The Wolf Of All Streets - Interest Rates Are On Pause While Bitcoin Is On Sale | Macro

Episode Date: September 19, 2023

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There's an FOMC meeting this week, and it looks like the Fed is going to pause, causing many people to believe that soft landing is imminent and we're going to just randomly reenter a raging bull market. But there's a lot of other things to look at besides just a potential pause, which of course is not a pivot. We're going to dig into everything macro. It's Macro Monday on a Tuesday. Today, I've got James Lavish and Dave Weisberger joining. As one of you said in the comments, Mike McGlone is Mike McGon this week, but we will have him back

next week, guys. Let's go. Let's go. What is up, everybody? I'm Scott Melker, also known as the Wolf of Wall Street. Before we get started, please subscribe to the channel and hit that like button. It's been a long week away. I went around the world and back. And I have to tell you that it's a very good thing I did because I was super depressed about crypto in the United back. And I have to tell you that it's a very good thing I did because I was super depressed about crypto in the United States. And then I went to Asia, where there is a never-ending bull market. Nobody cares about the United States. Nobody cares about our regulators. Conferences are absolutely massive. And it's like crypto Coachella over there, Crypto Palooza, if you will.

Literally token 2049, a conference that I just attended in Singapore. You might remember last year, I went from main net in New York City, which was one of the more depressing conferences I've ever been to a year ago, because all anyone wanted to talk about was regulation and crackdowns. And I understand because it's brutal in the United States. And then I went over there and it was this insane conference, exciting, over 3,000 people. Well, this year I went again and it was over 10,000 people went from one floor to three floors, had a thousand exhibitors there, a thousand. And unlike the last conference I went to in the United States, those exhibitors were not just lawyers and accountants. At Consensus this year when I went, it was literally half lawyers and accountants at the booths. Absolutely depressing. But important

to know, guys, this industry is alive and well on the other side of the world. And sadly, those of us in the united states are currently just missing out now that i've gone on that rampage i'm going to go ahead and bring on james and dave no mcglone today but we'll have him next week guys i'm glad we're able to do this on a taco tuesday again james i think as you as you put it in a tweet. I want to show you guys this amazing statement just to get us kicked off. A tweet that I just saw this morning. Well, here, let me give it to you. Yellen says, soft landing scenario can withstand risks from auto strike, government shutdown threat, student loan repayment resumption. And as I said here, Yellen says nothing will change

her narrative no matter what, because she will get fired. She I mean, James, you and I were just talking about this before. I'll let you go first. She literally says there's nothing in the world that can stop the soft landing. It's just happening no matter what. Because it's the narrative, man. You've got to you got to stick with the narrative. And they'll say soft landing all the way until we drive this economy into the ground.

We spike unemployment. You know, we're right now we're staring down stagflation. She didn't even talk about oil prices approaching $100. You know, we're at Europe just raised rates in the face of economic slowdown. Like the central bankers, they're just they they have to keep the narrative and they will drive the economy into the into the ground because they they have to in order to keep inflation in check and keep confidence in their currencies, period. It's and she needs to, you know, keep that narrative, because if you noticed or didn't notice, the Treasury borrowed another trillion dollars this year or this last month, basically. $33 trillion.

We crossed it. Good job. So if you look at the end of June, I believe it was $32.3 trillion. So we borrowed a trillion dollars since June. So they have to keep the narrative, period, because they have to keep borrowing, period. So they have to keep the confidence in the currency in order to issue this debt that people are going to allow the Treasury to borrow dollars and pay them back with cheaper dollars. It's kind of a sad state of

affairs. And right before we go to Dave, you were sort of telling me before that they always get the soft landing narrative wrong. You were reading from something from Ana Wong on the show, and that's McClellan's favorite person. Every morning he says, I was on a call with our head economist, Ana Wong. But why do we always get this soft landing narrative wrong? You know, the TLDR for the normie people like us who may not quite understand. So what Ana was saying was, and she wrote a piece in Bloomberg, I think it was yesterday. And what she was saying is that we always get the soft landing wrong because of the probability of distributions. Dave will understand this. You have between 68% and 95% confidence, and you see where those probability of distributions are for unemployment in particular.

Unemployment always spikes right at the beginning of a downturn, economic downturn or recession. And I've talked about this for a while, but basically what she's saying is that the problem is that economists always get it wrong because they're looking at the probability distribution and they're discounting. They're just, every single time they just, they ignore that fat tail of that unemployment spike of over 7%.

And there's a big hump in there that shows that distribution, right? So on the last, on the number of recessions. So we got it wrong in 91. They got it wrong in 2001. They got it wrong in 2008. They got it wrong in 2020. Soft landing, soft landing, soft landing, soft landing. And it was not soft. It was not soft. It was not soft. It was not soft. It was not soft. It was not soft. So, and here we are again. We're right. And to me.

It's worse this time. Yeah. Dave, you tell me. But I was just talking to my partner on the Bitcoin Opportunity Fund yesterday. And David. And I was just staring at the markets and looking at the numbers and thinking, it's just too complacent. Just looking at the VIX, looking at the PEs, it just seems just way too complacent. Everybody is just kind of like, oh, I think it looks like we're going to, you

know, the Fed's going to thread this needle and, you know, we're going to have the soft landing and Goldilocks is alive and well. I mean, you tell me, what do you think? Yeah, I don't believe in fairy tales as a general rule. I think that, you know, a couple of responses. I mean, the Yellen thing, I will repeat a quote from the father of propaganda. A lie told once remains a lie, but a lie told a thousand times becomes the truth. I think that there's a lot of that going on with regard to narratives in this administration, and frankly, a lot of them. But what's interesting is, and I've said this many

times, I mean, Jerome Powell is many things, but dumb is not one of them. And he absolutely understands the importance of inflationary expectations in the narrative and in controlling inflation. He does understand that he has talked about it. You have to parse his words more carefully, but I understand. Now, coming from someone who learned economics in the beginning of the 80s, right when Volcker was coming, was doing what he was doing and arguing. And I think on the show, I recounted a famous argument I had with Professor Robert Gordon, who at the time wrote the most popular intermediate macro book, gave me a B plus on an essay where I talked about inflationary expectation theory and how- B plus or D plus?

Well, B plus, but it wasn't an A plus, which is what it should have been. Because I argued in my paper that proper monetary policy could break the back of inflationary expectations. And his book argued it would take seven years of recession to end the double digit inflation that we had suffered. And I talked about how I managed to talk to him at graduation with in front of my mentor. But let's just say that I gloated a little bit and we'll leave it at that. Powell's talked about inflationary expectations, but we have something going on that's incredibly unprecedented. He isn't grinding his teeth down to the gums and isn't incredibly pissed off at the fact that all of the people, Senate, House, and executive branch of the Democratic Party are cheerleading the UAW and saying they have

a right to demand double-digit percentage, massive double-digit percentage. 40%. They want 40% pay raise. And that, when he's trying to dampen inflationary expectations, I am sure I feel badly for the man because he is operating alone. They are literally saying, you got inflation, Jerome. We're going to do all the cheerleading in the economy. We're going to be profligate on the fiscal side till the cows come home. We're going to cheerlead people demanding more wages and put pressure on companies. and never forget how much pressure the government can put on companies. So it is a very interesting situation. I'm sure

that, you know, at a certain point, he's going to have to throw in the towel and, you know, either that or he'll be, he's going to engineer what is going to be not a soft landing. I mean, I'm not sure which way it will go. Another fact that's fascinating, if you look at the drawdown of the SPR reserve and charted against the oil price, what you see is twice now, this is the second time we've had a three-month period where they actually bought back some, a little teeny little bit. I mean, the numbers are, I mean, I have a chart up here. In July, in June, it was at 353,000 billion, releasing it into the economy and the oil price ticking up, then you're blind because you can look at the correlation of that chart. Scott, it's unfortunate. You can always share your charts. I got to teach you that move.

But right down below, you just hit present. OK. I got to put it on the screen too let's do this because let's do it i don't have a chart but let's do it a share screen window ready for it i mean while we're doing that you can see oils rally gathers momentum as brent pops above a barrel. So you look at the chart and you go back. I don't have this ability to put this, but if you read down here, you'll see it started the year at 371. And, you know, and you see what's going on,

see what's going on. And see that it, you know, when the oil prices were coming down, it was. No, we can't see that. Like, Dave, it's so small. Yeah. We got to get your screen sized. Yeah. Yeah. Sorry about that. coming down it was no we can't see that like dave it's so small yeah it's so small we gotta get

day you uh you're you're screen sized yeah yeah sorry command or can you hit command yeah i know i know that i know blow it up oh here we go look at it someone said this was our beautiful boomer moment yeah yeah yeah i don know how. I was just being lazy. Sorry. There's an urge to be lazy. I am a boomer, but whatever. But you see what's happening. You know, they're withdrawing to cut the price, withdrawing to cut the price, withdrawing to cut the price.

They don't, and it stabilizes. They withdraw to cut the price. They don't, and it starts going up again. I mean, they're kind of caught. And you can see what's happening. They know what they really need to do is draw down the stocks during the election. They don't. And it starts going up again. I mean, they're kind of caught and you can see what's happening. They know what they really need to do is draw down the stocks during the election. Yes. And so they didn't want to. But now we're sitting with oil at 95, which will feed through the system. And, you know, they can do inflation, ex-food and energy as much as they want.

It doesn't excuse my language, but it doesn't fucking matter because oil feeds through to other inflation, to pretty much everything that gets produced or transported. And so you can't do inflation X energy. You can only do inflation X measuring the explicit part of energy, but energy will always be part of inflation. So, you know, we're in a, the Fed is in a difficult situation. There's no version of reality where you can, with monetary policy, control consumer inflation in a world where monetary policy for decades has explicitly tried to create asset inflation, capital substitution for labor to suppress consumer inflation. And then everything that the administration is doing on the fiscal side and policy side and regulatory side is increasing consumer inflation specifically by intent. And that is not something, a battle that the Federal Reserve can win without causing enormous

damage to the economy. That's right. I mean, we're going into an election year, there's a snowball chance in hell that they're going to be willing to cause enormous damage to the economy. I mean, had we been in this situation six months ago, maybe, but we're, you know, the nomination deadline is two months away. We don't know what Biden's going to do. I mean, there's a lot of speculation about it, but, you know, unless he has a health problem, there's no way for Democrats to enter the primaries after November, as I understand the DNC rules. Now, I am sure they're going to adjust the DNC rules if they decide not to run it. But the election is starting in earnest in two or three months. And it's pretty clear that there are some policies in the UAW.

It's not just the UAW, by the way. There's a lot of other unions out there. Wage push inflation is the nightmare scenario for powell repeat this out repeat this again it is the nightmare scenario for powell and he can't do a damn thing about a coupled coupled with with a hundred dollar oil that's right there's nothing he can do there's nothing he can do then james let me ask you so we're in this situation now where oil is going up again mcglone would tell us it's just a sort of a lower high and it's going to crash of course but oil is going up again all the things you guys just described but now we're expecting a pause at fomc for for september right so does this indicate that pal is smart and is waiting to see what happened from

previous rate hikes? We all know it's lagging. Are they so lost now that they literally break something in either direction? I don't think he's lost. They

have very few tools they can use, right? So he can stop QT and take his, you know, the foot off the pedal there. They can pause rates, which are doing, and see what kind of lagging effects. The five percent points of rate hikes, it doesn't sound like a lot, but when you come from zero to five and a half, it's a lot. You're starting to see bankruptcies rise at the same time that you've got the unions demanding higher wages. You're throwing fuel on the fire there with wages having to go up, which means decreasing margins, which means that you have less money left over to cover your interest payments. And so for for these companies who are on the rails, you know, or just a little bit there, they're against the rails. If they're they're just a little bit flying a little bit too close to the sun,

it could push them over the edge. And then that's when you see the spike in bankruptcies. And that's what you're kind of watching for. And so he's watching for bankruptcies rising, unemployment spiking, but it's all rear view mirror stuff. That's damage that's already been done from the lagging effects of the rate raises right so there is no good answer for him if he raises rates into this he he raises them again there's that only uh you know adds to the the probability of a of a major credit event you know and so he can't do that so he pauses while oil is going up. As Dave said, oil and gas are integral to every single thing that we buy. Regardless of what Just Stop Oil wants to say, every single piece of clothing they have, how they got to the protest, what they ate before the protest, what they're going to eat after the protest, that know, what they ate before the protest, what they're going to eat after the protest. That doesn't matter. Every single thing has oil and energy as,

as a part of that cost and creates that. So there's nothing you can do. He's, he's in, he's in pretty much an impossible situation. Yeah. Which I think means just the simplest thing is just to pause for a long while here and see what happens. It's clear that we're above that neutral rate, meaning we are decreasing demand. He's decreasing demand with the rates at where they are because of the cost of capital. Okay, so and that's clear. So he's see how long he can he can hold it there i mean there's no reason for him to just spike them again we're already above the neutral rate let's see where it

goes right i mean dave just real quick i know you're about to jump in but i mean you add into this rising oil prices the fact that if you look savings are at historic lows and almost gone everything that consumer saving had from you know know, the COVID bonus there, the bonus check that everybody got. And that credit card debt is at all time highs. Right. So the consumers are consumers are struggling and it's not like you can take a loan. So consumers are struggling hard right now. And you add in higher gas prices that only makes everything worse to your point.

So so here's the point. And there's an interesting feedback. If he raises rates, the reason raising rates is used to calm inflation is by killing aggregate demand. That's the idea, right? The idea is you hurt aggregate demand and potentially hurting aggregate demand is a very clinical term. What he's basically talking about is forcing people to have no ability to buy or spend, which generally involves some form of credit event. What does the Fed want to avoid? Large scale credit contagion. So it's they need to push, but not push. But the other big problem here, and it's a huge one. And I'm sharing the screen. I don't

know if people can see it, but the economic data that shows consumer loans, this is recent. But if you do five years, you could see that this is the pandemic. And now you see where we are. And if you go back to max, you can see we're all time highs. Now, this is consumer loans. That's credit card debt. So let's be clear. That's credit card debt that back in 2020, the rates on this were down around 9% to 11%. And now they're up over 25% to 28%. Right. So that's my point. As he raises rates, what he's actually doing is causing wage push inflation because he's causing people to need more money and therefore demand more to live. So in a way, raising rates has an inflationary impact to it as well in a world where the cost of living is directly impacted by those rates. And yes, on the corporate side, it means they have less to spend and they have less to push. Yes, yes, yes, we understand it. On the consumer

demand side, it is interesting because if you look at the average, what are people going to vote on? People are going to vote based on are they better off or worse off? Well, at the end of the day, if your evolving credit line, if your home equity loan resets, if all these things are taking money from you as he raises rates, that causes people to demand more and get more strident about it. And so that is a big problem with all the union things that are going on. Because you can't really blame the labor unions, can't blame the workers, their costs have gone through the roof, right? You know, we can manipulate the CPI as much as you want, but if you can't import it, and if you can't, you know, if you can't import it, and if it's not in a technologically,

you know, it's not something that just the tech is getting better, and so prices are cutting down. Everything that's service-oriented or made in America, frankly, the prices are up dramatically higher than the stated inflation rate. And, you know, things like, you know, you're educating your kids or your medical care or, you know, your rent, you know, these are things that are up higher. And then when you add to that, the fact that, you know, how many people use their houses as an ATM and those revolving credit lines that are from houses, most of them, most of them reset with as interest rates are all indexed to the prime rate. And so you have a huge impact here. That impact is something that I'm sure he's being talked about, right? Because

it is a double-edged sword. And that's kind of something that people don't generally think about. Yeah. Go ahead, James. Well, I was going to, let me see if I can share my screen here. Here we go, guys. I'm ready for it. See, this is, by the way, this is my tactic

for getting a free Bloomberg terminal is to get you, James and Mike to just share your screen constantly. So I have to pay like $25,000 a month or whatever it costs these days the problem is i'm on chrome and uh you know and i'm like you need the permissions yeah next time we'll try it before let's try it before but um let me see here let me see if i can i can get it on chrome i know you can do it because I'm doing it.

She means it can be done. And Dave's probably doing it. But while we're discussing that, and we'll go right back to that as you're trying, James, but we have to obviously mention the other part of the topic, which comes from our good friend Yusko. Bitcoin's on sale, he says, but customers are running out of the store, which is a classic. Obviously, he's pointing to the halving and the tidal wave of cash that's going to come in when we get an ETF approval.

McGlone's not here to tell us that Bitcoin's going to flip nine grand. So this is our chance, guys. This is our chance to say bullish things about Bitcoin. Well, look, you know my opinion. Mike and I now have a Twitter oriented steak dinner bet on 40 versus 10. I would have tightened the range too. I mean, I feel pretty good about that. I've wanted to go to Peter Luger's for a while. My favorite place on earth. Thank you. I'm coming and I'm buying you both dinner. That's fine. The point that's really interesting about what's going on with Bitcoin is, and I made this point this morning. I tweeted it out because somebody was talking about, well, there's going on and on about macro and this, that, and the other thing.

And I basically was saying, listen, Bitcoin trades like an option on its own adoption. The reason the four-year cycles matter, the reason the halving cycles matter. Yeah, there's less supply. And sure, you know, you can do a supply side only model. I think it's kind of bullshit, but whatever. But what it does show is that every single halving we get through where the mining industry and the network strength is confirmed and things continue to go up and to the right. It more and more justifies the vision of Bitcoin as a global store of value. And it puts more and more distance between Bitcoin and other technologies trying to ever create what Bitcoin has created in terms of a global network. And technologists, it's fascinating. For something that came that was built by technologists, it's fascinating how technologists are ignorant sometimes of how network effects go. I mean, there have been many examples throughout history where the superior technology doesn't win. Many. Because people already adopted it and the marginal difference in the new technology was not sufficient.

It takes truly disruptive technology to displace old technology. You know, everyone uses Betamax and VHS, but there are so many, it's not even funny. The reality is Bitcoin technology. Yeah, OK, there's been some adaptations with ordinals, and that's actually a very good thing in many respects. I mean, I completely can't comprehend the Bitcoin maxis who don't like that and don't see usage of the blockchain as useful. But what's important is up into the right block by block, bit by bit, what's going on in the network. And every time there's a halving and every time the monetary policy of Bitcoin is proven to be reasonable and is proven to work, it creates even more momentum towards its global adoption. And right now, the market's pricing the chance of Bitcoin becoming the digital store of value globally at well less than 5%.

Right. And it was well less than 5%. You know, it was in a very similar a similar place, you know, not all that long ago. And the network is dramatically stronger now. There is much more adoption. We even have the accounting rules taking the the you know for businesses out of the way i mean honestly and you're and the other thing that i pointed out a couple weeks ago is even the imf is saying don't try to ban crypto because they know it'll drive it underground and make it stronger the reality is now they want to try to co-opt it they want to to control it. I don't say it's good news, but it's definitely a capitulation on the fact that it's not going anywhere.

But what does co-opting look like? Co-opting looks like, okay, it's going to go up a lot. We just want to control it. How do they control it? The only way to control it is to buy it. So what are they going to try to do? Shake people out of it? I mean, I'm not really a conspiracy theorist on that score.

I don't think that it actually works that way, but it ultimately becomes that. So the only thing that's really holding the market down right now, and I've said this before and I'll say it again, it's fear of Binance being a slightly larger FTX event. That is literally the only story. That is the overhang to the entire crypto market and Bitcoin in particular. And I frankly think it's bullshit. I mean, not necessarily because Binance isn't going to get punished, but I just don't see. And I'd love to hear Mike Alfred explain. Let me say this. I think it is becoming more bullshit with time because the longer it takes for something to happen, if it's

going to happen, the less market share Binance has, the more priced in the assumption that it will happen is there and the less impactful that news will be. I mean, there's a lot going on with Binance, right? First of all, SEC ripped into Binance US over shaky asset custody. But by the way, if you guys saw, then, oh, that's the wrong tweet. I'll have to get it. But then Binance US, the SEC lost again. A judge rejected the SEC yesterday in trying to get into Binance US technology and books. But crypto hiring woes for Binance. Binance US continues. The CEO, Brian Schroeder, it's like the 15th CEO, but he left and people are leaving at every level. But that's my point. If this ship is sinking, everyone's already getting off. It's not going to matter by the time. And I think I saw a number as

high as that. They've gone from 80% down to 30% market share. So I think there's no way this will be bigger than FTX because FTX happened overnight. Right. That's one point. And the other point is FTX had an $8 billion hole in their balance sheet. There was a ton of forced selling. They bankrupted a ton of professional investors who then had to sell the remaining assets. Forced sales is what causes things to go down. Finance, people not being able to speculate might hurt a lot of altcoins where liquidity bequeaths liquidity and there's a lot of garbage. But with Bitcoin, that's not really relevant. The only thing that's relevant to Bitcoin in the Binance case is do investors have Bitcoin on Binance that's not really there? And from all accounts, I have not seen any proof that that is the case. So if there's no force

selling, then yeah, there will be disruption to the market because professional investors are using Binance futures. Binance, the spot exchange, I think is less and less of an issue. Yeah. The sole issue is Binance futures. Yeah, but you just hit on that, Dave, that's the problem, the uncertainty, period. The uncertainty is you cannot see what the liabilities are. Yeah, you can verify the assets, but there's no way to verify the liabilities. If you can't verify the liabilities and how much Bitcoin they have possibly used as collateral against something they may own that may come due. They will have to liquidate Bitcoin in order to meet those obligations. That's what you can't see.

And so when you have uncertainty, you have markets that just trend either sideways or lower, period. That's the way it is. And that is exactly my point but my point is that unlike ftx where the no no no my point we knew we didn't know it happened overnight and immediately when the market realized that they'd replaced all the bitcoin and ethereum that they were holding from customer collateral with Sam coins, which was bullshit. It's a problem. Now the allegation, which I've not seen proof of, and I think is extremely important to understand whether it's true or not true, is that they've replaced that finance has replaced it with BNB. I mean,

they're explicitly denying that. And to me, that's the central question. I don't know the answer to it. But provided that the Bitcoin and Ether that are posted and stablecoins are posted as collateral on Binance Future are still there, then even if it gets shut down overnight, it will cause disruption.

But that could be a mass buying opportunity in Bitcoin and Ether. It could be, well, not necessarily Ether, because if all coins all get quiesced for a six month period as people sort out what the next market will be, you know, Ether, obviously, it's one of the big use cases. But Bitcoin, for sure, there's no impact. I mean, keep in mind, the biggest rally off the close, the biggest rally we have seen like you know in recent times was literally when bitmex died bitmex had 80 percent market share of bitcoin derivatives 80 percent and went to you know down to less than 10 percent almost overnight after they kicked the you know after they pulled the plug during the march rally the. Nobody cared. It didn't matter because anything you want to say about Arthur.

And everyone loves Arthur. I had lunch with him in Singapore like three days ago. He's the most popular person at that conference. He's freaking brilliant. I mean, I was one of the first people when he went to Substack to subscribe because he's probably love reading his stuff. I mean, I learn every single time I read his stuff. I'd love to meet him.

But, you know, one of these days, if we're in the same place you can introduce me but in any case arthur it was a it was a group it was a group lunch and uh but and i'm not friendly but we did sit right together and he threw a hilarious party that people were crawling through the woods to sneak into and ran out of uh liquor in 45 minutes anyways go ahead the point is that bitmex didn't lose customer collateral. And so therefore there was no for-selling and therefore the rally, despite its demise, was incredibly sharp. If there was a Binance disaster, and I'm not saying it's going to happen, I have no knowledge of it. I'm not wishing ill on anybody, but if it happens and there's no more selling from collateral, the rally, the God candle that will result at the end of that will be epic. And that's even without the ETF being approved.

If you add that to the ETF being approved, it could be ridiculous. And all the people who are patiently buying will lose their patience. This is I'm not talking about a, you know, three or $5,000 rally where it's only speculators and there's no spot buying, which is collapses immediately, which we've now seen twice on rumors. I'm talking about the overhang and the reason that I'm not allowing my investment fund to allocate more to Bitcoin disappears at the same time as it's very clear there's going to be demand drivers too. So, you you know when you look at it that's the biggest unknown if someone knew for sure that that finance either a did have a hole in their customer money and there will be for selling or b that there isn't you could be you

will be very rich by betting on that now i obviously do not know that answer uh but people need to understand that is a very good deal. But I still think, though, Dave, I still think that going back to the beginning of the show, I wasn't some sort of overhang from Binance and people believe that we're going to have this Goldilocks scenario of a soft landing, we would see a God candle. I think you're right. If you, if that got resolved, but I think people are starting to realize that the soft landing narrative might not really be true. And you're starting to see just hints of that. So when you have market malaise, that's when these disruptions happen.

I think that Bitcoin, as much as anything, is going to be susceptible to that kind of downturn. And so we just have to be aware of that. Am I bullish long-term? Hugely bullish. I'm going to be buying of that. Do I, am I bullish long-term? Hugely bullish. You know, I'm going to be buying all the way down if it does. And I'll take that opportunity with or without a Binance event. And so we just have to recognize that that's still out there.

If we have a spike of unemployment, we have some sort of credit event, it will get hit too, period. Trying to time that, good luck. Yeah, no, I always say that. Look, my macro views throughout history have been, my timing on macro has been, I really hate doing this when he's not here, but it's just too funny. My timing on macro views has been as accurate as McGloanc's has been in terms of climate. You have to be Michael Burry and his one in a hundred shot to be honest on that. Even then,

he almost went out of business because he was way early. In 2006, I was shorting MBMA, Fannie Mae, Freddie Mac, and all that stuff. In 2006. I was totally right, but it went on 18, I was 18 months early and got stopped out of my positions for a variety of reasons. So I mean, it lose money, but I didn't make money either. Despite calling, you know, effectively the house

of cards. I lost a lot of money. So, I mean, I understand I'm directionally right. But look, I don't want anything I say is investing advice other than the only piece of investing advice I will ever give on the show. And I always say it. Don't use leverage on an 80 vol asset, because if Bitcoin is an option, as I say, using leverage on options is a prescription for disaster. At best, it's a roulette wheel. At best, it's a roulette wheel. At worst, it's a lottery. And, you know, do you really want to invest by buying lottery tickets? I think not. You know, it's not a smart idea. That's the only advice I give.

Everything else is observational. And observational, I mean, the demand for Bitcoin in the 25 to 26 range is there, is significant. There are resting bids, there are patient buyers, and the speculators at this point are exhausted. Every time it starts moving up, they get fooled. And so we don't have a lot of that. So we're kind of stuck in this range until there's new news to digest. And the news that people are mostly focusing on these days are the two pieces of news we've talked about is, is the Fed going to get is going to try to force a credit event? Remember, we talk about credit events in clinical terms. Well, what is a credit event? A credit event is an event where institutions are forced to sell assets. And when you start selling forced to sell assets, what do you sell? Well, you sell what's most liquid,

what goes down the most wide correlations go to one in a market crash? Because it causes forced selling and people to sell the most liquid stuff, often the stuff they most want to own. And so that's why correlations go to one. That's right. We've talked about that before. If you haven't been on a desk when this happens,

a hedge fund desk, an investment committee, it's staggering how fast it happens. You walk into that trading floor, you see right across the board, you know that you're going to have some sort of margin call somewhere in your book. Because look, if you're a hedge fund, you're at a prime broker, you're running on margin. It's just reality. There's no other way to pay the prime brokers. It's not that you're over levered. It's just that you're running on some sort of margin facility. And so you look at your book and you say, just as Dave said, you say, just sell 20% of everything, get 20% of everything, get me out. And then we'll step back and make sure that we, you know, we're at least liquid. So at the end of the day, I I'm not having some

sort of a liquidation that's forced that I don't want to happen. Right. And so that's a big deal. So Scott, the other thing that's important to understand is a credit event virtually guarantees, not just margins for people who are leveraged, but also redemptions. People pull their money out of funds. I mean, you know, we have an entire generation that's living off of the wealth effect. People start getting really nervous when, you know, their nest egg is, you know, is like, you know, it's when their nest egg is in the stock market. And that's what they've been living off of, you know, selling small amounts, you know, it's like, you know, it's when their nest egg is in the stock market and that's what they've been living off of, you know, selling small amounts, you know, to live because there

are a lot of people who've been doing that. And all of a sudden, if your net worth starts collapsing, what happens? Well, the whole thing pinwheels. And that's exactly, you know, the Fed doesn't actually probably wants a 20 percent correction. What they don't want is a death spiral. And so they're already in one. a debt spiral. They're already in one, right, James? They're already in one. There's no way out. It's begun. There's a way out. There's a way out that traders are well aware of. Can you see it now? It's called a mass devaluation event.

In what world, I mean, truly, in what world is it okay that this is our federal debt, this is our consumer debt, this is our savings rate? We're only seeing the one screen. I think the way you shared it was probably just that one tab, so you'd have to switch to that. You have to go to each tab. Okay, hold on. So we'll do that. So that, right? we lost you no we lost your screen share here we go i'm gonna teach everybody you go to present okay i'm gonna take that off you go to

present and then you go to share screen and then up top there's chrome tab window entire screen do window. This is for everybody, not just for us three guys when you're streaming. So if you do window, you can click between tabs. You see it? There you go. Yeah, I can see your tabs up top. So there's consumer loans. Yep.

So yeah, federal debt, consumer loans. Here's a personal savings rate. You can see it's down to the levels it was back in 2008. At the same time, you've got corporate bankruptcies rising at a faster rate than it has in years. So in what reality is this OK? How is this going to work out? Well, keep in mind something. If he raises rates and the long end goes up, then those charts get worse. Every single one of them.

Every single one of them. The federal debt spikes. This is what, you know, yes, Scott, we're in a debt spiral. Why? Because we're operating in deficit. Why? Because we're operating in deficit. Why? Because we we we spend too much. Clearly, that is inflationary in and of itself. So it just feeds on itself. So you have you have we are our average interest rate is about one point five percent on all this debt that we have. Thirty three trillion dollars of debt every single time a piece of debt matures,

now we have to reissue it at somewhere between four and a half and 5%. 31%, 31%, I believe is the number that's within the next six months or a year of U.S. debt that's coming up to be refinanced and is going from 1% to what? Five, six, seven? Yeah, one and a half, one, one and a quarter, one and a half to 1% to what, 5%, 6%, 7%? Yeah, 1.25%, 1.25% to 5%. And every single one of those investors that doesn't reinvest that capital of that bond that has matured, the Treasury has to borrow that money and issue more debt. And that's what you're seeing happening.

So you see debt matures part of that money that one that's matured it goes back into auction and they and they buy more debt you know just be or goes into the open market but part of it just it they have to just issue more debt and and at higher interest rates your interest expense now this year is going to be over a trillion dollars on interest expense. For people who it's hard to conceptualize what that is, we spend about $800 to $850 billion on the entire military complex a year. Which is five times, which is more than the next five to 10, I don't remember the stat, but like any other countries combined. So put it in context. It's like, if you spend, you know, say you spend $5,000 a year on food,

and then you're spending about $7,500 a year or $7,000 a year on, you know, on interest on your credit card debt, or put in the same terms, $800 a year on food, and now $1,000 a year on interest on your credit card debt, or put in the same terms, $800 a year on food, and now $1,000 a year on interest on credit card. It's just mind boggling. You're spending more money on interest than you are on something that- Put it another way, which is what I've been talking about all year on this show. the Fed desperately needs to engineer the long end of the curve downwards. And the long end of the curve means people. That means rate cuts. That means,

that means something. It's, it's, it's, you're going to engineer it. They're going to engineer it the way Japan engineered it. And that's what they're going to do. What it means is quantitative easing on the long end.

And, and don't be surprised if their quantitative ease on the long end at the same time as they're as they hold rates above above uh accommodative levels yes do not be surprised that they do that because i think they need to do that there's only so much money they can pull out of the roof that's right and so all they're pull out of the reverse repo facility. Right. And so all they're doing right now is they just keep issuing T-bills, you know, and these are expiring. Who's buying them? A month to three months.

It's money coming out of the reverse repo facility. But who's buying them? Rich people. And pause on it. Read Arthur Hayes' stuff. That's what he's talking about. And that money, that interest. But rich people haven't bought a trillion dollars of new debt in the last three months, right?

It's banks buying. Reverse repo. Yeah, they're taking money out of the reverse repo. Rather than just pushing money to the Fed and getting reverse repo interest rate, they're getting a better interest rate on T-bills. And so they're just re-upping those T-bills. And so you've seen about $600 or $700 billion being drawn out of the reverse repo facility, which is just extra capital that's sitting idle at banks. They put on the Fed to get interest every single day. And so instead of leaving it there, they're pulling it out and putting into a little bit better rate on the T-bills. But they can only do so much of that. There's only so many banks that are

sitting on that capital. Like Dave said, at some point, the Treasury is going to have to issue longer-dated paper. When they do that, who's going to buy it? Who's going to buy the longer-dated paper? The Fed.

Maybe China. I mean, look, think of it this way. How many people were complaining about Japan's lost decade, yada, yada, yada? You can complain about it a lot, but the fact of the matter is. It's just yada, yada, yada. America's lost two decades coming, yada, yada, yada. No, no, I'm not saying that. You should.

Yada, yada, yada is solid, though. Here's the punchline. The punchline is you can make fun of them. You can say a lot of things. But the fact is Japan has been able to kick the can down the road on their debt spiral for 30 years, despite having a debt to GDP that's double ours nominally now and a population that's aging even faster. And so, you know, if you're a policymaker who cares about your job and what people think about you now, the most human thing to do is to kick the can down the road. So it's the next guy's problem, not mine. And, you know, people want to do the right thing. Some people do. I think

Powell genuinely does. I have genuine respect for the man. I think that at some point he's going to realize, listen, I got to kick this can down the road because I am toast. They are leaving me alone. I don't want to do it. And he's going to, you know, he's sort of in financial policy, sort of like, you know, Zach Wilson was left alone against the Cowboys pass rush. I mean, it's like, you know, what the hell am I going to do? He was terrible, but that wasn't his fault. He was running for his life the whole time. I mean, Powell literally is standing alone against the entirety of the rest of the government, the fiscal side of the government, the regulatory side of the government, and even the job. And Dave,

did you hear Scott talking about the White House cheering on the UAW? I mean, it's insane. It's like I'm telling you, I think it's crazy. At some point, the natural thing for him to do is within the policy committee and say, listen, you know, we're going to keep rates high enough so that we're going to try to quell consumer demand. But we're going to do QE, which we all know what that will do. That will spur us.

That will help support the asset markets at the same time as decreasing federal debt expenditures because we need to do it. I mean, I just don't see he has a choice. I mean, he'll never say it. They won't talk about it, but they'll just do it because they have no point. If the Treasury is just creating trillions in T-bills, then what? I mean, fiscal policy can't, the monetary policy can't account for what's happening on the fiscal side, right? I mean, that's money printing one way or another, right?

And he's trying to tighten and trying to, yeah. Yeah, but they're operating with separate, they're operating with separate executives, right? So the treasury has to, they have no choice, but they have to facilitate government spending. Exactly. They facilitate government spending, period. And the Fed is only trying to reinforce the strength of the dollar. They're trying to reinforce the confidence in the U.S. currency so that the Treasury can pay the government's bills. They're operating separately, you know, and

the Fed, like you just said, and you guys are, I 100% agree that, you know, Powell is running for his life here, but at the end of the day, period, end of sentence,

he is going to do what is best for his legacy. Of course, that's all he cares about. You can tell. I mean, how many times has he, like have people invoked Volker when talking about Powell? It's true.

He needs his Volker moment. He's going to pull it off. The only thing where those places agree on is they would strongly prefer to have measuring sticks, things that make it obvious what they're doing not exist, or at least be different, right? They do it with the faulty CPI measures.

Yeah, they do a lot of that stuff. You calculate the numbers. Powell knows that unemployment doesn't spike until we hit a recession. He knows that. Yet he will again, he will refer to unemployment being very low right now so there's no recession risk. He will say that again, even though he knows in his mind that what he's trying to do is spike unemployment, period. That's what needs to be done. He needs unemployment to spike in order to quell demand because it's the only side of the equation that he can- But the narrative, right.

But the narrative is soft landing, no recession. So, I mean, you're saying he, they're just lying. They're lying because he has to cause the recession. So he doesn't want no recession to get jobs, to get unemployment to rise, to be able to pivot, to crash the market so he doesn't want no recession to get jobs to get unemployment to rise to be able to pivot to crash the market and then recover i mean it's it's so ludicrous that yellen would would she would refer to every single problem and and you know on that tweet that you showed at the beginning of the show every single issue that we're facing and say oh no we've got this that's good it's good we're just gonna yeah hey look it is, we've got this. That's good. It's good. We're just going to pause.

Yeah. Look, it is what it is, but that's one of the reasons why they don't want objective metrics. So, you know, Greenspan used to obsess about gold. And a lot of the other Fed governors were like, well, why do you care? And the fact of the matter was when, if you look at the history when gold it did its sustained rally from the the 400s you know whatever uh to its it's the 2011 you know 2000 what was that about well that was about well we know what we went through we went through the monetary printing we went through all

the stuff and basically just said okay i don't care you know that let the gold bugs know the truth let the gold bugs measure it etc, let the gold bugs measure it, etc., etc., whatever. The same thing is likely happening with Bitcoin. Only Bitcoin is global, not just the US, and its adherents are even more eccentric in their minds. And it's a much smaller market you know, people say, well, you know, Elizabeth Warren's a Luddite. She's trying to suppress this. Oh, no. I mean, she's smart. She understands that Bitcoin is a measuring stick and she understands that a federal government fiscal irresponsibility is to continue. They need to make sure that they can engineer against all the measuring sticks. And she understands that she needs the fiscal irresponsibility to continue to have her job, period. Right. And so that is a very big deal. And people ignore the political process of what's going on at their peril. But the truth is that there is a reason why there's institutional bias in the united states against crypto and by the way there is why there was a bias for crypto in emerging economies all around the world because they

see it as an opportunity to help uh you know basically get out from under u.s financial hegemony i mean don't don't kid yourself the re one of the yes it is true that that token and because we've seen it, we have three people out there. We see it overseas. All of the demand for our services is overseas. U.S. money feels trapped. People are annoyed, yada, yada, yada. But make no mistake. The U.S. today is 50% of the world's investable assets.

There is a huge fight going on. And I do not believe that de-dollarization is the way they're going to win because the dollar is still the best of a bunch of bad fiat currencies. But I think there are a lot of people outside of the United States who understand that there is a great reset going on and there is potential in the digital economy. And that could be massive and they're lining up to do it and and understanding the u.s isn't going to get cooperation from these governments because these governments really see it as a ticket for them to actually do better and that that is that is very important which which i think is actually like maybe a good way to sort of conclude on that on that point is that we used to expect that the

world would follow the united states lead and i think that's what the united states was expecting that they would set some framework for regulation get the rest of the world in line and in this case the rest of the world just said f you and moved on without them and now the united states is totally stuck they failed to kill it they failed to really suppress the price and now it's moving on everywhere else and the only people that will obviously get hurt are America and Americans. I mean, I wish I didn't agree with you. I really, really wish I didn't.

But I have to agree with you because I know that what you're saying is true. It's sad. It's going to be very interesting to see what happens this election, who comes out on what side. I think 99% of politicians are going to come out on them on the wrong side of this but um you know the the next election i think uh after this one is is going to be entirely different because of the damage that they're going to cause and uh in you know in using the central banks and fiat currency, period. I was just checking if Elizabeth Warren was up for reelection in 2024.

I believe she is. She is. Good news. Good news. She ain't going to lose. It's nice to have hope. Hope is a terrible thing if it's misplaced. All right, guys, that's all.

I got to run. Thank you so much. It was fun having the three of us. It's always interesting when we mix up the groups, how the conversation leads. James, it didn't even get light for you over there. I guess there's no window. It's just living in the dark, man.

All right, guys, thank you so much, everybody. I will be back tomorrow. See you at 9 a.m. Eastern Standard Time. Peace. Bye, guys. Bye. guys thank you so much everybody i will be back tomorrow see you at 9 a.m eastern standard time peace bye guys