspective, it's always everything's kind of a trade, not a day trade, but we do have a swing trade. But then, yeah, then I sit in a bunch of cash and I got to figure out how to allocate. Hence, my decision this year is to start allocating into Bitcoin.

And I use my technical views of where I want to do that. And I'm, I'm, I'm doing that in a specific way, which is to say, okay, I have a specific allocation in mind personally that I want to be exposed to. If it goes to zero, you know, but I live, it's not going to change my, you know, I'm not going to live under a bridge or anything like that. I still have plenty of funds and so forth. But if it does what I think it will ultimately do, yeah, it's not only a protection, but it's also a major upside play. And going back to my 2000 example where I said, you know, the Apples and the Amazons, they got hit 80, 90% down.

We may just be in such a process you know i'm history doesn't repeat but sometimes and rhymes you know if i just let's take the worst case example worst case example is the same thing happens and and bitcoin having peaked at 69 000 which goes down 90 percent yeah it's back down to 7,000. It's not fun for anyone, and I'm not making that prediction. I'm saying it wouldn't be fun for anyone that it's in it at higher prices. But I'm saying there is a historical precedence for stuff like that to happen and yet still be the greatest buying opportunity ever, right? These coins went to, I mean, if you just look at, you know, three or four years ago with Bitcoin, the end of 2017 through 2018, 2019, we saw

90-ish percent drawdown, 95 plus percent drawdowns on a number of what are now the best coins, right? So we don't even need to go back to the tech bubble, which is a great example because it's a much bigger one, but this is par for the course, even for the crypto market already. We don't have to go very far back in history to see. Ethereum went to $1,400. I bought it again at $82. $82, I was buying Ethereum after it was $1,400. Nice. That was like a trade, very publicly. It was definitely one of the trades of my life. But like you said, I didn't think it was going to zero, and it was pretty damn close already, good enough for me.

Well, that's the point, though. Because we think everything is so big-time references, but it's really not. It's just a couple of years ago, right? You were down about 3,500, 4,000, 5,000 on Bitcoin. So why not? Again, I'm not making a prediction, but just outline the scenario. What if Yellen and these guys come up with really scary valuations? What if a lot of people have really leveraged themselves in the real world, right? And all and all of a sudden you have a major drawdown

that takes price way below their entry averages. One of the biggest problems in global finance is, and we saw that during the 2007 financial crisis, if you have cross leverage across different assets, it doesn't matter if you think your investment is great and you want to hold it in the long term. But if you got exposure somewhere else blowing up, you're going to get forced selling.

You got a liquidity event. You are forced to sell whether you want to or not. And then you get these just enormous blowout moves and a liquidity crisis. And so to the extent that we just have this ridiculous liquidity event to the upside, and I hate to say it, it happens during every bubble. People overexpose themselves. They get too aggressive. They get too cocky. They think they're know, they look in the mirror and says, No, it's not, it's not the acid bubble. That's a genius. I'm the genius, right? And so they, they get taken out, it's called basically a clean house event, you know, a flushing out, and then you get better buyers in ultimately,

right once that event happens. So let's just say worst case scenario goes back down to 7,000. Selfishly, I have no problem with that because I'm not dramatically exposed to it. I just started nibbling at it. And if I take the 10, 20 year view, which I want to take, then it doesn't matter if I'm buying Apple at 100 in 2000 or at 10 in 2001,

right? From that perspective, if I'm comfortable with the asset exposure. Now, selfishly, I like to get a better price. For example, I told Saylor the other day too, I'd rather buy Bitcoin at 20,000 than at 40,000. We just got this dip here into 32, 33. So that was kind of interesting technical point for me to say, okay, we'll start nibbling here, but I'm okay with price going down and I'll be there. That's my view. I want to be there and that's why I want to aggressively accumulate more. But I assume you're also okay with price going up and buying higher. Yeah, it's no problem. But people, that's the trap for your average person who's emotional about the market and doesn't understand is that either they're always expecting lower, they don't get it, and then they buy the top and finally come back in.

No, you just got to, I mean, this is my perspective. If you get the drawdown, you get the drawdown. I'm not, when I look at indices, it's all about trading, right? But Bitcoin is a completely different outlook for me. This is going to be a long-term hold. But I do see, obviously, two issues this year. And that's why I think this year is key for Bitcoin. One is the regulatory side in terms of what actually comes down the pike. You mentioned the executive order, which is going to instruct regulatory agencies to come up with guidelines in the next three to six months.

By the way, interesting that Russia is all of a sudden coming around. They looked like they were going to ban it, and now they want to be all in on it. Maybe Russia needs an alternative monetary system if the US shuts down their banking's swift access. You know, you just never know, right? Look, the other issue is this asset bubble we have in stocks. You know, I don't know where the fit put is.

I think this kind of here in January was kind of testing the waters. It was testing the waters to try to get inflation down. And I guess we'll find out tonight how many assets they bought this last week still. Because this rally was, again, just massively aggressive. It was insane. I mean, it's just incredible. This type of volatility is classic bear market action, right? This is not stable.

Those huge bounces are not bull market material. Like they're just not. But, you know, we point to obviously, and you made the point that there's been this sort of correlation with the S&P. I mean, I would make the argument that it's more, for a long time, it was sort of all assets were inversely correlated to DXY or the dollar, right?

And then we sort of got this situation where it's basically just a correlation to M2 money supply with any asset, right? It's just more printing, more money. Well, we also see that to the downside, but what people fail to talk about, people love to talk about how March 2020 stocks bottomed and then they doubled this incredible market. Bitcoin went up 17 times. It went from 3,800 all the way to 69,000. So to your point, even if we see that downside, that is probably the largest investment or trade

opportunity people will ever see. Even with a crash, getting Bitcoin at the bottom, wherever that is of this is probably going to have insanely outsized gains. Yeah. And once you have that regulatory clarity, you know, look, if I want an institutional investor, of course, you know, or a company that wants to put Bitcoin on their balance sheet, yes, they will have questions about the volatility currently. They will have questions about the correlation. And they will have questions about the lack of visibility. But one of the greatest things you can bring to institutional investors is visibility. If uncertainty is room, you may not like the

regulation i'm not saying the regulation is going to be all you know a park and walk in the park yeah but it gives you clarity and if markets hate anything it's uncertainty they love certainty and so when the certainty is there then just the the psychological element of it being removed then gives you then the green light so yeah it may be initial shock i don't know because i have no idea what they're going to come up with and people are going to say oh this is bad this is terrible i don't know but that's the kind of flush when you see okay the bad news is out of the way now we can go in and we we can justify vis-a-vis our constituents and i want to be in so maybe my example here just being in an individual but having kind of viewed this through macro context where we're

where we are where we've come from where we're going is is maybe kind of a platform to say okay this maybe this conversion is going to happen with other people as well, people that were skeptics. And it's not like, I'm not changing from being a skeptic to a FOMO chaser. It's not like, okay, I was wrong at 30,000 and now I'm chasing into 69,000. I'm coming here during a very sizable bear market where sentiment is poor on Bitcoin. And I'm making the case for it, not having had previous exposure to it, but now putting a stake in it with a view to significantly increase that stake over the course of the year. So that's where I'm coming from. Yeah, I love it. So I just realized we're at an hour. So where can people follow you? Keep up with your doing? I

can't, I try to try to limit the time and I always fail. Where can everybody follow you after this? Well, obviously, my Twitter feed is at Northman trader. That's also the name of the website, Northman trader.com. On the Twitter feed, there's also what is called a Northcast, where I put out little chart observations, technical things. And that's generally where you will find me day to day. We're fellow Twitter warriors, I guess. We are. Well, I'm going to go ahead and put it out there that I hope next time we're talking, you've had to buy higher. No offense, but I'm hoping that you've had to buy higher and that's what we're talking about and not talking about our hero buys at 7,000. Oh my God. Well, if that were to happen,

then we're having a completely different stock universe discussion. Look, I'm off-duty as a perma-bear. I don't want crisis. I don't want a depression. I don't want crashes. It's not good for anyone. What I'm critical of is that we're putting ourselves or these institutions are putting us in the position where these things become ever more severe. And so I'm criticizing the macro backdrop,

the inequality, and the damage that is coming about as a result of these things. So let's hope for the best here. Like the famous example from Taleb, if you don't clear the underbrush, the eventual forest fire is obviously much worse. And that's how it will inevitably be with markets and probably only worse through time. So thank you for sharing your perspective. Absolutely love it. Everybody, please give him a follow. And we will follow up in a few months when you've bought Bitcoin at $70,000. So thank you. Thanks, Scott. Pleasure being with you.