The Wolf Of All Streets - Massive China Dump, Big Tech Rally & When To Expect Rate Cuts? | Macro Monday

Episode Date: February 5, 2024

Join Dave Weisberger, Mike McGlone, and James Lavish as we break down what's happening in macro and crypto! Dave Weisberger: https://twitter.com/daveweisberger1  James Lavish: https://twitter.com/jameslavish  Mike McGlone: https://twitter.com/mikemcglone11  ►► 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  ►►TRADING ALPHA READY TO TRADE LIKE THE PROS? THE BEST TRADERS IN CRYPTO ARE RELYING ON THESE INDICATORS TO MAKE TRADES. USE CODE ‘2MONTHSOFF’ WHEN VISITING MY LINK.  👉 https://tradingalpha.io/?via=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/   ►►NGRAVE This is the coldest hardware wallet in the world and the only one that I personally use. 👉https://www.ngrave.io/?sca_ref=4531319.pgXuTYJlYd ►►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  Timestamps:  0:00 Intro 1:00 Macro update 3:40 Jobs numbers 5:50 “Put a lipstick on a pig” 7:20 Monetary inflation 9:20 Powell on 60 minutes 13:14 US banking system is sound and resilient? 16:20 M2 money supply 19:10 GDP data 21:30 The Fed plans 3 cuts this year 23:20 Bitcoin will rival gold in the next 2 cycles 30:20 We are heading towards recession 33:50 El Salvador & Argentina 40:00 The debt problem 46:00 We talk about the Fed too much 50:00 China potentially going into depression 51:40 What does it all mean for investors? 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.

that's it good morning everyone um we don't have a dave this morning i have to admit it's going to be hard to fill his shoes because for me, it's a biker in Miami when I'm listening and riding and it's through traffic. He's a voice that I can always hear. He's so distinct. So I think this is going to be a round of the three musketeers or the three stooges and probably the musketeers. But we kind of thought, you know, we all know the data in the U.S. was very strong. Friday was not beat that horse. What I see significant, I think we might want to dig in a little bit, is first of all, we've had the great information from the U.S. So we had one, our GDP increased about 1.5 trillion last year, and our debt increased about $2.6 trillion.

That's not so good. But the great reset that I really started talking about almost two years ago has not happened in the U.S., thank God, but it's really happening in China. I mean, completely a depression potentially kicking in. And one of the data points I want to mention this morning is, first of all, the HSCR, the Hong Kong Shanghai Index, is the lowest versus S&P 500 since 1975. To put that in context, Chairman Mao died in 1976. So that's pretty bad if you're holding any type of wealth in China. And this week, on Friday, we had the Miami Economic Forum, so a little inside scoop. One of my primary goals there was to get any kind of inside feeling, investment feeling for China. It was as bad as I thought it would be.

One key person who spoke was Eric Bethel, former executive director of World Bank. I actually had lunch with him and just pointed out how bad it is. So I've kind of given up a little bit of all my research I've been doing on China because I'm somewhat concluded that it's a Great Depression kicking in. I don't know what stops it. I don't know what that means so much for the U.S., but I think it's quite good for crypto dollars and Bitcoin and gold and things like that. But to tilt over to the U.S., our morning meeting this morning pointed out our equity people show the U.Ss equity market kind of in manic mode now and they said that back in december for a little while and caused a pause we got that gap in the s&p 500 e-minis down to 4600 which we've never had those gaps those holes not filled but from my standpoint um i i'll tilt over do my commodity outlook and go to you guys i see nothing but significant

deflation continuing continuing commodities. It started in the grains where it should be. It's the most elastic sector. It's kicking in industrial metals, mostly because of China. And the laggard on the way down has been crude oil. And I fully expect that to catch up and go towards about 50 for that immaculate deflation from commodities. But there's the key fact, I think think I want to tilt over to my colleagues to

tilt on that. I figured to tee you both off is the fact that we're doing this wonderful thing in this country that we're getting less and less GDP growth with more and more deficit spending. Yeah. So we wonder why we haven't had any landing, right? So yeah, first of all, talking about, thank you, Mike. And it's too bad we don't have scott to tsp with the with an exuberant intro but um you know if you look at the jobs number friday it was so noisy and dave yeah i think you and i might have talked about this on twitter a little bit but i mean just starting with the number itself of 353,000 jobs, I mean, it's just, it's nonsensical, first of all, but let's just

pretend that that's kind of a real measure that they have. If you just look at the, there's two surveys that they do in the jobs report, and one's an establishment survey and one's a household survey. And for the listeners to understand, the establishment survey is when the surveyor, the person on the phone actually calls or issues a survey to somebody on email, that they're asking a company about their job situation. Have they been hiring? What their situation is. And then the household is they're asking individuals. So if you're an individual that has multiple jobs, you can get double counted in the household survey, which points to the fact that when you look at the part-time jobs that surged by 96,000, right? And then full-time jobs declined by 63,000.

The divergence between those two is growing and it makes sense now, right? Because you're getting a lot of people taking two and three jobs instead of there just being a lower unemployment rate. You're getting people taking more jobs to keep up with the economy or keep up with inflation. So it's noisy. It's not perfect. It's super imperfect, actually. And then when you look at the average hourly earnings that increased, the hourly increased because the number of hours worked decreased. So it's just, it's a difficult number to pin your hopes on a, you know,

on the economy still earning along here. And I just, I don't take it on face value. Let's just put it that way. There's an old Wall Street expression. And it used to be a Wall Street expression. Now it's basically the face of government. It doesn't matter which administration's in power. They're going to do the same thing.

It's the idea of putting lipstick on a pig. And when you look at what's going on in the economy, that's where the divergence is. I saw someone wrote a tweet that said, isn't it amazing how all the academics say that the data is great and everybody should be happy and the majority of people in every opinion poll are unhappy. And, you know, you have to look at it. Now, look, there are things, there are divergences around the economy. There's different areas, there's pockets of strength for sure. Right. And there's pockets of weakness. But the single biggest obvious thing is what we consider full time employment at under 36 hours is fascinating because there's enough hours in the week. I mean, my first job at Morgan Stanley, I worked 80 hours a week. Okay. Well, Wall Street, you know, whips and drives us. So I should have counted as two full-time jobs because at the end

of the day in the survey, you could do it. So if somebody works 35, 36 hours a week in a job and drives an Uber 35 hours a week, that'll be two full-time jobs. And so, you know, you basically spend a whole weekend driving an Uber and a couple of nights, and there you go. And so it's really noisy data, and we know that. The real issue that everyone has to understand is monetary inflation. I tend to agree with Mike that commodities have a boom-bust cycle, which will always cause commodity deflation. That's totally separate than the fact of monetary inflation. And let's make no mistake, I've been saying this for as long as you guys have known me in a long time before, that policymakers, starting with Trump, were idiotic

in dumping helicopter money on people. And what followed with tight supply chains was completely predictable. And what they want to get back to is monetary, i.e. asset inflation and consumer deflation. Because when assets inflate, you get malinvestment, i.e. excess investment in technology and things that accelerate that boom-bust cycle in commodities. At the same time, the wealth effect is there for those people who are lucky enough to own wealth. The problem is, is that most of the stock market, I mean, virtually all the stock market is owned by the top 10% of people, and a pretty hefty part is owned by the top 1%. So that's the only thing that explains the data. But you know, look, at the end of the day, the US is certainly, you know, the best of the bunch. There's no question about it. Our economy is doing better than Europe. It's doing obviously better than what's going on in China. But the

truth of the matter is that what's doing well is uneven. And I think that's the best way to look at it. And, you know, we'll see as we go into the meat of the election whether it actually matters. Because, you know, one side is going to talk about the economy and the other side isn't. One side is going to only talk about the personality of their opponent and, you know, weird ideas of threats to democracy. And, you know, we could go into all that. But the fact is, is that the Fed, the thing that neither of you guys mentioned, and I didn't watch it so i've only seen reviews of it i suppose i will if i'm forced to uh that the the chairman of the federal reserve

going on 60 minutes and talking up the economy is i mean did greenspan ever did did anyone else ever do this guys i don't remember it but you know that I've been saying the Fed is going to be political and it's going to do everything they could to be, if not accommodative, at least neutral by the time the election gets into full swing. And if that doesn't prove that I'm right, I honestly don't know what other proof other than watching it happen in real time could be. I mean, what do you think? I mean, am I crazy in thinking that Powell going at 60 minutes is kind of important, you know, in terms of signaling that they're going to be political and involved? I mean, what do you think? I mean, am I crazy in thinking that Powell going in 60 minutes is kind of important, you know, in terms of signaling that they're going to be political and involved? I mean, what do you think? I recall Ben Bernanke did it during the height of the Great Recession. James, do you remember that? I think we all kind of remember that.

And it helped soothe that thing. It was a perfect transition to President Obama. You know, you always want to buy president obama because he caught you know you always want to buy a company when it's failing all you have to do is fix it and do a few little things it worked out really well but um now it's i i guess i'm less in the conspiracy thing than thinking that what now is the lessons that ben bernanke taught us in that book um the courage to act is the Fed will always just throw massive liquidity at something. That's exactly what they did when we hit the pandemic.

And now, we threw too much liquidity. We're taking it away. But I have to admit, the only thing that came out of the conference that any of us, the guy asked the question, who was sitting here two years ago, thought we'd have the latest GDP number for this quarter after the Fed raised 500 base points in the fastest pace in history. Hand raised, no clue, never seen that before, didn't expect that. But where does it go from here? And that's where I think the biggest thing I want to show, and maybe we can tilt over a little bit, Misha, if you want to show this chart

that I'm concerned about, is just simple little things. I want to tilt over to what I know we want to at least get to, and that's markets outlook. Like I said, I show my outlook is we're going to see more deflation in commodities, which is good fuel for the Fed to ease rates. But before you go there, Mike, just finishing out Dave's thought on Powell going on national television and talking about monetary policy and insisting that it does not coincide with fiscal policy. Right. So that's number one. So what is he doing? Why is he up there? Because he needs to instill confidence in the Fed and the process and the US dollar in order to facilitate fiscal irresponsibility is basically what's happening, right? Because he said it, he admitted it. I even put a tweet out about it last night that we are on an unsustainable fiscal path in Congress. He said it. He admitted it. I even put a tweet out about it last night that we are on an unsustainable fiscal path in Congress. He said it. He admitted it. He also admitted that there are pockets of major problems in commercial real estate.

They know that there are problems. However, he said that he believes it's contained. So what does that mean? That means that he expects that some small banks are going to be sacrificed in this round of real estate crisis, and that they're going to be swallowed up by larger banks. And they're managing it. They're on top of it. They're managing it by facilitating that process. They're in there figuring out who's... J.P. Morgan's going to take this piece, and Wells Fargo is going to take this piece, and Citigroup's going to take this piece and Wells Fargo is going to take this piece and Citigroup is going to take this piece. That's what they're doing in the background. They're

trying to figure out how they're going to manage this trillion dollar disruption in the commercial real estate market. Okay. So put that aside. And then finally, nobody has asked him this question and it has blown my mind. It has blown my mind that nobody's asked the question of why did you strike this sentence from the press release? The U.S. banking system is sound and resilient. Why did we strike that? Why did we take that out of the press release? Now, I talked about it in my newsletter. I think, I personally think that, well, that was, they had planned it. They had said, well, we put this in back in March in the

Silicon Valley banking crisis. We put that, we put that paragraph in to reinforce that, hey, we're on top of this with the US banking system is sound and resilient. There's no reason for any run on banks, whatever. And then they took it out at the beginning of this year because it's been in there for what, nine months, eight months, something like that. Right. So they took it out. And now the same, like literally that two days later on the morning, late that you have the New York community bank or collapse collapse, right? So people are thinking, well, does that mean that it's no longer sound and resilient? Or was it just they had planned it? Now, I believe they planned it and they just haven't addressed it. But it has absolutely blown my mind that not one reporter, nobody asked him this question. Why was that taken out? What do you guys think?

I think Shakespeare summed it up. Methinks thou doth protest too much. I mean, just think about it for a second. Bernanke went on when the world is falling apart. Powell goes on telling everyone everything is okay. I mean, inflation is transitory. The mortgage market is strong from Yellen, you know, from before. Commercial real estate is okay. Everything is fine. You know, you have to ask yourself the question. It's just like you both have made the point many times on this show. And it's really an important one that people keep forgetting, which is when the Fed starts cutting, it always is coincident with the market getting just basically shitting the bed.

Okay. So what do we have here? We have, okay, the Fed starts jawboning because they know, they see what people don't see. We saw a huge employment report and everyone's saying, oh, the US economy is healthy. That weekend, the chairman of the Federal Reserve comes on and say, everything is okay. Well, wait a minute, but we all thought everything was okay. What's the problem? Well, the answer is he knows it's not okay. And he's telling people that when they start seeing the cracks, things are going to happen. Honestly, there's no other way to look at it. I wish there was. So you have to ask yourself the question, which is what's going to happen next? And

in my opinion, and I think, James, you're saying the same thing, the answer is the liquidity spigot gets turned back on. I mean, you know, I was just looking this morning at M2. You know, M2, you know, it's going back and we have to do the zoom out. So hold on, let me just share this. I'd love to hear your opinion on this, Mike, and you probably can get much finer grain than this. But when we do this Chrome 10, okay, so, you know, this works, right? You guys, we can see it. Yeah, here we go. So this is the, this is the zoom out version of M2, you know, basically you have from 95, you know, the bull market started, you know, kind of after the crash year. And it just kept meandering up. Then we have the pandemic.

Bam. But then look at even after the BAMO, how steep it was. Then we have this little, oh, we're going to be able to take money off the table. And so let's zoom in and look at that. And so now you see the BAMO and then the money off the table. It's pretty, pretty small. And when you look at the last year, it's like, yeah, okay, we had a few months of down, then bottom, and now it's starting to tick back up again in December. We don't know what January is going to look like, but my guess is February and March are going to look a hell of a lot more

like up here and beyond because they know that, Right. And particularly with what's going on in China, that's going to matter. Right. You know, and so it really is important to understand the look of liquidity. We're not even talking about the reverse repo. And I'm curious what you guys. Yeah. And we're not even talking about we're not even talking about the massive deficits we're running in. And you you actually posted this uh in our little conversation this morning we're running greater deficits than ever before and we're not even in we're not in in a we're not in a recession we're not well we're technically we're probably in five wars but you know we're not in a recession and we're running what was the what was the what was the data point, Dave? Well, we have the biggest deficit ever in peacetime non-recession.

Yeah. GDP. It's not even close. Right. So you're wondering. So all the Fed governors and officials are, you know, they're all out there trying to figure out, well, where is this neutral rate? Like, why is the neutral rate seem higher than before? The neutral rate for everybody on the show, we've said it before, but just as a reminder, that's where the interest rates from the Fed, the Fed funds rate, it's neither accommodative nor restrictive, meaning it's not expansionary or restrictionary. It's just neutral. That means if they keep it there, the economy should just plunk along. Well, that's about, they've always said it's about two and a half percent, or they've said in modern history, it's about two and a half percent.

And now they're all wondering out loud, has that moved up? And why? Why has it moved up? Well, these are all major factors. When you're running massive deficits and your fiscal deficits, that's inflationary. It's stimulating the economy. You're borrowing from the future to stimulate the economy. Yeah. Thank you, Misha, for taking a little to that chart. I just want to piggyback on that. This is what I started playing with this weekend is you just take a real GDP, which is running

2.5% real, and you add the budget deficit, which is negative. And this is just to make your point. Right now, we're getting negative 4% GDP if you add in the deficit. The last few times we got that, we had recessions. And I want to overlay a similar chart. I took this one out. Yeah, look at that. Wait, go back to that chart. Go back. Look at how the recessions begin. Yeah. Look at- So you add to that chart go go back yeah look at look at how those the the recessions begin yeah look at so you add to that we just sailed right through what by by having deficits without you know without admitting that that two-quarter recession that we started into right yeah so you add to that that the psalm rule about unemployment i mean just bottom what, 3.4% and usually goes up to about six.

We still have inverted perp. Yeah. So the SOM rule is that you have to have a 0.5% increase from the bottoming out of your unemployment rate in that cycle. So in this cycle, it's what, 3.4% you said? So we need to get unemployment to 3.9% in order to trigger the onset of a recession. That's the SOM rule. Okay. Sorry. And so I'm glad you explained because to not get unemployment heat going up, we need to spend what an extra four to 6 percent of gdp every year in deficit and i i kind of played with it this is one thing i did this week and i want to play with this if you look at u.s nominal gdp that's nominal in dollars and you um divide by public debt that we're spending it's you know it's six trillion dollars it used to be kind of flat so i just if you do this and you invert it overlay with gold, that to me is a charge. Like, okay, just invert that. And there's gold, like gold is very happy to say, okay,

thank you very much. You know, I'll hang out here for a while. But let's just tilt over what's happened recent too with the Fed and we can dig in there. This is the March meeting. They were at 60%. Now it's at 20% and May is effectively almost 100% that we're going to... Still not. It's only showing 20 basis points of cuts, not 25 yet. So by June we should be cutting 100%. We've been hearing this for, what, a year and a half now that they're going to keep cutting the dangling

carrot of cutting? It's just not happening. And he said, and Powell said on 60 Minutes, you didn't hear this part, Dave, he said he figures, what, three cuts this year? So 75 basis points? There you go. Well, to me, if we wait until, so that means that you're waiting until June, July, right?

Probably. And if you wait until that long, you're probably getting. Amazing how the three cuts will all happen right when the after the candidates are chosen and we're going about a month he was saying about a month before a month or two before the elections and that's when that that question came up of are you political and he said no we're working on our own timetable whatever let's put that over there pretend that there's no political pressure from Warren. Come on, James. He's going to time his three cuts for the three meetings that take place

during the general election run up. But no, they're not political. Sure. So let's put it so. But to me, it's he knows he's he's he's walking this line of, hey, I've got to make sure that inflation doesn't flare up again. And I want to make sure I protect my legacy because I'm probably not going to be in the seat after this election. And then if I hold up too long, we know that I'm going to be cutting rates not at 25 basis points, but 50 basis points a clip next year. Because we are headed deep into a recession. He's just kind of balancing. He's doing a balancing act between those two. Sorry, Mike.

Go ahead. But just to clarify on that. Yeah. I wanted you to clarify because I want to tilt over, this is what I think the market's thinking. And it's from the world's most significant leading indicator. And that's Bitcoin is what you just said is what used to happen is they would drop rates on the elevator and they went up on the escalator. That's reversed. We went up on the elevator and right now we said, there is no reason to cut rates until markets make them.

And that's why I'm still worried about these simple little quirky things. We can talk macro. Here's micro, this little gap in the S&P 5E minis at 4,600. It's never happened. I remember trading these at a hedge fund. That was our benchmark for beta. So that's a weekly chart. And then I overlay that with what I'm concerned about. And I don't know if we want to go in that too much because I don't want to get Daveave too mad but that's really that's really interesting mike because last on friday more stocks were down than were up and we still were making new highs so i think the underlying markets are getting it and that's why i'm worried i want to see this bitcoin show it's going to outperform the sp5 and i see the all this hype and everything oh they's going to outperform the S&P 500. And I see all this hype and everything.

Oh, they're going to buy. They're going to buy. And if I'm an RIA and I'm making money for my clients in Qs, and on a risk-adjusted basis, I just think there's no hurry to be reallocating over the Bitcoin until it proves that I'm going to beat the Qs on a risk-adjusted basis. Well, I think that's right. I also think that the cues still are dependent somewhat on people's outlook on the economy. And there's still an earnings tether. And Bitcoin is

a pure, just like your chart of gold, Bitcoin is pure hyperbolic speculation against government deficits and confidence in government. And that's when that has been my thesis all along that after this election cycle, Bitcoin will de-link. And I'm not changing that anytime soon. I think Bitcoin will ascend to rival gold at some point in the next two cycles. And that's a big deal. And that's what the investment is. I mean, they're very, very different. And just keep in mind, the entire Bitcoin market, we talk about it because it's liquidity on the weekend, etc. It's still smaller than Apple, right? You know, it's smaller than one stock. And Apple, you know, it's funny, you know, I haven't used the new, I'm we on our way toward implanted chips in our eyes to do augmented reality? Or is this another Newton, which nobody really wants to deal with? I don't know, but at the end of the day, it's kind of a big deal. But the point of Bitcoin Gold is like,

you know what I think. We'll talk in 11 months. We'll see where it is. And I expect Bitcoin to outperform. I actually think both will perform well. I just think Bitcoin will perform better because I think that we have rocky roads ahead. And I agree with you. Like the monetary expansion is just is just rocket fuel for me. Just the thing that I'm looking at today is the 10 year back up over 4.1. And, you know, dropping a point. I mean, you know, that is triggering panic because the 10 year, if you look at the curve right now.

Yeah. OK. You know, we are down. We have a one point two percent difference between one month and the 30, actually 1% between one month and the 30 year and 1.2%, you know, inversion between one month and 10 years. So you got to figure that's going to come out. I mean, what happened, the issue is, does it come out because, you know, we lose control of the 10 year and our budget deficits get to crazy levels where we cannot afford, where basically every discretionary spending is crowded out, it's problematic. They need monetary inflation. Need. This isn't a question of want anymore. It's need. Because you can't austerity your way out of a budget when it gets to these levels. You just can't. You have to grow your way out.

Yeah. It needs to be nominal in real terms. But it's true. Yeah. When we both know that the easiest way for them to do it is on nominal terms. So to allow for either high perpetual inflation or some sort of very large spike of inflation period. And I don't know. No politician wants that.

So rather what they would do is just kind of fudge the numbers, lie about where inflation really is, allow it to run a little bit hot. So you have an expansion in your GDP on nominal terms and you're taxing those dollars. And so I think they're going to do that in perpetuity. That's the easiest way to do it. Just keep borrowing, keep issuing debt, keep running these deficits and allow for inflation. So here's my question, Mike. I want to, I want to tee you up. How does the fact that China can't afford to buy our debt and they've been selling our debt actually, because they don't hold as much, how does that impact this? So I'm glad you brought that. That's what I pulled up as we were speaking, the U.S. 10-year note yield versus China's 10-year note yield. It reached the lowest in our database since 2005 this morning. So that great reset,

that great depression is happening in China. Now, SARS-Binodent, yes, they've been one of the biggest buyers and have been, but before it was Japan and it was England, it always rotates and it always comes down to fair value. It's the deepest pockets on the planet. You're getting 200 basis points more than the, in the US, you're getting 200 basis points more than the second largest economy in the world, which we can't really invest in. You're getting many times you get in Japan, yet many times you're getting in Germany. It's just unstoppable that the dollar and U.S. treasuries, and then you have that umbrella of U.S. protection. But the way I see it is this is a global economic potential depression.

It's already starting in China. It's already starting in China. It's already starting in Europe. And the question is, how long can the U.S. remain above the frame? I look at it, is this 10-year note yield in the U.S.? It's very near the highest ever. Yes, we have this debt-to-GD problem. But of all the other countries in the world, it's the least worst. I mean, and who's got the exorbitant privilege?

I think the risk is that the U.S. just follows China on the way down and heads towards a three-handle maybe by the end of this year. And that's the kind of thing, all it takes is just like we mentioned earlier, just a little bit of hiccup in this extraordinarily rally in U.S. risk assets and just a little bit of that tilt

towards what always happens historically when you have this kind of deficit spanning and this kind of yield curve stuff is recession. But, of course, then we have President Trump coming in saying he's going to add a 60 percent tariff on all Chinese imports. I mean, maybe T&U guys off and you too, Dave. They kidnapped Scott. Yeah. I mean, well, look, and you both know this, you've seen this, we've seen it in every single modern cycle where the Fed lowers rates. And then within a period of what, six to 18 months or 24 months, we head into a recession and the market

does sell off. The market sells off after the Fed pivots. We've had in the last four pivots, drawdowns of between 15 and 50%. So it's just, Dave, you made the comment earlier, the market just, we have memories of goldfish. We just keep forgetting this. How do you keep forgetting that the market goes down after a pivot? And so the market's asking for a pivot. They're waiting for a pivot. They're asking for a pivot. And what everybody wants is a pivot before we have a crash landing. That's what the market is saying. And then on Friday, the exuberance was, hey, we're not going to have any landing. We're not going to – we're just going to keep going. And so, yeah.

I just added the S&P 500 to that chart. Once you start cutting rates, it's not the place you want to be. Like you said, it pivots. Okay, rates started going down. Yields started going down. S&P 500 peaks. This is 2008-09. Same thing.

Well, obviously, this was a bit of a distortion, the pandemic, but I can go back to 2000. It's a key thing. Also, I look at it too. Maybe I'll tee you off on this too. Last year at this time, the S&P 500 was about a 20% discount to the all-time highs. Now what? What do you got to look forward to? Good luck. You got to ride that wave, and it's obviously the wall of uncertainty. Then I look at simplistically you got these little gaps below the market right and so and i'm and i'm not a bear by by by nature i'm optimistic but the thing is i'm just what you just said is we're kind of priced to perfection here oh yeah we're priced to a perfect landing like we we are waiting for that you know nadia comane, 10.0, hit the landing like we're waiting for it. But it depends when you say we, and I think that the market is- We're in the market. Yeah, exactly.

I think that there are people out there legitimately who look at this and say, well, look, the stuff we're actually buying, the stuff we're actually investing in are going to keep making more nominal money because of what's going on in tech and AI and new and stuff. The U.S. is the little engine that could, but it's actually the big engine. I mean, you know, when you talk about the difference in U.S. and Germany, and Germany is reasonably run, but look at the rest of Europe anyway. When you talk about the difference in yield, well, that's because we have the reserve currency. And so, you know, that is the penalty we have to play. Fascinating question will be what politicians actually start looking at this and mistakenly screw up and say things that could imperil that reserve currency. I actually don't think they will. I think all this talk about BRICS and whatnot, it's a political issue, but I think it's bullshit.

I don't know how you're going to anchor a currency on an economy that basically is tipping into depression, as Mike put it? I mean, you know, good luck with that is the sort of answer. I mean, I personally think more and more people in the periphery will start opting not out, but opting into things like Bitcoin. I mean, look what happened in El Salvador this week. I mean, this is not true. If you think there aren't a bunch of countries around the world looking and saying, OK, wait a minute. So this dude decided to become authoritarian and sweep out crime and corruption, make Bitcoin a standard, attract a bunch of lunatic Westerners down to his country. And now he's winning with 80 percent of the voters, 70% of the, you know, this massive landslide and really improving the country. I mean, it's not like this is a question. No one's talking about it. I mean,

in fact, we get Ilhan Omar saying how bad he is. I mean, which talk about an endorsement from my perspective. I mean, you can't get a stronger endorsement, but it's not a trivial problem. But that's the sort of thing that takes time because it starts with, you know, small countries. And then, you know, we'll see what happens in Argentina with Miele. The fact is, there are people all over the world looking at this. This is not going to be the kind of thing that changes the dollar hegemony because, you know, France or Germany or China even or Japan does something. It's going to be from the smaller countries back on in. It's a much longer term process, but it's not trivial. It is not trivial at all. The economist keeps writing articles saying about how Bitcoin is stupid.

I mean, okay, I don't want to debate these guys because essentially they're acting at like a third grade level, which is sad because the Economs used to be one of the best publications on the planet. But the things they've said are so sophomoric and dumb that it's anyone and anyone watching this who knows anyone of the economists who want to get the person who wrote that article on this show. I don't think they'll have a very good time because you can't really defend stupidity very well. But the fact is, there are things going on. At the same time, I mean, James, you and I and Mike, we're all making fun of budget deficits. We're making fun of what we're doing here. But the fact is the Fed is doing what they need to do.

They're trying to engineer what Mike said. They want their, you know, their dream is to bring the long rate down under 3%. And they know that they've got runway. Going back to what you were saying about the reverse repo, there's still half a trillion dollars sitting in reverse repo, right? So what is happening? The treasury is going to continue to issue T-bills, which are very short-term bonds, in order to draw

money out of that reverse repo. They've got time. What the Fed is worried about is if you're thinking about timing, the Fed is worried about that reverse repo getting down towards zero, which means that banks are going to have to start dipping into the reserves in order to buy bonds. And as unless they just keep, you know, you keep re-upping on your T-bills, which they will, but we're running in a deficit, which means we have to continue to borrow more than we're paying off than we've already borrowed. So we have to continue to issue more bonds. So they're going to have to start dipping into reserves and reserves are at what now, Mike? 3.5 trillion? 3.2? 3.5? Somewhere between 3.2 and 3.5. I can't remember what the numbers are. You watch them more closely than I do. In fact, I trust you on this program.

But when it gets down to be around 2.5 trillion, that's when the Fed starts getting nervous. Why? Because back in September of 2019, you all remember the repo rate spiked straight up because there was illiquidity in the market. Why? Because corporations were making tax payments and the Treasury surprised the market with issuing a bunch of bonds. So you've heard them come out with their quarterly refunding and manage the market. Oh, we're not going to surprise the market with big bond

issuances. But when these numbers start coming into play, and this is all converging into the summer right before the election, the timing couldn't be more present. It's all happening as we go into the summer. So those are all the things that the Fed is looking at to manage around liquidity because they know that that lockup in the repo market in September of 2019, it was a warning bell and severe that the Fed had to flood the market with capital because there was a lockup in liquidity. This is when we talk about the treasury markets getting dysfunctional. That's what we're talking about. And so those are all the things that the Fed is looking at, and that's how they're measuring this. They're not looking at just inflation.

They're looking at the treasury market and making sure that it's all functioning properly, right? And it brings us full circle, the fact that Powell goes on 60 minutes before anyone sees the cracks in the foundation or sees the holes in the dike and him putting the thing, you use your whatever analogy you want, is telling. I mean, there are, we look, we know there's issues, we do, and we know that the Fed is being asked to do something unprecedented, which is work with a dysfunctional fiscal policy. And, you know, it's different. I mean, look, you say what you want about the pandemic response, and I think it was horrendous in so many different levels. But the fact at least, you know, when the economy looked horrendous at the same time, fiscal policy, you know, dumped liquidity at the same time, fiscal policy, you know,

dumped liquidity at the same time as the Fed, and it was intentional, right? The difference is the fiscal policy hasn't stopped. And the Fed, as Mike put it, and the reason that Mike's been wrong isn't because Mike was wrong. It's because in the history of our government, in fact, of the Western world, you've never had a situation where the federal government, the fiscal authorities abdicated responsibility over the economy to the Fed 100% and kept pumping money into the economy. So as the Fed was removing liquidity, the fiscal side of the economy was pumping money in. That's why. I mean, there's no magic here. Just pumping in. 20% of all jobs created have been created out of D.C.

So, you know, like this is just nuts, right? But the point is, is a lot of people, a lot of the comments that we get on this thread is, oh, Mike is a doomer. Mike is a this. Mike is a that. I mean, look, Mike, if the federal if we had a functional federal government that wasn't asinine, that didn't have Elizabeth Warren tweeting, I mean, she's literally having her staffers tweet. Today, the staffers are tweeting how great it was that they're forgiving debt on behalf of public servants. I mean, you literally have the person, the most powerful person outside of the White House, although her employees are running inside the administration,

saying how great it is we're forgiving debt. I mean, just forget objectively, whether it's bad, good, whatever. Yeah, how small it is. The fact is it's a debt jubilee. That's right. And so when you have the idea of the most powerful person in financial services saying as loudly as she can virtually daily that paying back your debt is a bad thing if you can't afford it. What do you think the market response is going to be? Well, the market response is going to be take out more debt. And when you start taking out more debt, what happens? Well, people buy shit. They buy shit and they pump up the stock market. buy risk assets they do stuff right that's why that's why it's

there's no there's no it's always been kicked all the way but now it's been kicked up to the sovereign level and the sovereign level is saying yeah it's okay if you don't pay us back yeah that is a big deal i mean i i feel compelled to defend Mike because while we disagree on many things, the fact is, is if you had asked any of us said, just said, don't look at fiscal policy, the Fed is going to do X, what's going to happen to the markets? We would have all gotten it wrong. Full stop. Full stop. No question about it. I don't know anyone who believes otherwise. The amount of the size of the fiscal deficits has blown me away. That's right. And that is the reason. And so, you know, remember double entry bookkeeping, ever learn, you know, anyone who went to business school, you took any level of accounting,

you know, the other side of the ledger is basically is this huge fire hose of liquidity. Which is exactly so, which is why the Fed is running. They've got what they call now a deferred asset on their books because they owe the treasury $120 billion. This is just, it's insane. And so instead of having the double, you know, you're basically putting two assets on the book. You're offsetting a liability on the asset side, right? So it's absolutely nonsensical. But they can do that. And they're just hiding these things, you know. And nobody talks about it.

Nobody sees it. We talk about it in our little nobody talks about nobody sees it. We talk about it in our little bubble, but nobody sees it. They're not talking about you're not you never hear an economist talk about this. You know, economists, they just don't talk about it. They're like, it's not a big deal. They'll deal with it later. Will they?

I mean, honestly, no. You know, they're going to inflate their way out. They have to. And it's crazy. I mean, just to contextualize for our audience, if there was no reverse repo facility and the Fed had to borrow, would they really want to borrow short and pay 1% more plus? The answer is no. They're doing it because there is no bid.

And what happens if the Fed had to do 100% of their borrowing at the 10-year level? What would happen, James? Right. And then what if they, exactly, they would implode. You talk about fiscal deficits. You're talking about spending not just $1 trillion on interest payments per year, but over $2 trillion. But what would have happened? So everybody criticizes the Treasury. Okay, so now let's step back. The Treasury has not been perfect for sure, but the Treasury is managing the problems out of Congress. It's Congress that is doing it. It's not the Treasury. The Treasury is only managing the fiscal deficit for sure. But the treasury is managing the problems out of Congress. It's Congress that

is doing it. It's not the treasury. The treasury is only managing the fiscal deficit for them. They're basically saying, well, I've got to enable them. That's what my job is. So people have been, I've seen, I've seen comments and criticism on the treasury about how they should have been. They should have been issuing 30 year treasuries ad na ad nauseum when rates are down at 25 basis points. What do you think would have happened to all of the companies and all of the sovereigns who held the trillions of dollars of debt that's a 30-year duration when they went and turned and raised rates? The Silicon Valley bank situation would have been widespread across the entire world because everybody would have been in massive, massive mark-to-market loss.

And so liquidity would have been drained at a pace that nobody could even imagine. So we were lucky they didn't do that, right? Because there had never been this experiment of running ZERP, zero interest rate policy, for so long. And they did it for over a decade. And so here's where we are. And the average US consumer did refinance. I think that was the quote I heard,

the average mortgage in this country is less than 4%, 30-year mortgage. They did refinance. I got mine. 35%. That's me. Yeah did refinance. I got mine. 3.35%. That's me. Yeah, I'm three and a quarter. Yep, that's right.

I mean, look, you know, Mike, you know, we've talked. I mean, I've been defending you. You've been sitting there just smirking. I'm enjoying this. I mean, it's like, but at the end of the day, have we ever seen, ever seen, we ever seen fiscal policy like this before? And how does a central bank, other than who basically has the ability to monetize or not monetize, I mean, is there even a slight chance that they're going to opt for not monetize. Dave, when I saw Powell last night in 60 Minutes, I couldn't believe he basically said, first of all, let's go to just first principles. The fact that we are talking about

the Fed so much, that just tells you how broken the system is because we're talking about monetary manipulation so much and the person who's in charge of it. Right. But when he sat there and responded to the question about, do you worry about fiscal, the fiscal policy? And he, he said that, well, we don't normally comment on it. That's, you know, that's not our job to manage fiscal policy. We answer to Congress who's in charge of that. So we don't like to comment on it, but I'll tell you this, we're on an unsustainable fiscal path. I literally, my jaw just dropped when he said it out loud on national television. I was like, wow, we're saying that part out loud now.

Because if you remember, the treasury had put that chart out that I shared. Actually, the person who found it, and I've got to give her the hat tip to, is Lynn Alden. She found it. And then I said, oh, my, this is just crazy and posted it everywhere that the Treasury actually said it out loud as a warning message to Congress. Hey, you guys are out of control. You've got to dial it back a bit. Right. And so I don't, I couldn't find it on their website anymore. I think they took it down. Everybody's got the chart. It's everywhere, but I think they took it down,

but it was in there. It was in their statement from last February. We're going to get another, you know, update on the treasury state of affairs pretty soon here. But the fact that he said it out loud, they said it out loud. The Fed has said it out loud. It's like, everybody's kind of talking about it. Like you guys got to, you got to get your shit together here. You're, you're running massive fiscal deficit at a time that we don't need it. And it's going to cause a problem. It's going to cause a tidal wave of debt on the day that we do need it. That's Robert Rubin said it recently. And this is why I want to, again, just go back to this chart a little bit, Misha, if you can show that is this sharp, sharp plunge in the amount of GDP we're getting from deficit spending is so negative.

It's never been that steep on the way down without a significant recession. For the listeners, what this is showing is just how much actual productivity you're getting from excess spending in the government. In the Fed. I'm sorry, from the government. This is real productivity. Yeah. And it usually takes a recession to get these things. We haven't had it yet. So to me, it's more obviously just a matter of time. But one thing that's really been changing is in the polls lately, it's becoming much more consensus that people feel the inflation. They're related to the massive pump in liquidity and they're starting to think that maybe we want to do something about it. And I'm not going to say

it's going to do that, but if you get a smart, sometimes like that's one thing that Trump picked up on right away. He just figured out what people wanted to hear. Oh, it's bash China. Good. I'll get votes. Oh, it's bash Iran. Okay, good. I'll get votes.

Maybe he'll pick up on that. But usually it takes a second term president to even do that. And I stick with you, Dave. We've never really done that before. You know, have austerity in a recession or when things are tilting that way. But, you know, it could. I just obviously I'm an internal optimistic optimist. And that's one thing I like to push back in some things. I do enjoy having, like you guys, done this for almost 40 years is when you, I used to be with customers a lot. I was on the phone with the clients and I had a great idea and seven

people, I'd call up seven and they all agreed with me and they did the trade. I knew what was going to be wrong. When they all disagreed and maybe one did the trade, I knew it was going to be right. So I feed on that. And that's the thing is I have no bias. I have no positions. And when I put out a view that is completely organic and I get massive pushback, it almost always triggers that like, okay, they don't like it. You don't get that good feeling, but you're almost always right. And that really kicked in. I was showing this last chart. This really kicked in when I was pointing out how China was a basket case two years ago. I got so much pushback on that. And now I've, you know, it's, this is what happened. It's happened.

I'm just showing the U S imports from China divided U S imports from Mexico are collapsing. And what's also collapsing is commodities. So this is severe deflationary reset kicking in and you can't ignore the second largest economy in the world, potentially going into a depression. I asked myself what stops it? They're throwing a lot of fiscal monetary stimulus at it. And every day I look at that Hang Sine or the CSI 300 index, they're just not bouncing yet. So to me, that's part of the macro that's really going to matter this year.

It's being propped up. And they've talked about they're putting so many barriers on the trading around this, claiming that the short selling is illegal. And we don't even know what they're going to do. We really don't know what they're going to do yet. Yeah. So that was one thing I have to admit from the very beginning, I have to point out is being in Hong, I went to Hong Kong 2018, there was so much pushback from Americans about Tether. It was $2 billion. Now it's almost $100 billion.

I want to tilt over to, it's heard out recently, they might go public. They're more profitable Goldman Sachs and per employee, the most profitable company in the world. It's like, okay, why? Because this revolutionary technology has gone for the dollar. That's when people say, start pushing back in the dollar. I'm like, great, where are you going to go? Gold, maybe Bitcoin, but no other fiat currency is even close. That is true. I mean, so the question, let's bring it back down to what a lot of people care about or well get headwinds from the economy, but tailwinds from liquidity getting injected, because it almost certainly has to be that way.

And so the question is, where does that money go? What actually happens? So will China ban people there investing in Bitcoin as an opt-out? Because it certainly feels like that is what's happening. You know, look, at the end of the day, the Bitcoin market has, you know, it's the single, what will take Bitcoin to all time highs and well beyond is when GBTC no longer any of the collateral that was used, you know, Genesis is the one they're talking about this morning, Matt Hogan was tweeting about it, you know, when that overhang is gone. Now, what gets rid of an overhang? What gets rid of an overhang is the fact that there have been large investors who have said, you know, this is an interesting market, but I can't really invest in my size in it. All of a

sudden, they say, oh, wait a minute, there is supply and I can invest in my size. And so that's really what's going on. That's right. That's right. It feeds invest in my size. And so that's really what's going on. That's right. It feeds on itself. And so it's going to snowball. It's going to take time. What's interesting is Bitcoin's kind of shrugged off China today, completely shrugged it off. And it shrugged off the 10-year yield spiking. And so it's just sitting here, 43,000. What does that tell you? That tells you that money is trickling in. It's going to continue to trickle in and it's going to continue to build. And who knows?

Bitcoin is super volatile. I couldn't tell you if it's going to go. I would be shocked if it went down to 20,000, but I would be buying more, a lot more. And I would see it being volatile and continue to move upwards on that volatility through the rest of the year. That's my gut and my check. And it has to do with all of the fundamentals and has to do with the halving, has to do with the ETFs. And what you just said, Dave, where you have these RAs who are just now getting their heads around it and talking to investors about it. They're like, OK, these things have settled down. We know which ones we can invest in.

They have liquidity, you know, and so we can start chipping away, just getting a small position in people's books. And that will build on itself. And as more liquidity comes into the market, it brings in larger players. To me, the big flip will be when, I don't know when, that's the question of big debate. I just think it's going to be later than some of the Dave or you might think is when we see this divergence strength in this revolutionary asset versus beta. And that's what I show here. I just show it's 21 ounces of gold per Bitcoin that peaked at 35 at the biggest liquidity pump in history. I just want to see that 21 ounces of gold per Bitcoin pick up when the stock market's ticking down. And lately it's been crocodile jaws. It's ticking down and crocodile and stock

markets taking off. I just want to see it it that's one thing i have to point out it's totally it's totally fair but you have to put it in context so 2022 we saw the largest players in crypto go kaboom because of abject and absolute stupidity i mean i do think it's fun i mean i i i don't like dancing on people's graves, but I was glad to see OPNX go belly up. That was the, if you remember, that was Kyle Davies and Zuzhou's next venture. So now they presided over two flame outs. Obviously, three arrows was far worse. But the fact is, is that they called the grayscale trade the widowmaker for a reason. You know, the number of people who lost.

Keep that chart up there, Mike. Yeah, yeah. Go ahead, Dave. Yeah, yeah. And so there's that overhang. And that is literally, that overhang is being chewed through at the top end of the range.

That's right. We went from 25,000 to 48. We retraced down into the low 40s. And here we are consistently sitting in this range. And we will sit in this range until that overhang is gone i mean we've seen this story before in markets mike you see it all the time right you know it's capping it but look at look at the those drawdowns right back in december and in march right so see those drawdowns there uh No, no, left, left. Yeah.

Back in December of 2018 and then March of 2020, the drawdowns, right? Well, look at how gold sniffed out that recovery before Bitcoin is what's happened, right? So gold sniffs it out right there before Bitcoin does, right? This is Bitcoin gold ratio. So Bitcoin sniffs it out right there before Bitcoin does. This is Bitcoin gold ratio. So Bitcoin sniffs it out. For Bitcoin, I like to say it's... No, no. Look at how the market took off. And gold took off before Bitcoin basically did. And then again, the next one, the same gap happened.

The same gap happened. So the question is, is Bitcoin going to sniff it out first this time? But I'm with Dave. I think they both sniff it out. They're both going to go higher on this reversal, right? But you're going to have, we'll have the drawdown first. It will be painful.

So we're getting the hook from Misha and I'm supposed to tell everybody, Scott's back tomorrow. So you get that awesome voice and then all the knowledge from Scott and we don't have to put up with the three are we musketeers or stooges we'll leave that to the audience I'm sure there would be non-zero votes for both

all or none guys great discussion thank you and thank you for our listeners and viewers see you next week cheers Yeah, guys. Great discussion. Thank you. And thank you for our listeners. See you next week. Cheers.