The Wolf Of All Streets - Is The Dollar Dead? Macro Outlook For USD With Frances Coppola & Anna Wong | Macro Monday

Episode Date: July 17, 2023

Join Macro Monday with two special guests: Frances Coppola, from Coppola Comment, and Anna Wong, Bloomberg's LP Chief US Economist, who join my two other regular co-hosts: Mike McGlone, Senior Macro Strategist at Bloomberg Intelligence, and Dave Weisberger, Co-Founder and CEO at CoinRoutes.  Frances Coppola: https://twitter.com/Frances_Coppola Anna Wong: https://twitter.com/AnnaEconomist Mike McGlone: https://twitter.com/mikemcglone11 Dave Weisberger: https://twitter.com/daveweisberger1 ►►MELD MELD will bring to bear the full power of decentralized financial instruments to the masses. Banks are at the heart of the economy, MELD will become a new set of banking tools that are by the people and for the people. 👉 https://www.meld.fi/early-access-apply?source=crypto_banter ►►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  ►► JOIN THE FREE WOLF DEN NEWSLETTER, DELIVERED EVERY WEEK DAY! 👉https://thewolfden.substack.com/   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.

The dollar continues to fall off a cliff as markets continue to rise, leaving bears somewhat in disbelief. But in my experience, when you finally have that disbelief and you have the bulls celebrating and telling you that it's all over, that's usually the time to sell everything and batten down the hatches and hunker it. I have a feeling Mike McGlone might share that similar sentiment today. We've got amazing guests today. We've got Francis Coppola. We've got Anna Wald, who Mike McGlone mentions from his morning call almost every single week joining. And of course, Mike and Dave Weisberger. We're going to talk about everything that's happening with the dollar, with macro in general. And of course, since we have Francis here,

we're going to talk a bit about how the UK seems to be traveling its own path on inflation. You guys don't want to miss this one. Let's go. What is up, everybody? I'm Scott Melker, also known as the Wolf of All Streets. Before we get started started please subscribe to the channel and hit that like button since i don't want to uh keep us in suspense anna's a bit late and dave will be joining in about five or ten minutes but i'm gonna go ahead and bring on francis and mike and we're gonna just start chatting now francis i remember reading articles not so long ago that the dollar had reached parity with the euro and the pound and it was gonna be so cheap to go traveling in England. Then I went to England and it was like $1.25 per pound.

What happened? I thought it was getting cheap for us Americans over there. Well, a couple of things. For some reason, the power got stronger and the dollar got weaker and suddenly it wasn't the case anymore. For sure. But why are we seeing this absolute sort of slide by the dollar, specifically DXY of course everyone it's the dollar versus a basket of other currencies, not dollar weakness per se

but why do you think that we're seeing this massive breakdown in the dollar? If you even look at it technically it seems it's broken down from head and shoulders, it's been for about a year people calling for 90, 89 on the DXY. Well, I think there are two things. One is actually the Inflation Recovery Act or whatever it's called, that one, which is a lot of supply side stuff. But it's quite a big increase in government spending, really. So there are recurring worries about the American deficit and debt. And coupled with, I think, also, oddly enough, the fact that inflation is coming down.

And so the view is that the Fed is getting less likely to raise rates. The view is that it might do one or two more, and then that'll be it. So that would tend to weaken the dollar as well. That makes perfect sense. Anna, welcome. I sort of joke that Mike every week says, I just got off our morning call with Chief Economist Anna Wong, and this is what we said.

So it's glad that we can hear it in your own words. What do you make of the dollar slide that we're currently seeing? Well, the dollar slide is a function of US inflation data. And I think that the soft CPI print we saw last week is not a fluke. The next two months we'll likely see a similarly weak core CPI. Whereas I think the inflation problem in Europe and UK is of a different nature than the US. And I think in Europe, inflation has been, I mean, the central banks there have been more behind the curve. So I think the case for continuous dollar slide is good. So you think it'll continue down? Mike, what do you think? Mike showed up on vacation.

He was supposed to be gone for two weeks unplugging and we sucked him back in. So I'm glad we have you. Well, thanks for having me. I'm indifferent about the dollar. You look at the University of Dixie, which is mostly Europe, you look at the trade weighted broad dollar, it's basically in the middle of the range it's been in for the last five years. And as Ana mentioned, there's a good reason, I guess, for it to pull back a little bit. But the key thing to remember about the dollar, it's a broad measure of currencies. It only goes down after it goes up a lot. And it went up a lot into the massive Federal Reserve and fiscal stimulus and monetary stimulus

we had into that peak in 2021. Now it's coming back. I don't know how much lower it goes, but in terms of, I do enjoy when people equate it directly to Bitcoin. It's a small factor. And I think the actual price of Bitcoin now in the gold and copper, it's a much more significant factor, much more established commodities that are basically the inversion of the dollar. But Bitcoin, it's much more, okay, what's the supply demand issue and is there going to be an ETF from BlackRock? Yeah, I think Bitcoin has been somewhat uncorrelated if you look at any metric, even to the dollar, the inverse correlation that we saw. I mean, I think we had the sort

of decorrelation to the downside on the Coinbase and Binance news, and then right back up after the ETF news. So I think it's hard to draw, at this point, any conclusions until we see what happens with the ETF application. Frances, do you agree? Do you think that that's sort of what's going to drive that market from here on out, and the enforcement actions? Yeah, I mean, there's so much going on, isn't there?

So I agree with what point about ETFs actually, that that's kind of an ongoing thing and there will be people taking positions on that. There's also halvening next year potentially. We're already seeing people starting to talk about that. I do think that although the dollar doesn't make a great deal of difference to Bitcoin, the direction of interest rates does. I think the fact that Fed interest rates may be going to pause may make a difference. I thought we just paused. Well, you did pause, but you had a pause and then you didn't have a pause. I joke because we've had the pause is not a pivot. The pause is not a pivot stance here in arguments over and over and over again,

and clearly they have not pivoted yet, right? But there is a growing view that the Fed is going to pivot pretty soon, and that, I think, would affect Bitcoin. Mike, you don't think so? Well, let's start with market expectations expectations you look at the um wirp function on the bloomberg terminal says 92 that they're going to raise another hike in on july 26 and they're going to keep raising and we're not going to get a cut until march now this is what a lot of economists think but it doesn't matter so much when the market's already priced for it so

i look at it still simply a fact is the market, the Fed is still taking away liquidity and most risk assets are expensive, completely expecting this soft landing. And the whole narrative is termed that, oh, we're not going to get a recession. The Fed's still tightening. Everything's okay. I look at this as one of the most offside markets in history and the risk reward is just not good and so if my scenario kicks in which i still think it's going to with uh we'll let anna come on on comment on this you get the

normal risk reciprocity from all this tightening and it shows up in the economy but in a delayed reaction bitcoin should want to be the first ones to show it so right now the fed is still going to keep tightening and what's going to keep them tightening? The stock market keeps going up. It's still that same issue, which is a problem. Then I overlook over Bitcoin is, yes, I'd love to be bullish Bitcoin. But if you look at that price right now at $30,000, the first time it traded $30,000 was right at the end of 2020, right at the beginning of 2021. And so it's unchanged so it's unchanged. The NASDAQ over the same period, it's up 20%. Yet the volatility in NASDAQ is half that of Bitcoin. So right now, yeah, Bitcoin is great.

It's got all this ETF coming on. We have the hopium for the ETF. But if the actual performance versus the NASDAQ, which has got AI and everything going for it, I look at it as I'm disappointed. And I think it's still the problem is I sense so much bullishness, yet the macro is very unfavorable. The Fed is still taking away the punch bowl.

You're muted, Scott. I just wanted you guys to see how good your lip reading was. Do we think that the next two heights then are priced in? 0.25, 0.25, pause, and we're done? Because if that's all that happens, it seems that's the expectation. So that inherently make things worse. Ana, what do you think?

What's priced in is just one more rate hike in July. And I think, yeah, the market's thinking one and done. And the next move after July would be a cut, as Mike said, in 2024, around March. But I think, you know, I see a discrepancy between the stocks market and the bonds market and the inflation swaps market. Basically, the inflation swaps market is seeing that there will be a steep decline of inflation consistent with these Fed futures pricing that the Fed should be about done. But the stocks market is basically assuming that the economy will be growing robustly in 2024, and that kind of growth is actually inconsistent with...

Because, you know, stock market is priced on nominal growth, right? Nominal growth is a function of inflation. And if inflation is indeed going down to the level that the swaps market are pricing, which is about two-ish next in 2024, then the nominal income for firms should be continuing to be marching down, even if the volume is stable. And so I think the stock market inadvertently is pricing in for firms to maintain that pricing power and that margins there, which is inconsistent with inflation

retarding to 2%, I guess. So there's a big discrepancy. Somebody must be right, but it's not both of them. And it seems like we have an even split on people's opinions on that very matter. I don't know that I can remember a time where I have seen half the market seem so overly bearish and half the market thinking so overly bearish and half

the market thinking that we're raging into a new bull market. It seems completely split. So hard to determine who's possibly going to win that battle, to your point. But it is very inconsistent. I mean, Frances, do you think that we're in a new bull market here? Or do you think that this is just yet another big dead bounce and things are gonna normalize again soon I honestly think we're going to go in we're going to be in for a period of stagnation to be honest because I don't think we as you say we've got a fair degree of inconsistency and things pulling in different directions here and for me that means stagnation possibly

for an extended period of time. Not least because although America might recover, and America can be a pretty closed economy, so America might do better. It's not alone in the world and there's a lot of headwinds in the world. And let's talk about the UK because as I mentioned in the beginning and as we've talked about, inflation seems to continue to be extremely sticky, if not rising in the uk while everywhere where else it seems to be somewhat falling off a cliff yeah um i i have to say that the uk's troubles are um to a considerable extent of our own making and that's why it's an outlier um that we have an extremely tight labor market and that's because of the enormous restrictions you put in place on immigration. Interestingly, skilled migration is actually higher than it was

before Brexit, but it's actually still somehow not enough. We've got enormous pressures in all sorts of places. We also have a problem with managed prices, so particularly our energy market, where although energy prices have been falling, that hasn't yet fed through into what households are paying. We've still got inflation even though the underlying cause of it is actually falling in price. That's to do with the way that our energy market or the managed prices in our energy market work. But apart from that, it is quite hard to see. My personal view also is that another reason why inflation is sticky in the UK,

despite the Bank of England's interventions, is that actually quite a high proportion of the population is insulated from them. So when we look at the housing market, which would normally be the principal mechanism, is that actually quite a high proportion of the population is insulated from them. So when we look at the housing market, which would normally be the principal mechanism, the transmission mechanism for the Bank of England's interest rate rises would be thrown into mortgage rate increases. We're seeing like 70% of the housing market doesn't have a mortgage. They're not touched. And they won't be touched until their houses start to fall in value.

And that starts to affect their plans for retirement and things like that, because these are mainly older people. And it's a little bit of a double-edged sword, because interest rate rises. I mean, these people are squeezed on their fixed incomes. But then if the Bank of England is raising interest rates, then that's mitigated the risk as well. So there's a lot of moving parts to this. I actually think that this structure of the UK So there's a lot of moving parts to this. I actually think

this structure of the UK housing market has a lot to do with this. That makes a lot of sense. So Anna, I want to ask you, is it Anna or Anna first of all? Because I... Anna or Anna? Anna. Okay. Anna. Good. Because I don't want to butcher your name back and forth and just guess. So, Anna, I actually saw a recent interview with you where you were talking about real estate and how it was somewhat of a canary in the coal mine for what's likely to come. So I would imagine that you're not on the everything's great bull market side of things right now. No, I'm not. And the theme of what we just discussed is that everything is very confusing.

It's very evident. It's mixed between bull versus is it going down the drain? And with the housing market, I can see why optimists are saying it's, you know, it's bottomed. You know, clearly housing permits are going up. It's very striking. New housing permits are going up. It was very striking. New home sales are going up. Well, but we saw that coming. I mean, we have this model that can estimate the pent up demand of housing units. And, you know, since 2008, because of tighter housing credit, and it's for both the builders and also for a household.

There has been a building up a, you know, multimillion backlog of housing demand among people, you know, in my age group. And so the moment that that's one reason why housing demand is so resilient right now, and particularly in the last two years, there's been so much shortages in construction supplies that a lot of housing projects is taking longer time to complete. And here lies a little analogy with China,

which is, you know, go to China, there's a lot of ghost towns, right? And ghost towns is not really a problem with American real estate. But I think that one potential problem in the housing market is that a lot of these places where we see still booming housing prices, because in the past six months, the places that have seen a deep drop in housing prices are places, major cities like San Francisco, Los Angeles and and Boston, these first-tier cities, where traditionally housing supply is very inelastic, whereas places like Arizona, Texas,

all these places with very elastic housing supply, where these houses are ready to be completed in the next, there's a pipeline of housing coming up, but we still haven't seen that there yet. On top of that, a lot of Airbnbs have popped up during the pandemic. And those places also are located in these cities, which tend to be second tier and third tier. And we saw in the Fed Facebook last week, a lot of mention of declining domestic tourism these second-tier cities in the U.S. All these American tourists are going abroad to Europe, right?

However, $1 spent on international tourism versus $1 spent on domestic tourism has different economic impact. I would say the positive feedback from the domestic economy is smaller because you will have less money know money going to short-term rentals market less money going to small businesses in these second-tier uh u.s uh uh communities and that's why we're seeing simultaneously as in significant increase in small business bankruptcies and also you know uh uh going uh short-term rentals you know going down in double digits in a lot of these third-tier markets. So I think that there's a potential for a second round of correction in the housing market.

Interestingly, there's a lot to unpack there. But anecdotally, as an American traveling, I'm often checking prices on things. And it is out of control how expensive it is to fly from the United States to other countries, but every single flight is completely full. And I'm getting this feeling that Americans are having their last hurrah before they think doom is coming. Maybe I'm wrong, but it feels like people are blowing out the last of their credit cards, the last of their savings, this one last great summer before they once again batten down the hatches and tighten up in this incoming recession is going to

be here. Dave, you haven't been able to ring in for a while, but I mean, the flight prices are literally out of control. 5X it feels like what they were a year or two ago. Yeah. Half our team is traveling through Europe this summer to various crypto conferences. And the flights are, I mean, going directly to London from Miami or New York is literally insane compared to where it was. Spain is still a little bit cheaper. But not cheaper than it used to be, more expensive than it used to be. But there is clear huge demand. But there's one point on housing I wanted to make, which is when you talk about first and second and third tier cities, I laugh because having visited New York recently,

having lived there for well over a decade, and now I live in Miami, first tier maybe in terms of number of human beings, but first tier in terms of lifestyle, it's not even remotely close. We made no valuations on quality i know but the objective thing thing is there's one impact that you didn't mention which really matters particularly in miami and in austin and in phoenix and all the places to quote your your colleague mr mlone, the fastest rise in interest rates in history means you have a ton of locked supply because people such as myself with a 30-year fixed mortgage are not

selling come hell or high water. And so the supply side of housing is limited to new construction. I mean, obviously, it's actually on a curve and it's not quite so black and white, but that is huge. And there's an enormous amount of supply that is not on the market that people might otherwise have sold but will instead rent profitably, I might add because I'm going to pay that much more and I can't get my money out in a reasonable way. And so that combined with supply constraints on building is very real. And so I learned my economics professors basically taught supply and demand is the most important thing in determining price. So if people want to know why prices aren't dropping in the quote, second and third tier cities, it's because of that. The supply just isn't there. Isn't the real story commercial real estate though?

Well, I think everybody's been talking about residential real estate in the regional banks and why that is probably the single factor in the economy that makes me closest towards you and Mr. McGloom over there in terms of recession. Actually, in my case, I think it's the Fed will bail them out. Some actually makes me more bullish. But I'm curious, what do you see as the commercial real estate black hole and what's going on with that? Because that, I think, is a very big deal. Yeah. You know, Dave, I totally see the reason that you pointed out. Existing home sales supply is limited because people want to hold on to the real estate. But I think the channel where I'm talking about that could possibly boost the supply of existing home sales.

And this is where the short-term rental market comes in. It's that, you know, as the labor market softens and people are suddenly now called back to the office, a lot of these commercial real estate issues stems from the working from home phenomenon and particularly in big cities, but actually, you could also see it in small cities. And as people go back to the urban office, there should be less. The housing prices in these second and third tier cities will start seeing some loosening because people who thought they could live, you know, 100 miles away from the actual office now have to sell their houses. And then their, you know, Airbnb rental is not breaking even. And then the commercial, you know, small businesses are, you know,

also could not handle the rental increases. I'm seeing this in these second tier, third tier cities away from urban centers. And these are places where home prices have significantly risen, like almost by 60 percent in the last two years. And this is where I see the second second wave of residential housing correction happening. in commercial real estate in these places because the migration out of people from these small towns are also creating pressure on the commercial real estate. Whereas in the urban cities,

the commercial real estate, as this labor market softened, I could see over a longer term horizon, this problem would be less so just because people have to come back to the office and there will be you know a supply and demand adjustment on that francis i'm curious sorry scott i'm playing your your job now but i'm curious francis do it all day please it's much easier for me i'm really

curious i mean i i violently disagree with that i don't have any power to bring people back into the office uh i mean they do have power to bring people back into the office. I mean, they do have power to bring people to the office where they, where commuting is, is, uh, is confident, you know, is, is reasonable. Um, but I'm curious in the UK, you know, how, what is the percentage of people coming back to the office from people as opposed to here. I mean, here, basically, there was an initial move back to like 50%, 45%, and it kind of stalled. I'm curious, what's it doing over there? Yeah, I think it's not about what percentage of people

come back to the office. It's about what percentage of people's working time they're spending in the office. So what I'm seeing is a lot of people now moving to spending, say, three days in the office and two at home, that kind of thing, and a lot of employers actually actively recruiting for people who want to work like that.

So you'll see job adverts which will be called hybrid or some of them will be called remote and those will be fully out of the office. But a lot of them are called hybrid and that means part in the office and part not. And so because of that, in theory, the demand for commercial real estate should fall, but it has fallen already. So I'm not sure how much further it's got to fall. Because in the end, if people are in the office part of the time, there's only so much hot desking you can do, actually. So in theory, you need less space. In practice, how are you going to play this? It's actually quite a logistical challenge for employers. A lot of people work like that, I think.

Yeah, how can someone afford to own an office building or to rent office space if their employees are going to only be there half the time? Exactly. I think I saw that in San Francisco, they're from almost a 40% vacancy in commercial real estate. I mean, it's becoming a massive, massive problem. I know maybe that's like insular and specific to there. That has to be a leading indicator. I mean, Mike, what do you think? Well, first of all, I appreciate that word. Did you say hot desking, Frances?

Yeah. That's a cool word. Sorry, I hadn't heard that. I guess you could show me. That's been doing the rounds in kind of banking and finance and consultancy circles for a good many years now. Yeah. I admit that one. I appreciate it. I mentioned things like to gold people about boomer rocks. I was surprised they didn't hear that. That's a crypto term.

But one thing that this discussion really brought me up is I had to bring up some charts and things I've been focusing on for a while. And that's, first of all, let's start with U.S. new homes under construction. It's the highest ever, ever. I go back to 1969 on this one, and the chart looks just like it did in 2006, 2007. It double topped and then collapsed. The big difference was back then as the Fed started easing in September, 2007. Big difference. And also we have this massive spike in interest rates. Yes, we're phasing up the sell side for people who do not want to sell their home and refinance at a higher rate, but since when is seizing up a market good for it? And another chart it may

even bring up is we look at producer price indexes, year over year measure. It's at minus 3%. It's only happened three times in history since 1949. This is the finished goods measure. And it's at minus 3%. It's only happened three times in history since 1949. This is the finished goods measure. And it's never happened with the Fed funds rates still rising at, I'm just using a three-month bill at 5.28% at the moment. This has never happened before. I look at it as, okay, maybe the whole rules of all the lessons of economics and liquidity and cycles are no longer accurate, which is what I've been doing on my vacation. I've been really enjoying reading and relearning all this financial history stuff I forget

on a daily basis. Those are accidents just waiting to happen. Now, PPI at minus 3% is probably bottoming soon. But the fact that the Fed is still tight in the environment, now we see China, every single piece of data out of China is disappointment. That's a train wreck just getting started. So I look at this as this is the macro, I'm an impatient person and the market's testing my impatience, but these things take a while. A lot of people point to that China data that you mentioned and say that that means they're going to pump liquidity and therefore that's bullish. They have to. That's the point is,

they have to, but let's look at the facts. They started dropping the required reserve rate about a decade ago. It's been dropping ever since. They've been pumping liquidity forever. Now, we have a housing crisis kicking in and unemployment. And on a nose, we hear from my colleagues who are based there, they have to be careful because this is a situation now that you can't put your name into an article on China if you don't want to risk imprisonment. And that's just the way,

that's the fact. So we're at that stage now. It looks to me, China to me is a combination of peak Japan and peak Soviet Union about three decades ago. It's all tilting that way. The question I ask is what changes this current trajectory of disappointment? They have to stimulate, yet they know they can't stimulate much anymore. I hear the local entities are so over-indebted, they have issues. And of course, the housing crisis looks like it's just getting started.

Does it make it so interesting, though, that we only talk about the United States in general? Everybody talks about our tightening cycles. It seems like the size of the Chinese economy, what Francis is pointing out in the UK, are we just really, really egotistical and self-focused? Or is what happens in the US with the Fed really driving everything everywhere? everywhere. We need to see, just one thing, we need to see Hank Francis down in this book. One thing about being a commodity guy, it's the macro that matters. I love hearing the data in the morning about UK and England, but it doesn't really matter for commodities. It's the macro. And then here, I'll ask this one question of our group and every panelist. If the US doesn't matter anymore, just watch what happens with the Fed and every single

central bank in the world trying to catch up. Every currency is pegged to the dollar and it's just been what's proved lately with the Fed and every single central bank in the world trying to catch up. Every currency is pegged to the dollar. And it's just been what's proved lately with the Fed's rate hike cycle. Live before I joined Bloomberg, I actually covered China for FedRoser. And what's interesting to me is that in the past decade, every time there were twice when the Fed wants to hike but couldn't hike, and that was because of China. That was in 2015, 2016, when there was a China hard lending fear. And there was 2017 and 2018, around when China was going on the leveraging campaign, which pushed down, you know, commodity prices and led to a European slowdown. And every time that those two, you know, cycles started,

when China started weakening, there's this denial of economists. China's impact could not be that big. And coming from a trade background economist, economics background, I can see why, because, PhD economists, including myself, look at direct trade relationship with China, and you just cannot find a smoking gun. And you kind of have to rely on sort of like an intuitive second round effect, something that's hard for economists to pin down. But I can say as an observer that in the past decade, the two times where the Fed failed to left off was because of a harder than expected China slowdown. Frances?

Yeah, I think this is right. That actually the impact of China, we're tending to ignore it. There is a tune that everything is kind of the US pulls the strings and everybody dances. But I think increasingly that's not the case. There's a lot of China pulls the strings and everybody dances going on as well. And quite a bit, I think, of tension between the two

from a policymaking perspective from that point of view. I also wouldn't discount the impact of the Eurozone as a whole simply because of its historically extremely tight fiscal position which does tend to suck demand

out of everywhere to have perverse effects on everywhere else. So I wouldn't ignore that either. I do agree that the UK, having separated itself from Europe, is of much less significance globally than it used to be, which is a mess with some sadness. It does.

I forget, Anna, that you worked at the Fed. You just mentioned that. So I get to ask you the question, is the Fed doing a good job? Are we going to get a soft landing? Have they managed to thread this needle? I just want your opinion on a policy throughout this entire... I mean, I think we know that they over loosened on the way up. I think we can all agree on that. Do you think that they're going to be able to engineer this soft landing? No, I think the jury is still out. I'm on the more pessimistic side in terms of what is needed to bring inflation down. I think ultimately a recession will be needed. I see, like Francis, I see that the most likely scenario is some kind of stagflation-lite situation going into next year.

Yeah, I'm not... So given that I'm not very optimistic about the next year, I would say the Fed has done just a so-so job here. That's a... But I agree with everyone. Dude, what do you think?

I mean, I think the Fed has been trapped. I think, you know, when someone is trapped, it's kind of hard to see, you know, what they could do. Given the situation, they've done a phenomenal job because if you think about it, what do they want? And no one's mentioned it, so I'll start with it. What they want is to manage the yield curve without the appearance of managing the yield curve. They want to keep the long end downs for income of finance and deficit.

And that's a big deal. And they've managed to do that. And no one thinks they're actually manipulating it. The entire world says, oh, well, the yield curve is inverted. Therefore, we're going to recession. And, you know, I've been thinking for a very long time because I'm saying it every week. Every time I say it, he shakes his head. And that's OK.

We disagree that the Fed is managing the yield curve. And that's why it is the way it is, because when someone wants something and that something happens and they have the tools at their disposal to do it, to me, it's Occam's razor. It's a simple solution is usually right. And so the yield curve, I think, may very well be signaling something. But what it's signaling is the Fed is controlling it. And in that regard, they're doing a really good job in the sense of inflation has come down. The government isn't giving money away like candy to people yet. I mean, mostly because the courts have been blocking it, but at the end of the day, they're still trying. And the fact is, you're right. I mean, Mike has pointed out PPI going negative. He called it, well, actually, Anna, you called it. I mean, Mike has pointed out PPI going negative. He called it, well, actually, Anna, you called it, and Mike gave you credit, so let's be right. But he called it in January that the PPI would be negative by July, and here we are. And it's been talking about the CPI going down faster than people expect and the Fed being behind the curve.

And that all very well may be true. But the truth of the matter is, I think they've been doing a really good job in managing the yield curve. And that's probably been what they've needed to do. Yeah, but how does that end? Well, I mean, look, I look at it as risk assets writ large are overpriced. And we'll probably correct. The one point that I will make about where I disagree with Mike rather significantly is Bitcoin is an option. And he said that the market is the most offside in history. And I think overall, that's probably true in terms of divergences between the bond market and the stock market and every measure metric of the stock market. And, you know, when you need a story that is an unverified story

that is years out from contributing to, you know, value stocks, I mean, NVIDIA, you know, you've seen this before, it usually ends poorly. But I will also say that the single most asymmetric return compared to likely probability

that I have ever seen in 40 years as Bitcoin. And every metric on Bitcoin right now, if you do on-chain metric, adoption metrics is signaling the biggest divergence in Bitcoin's history. It doesn't matter whether you look at current addresses or holding periods or whatever, or hash rate, every single one of them is monotonically going up into the right. Meanwhile, we're nowhere close to the all-time high, yet every single adoption metric is at the all-time high. Now, the fact of the matter is, my bull case for Bitcoin is that Bitcoin is an option. It is literally an option. When you look at Bitcoin's value, it is either going to be 20X or more where we are today.

That's 20X. That's more than an order of magnitude higher based upon it demonetizing gold the way gold demonetized silver. And we've talked about this ad infinitum, and all the metrics are saying that that is a coiled spring. And yes, it's been trading like a risk asset. Of course it is. It's an option. And so what is really interesting is the number of liquidations and the amount of leverage in the system is not even, it's a fraction of what it was last year. I think it's a tenth the amount of liquidation per $500 or $1,000 move that we were seeing a year ago during the Luna started, you know, at, you know, cascade down. And so to me, I think that, you know, we keep talking about it, look at the, at the margin, the speculators drive the price, but what happens every time in this rally,

when the price gets ahead of itself, it goes up the speculators look around. It's like Wiley coyote, you know, having gone out having gone out over the proverbial cliff. There's a big pile of dust around his feet. He looks down. There is nobody. Boom, back down to the trend line because the actual buyers are more patient and aren't following him. And that will be the case until such a time as there is a supply imbalance.

And a supply imbalance could be created by an ETF approval, could be created by a lot of things. It's a very small market and yeah of course risk assets will dump if everything else dumps but i do think that bitcoin is different uh and i do think that there's an ai narrative emerging both for bitcoin and for a lot of crypto and that hasn't really happened yet so yeah i i look at this very differently i am am bullish on Bitcoin. I am bullish on certain crypto. I am massively bearish on a lot of the use cases in crypto that aren't real. And you and I have said this many times, Scott, 95% plus. Cartoon pictures are real, Dave.

I, yeah, I am a huge seller of the value that people place on stuff. And I think that people in the NFT world are caught in the classic bear trap, value trap. It's like, oh, well, it's so much cheaper than it used to be. Well, hey, I mean, we've seen this story before. So it's a very balanced narrative. I mean, I do see, I agree with Mike and Anna about a lot of the speculative parts of the stock market, but it is worth pointing out that interest rates, despite the rate of change, interest rates are still somewhere on the low end of historical averages.

They're certainly in the range of historical averages. They're not really high. And that's kind of important as well. Okay. Well, now that you've talked about Bitcoin, I think that we've litigated this to death amongst yourself, me, and Mike. Francis, I've been working on you, I feel like, for months here. And each time we get a little closer to you becoming a Bitcoin maxi. So I got to know what you think about Bitcoin in context of what's happening now. And then we're going to ask Anna too.

So you're going to have to have an opinion, Anna, on Bitcoin. I'm sorry. Okay. So Dave is incredibly bullish on Bitcoin. I'm very much in wait and see mode myself because I think that. I'll take that. Yeah. By the way, Frances, to be clear,

I am bullish in the long term. It is not a trading call. I think that there are rocky shoals this fall coming for the entire market and nothing's going to be immune if I'm right. And obviously, it's true. So I want to be really clear. I just... What's where we completely agree?

Not completely agree with that. Everyone. Sorry. I just want to make your... Go ahead, Francis. Everyone. Sorry. I just want to make your point. Go ahead, Francis. This is real. As Scott, you've read my work over a long time now, and you know about my views on the very long-term prospects for Bitcoin,

which are that it will eventually become obsolete because it will get overtaken by better technologies. And that is what happens to technology, and Bitcoin is technology. It's no reason why it should be different. Although it trades like a commodity and it's treated like a commodity for regulatory purposes, it's not a thing like gold. It's not something that is going to remain unchanged over time. It's a technology and the technology changes. So that's my long-term view of Bitcoin. But I think what will happen is that what we call Bitcoin will also change over time. And so it will end up being, oh, Bitcoin's on a bull run and Bitcoin

over the very long term is totally investable. But what you're investing in, what Bitcoin in 50 years will look like it's very different. Is that like a paper era are we talking about an ETF that's paper Bitcoin I mean is that sort of what you're alluding to you're saying that the technology in some way evolved it'll be some yeah. No no not necessarily I'm actually talking about the technology itself not about the not about derivatives of it I mean an ETF is and that's not really what I'm talking about I agree that it is easier for people to invest in this.

If you have ETFs and things like that, then you will get greater adoption, and that will send people to push the price up. We aren't there yet. There's a huge mound of litigation to go through before we get there. The SEC has just announced a public, not inquiry, consultation on Bitcoin.

Yeah, absolutely. So we've got a long way to go on this yet. Anna, where do you stand on Bitcoin? I usually don't spend much time during my day job thinking about Bitcoin, but as an economist, I would see it as one of the most as one of the riskiest risk assets. And in a macroeconomic environment where the Fed is likely to hold higher or longer, and you can't make 5% interest rate per year on just a very safe asset like CDs or money market funds, the competition for taking risk for something like holding Bitcoin,

there's more competition. I don't see how a risky asset could outperform. And particularly if Francis and my vision of the stagflation outlook plays out, then I just don't see how it would um you know it would be out for me i think that's fair i think that's fair uh today i i tend to disagree but i think that that's fair and i know dave tends to disagree as well because france obviously i believe that it's here to stay and it is more like a digital gold but the good news is that for all of us i guess history will prove is right or wrong and it doesn't really matter for now. It seemed that there's a pretty good consensus amongst the panel that we're all in the gloom a little bit for the fall for all of these assets, right, Mike?

You said that's the one thing we all agree on. Well, we all agree. It's about the best if we disagree and talk about it and let our audience decide. But there's a lot of things that everybody said I think we can all put together. I definitely agree with Dave about the optionality of Bitcoin and digital gold. And remember, I made the call for 100,000 Bitcoin when it was trading below 20. And we got that in Ethereum. And then, of course, what happened with China. And I still stick with that long term. But I think it's more likely to drop 50% and

get down to 20%, even make a new low before it goes on that trajectory, particularly when I see things like, well, I can get five and a quarter in a T-bill, done. I look at the Case-Shiller index, the housing index. It just was almost at the highest ever right before, like 2006, up 20%. Now it's down 1%. That's collapsing. I look at the Fed still tightening. And the last thing that always usually falls is the stock market. Just look at your history. I remember

2006 and 2007 was tough, just like big short. I was short a lot of stuff and I didn't get paid back until 2008. It's just the way it works and people get stopped up. But there's two things. One thing I want to mention is what's happening with Cash Dealer. Bitcoin, I completely agree, but it has major competition like gold does from the U.S., the base currency giving you the best rate on the planet and the deepest market, deepest treasury market. But there's one thing I also want to mention I really enjoyed recently to point out how significant this technology is. We're hearing about Hong Kong maybe lightening up a little bit of their regulations and they

approved, I heard they might approve a Hong Kong crypto dollar. The Hong Kong dollar is pegged to the US dollar, which means that's a quasi crypto dollar. Dollar stable coin. So is the Chinese yuan, right? So is the digital yuan. Exactly. It shows how significant this technology has adapted to the US system, to the dollar, organically. And it's for the US not to mess it up. And I think the updated Lummis Jill Bren Bill is going to show that they're not going to mess it up. But it just shows that you can't overweight then.

So I just double checked. I would love to check the volume. I show this to everyone. If you check on coinmarketcap.com and click on volume, tether is always number one. You love it or hate it, but I've been that since 2018 in Hong Kong, they pointed it out to me. I have a question, something I just thought of when you were saying that, because I've made the, you can't beat the treasury rate just by T-bills argument myself. But are we talking about completely different people? Are the people who are going to buy and bid Bitcoin the same ones who would ever put their money into a

quote unquote boring T-bill? I mean, is there a generational gap here? So we may be wrong that those two things are competitive. I know they're competitive on the institutional side, but Bitcoin's price action has largely been driven, we know, by retail over the years. So maybe these are just a bunch of 25-year-olds who now have some wealth in crypto and would never buy a bond in their lives. They have not risked. They have not had their faces ripped off by markets. And that will always happen. You will see the stock market drop 50% and stay down and not make a high for 10, 20 years. It always happens. It always happens at the biggest pumps in liquidity, which we've had. It could take a new high, but I love hearing

traders have traded for 10 years. I've been trading for 10 years. Like you need to trade for 30 years. And this is Dave. I knew David left because we've seen this before and I've seen it. It's the narrative I've seen. It's usually the psychology. When you hear people, when people tell you, oh, well, when you just express something rational and unoptimistic about how markets work. And they tell things, they say things like,

well, I feel great being poor. And then you look at yourself. I remember hearing that in the 80s, in 87. I remember hearing it in 2000. I remember hearing it in 2006. And the key thing I'm really worried about now, and with this, is there's so much bullishness, even from Larry Fink, who has a vested interest in pushing a product to track Bitcoin right now, that I have to push back and say, good luck with that one. T-bills look great. And yes, we've seen this before. Yeah. The only place where I disagree, I mean, look, I disagree because of data, right? I'm a data junkie. We all know that. And the data is suggestive of my prime disagreement. Francis's narrative is Bitcoin is not technology. I mean, yeah, it was created by technology, but it's not technology. It's a network. And there's no

question that either Twitter or Facebook or any network effect generating company has its adoption and network effect what matters. I mean, there is this immaculate conception of Bitcoin. It wasn't obviously immaculate. Some humans did it. Probably Satoshi is a group of people. But it doesn't matter. The fact is people are skeptical. And if you look at the monetary policy of Bitcoin

and you look at its adoption metrics and you look at the strength of network and you look at a lot, you know, you go in the glass node and there's like end charts that pull up, which all show the same thing. It's not about the technology. In fact, probably one of the most articulate ways of expressing why it is not about better, faster technology is Jason Lowry. Now, I don't agree with his thesis of calling Bitcoin a form of warfare or whatever. I don't know, Scott, have you ever talked to Jason? I haven't.

Software, if anyone has read it. But he makes a point that a feature, not a bug, is the slowness and the need for energy to validate transactions. And you could talk about this, and it's a whole other conversation. But we'll leave that aside. I think the fact of the matter is that when you look at markets, markets, people always forget, and Mike and I know, that in bear markets, I mean significant bear markets, correlations go towards one.

So it doesn't really matter. So if you believe that we're due for a mass correction or a mass bear market event, Everything will go down. I'm not sure that that's clear. I certainly think we are vulnerable to it, but I also, my thesis has been, and I'm going to point it out because as we're getting closer and closer, the US presidential election cycle, as we enter next year, I think the odds of the Fed surprising the market to the downside become zero. And the likelihood of them trying to stay out of it at a bare minimum become much higher. And so you'll be more accommodative next year. I do think that any further rate rises, you know, the reason the markets are pricing with their pricing is people kind of think the same.

And so the real issue is, is do we navigate the fall or not? And, you know, as I said, I don't have a strong opinion on that. I just don't. And do you think that the election year next year will be a major factor in how the Fed's policy is orchestrated? Not directly. But, you know, if you look at the makeup of the FOMC members, however, they are leading Delvish and one of the biggest hawks on the FOMC committee is Jim Bullard and he has just announced his departure, which means the Biden administration has another opportunity to appoint or helped influence a delvish pick. And I think so. We have seen already an addition of Adriana Krugler on the on the committee, and she will likely be a delvish voice.

So I think it's indirect. I mean, after all, people's view of the world is affected by their way, their indirectly their political leanings. So I think ultimately, yes, the Fed will lean dovish, but not directly because, you know, they're actually trying to get Biden. Right. Or anything, but just because their view of the world is in that soft landing, you know, immaculate disinflation kind of view. Mike, I want to laugh because I'm not sure who said it earlier, but somebody said, I believe it was you, Anna, you said now it's pricing in the pivot effectively next March, right? That then that's the first time that we'll see the cut. Three months ago, we were pricing in three pivots in 2023, right? So that data to me, all of this, like the odds, you see 90% chance of 25%. And then one Fed speaker speaks, it's all of a sudden 30% the next day. So I find all of these sort of leading guesses to be very difficult to take seriously.

Well, so it's a moving average. The rate cut, the rate's going to cut. It's been six months on forward for the last 12 months before we're going to get that cut. And this is one thing our colleague, Anna, has. We have a colleague named Ira Jersey. He's been spot on. No, they're not going to be cutting rates at the end of the year. And he said at the beginning of the year when it was priced for cutting rates.

Now it's, you know, it's Christ for the next dollar. We're going to start in March. So it's essentially six months or so from now. So yes, it's that delayed reaction. But it's what scares me. Obviously, my people, markets, I'm impatient. It's the fact that what's the key thing that's still driving the Fed to keep hiking rates? Yes, they're looking at lagging inflation and Anna's over that, but we all know the bottom line is the stock market. If it goes down, they'll stop hiking. If it goes down a lot, they'll eat. It's what they've always done. This

is what's different though, as Anna points points out, is that sticky numbers are there. That's what I look at this as a lose-lose. The fact that the stock market's still going up, keeps the Fed still vigilant, means there's going to be a train wreck at some point. Something's got to end. I don't know what it's going to take, but you look at all the, like I say, PPI minus 3%, and they're still hiking. I've never seen that in history.

Now, of course, our data is only since 1948. Right. It's worth noting once again, which we mentioned all the time, that first you get the yield curve un-inverting, then you get the pivot, then you get the stock market crash. And we have to have massive denial for markets to make... There's a chart. Right? I mean, you have the yield curve in blue, un-inverts, then the Fed red pivots, and then stocks crash. I mean, it happens almost every single time. So people are waiting for this magical pivot to save the market, but that's actually the

signal that stocks are about to go into a bear market. Well, so we don't need a crash, but I think it's one of those historical examples of just the simple lessons of liquidity, pumping assets, and then assets declining liquidity contracts. Liquidity is still contracting. Assets are still going up. Not all of them, but just the stock market. And this is a question of, will all these rules of economics prevail? I kind of stick with that. The rules will generally prevail. Francis, what do you think about the pivot specifically? Sorry, about the pivot specifically, what do you think?

Do you think that that's something we will see sooner than later? Or do you think that maybe we just get a very, very long pause? I think we... I kind of eat my bet on this, really, because they're not going to continue hiking. The question is whether they just stop and leave interest rates where they are. That's right. Yeah, or whether they actually cut.

And I think a lot depends actually on how much liquidity there is in markets as to what they actually do. If we have the kind of market disruptions we've seen before, then we might end up in interest rate cuts and the restarting of QE in some form. Yeah, I mean, you mentioned that we would get that stagnation. That was your sort of base case. And wouldn't that just be a pause that's sort of indefinite? No, because, well, actually actually stagflation which if you look back to the 1970s is actually where you have no growth and inflation and so actually you have

rising interest rates um i i said stagnation not stagflation i think we've got stagflation here in the uk for sure i'm not so sure that you have in the US. But if you have, then breaking that does need a recession because you've actually got to crush the labor market. And that's a tough thing for the Fed to do because it's dual mandates. And so

I think you're in a situation in the US because it's a tough one to deal with. I mean, that's Mike's favorite point to make, right? I mean, there's only one way for jobs to go. Very much so. If we're at historic lows, we're going to see unemployment, and they're still tightening into it. Yeah, well, I see Anna smiling.

Go ahead. I'll let the economist be. Yeah. Well, I think that even if we have a sort of stagflation light scenario, that's the word, stagflation light, not real stagflation, where I'm not talking about inflation being double digit. I'm just talking about inflation being permanently at over 3% or 4%. And the Fed could just hold it longer. Even cut because what the Fed wants is to keep the real rates constant or even rising. And so our forecast is for inflation to linger around 3% next year. And in that case, if you want to keep the real rates rising or rising, you just need to keep your nominal rates

constant, then real rates is rising. So I think we are in for a period where the Fed, our baseline is for them to hold rates constant. But we did see in the past six months that the Fed is very reactive to any disruption in the credit market. And if you're, you know, you guys view of the problems in CRE, commercial real estate, really do come to pass, I do expect the Fed will cut because they are very sensitive to that sort of thing. And there we are at 10 o'clock, guys. I can't believe that was an hour that went by so fast. I guess when you have five people, it goes goes by a lot faster thank you so much all of you for joining francis once again we love to have you mike thanks for checking in on vacation dave guys you should have seen

dave he was driving we could see through his roof it was a beautiful sunny day and he's in his formula one uh shirt trying to spite me with his number one guy instead of my number two guy uh and uh and and uh it's the first time we had you but i'm telling you we talk about you all the time so and only in a good light so it's wonderful to have you uh joining everybody of course twitter space is in 15 minutes uh i think the topic today is because of the slow news cycle is uh what bitcoiners can learn from eth, which seems extremely contentious. And I'm just going to mute my mic and let people scream at each other. So if you guys want to hear that, feel free to become enjoyed.

And everybody, I will be back again tomorrow. Once again, thank you to all our guests. Really enlightening. Incredible. Mike, enjoy the rest of your vacation. Bye, everyone.