The Wolf Of All Streets - Is Gold About To Pump? Why Is Bitcoin Falling? | Macro

Episode Date: September 5, 2023

In observance of the U.S. Labor Day, we've rescheduled Macro Monday to Tuesday. Join James Lavish, Mike McGlone, and Dave Weisberger as we break down the main macro events and their impact on the crypto market. James Lavish: https://twitter.com/jameslavish Mike McGlone: https://twitter.com/mikemcglone11 Dave Weisberger: https://twitter.com/daveweisberger1 ►► JOIN THE FREE WOLF DEN NEWSLETTER, DELIVERED EVERY WEEK DAY! 👉https://thewolfden.substack.com/   ►►OKX Sign up for an OKX Trading Account then deposit & trade to unlock mystery box rewards of up to $60,000!  👉 https://www.okx.com/join/SCOTTMELKER  ►►THE DAILY CLOSE BRAND NEW NEWSLETTER! INSTITUTIONAL GRADE INDICATORS AND DATA DELIVERED DIRECTLY TO YOUR INBOX, EVERY DAY AT THE DAILY CLOSE. TRADE LIKE THE BIG BOYS. 👉 https://www.thedailyclose.io/   ►►NORD VPN  GET EXCLUSIVE NORDVPN DEAL - 40% DISCOUNT! IT’S RISK-FREE WITH NORD’S 30-DAY MONEY-BACK GUARANTEE. PROTECT YOUR PRIVACY! 👉 https://nordvpn.com/WolfOfAllStreets   ►►COINROUTES TRADE SPOT & DERIVATIVES ACROSS CEFI AND DEFI USING YOUR OWN ACCOUNTS WITH THIS ADVANCED ALGORITHMIC PLATFORM. SAVE TONS OF MONEY ON TRADING FEES LIKE THE PROS! 👉 http://bit.ly/3ZXeYKd  Follow Scott Melker: Twitter: https://twitter.com/scottmelker   Web: https://www.thewolfofallstreets.io   Spotify: https://spoti.fi/30N5FDe   Apple podcast: https://apple.co/3FASB2c   #Bitcoin #Crypto #MacroMonday The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

Data from China and Europe continues to get only worse. We're seeing Country Garden barely make their payment on the loans that are required. And we're seeing a lot of softening of all of the data there. What will that mean for the United States? Does it mean that we can see a breakout in the gold market? What does it mean for Bitcoin? And is the dollar finally about to break out to the upside? We have a lot to talk about here on Macro, Monday on a Tuesday. Let's go. What's up, everybody? I'm Scott Melker, also known as the Wolf of Wall Street. Before we get started, please subscribe to the channel and hit the like button. Yes, it's Macro Monday. On a Tuesday yesterday was Labor Day in the United States. And so all of us were pretending

not to work and pretending to be on vacation when in reality, we were probably all just looking at the news and trying to figure out what was going on with the markets. But without further ado, I'm going to bring on my three co-hosts, Dave, Mike, and James. Gentlemen, good morning. I hope that you all had a wonderful holiday. I missed working, to be honest. I woke up on Monday and I thought, I need to hear what these guys have to say to get my tone set for the week. So it was a good idea, I think, for us to run it back on Tuesday. I'm going to dive right in. Mike, is gold about to pump? That was the topic that we have here.

And the idea of that came from something that you wrote, obviously. So I'll just let you talk about why you think that gold could be potentially ready to break out. Yeah, so it's still one of my base cases. One of the best performing assets in the near term, couple of years is gold. The price you see in the screen in terms of dollars is 1933. I'd say 1933, because some of us remember that as the significant year ever for gold and assets. That's when basically President Franklin Delano Roosevelt devalued the dollar versus gold and it bottomed deflation and depression. It bottomed the stock market in terms of dollars and it ended deflation. Why? Because

we just devalued versus gold. But that price right now is the average price for the year and that's the highest average price ever. So I look at that as, okay, that might fit into that mantra you know I love and if it goes up, it's to keep going up well gold is appreciating and the bottom line is how you measure it versus fiat currencies if you measure the dollar versus a basket of fiat currencies the dollar basically goes up over time why there's nothing better if you measure gold in terms of any currency it almost always goes up over time because they're fiat currencies in particular the dollar and that's where bitcoin fits in bitcoin just a much more digital version so the thing that mentioned earlier, we want to talk about a little bit, I've been writing about China a lot. And that is, I view China as a, yeah, so there you see

that chart. That's a triple top. And the lessons I learned in the trading pits is triple tops are made to be broken. And a huge cup and handle. Yeah, however you want to look at it. And there's so many cool different ways to look at it. But it's just also, okay, those are technicals. Technicals can really rip you apart sometimes. It's the fundamental foundation behind it. It's very simple. That's gold measured in dollars.

We all know what happens over time. That's part of the reason for Bitcoin is there's an unlimited supply of dollars and there's a very limited supply of gold. Next question. So just a question when, how, and the key thing is the major competition for gold right now is 5.4% in T-bills. It's, you know, we haven't seen that in 20 years. The stock market is still going up. That's going to flip. Just a question of time. And that's when gold takes off. That's my view. But I like to tip that over to the macro. Now, that's gold.

If we want to tip a little bit into what we talked earlier about China, I'm good with that. But that's the basic for gold. It's also the basis for Bitcoin. The problem is, and I'll end with this, is Bitcoin has just gone up so far, so much, and the basis for it going up has reversed. And that is very low interest rates so the average interest rate for the last 10 years for most of go um bitcoin's existence from 2011 to 2021 was half a percent in u.s the most a lot of rest of the world it was negative now if i just look at this november fed funds future it's going to go up to 5.44%. Those are major headwinds.

Yeah. Can I ask you a question, Mike? Why is it that gold, which yields nothing, compared to 5% interest that you constantly talk about, is going to explode upward? Well, Bitcoin, which yields nothing, but is where it will go up, in your opinion. Why do you think gold goes up and Bitcoin goes down with the stock market, considering the investment theses? I think I know the answer, but I want it to be explicit. It is literally the knife edge where you and I disagree. Well, actually, we do agree in the longer term it's it's the essence of being a market person like i am when you look at the market you talk to clients and everybody you know everybody you speak to is bullish and the market's already gone up you have to be very careful that's why

so so that's i'm careful but but stop there for one second, because that's not true. I mean, you know, sentiment in Bitcoin is decidedly not bullish. You know, numerically, we're closer to fear than we are to greed. We see it. It's there. So let's just take that one and put it off to the side. I just I want to be very clear. I mean, you know, because what we've seen, we've seen it in 2008. We saw it extremely clearly. You and I remember that if in fact the stock markets go kaboom, it took gold three months at that time before gold bottomed after the stock markets went kaboom. And then it started going up.

Do you think it'll be different this time? So that typically, if we do have that kind of correction, gold went from a thousand in the beginning beginning of 2008 down to 700, 30% correction. And then it peaked at 1,900 in 2011. That could happen again. I fully expect that's the risk. The difference is, if you look at gold versus Bitcoin, it's compared to two. Bitcoin trades about three times the volatility of gold. So if gold drops 30%, Bitcoin is dropping 67% and 80%. Now, hopefully that won't happen in the near term. The key point is you basically need

some form of wealth destruction, I think. And that's happening in China. It's slow. It's been happening in some risk assets like Bitcoin. And it's been happening in the equity market. It's clearly happening in housing. And the question I keep pointing out and keep pointing out is these are somewhat bodies in motion. For one good positive reason, the number one reason should be for all risk assets is liquidity. Liquidity is still being taken away from the Fed. So now we get through this August period. We're going to September. We all know that the average price of Bitcoin in September since 2011 is down 6.5% in September. Now, of course, that includes some months that are down 26%. So if you exclude, I think I can check on my map and check that out. But it's that headwind that's overwhelming.

That's what I have to keep emphasizing is until we or unless we get this liquidity pump turned back on which just give you the two last significant bottoms in the stock market happened about a year and a half almost two years after the federal reserve started easing that was in 2009 they started easing 2007 and in 2002 they started easing 2001 bitcoin is the leading indicator in that space. And gold is the old guard technology that has been the store of value over time. So I always, when I measure like different commodities, some of them commodity people get upset with me when I point out, well, I'm glad you like this index and that index and energy and agriculture. But historically over time, they always underperform versus gold.

And this is what's happening now, I think, as we get towards this inflection point, that we're going to see this leading indicator, Bitcoin. It's basically fitting into my narrative, one of the biggest economic resets of our lifetimes, the last few months. If it continues this path, which I expect it will, to show that relative weakness, everything falls at lower. Now, if it can sustain above 30,000 and show some divergent strength versus a stock market that's not doing so well, maybe I'll change my tone. But it's still that mode that I'm concerned about is after we've had all this ETF stuff, and I just want to kind of end with this. This ETF stuff is things that we predicted five years ago. It's just getting there. I love when my colleagues dig into the weeds of this, James Seifert, Eric Balchunas.

But we discussed when we launched the Bloomberg Galaxy Crypto Index in 2018, the primary goal is to be tracked by ETFs. It's still not happening. We're just getting there with baby steps. And now we've seen that in the last few months. It might be happening sooner than later. But the thing is, you have to understand, as I think point out, is this thing called Bitcoin has been underperforming on a risk-adjusted basis for almost a couple of years now. To get that traditional money to go from equities to Bitcoin, to go from anything, it's got to at least show some signs of value at risk outperformance. And

it's not. I'm just pointing out the facts of money management. I think the only disagreement is whether Bitcoin then is going to be digital gold now or later, or whether it's a risk asset. I do want to point out one thing, Mike, because Eric Crown, who I've had on the show quite a few times, pointed out the quad witching, which I had literally never heard of, which is that basically on September 15th, you have this massive expiration, stock index futures, stock index options, stock options, and single stop future derivatives all at the same time. But he pointed out actually that all of that September downside that we've seen generally happens in this two weeks and basically flips at the quad

witching. I can't say whether that's true or not, but the down September narrative is actually more the first half of September and the back half of September, if you split those up, has not generally been bad. I just wanted to point that out. Look, I have to say one thing. Look, having spent way too long running quantitative trading operations and doing prop trading, I can tell you that we're using such a statistically insignificant data sample to, in fact, every single thing that Mike was saying is based off statistically insignificant data. I mean, literally. Bitcoin volatility, you're looking in the rear view mirror of an asset that trades like an option. And I've said this a bazillion times. The fact

is that underlying fundamentals and the way people do adoption will matter and means that future volatility will be different. I mean, look, I expect it to go up by 20x. So yeah, of course, I expect it to be volatile in the sense that if I expect it to go up by 20x, but looking backward to call it a bad risk adjusted asset is silly. The fact is, I saw a stat this morning, I think it is exactly exemplary. 85% of the days of Bitcoin's market action are down over the last decade. 15% are up. And yet, if you look at its absolute performance, it's the best performing asset on the planet in that period of time of any size. So let me follow up.

Its volatility is guaranteed to be the case. And in looking at that on a risk adjustment, VAR models are not built to value options. That's just simply put. I'm not saying there's no value to it. I'm saying that's why I want to finish, Mike, because there are two hugely important implications of where you're right, right? Number one, don't use fricking leverage when investing in a volatile asset,

because on a risk adjusted basis, you're going to get stopped every time. Well, not every time, but a large percentage of the times. So you're 100 percent right there. Second, diversification matters. It matters. I don't think any sane human being thinks that you invest grandma's retirement a hundred percent in an asset that is that volatile and so you're absolutely right it's about it's a small allocation for most portfolio asset allocators that we're talking about and obviously larger for professional funds who want exposure but it's different so in those two areas i totally agree with you okay now now so Okay. So I'm pointing out the known knowns of Bitcoin is what you just said. It has been the best

performing asset in the history of mankind. The problem is it's not a baby anymore. And it grew up during a very, an unprecedented period in history. I used to read a history of interest rates by Sidney Homer. I'm sure some of you might've heard that book going back thousands of years. We've never had a period like this. This is where it's significant. The point is, in the last few years, it has been showing the maturation that some of us completely expected. From the minute you launched futures, you started that cash and carry arbitrage. So for expecting, the key point is, that's what's happening now. Once it gets in the mainstream, that arbitrage kicks in and the

main arb right now the big macro trade is this gbtc versus shorting anything you can it's been working out great this year i fully expect that to continue but what it does is but what it does is it squashes the volatility we have to point that out as people getting in it now expecting the returns you saw in the past it's completely irrational for an asset now that can be arbed out. And it's still a lot more room for arbitrage. You're like, once you get rid of that discount in GBTC and all the futures, it's just a matter of time. And the point I like to point out is this volatility that is 2 to 3x gold in the stock market should drop to 1 and you actually should get towards that of gold

if we expect this to do what it's supposed to do, digital form of gold. And those two, three, four x years are gone. They're over. Partly because people are so involved now. It's just the way these assets work. And I remember pointing this out to an ETF provider who deliberately did not try to launch a futures ETF because he said they are. The futures are too wide. I'm like, that's what ETF does. It squashes everything down. And those days of that outperformance are just gone. It's just unless you expect the more participants not to make this asset more stable and in the mainstream.

That's my point. Bitcoin is a maturing adult now. And what you saw it doing in the football field when it was a kid is over. Now it's got to play adult. And it's becoming rapidly doing that. Here's the key thing I'll end with. Bitcoin volatility, we all point out, has dropped this year. But actually versus the stock market in gold, it's up.

Why? Because volatility, everything's collapsed, which shows complacency. Well, that part's true. I mean, I think we should get back to macro because I, you know, and some of the stuff I'd like James to talk about because we've been dominating it. But I will say that I will stick a line in the sand and say Bitcoin is at best a toddler. Forget being a high school student on the football. I was going to agree with that part.

Absolutely. At best, a toddler having fits. Yeah. Look, all you have to do is look at the history of money. I mean, I always come back to Voltaire. You know, paper money eventually returns to its intrinsic value, zero. And understand that, you know, we are in a period of time, we are in an experiment that started in 1971. You know, that is not a lot of time, we're in an experiment that started in 1971.

You know, that is not a lot of time in economic history, right, to understand where the fiat experiment will go. And we've seen a few really interesting things. We've seen gold do something that people probably didn't expect. They've seen it completely almost demonetize silver. Silver trades like an industrial metal now, not a monetary one. Didn't used to. Thousands of years of history, silver and gold traded together. silver. Silver trades like an industrial metal now, not a monetary one. Didn't used to. Thousands of years of history, silver and gold traded together. Gold-silver ratio has exploded. Okay. And it's for a reason. We've seen gold over this period of time, talk about unprecedented,

gold dramatically outperformed platinum. Look at the price of platinum compared to gold. Platinum is 30 times rarer, actually has industrial use, but because of its scarcity, decided not to use it in form of, and palladium got used instead. It replaced platinum, youcer and rarer. I mean, still, we have worlds where you see the gold, you know, you have the silver, the gold or the platinum standard, the platinum is higher, except for platinum is half the price of gold. Why? Gold is still considered a monetary metal. My thesis is Bitcoin will do the same thing to gold

that gold did to platinum and silver. And that has nothing to do with any of the other stuff. Well, I mean, okay, I partially agree with both of you. Mike, I don't think that Bitcoin has grown up. I think Bitcoin is still in its infant phases. You know, I mean, it's not even half a billion dollar asset. You know, I mean, half a trillion dollar asset. So when you look at that against gold and we start talking about asset allocations and large asset managers reallocating their portfolios, especially as

we come into a recessionary period, I don't care what Goldman says that there's only a 15% chance of a recession. I don't know what they're thinking, but onward. But when you start reallocating your portfolio, you've got huge swaths of cash that you've got to move around. Well, you know, gold is one of those buckets that you can draw from immediately to get liquidity. And many asset managers have large allocations to gold, you know. So whether it's paper or whether it's an actual physical gold. They do have that to reach into. And Bitcoin, they don't have. So Bitcoin, I agree with you, Mike.

It's the tip of the spear. It's still just a trading asset. And like Dave is saying, it trades like an option. When we start having a sharp downturn, I fully expect Bitcoin to rip lower. And if it's a V recovery because of Fed speak or because it's something that breaks and we have to have some sort of liquidity injected into the market, re-enter QE, I don't know. But I do expect it to be at the tip of the spear again. It's just

the way it's been. It's too small to act like an actual asset allocation yet. And it's going to take a little while. So that's my opinion. I do want to dig in, James. Listen, we were talking about this right before. I do want to dig into China and what's happening there because I think that it is worth discussing because it's all conjecture what will happen to Bitcoin if we see a collapse. But first, we have to see that collapse. So we have to talk about what could potentially make that happen, right? We've got Country Garden pays dollar bond interest within grace period, but barely with a penalty, right? And we already have people now the narrative coming out trying

to slow down means it may never overtake US economy forecast shows. Now, I was young, but this reminds me of when we thought Japan was going to take over everything and then they didn't. Maybe that's wrong. Maybe Michael, how about I talk about that after. But James, do you think, I just want your quick takes on what you think the meaning of this all in China is. Is it hyperbolic? Does it really affect us or is this really signs that something's coming? No, it's not hyperbolic at all. I mean, China has a real estate problem. We've already seen one major real estate company collapse. And this one, it's trading as if Country Garden is trading actually as if it's distressed already. It's trading like nine to 10 cents on the dollar, if I'm correct, Mike. And, you know,

I mean, it's fully expected to collapse unless the government comes in, the Chinese government comes in and gives enough stimulus to really shore up that market. And that amount of stimulus is going to be massive. The problem is, though, you've got China, you've got Japan all sitting on U.S. treasuries that they're trying to monetize and use those dollars. But the issue is that those treasuries they own, they're impaired. They're down 10, 20 percent from where they bought them. And so they have far fewer dollars than they expected when they do go to the market and sell those. It is a major problem.

And as the US dollar gets stronger, it's only worse. Right, because the interest payments become higher, obviously. So, right. So, Mike, I mean, what do you think? And when they go to sell their bonds, they're worth even less, right? I've enjoyed that narrative since I've been in the business. So what happens when so-and-so sells their U.S. bonds? And now the deepest market in the planet with rates well above inflation, why would you sell those?

And where are you going to put your money? Whatever those, what you sell, we're going to put that into Yuan bonds or even European bonds. It's just right now it's unstoppable. And to me, that's what's happening with China right now. It was way overdue for just normal reversion. It grew well too fast. We saw that happen in Japan. It has inklings of that.

It has inklings of the Soviet Union. When we peak, we grew up with that. It has inklings of the Soviet Union when we peak. We grew up with that. Every day I read what's happening in China is just what I read in Atlas Shrugged by Ayn Rand a couple decades ago. It's not China. It's one person. So that's why I had to put out that headline a little while ago, unlimited friendship versus ticking time bombs. So you know things like this, all they typically need is a trigger for reversion. We've had one of the best triggers, I think, in history. Two leaders, unlimited friendship, exactly the opposite of what Nixon tried to do when he used China to help us win the Cold War as a counterbalance to Soviet Union, and complete

agreement in both aisles of Congress in this country that GMTFO with China, get me the heck out. And the data is extraordinary. What's happening with US imports from Mexico, with reshoring, onshoring, it's just completely politically correct to do anything positive with China right now. And if you do, I say good luck, because you have to have a direct connection with Mr. Z because he drives everything. And the data is just normal, what you'd expect. And now you can dig into the nuances of each little what's going to collapse next or what's going to just mean revert next. But this is what all this has happened in history.

An economy grows too fast. And then, first of all, how far it's gone, what got it there, and what got it there is completely reversed. U.S., Europe, they just completely pissed off their best customers with this war. And it's still a hot war and a cold war at the same time. Four of my kids went to the University of Connecticut. And a little while ago, I had a chance to sit next to the president of the University of Connecticut. She said the problems we have had with Chinese students and nationals trying to steal data is shocking. And she couldn't say it publicly.

And I've had a problem 20 years ago to formally have one of our former employees who left the firm who was hacking into the NASA system. So this, to me, is just getting started. It's going to be as bad as the peak of Nikkei in 1989. And it still has not gone above that level. And that's where I cannot be so bullish. Any risk-ass, particularly Bitcoin, because most of the trading for this asset comes from Asia and China and that wealth creation that's just simply reverting.

So this to me is a macro big picture. The weeds of the property crisis, I let other people dig in. I read about it. But I'd like to end with one headline I read this morning from my colleague, Simon White. He's a macro strategist. The biggest threat to global liquidity is China. And he points out things I've been pointing out, how M1 and M2 money supply in China is completely dependent on the world is dependent on these.

And there's very little chance for them to rise. So here's my essence for my. Why is that, Mike? Can you explain that? Because I think the general impression is that China just started cutting. Yeah, exactly. Well, they're cutting. They're trying to provide liquidity. But what they're doing right now are trying to catch a falling knife. There's really not much they can do. There's a crisis of confidence internally. There's one person. Again, it's not China. It's one person.

What they can do is maybe Mr. Xi gets up in the morning and say, okay, sorry, the war was a bad idea. Putin, you're out. Let's have free elections. We're going to do democracy. Maybe I can be one of those people. And we're going to go for a free market, rest of the world, and open up our markets. Boom, that would do it. That's not going to happen, but that's what's somewhat needed here. It's just unstoppable at this juncture without something of a paradigm shift. So money's being taken away. It's imploding and there's nothing to stop it. And that's what I look at. Bitcoin is the leading indicator for everything. So that's part of my base case that this is the biggest economic reset of a lifetime,

but it's completely systematic, logical, normal based on the pump and liquidity. It's unprecedented. And then you take it away. All lessons of history show you that that's when markets go down. Now they've started, they've bounced a little bit of hope. And I do love this question when people say it's going to be a soft landing. I'm like, where in the world is there going to be a soft landing from this coordinated central bank hikes from all these central banks? They're still hiking. Oh yes, deflation's kicking in, unemployment's starting to go down. That's what always happens. The key question is, what stops these bodies in motion? Unemployment's starting to tick down. Monfarm payroll's starting to go down. People not hiring as much. Housing going down. The stock

market rolling over. The Fed's still hiking. They're just bodies in motion. They're not going to stop. It's going to take a lower plateau in risk assets, typically, before the Fed's going to start. And here's the key thing that'll happen the rest of our lifetimes. Anytime there's pressure for the Fed to ease, there'll be pressure, like Germany in the last 50 years that, oh, you can't ease because of inflation you created when you eased too much. What I want to know, James, before you talk is if Dave's going to return that chair because it's still got the tags hanging from it. Dave gave up.

He just gave up. He was like, yeah, you guys, I'm out of here. I'm out of here. I need more coffee. Yeah. You know what? I just read something about China has probably reached peak population here where they're going to lose 240 million workers in the next 30 years. I mean, so, you know, talking about China becoming the largest economy in the world, you know, and being

completely dominant, I think that ship has kind of sailed. And, you know, we don't have to talk about the one child policy and all that. They've made their they created this problem. And like Mike said, they've got, you know, it's one person. So, you know, I think I think with with regards to the United States, we just keep hearing over and over and over again that people talk about the labor market. So, you know, I was reading the Goldman opinion this morning about the, you know, 15% chance of a recession. And they're talking out of both sides of their mouth. They're like, the reason that we're going to have 15%, there's a 15% chance of a recession that we're lowering our likelihood of a recession is because we think the Fed is going to, they're going to take their foot off the brake. So because

the numbers came in kind of Goldilocks that, you know, the unemployment numbers came in a Goldilocks scenario. Yeah, right. Exactly. So, you know, I mean, it's, you're kind of talking on both sides of your mouth if you're saying that, well, unemployment is rising, employment is slowing, wages are rising slower than inflation, then the Fed can stop raising rates. I mean, this is all pointing to a recession. It's not as if the Fed is just going to, they're going to pivot and start lowering rates. We're going to start seeing the effects of raising 500 basis points over 18 months now with the lagging effects are coming. And so I just cannot believe that we're not going to hit the skids here at some point pretty quickly. And the unemployment rate doesn't, it doesn't just

tick up and then tick back down. That's not the way it works. You have a company that goes out of business, and we're seeing more and more bankruptcies every single day. We're seeing more and more bankruptcies. At some point, it topples over, and you get a large company that you suddenly have not just layoffs. They go bankrupt.

Those jobs are lost. It's 20, 30 thousand jobs lost at a time. And when that starts happening and then it affects everything, you know, every every single part of that supply chain gets affected. So it's not like when when yellow went out of business, right, when they when they go to reorder, they go chapter 11 and they just shut their doors. That can easily be absorbed by all the larger trucking companies. It's not that impactful, but it's a signal of that's the direction we're going.

And so I would expect unemployment to just tick up higher a little bit at a time until it just skyrockets. It's just reality. That's the way it works. I mean, is there the chance here? Okay. I think we all are in agreement what we think will happen. So let me ask this question. At what point would we be convinced that the Fed managed this, that there was a soft landing? Is there a line at which, because by the way, whatever that point is, that's when everything crashes. We all know, right? When the final bears capitulate, that's when we get the crash. But is there anything that, any data that we could see, any metric on the stock market, any line breaking a new all-time high on the stock market? Would any of these things say, oh, they did it?

Here's the facts of that, Scott. There's part of the lose-lose I view is, if you look back, I've gone back hundreds of years, is that every single stock time the stock market was down 20%, the Fed was starting to ease or easing. The only example is 1988, right after the stock market crashed, because on a 12-month basis, it had been up from that low. It's always the way it has happened. The Fed will ease when the stock market tells them to. It's the number one measure of risk and animal spirits on the planet. And if it goes down, everything falls. So that to me is what's the lose-lose right now. Powell's is in a poor place in history. He kept rates too low. I mean, we were going to die three years ago. Now we've got vaccines that are fine. And now he's raised them too much using it. And there's nothing good here if

you study any monetary cycles in history. So typically what it takes for them, the problem right now is there is no reason for the Fed to start cutting rates because their measures that they're really watching in personal consumption, expenditures, employment cost index around 4%, target of two, are very sticky and will lag and they will go zero in my view, but they're not going to cut until they start really declining, which means there's only one key thing

to make them stop raising rates anytime soon, or at least have the forward futures, which I see right now for November price at 5.43. And the rate right now is 5.33. For that to go down, you need the stock market to go down. There's a lose-lose.

And that's my views that Bitcoin's picking up on that. That makes sense. Dave, go ahead, Dave. I'll just let you go. I can see your face. You got something. I was with Mike up until the last sentence, and that tends to be the case every Monday. So without reprising why I don't agree with that,

I wanna go back to China versus Japan, because I think it's really, really important to understand something. And I am not so sanguine about this. I think the fact that China is on pace to within three years, I think, turn out double the number of STEM cell graduates at the United States, I think, turned out double the number of STEM cell graduates at the United States, STEM, you know, disciplined graduates in the United States is very, very different. Japan

rose to financial dominance on the back of a mature, smaller population, already matured population with Koretsu, i.e. cross-ownership and government control over the economy, and clearly topped out. The fundamentals in China are different. They have dramatically more people, and they have dramatically more of a passionate commitment to AI and technology, and Japan did not. Japan at that time was sending their best and their brightest to work in the United States as interns, et cetera, to try to learn stuff. China is actually trying to educate their best and brightest. That is different. I agree with you about Xi being in control, but his approach has been different. There's actually weirdly less bureaucracy in China than there is in the United

States for building new companies. The government wants that to happen. They take their cut. But it's like people compare. I mean, I often recount the fact that my grandfather was a bookie and managed to get out of the mob without extreme prejudice when he decided he did not think the point shaving scandal was going to happen. Now, why do I mention this? It's because back in those days, the neighborhoods in Brooklyn, where the mob existed in the Bronx, they paid protection money. Their protection money was lower than those same businesses are paying in city taxes and getting less protection today. The small business owner from that era, you know, what they thought of the actual organized crime syndicates in their area, and generally it was a favorable

thing. And you can't, and I know that sounds ridiculous, but it is true. The fact is, it is, when you start looking at tax rates, you start looking at government bureaucracy. I mean, this administration is adding more to the Federal Register than any in history, and not by a small amount. And that is a very, very big deal. And we're talking about global macro, and you're saying the US has divine right to being number one in the world. The answer is we would be, unless we continue to strangle business by regulation. I mean, I don't know if you love, we in crypto love to talk about the SEC. And Scott, you're all over that. Well, there's a great editorial in the journal this weekend about

what they're doing with private equity. Do you realize that they're about to, the SEC is, you think they care about the grayscale lawsuit relative to the fact that six private equity firms representing a $27 trillion market are saying the SEC has declared war on private investments. And I mentioned all this because it's not the SEC. Oh, it's a huge deal. That case is going to be crypto isn't even a footnote in what the SEC is about to get into in terms of courts. But why does this matter? Because we have regulations in every single federal agency, whether it's for environmental or pseudo-environmental science or whatever, doesn't matter. The fact is, is there's enormous amounts of regulatory red tape being added, which on a relative basis is actually worse here. So yeah, I mean, look,

there's a lot of power in American innovation. I agree with Mike and democracy is generally good, but democracy fails when the majority realizes they have the ability to vote themselves the wealth of the minority. That's a very famous quote, but it is certainly true. And the more polarized we are, and the more we're looking for a going down the barrel of a rematch of two people, neither one of which should be anywhere near the levers of power, you power. I'm not so sure that you're right about that. Now, all of that said, you and James are talking about the foolhardiness of soft landings. I mean, the only thing that's causing careening us towards a soft

landing is the fact that unlike past eras, fiscal policy and monetary policy are literally working at 100% cross purposes. We have a wildly accommodative and expansive fiscal policy at the same time as this, quote, liquidity reset you keep talking about. And you're not wrong in what you're saying. You're absolutely right, of course. But at the same time, every other time, you didn't have deficits that are just exploding upward. And what is a deficit? A deficit means we are literally employing more people by the federal government.

We are literally spending more money than we have by numbers that are just historically mind-boggling. And so, yeah, I mean, the monetary policy side, the liquidity side is absolutely right from a monetary point of view, but fiscal policy is not. Fiscal policy is the polar opposite. And that's Arthur Hayes' basic point. He's saying, well, fiscal policy is incredibly accommodative and rich people are taking advantage of that interest rates to have more money. And yeah, I mean, I think that we're getting towards, we're literally doing the exact thing that's causing the wealth inequality that the people who want to spend money use as a

justification for spending money. Arthur gave a great speech at Korean Blockchain Week yesterday, or the last couple of days, effectively outlining exactly that and how the interest rate relationship between Bitcoin interest rates is breaking down. I want to ask you guys something. I don't mean to put you on the spot, but while you were doing this, I was looking at the chart that I bring up quite often, which is black being the SPX, blue being yield inversion, yield curve, and red being Fed rates, right? So when they pivot. We've talked about the fact that usually we get a yield curve inversion, then a Fed pivot, then we see stocks

crash. And I kind of brought the point, what would give us an indication this time is different, the most famous words. I was looking at this while you guys were talking. And interestingly, in the last 40 years, the most we've ever seen, the longest time we've seen this yield curve inversion, 455 days. And by the way, most of the time it wasn't. Here, 333. Here, 423. We're currently at 458 days inverted. And the current yield curve inversion is lower than any of the previous times it's ever been inversion still after 458 days. We're at historic lows for the amount of inversion. Also, when I was looking at it, every time they've kind of raised rates, the stock market's actually gone up, right? The pivot's up. You would think that while

they were tightening, which is all of these on the way up, that the stock market would have gone down. But once again, it's when they pivot, the stock market generally crashes. And I just found that really interesting. Not something I had really paid attention to on this chart. You can see that every time they're hawkish and raising rates, the stock market is rising. So you showed part of my base case that in a very simplistic, rational expectation of history and its market cycles, the S&P 500 should go back to about 3000. Typically, they don't start hiking rates until, of course, inflation's there and the market's quite stable. 1994 was a good example. I was trading treasuries.

That's when I first came to New York and traded treasuries. That was a really good rate cycle that worked out well. It was part of that internet bubble and then it continued. It was fine. This one's so much different because it's on the back of decades of really low rates, low inflation that all was triggered and flipped with the biggest pump in liquidity ever. That's nothing. So what you show me there, Scott, is a very simplistic reason that the market is going to go back to around 3,000, which is from never.

I forget where you came was right where we were before this biggest pump in liquidity ever. And rates are still on the way up. By this point, the key thing is you look at those little circles there when they started the ease. They started the ease. You can see it right now, 2001, and the market didn't bottom until a year and a half later. They started easing in September 2007. The market didn't bottom until 2009 around March. So I don't know when it's going to bottom, but I'm confident that I think the S&P should go back to around 3,000. Now, if it doesn't, that would be wonderful. And if it does, that to me, it's part of the reason we're seeing Bitcoin start to underperform. By the end of this year, it should be more clear. Yes, it's been very delayed, but we've had things that have happened that have never been in any

textbooks ever. We're writing history now. Yeah, that's my point. When you look at this, I mean, this is the yield curve inversion. Now, when I look at this chart, and it's just a chart, but you can see why people keep kicking this recession down the road, right? And so obviously that makes people say there won't be one because there hasn't been one yet, but this yield curve has to eventually un-invert. It will, but it's what Dave said. It's what Dave said. It's just, remember, we've had midterm elections. It's what Dave said. We have this massive fiscal pump.

And part of the reason, of course, Biden need to get, you know, pump up for the midterms. And we've had this war, had to pump in money for that. But what's been the result of that? The Fed's, the key area, I've been wrong. I never thought the Fed would tighten this much. But now that they have, the rules of the effect of tightening will kick in. And if they don't, yeah, economics, the rules of economics has changed. But the one key thing I want to push back on what Dave said a little bit earlier, we have elections in this country.

We can completely, potentially, completely flip our government in a couple of years. And it usually happens because of what Jeff Booth says is everything we do is based on error correction. You don't have that in China. And there's no error correction unless he's taken out, unless Mr. Putin's taken out. Until that happens in this country, we can flip it on a switch and maybe in a few in this election, which is going to be a lot of fun. And that's part of this Great Depression, I think, kicking in, because if we have these two old guys running, most people say, just get me out. I mean, the thing is, regime change is a huge narrative, obviously, I think for crypto, right? Because we have the regulatory side and a less aggressive SEC. I think everyone's consensus. Would regime change change what's happening at the Fed, right? Or the Treasury? And I don't think this can be fixed by simply changing parties. Look, we've taken on another $1.5 trillion of debt over the summer.

I mean, we're at $33 trillion basically now. And at the same time, the Fed is drawing as much liquidity out of the reverse repo as they can. They're just issuing T-bills, T-bills, T-bills. They mature and they issue more. They're running this race and they're trying to draw out as much as they possibly can. But at some point, that stops. And at that point, they run into a liquidity issue in the treasury market. It's exactly what you guys are both saying, is that the two policies are fighting

each other. And at some point, it's going to break. One is going to win and we all lose, literally. And that's kind of where we're headed. That's the direction we're headed in. Yeah. I mean, I wish I, I, I could believe in the power of democracy for the next, uh, the next two years. Uh, I, I believe in the power of the democracy over the next 10, Mike, you and I are totally aligned on that. Uh, but I think that we are careening down a path of a lot, you know, effectively it, it, it looks, it's bad. I mean, I'm very concerned about it. I mean, you know, people have talked about like the grand bargain. If I would, you want me to flip completely bullish on everything, a grand bargain happens and the Republicans and Democrats decide we're

going to impeach both, pardon both, and neither one can let's and let's get a new election that that doesn't have that isn't being held hostage to cults of personality but it still doesn't matter you're going to continue to run deficits it doesn't matter yeah that's my point yeah change fiscal monetary policy i don't really think so you're just going to get the only way this country run deficits which are inflationary and you're going to continue to raise rates, which is. Yeah, exactly. There's an old expression. The only way out is through. At this point, there are two things that are baked in 1933 deflation you know you know in terms of inflation excuse me uh i mean what roosevelt did in 1933 if you started with this mike so i'm going to come back to it was yeah it was two things first it was the largest theft of assets from the american people uh ever ever i mean he literally stole in today's dollars trillions of dollars from americans

and just said okay this is not it's a one-time tax i'm going to take all your gold and i'm going to move it up by over i mean it was literally from 20 to 30 20 to 33 actually 30 yeah yeah so it was more it was like six he stole of their money, all of them from everyone who was holding gold. It was theft. And he did that to reflate the treasury. But of course, the deficit was so much smaller back then than it is today. I mean, not even close to the same size. So what the there just aren't those assets to steal. You could literally take seize the assets of all the billionaires in America and it still wouldn't plug the hole. Of course, that would become less productive,

et cetera, et cetera. So the only way out is through some massive inflationary event at the same time as we unleash the power of true markets to grow, which means, you know, dismantling the regulatory state of blind and sinker. And that is, I mean, look, it's early. I mean, Vivek is talking about it and others are talking about it. Trump actually talked about it. His two for one was probably people underrated. I mean, whatever you think of Trump as a human being, and I don't want to go down that rabbit hole. The fact is the thing he did, he did two great things in foreign policy, put some people in to do, you know, two amazing things in both Kosovo and the Abraham Accords, but more importantly, the two for one regulatory. People don't focus on the regulatory state,

but every single estimate from both right and left side think tanks, show trillions of dollars of breaks being put to the economy by what's going on in the regulatory state. And that's what has to happen. But at the same time, even there, I don't think there's enough growth that gets us out of the fact that we need at least a massive inflationary shock, which is because you're not paying back, you know, 200% debt to GDP. I mean, the example we have, and you used 200, Dave, add in the unfunded liabilities. Well, it's 130 without the unfunded liabilities, the most aggressively positive estimate I've seen is 200%. If you put in the unfunded liabilities based on means testing and all sorts of things that they're going to cut it down. But anyway, we look a lot like Japan.

What did Japan do? They've had three decades, four decades of managed yield curves in order to try to deal with their debt to GDP problem. And they've basically- Right. Now they own more government bonds than anybody else in the world. The Bank of Japan owns more JGBs than anybody. Right.

And won't the Fed own more U.S. treasuries than anybody coming down the road? Isn't that the inevitable path? Well, my point is that it's a manipulated market. And so that's what we're dealing with. And we're all sitting here talking about a market that we're all admitting is highly manipulated. It doesn't mean you're wrong, Mike. You're right. I mean, there are risk assets out there that are massively overvalued and don't understand anything of what you're saying. You're totally correct. There are traders who say, oh, you're old and you're wrong, Mike.

Oh, yeah. I love it. That's my favorite. Which one? That you're old or that you're wrong? Both. It's a package deal, James. I get both. I mean, I don't care. I mean, where we disagree is not a new paradigm. We disagree in a new asset class. I think Bitcoin is ultimately part of the solution. But it's so small. I agree. I don't see it as a leading indicator. And it's just too small for that but it has been it's so there's bar none and we all can agree and there's no more widely traded 24 7 asset on a global basis i've ever

seen that's no one's asset no one's no one's project no one's responsibility i mean i've never seen this i used to work in the trading pits and we'd have to shut down and have my customers would sue the exchange because they sat down because of a you know an act of god um but so that's my base case is japanification we have guidance for all this we have guidance for severe deflation let's look at the number one measure of heat electricity and fertilizer in this country it's dropped 90 80 from last year's peak naturally it's the same price as first traded in 1990. We create more with less every day. So this is my, you're fitting in, this is fitting in my base case.

We have had the biggest pump in inflation ever on the back of liquidity. It's going to revert, the history books are going to say, well, just revert it back to a normal deflationary liquidity dump. That's what we're in the early process of right now. Everything that is at risk goes down, which includes the best performing asset in the history of mankind, Bitcoin, unfortunately. And then it comes out ahead at some point when we have an FDR come in and say, okay, enough's enough. We're going to devalue or do something. To me, that's the trajectory right now with one big difference. I admit we have the deficit issue, but there's one major entity that will and can buy that debt, i.e. Bank of Japan in this country, the Fed.

It's happened before. The point is this is a normal cycle. Remember that great resignation? It's normal. Expect that to tilt over to a couple of years from now and say, oh, darn, my job was replaced by AI. I have to retool every job. And by the way, unemployment's just got a normal trajectory up from 3.5 towards six. It's what it's always done. But it's never been this case. We've had this much tightening on a

global coordinate basis ever. And the number one engine of economic money supply and demand pull on a global scale in the last 10 years, China is going down. It's just an unstoppable cycle. Well, this much leverage too, Mike. It's how levered the entire fiat system is. It's true. Just to follow up on that is I do love when people have been trading for 10 years, tell me I'm old and I'm great. I just remember respecting this old trade. It's like, yes, you have not seen a life when a true bear market, when you think it's over and it goes down, you've not seen life with zero interest rates. Go ahead, James.

Sorry. That's right. No, we're experiencing over 10 years of ZERP, right? Zero interest rate policy. And the young traders, they've never seen this. They've never witnessed leverage like long-term capital management blow up overnight. Literally just overnight. When interest rates go to a certain point, boom, and that's it. And that's contagion. And that's

where you have that kind of credit event that topples things. And that's what concerns me. So, Scott, when you say talk about, find a Goldilocks scenario where we actually do have some sort of soft landing, my issue with that is I think into the face of having so much leverage from the government all the way down, something will break. They're going to keep tightening our whole interest rates tight enough until it does. Now you're seeing in Europe, now Europe is talking about, well, do we have to start lowering rates because of their manufacturing data? Yet look at their inflation still, right? So what happens then?

If they start lowering rates and the dollar starts ripping against the euro, I mean, there's just scenarios for disaster everywhere. And just off the backside of what Dave was saying with the yen, you know, I mean, like there are just too many disaster scenarios for me to believe that we're just going to land that jetliner on the piano string. I just can't see it. You invoked the DXY talking about the dollar potentially ripping. I'm not saying that will or will not happen here.

But anyone who does care about technicals, it's actually for the first time this year shows looks like it could legitimately break the 50 MA here on the on the weekly which is showing strength and whether you count this little wick or not today it has just made the first higher high in this entire cycle down so anybody who viewed the uh bull the dollar to be an embarrassed trend you better be watching to see what happens throughout the week because the most expensive to short currency based on the planet is us dollar i mean good luck being embarrassed that one i mean the best of a bad bunch i mean you know there you go exactly that's our goal it's it's yeah it's the best of a bad bunch and it's it's important to understand that where our knife edge disagreement is is is I think Bitcoin is basically all the fundamentals of Bitcoin line up as it when the ETF is approved,

then money managers can do allocations. And I think then you will start to see gradually, it's not going to happen immediately. I mean, let's say people who meet, you know, Bitcoin traders are like, you know, are like animal spirits. But when you have 75% in long-term holdings, I mean, on the margin, you're right. You're going to get enough. I mean, we'll see it again. I mean, you know, it's going to be like the boy who cried wolf. I did that in my weekly recap a couple of weeks ago. You get the news, it's going to go up and they're going to look around and it's going

to be like Wile E. Coyote going out over the, you know, people aren't following me. Oops, boom down. And then, but the trend will keep moving. It'll be higher highs and higher lows. But, you know, look, things don't change overnight. Liquidity in reallocation doesn't happen overnight. And so, yeah, I mean, you know, there's obviously chances of pullbacks. There's obviously, you know, if there's a crash, gold, Bitcoin, everything will go down. I mean, if we do have

it, I just think that the chances of an asset crash when we have so much money being pushed into circulation by deficits being run by the entire Western world, I think we're overestimating that. I think that what we're seeing is actually, you mentioned Atlas Shrugged, we are seeing the death of the real economy and a hyper increase in financialization. And financialization means asset prices go up beyond productive capacity because there's no place else to put that money. That's absolutely fair. But in the meantime, when you do have all assets correlating to one, there will be a drawdown. And that's the, but it's, Mike said it, I think last week,

it's really difficult or impossible to time those things. So to your point, Dave, you know, as you see Bitcoin or you see gold come down opportunistically, you can add to those positions and just and just hope that you get the best, you know, average price that you can, but you're not going to time this V recovery because it has to be V. It has to be a V recovery a la 2020 March, April, right? No chance. I mean, Mike is pointing out structural issues that you both are, that are hugely important. I mean, this is not a prescription for a V, you know, bounce. This is a prescription

for a, uh-oh, we screwed the pooch here and we need to retool policy. Which is exactly what happened in the 70s, which Mike also talks about. It's very important i mean you start looking at at the top so you got me on that one day i mean seriously i mean you know go back to 70s when we were talking about windfall profit tax

just at the exact same time the oil companies uh you know were they had gotten us to the most part out of the energy crisis and they start talking about windfall profits and we haven't even talked about oil it's a did it hit 90 and somebody asked yeah i'm looking at cl but i'm seeing 87 23 yeah so saudi arabia and russia reiterated their cuts which is this is with the, who are their customers? Not the U S this helps the U S I mean, we're the best, we're the best big energy producer or net export. This hurts their customers who Saudi Arabia, China, this is so bad for the macro China. Let's talk about oil next week. I think that's a, we, we actually, Mike,

I know you love it and we haven't really touched on it and where it's going. We, we kind of passively keep saying commodities, crashing commodities, crashing, you know, but maybe we should actually dig into what that means one of these weeks. I think it would be really interesting for the audience. The comments over here are great. The candidness between Dave and Mike is so fun and to the core, absolutely love it. Yeah, I think the best part about this show is that we've all been around each other now long enough, even you, James, you know, obviously that nobody has any filter anymore, which is just beautiful. Well, one of the things I love is when someone says,

well, I've been doing this for 10 years. I look at him like, okay, well, you got to say 30 because the last 10 years will never be repeated in history. It's just such an aberration. Yeah. And to that point, that applies to, you know, I've been around a long time, but Bitcoin has not been around much longer than 10 years. So as much as I love applies to, you know, I've been around a long time, but Bitcoin has not been around much longer than 10 years. So as much as I love to say, you know, and it is my base cases, we all wake up at a year and go, oh, it's six months after the halving. Things are looking good. Right. That's my base case because it's happened.

We only have a couple of cycles to, you know, to look at it. And it will be volatile in between. It will be volatile in between. It will be volatile. Perfect. All will be volatile in between. It will be volatile. Perfect. All right. 10 Oh two. We did it.

All right. So guys, next we'll be back next Monday on the actual macro Monday, but there was nothing I was going to come up with for a Tuesday. That was going to be better than what we missed yesterday. So I'm glad we did this guys. Thank you so much for joining. Always a pleasure.

Everybody else. We will see you tomorrow morning at 9 a.m. Eastern Standard Time. Bye, guys.