The Wolf Of All Streets - This Is The Worst Possible Scenario For The US | Is Bitcoin An Answer? | Macro Monday

Episode Date: April 29, 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 WEEKDAY! 👉https://thewolfden.substack.com/   ►► The Arch Public Unleash algorithmic trading. Discover how algorithms used by hedge-funds are now accessible to traders looking for unparalleled insights and opportunities!  👉https://thearchpublic.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 ‘25OFF’ FOR 25% OFF WHEN VISITING MY LINK.  👉 https://tradingalpha.io/?via=scottmelker ►►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   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 1:30 Stagflation 6:00 A path to deflation 13:15 The real unemployment data 15:00 Japanese yen 25:00 US vs Japanese bonds 31:30 Taxing unrealized capital gains 38:20 Debt maturity 39:50 Fed rate cut? 44:00 Yield curve 48:30 Hangover from a perfect storm 50:00 Ethereum - a security? 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.

New economic data has been less than encouraging over the past few weeks. Are we entering the worst possible scenario for the United States? And could Bitcoin be an answer to that for retail investors looking to hedge against this insanity? Today, we're going to be talking stagflation, recession, depression, or are we all just overreacting and everything's totally fine? I'm going to dig into it today with our three amazing guests, James Lavish, Mike McGlone, and of course, Dave Weisberger. It's Macro Monday, people. Let's go what is up everybody i am scott melker also known as the wolf of all streets

before we get started please subscribe to the channel hit that like button also my mic is on the airpods and i'm gonna switch it right now i should now sound... I just realized that even after thousands of shows, I forget to check which microphone I'm talking into because that's me. Guys, we've got Macro Monday, of course, bringing on three guests. We got James, Mike, and Dave. Good morning, gentlemen.

Today, we're not going to talk MLC about cold like I did with Peter Schiff on my podcast yesterday. My God, I don't know if you guys probably did not see it, but I literally started the entire conversation saying, Hey, man, you've had a million conversations arguing about Bitcoin. I don't want to do that. I want to talk about the 99% of things that gold bugs and Bitcoiners agree on. And he just ripped on Bitcoin for an hour. I don't know how hard I tried. Couldn't get him to stop. Couldn't get him to stop. of things that gold bugs and Bitcoiners agree on. And he just ripped on Bitcoin for an hour.

How hard I tried. Couldn't get him to stop. Couldn't get him to stop. It was out of control. So let's not talk about it. He's obsessed. It's just, it's actually, it's almost embarrassing. He's just obsessed.

Almost? Yeah, it was. It's Monday morning, Dave. I'm coming out of the gates nice and slow here. Screw that, baby. All right. So listen, James, we're going to start with you today because we're talking about stagflation, which I would argue maybe not the worst possible scenario. I think Mike could probably give us a worse scenario than stagflation.

But you wrote about this is the U.S. economy and stagflation in the informationist yesterday, anyone who's not subscribed to James newsletter, have fun staying poor. But let's at least dig into the basics here of stagflation. And if that is what we are, in fact, experiencing, of course, guys, that's high inflation, high unemployment, stagnant, stagnant demand. The reason we're talking about this is because GDP came in slow last week. And of course, inflation seemingly rising, which starts to have echoes of the 1970s. But James, have at it. Yeah. So, I mean, all of us here, except you, Scott, but I was alive. I caught the tail end of this. The Gen Xers here have lived through stagflation and it was not fun. It was awful. So what does it mean? It's what you just said. It's high inflation, a high inflationary environment while you have

stagnation in the economy. And so it makes it very difficult for working people, people who don't have a lot of assets. And so with a growing separation of wealth in America, this will only be worse for a couple of reasons. Number one, because of the growing wealth divide. That's one thing. But the second thing is, back in the 1970s, when we had stagflation, the problem is that it puts the Fed in a very difficult position. If they raise rates in a stagflation environment, then they could further suppress the economy, which would just make things worse. So you go further into a recession or maybe into negative growth, you go into actual contraction. Right now,

we're not contracting, but we saw that in the 70s that we were contracting. So you can do that, and that would help inflation, but it would really hurt the economy. Or on the flip side, if you loosen your policy, then it could make inflation worse. So it's really it's a very difficult position to be in. But the but the unique situation we find ourselves in today is that back in the 70s, our debt to GDP was only about 30 percent. And today it's it's upward of almost one hundred and thirty percent. So it's a completely different problem with kind of the same parameters. And so where we are now is, I would say we're teetering on stagflation because we have very sticky inflation that we've been watching. This is, you know, over the last number of months, we've been watching

inflation stick above 3%. We've talked about why. We've talked about how fiscal dominance and spending out of the government is encouraging this or really causing this. That's number one. You've got an economy that's kind of slowed down. It's grinding down a little bit. We've seen that over the last couple of quarters. But is it contracting yet? No. So we're not quite there yet. And then the last piece of that is unemployment. Unemployment has stuck below 4% and we're still there. It's definitely noisy. And we've talked about that on this show the last number of times. But this is going to tee up Mike and Dave to kind of talk through these issues where we are now, because we're kind of on the

edge. And I don't see us yet quite in stagflation, but it is the Fed nightmare for us to head into that. And so we're right there. And the question is, do we fall head first into that? And how bad does it get? Mike, when we talk about stagflation, that implies inflation rising and being sticky. You obviously believe we're in a deflationary environment, which I would assume means you don't think stagflation is coming. Well, I think James is right. And right now we are in a soft landing stagflation period, but that is insignificant for where we will be a year or two from now. In fact, I think it's the path towards deflation. So first, let's start with the number one source of

the second largest economy in the world. Chinese government bond yield, CGB, has dropped to the lowest in our database last week. They bounced a little bit since 2005. So that's 20, 20 years. That's a sign of severe deflationary forces. From my standpoint, I look at commodities and I look at price of crude oil. It first traded this price at price of crude oil. It first traded this price, $83 in 2007.

Corn, copper, wheat are almost all the same way. So from a commodity standpoint, it's severe deflation. Now, that's, of course, my bias. But I think the key thing is to point out now is what's happening is we're going to see a Powell pivot back towards tightening. That's what our chief economist, Ana Wong, says. And partly because we're seeing a bounce in all risk assets, particularly stock markets, is boosting inflation. And it's almost, I think, the highest correlation ever where our inflation now is completely correlated with the stock market, more so than maybe the 1930s or 20s and more so than ever. People are more exposed. And it's even been admitted by the Fed that his pivot was too early to help create that inflation.

We could see an economy expect unemployment to rise to 4.5% this year, particularly Powell pivots. Our chief strategist, Ira Jersey, says he thinks there's a 30% chance the Fed might tilt towards hiking. And this is what my problem I've always had with the Federal Reserve is they need someone with some market smarts on the Federal Reserve because he just did not have, we all knew that pivot back in December was silly. He just was going to goose the stock market and cryptos and it did.

And now we've had the goose and now we have to have a problem. They have to tilt back because we have too much inflation. So to me, this is just part of that transition. The number one force for inflation to decline will be when we finally get that back up in the stock market. And when James is speaking, it inspired me to just check. I love looking at the S&P 500 versus GDP. You just take GDP and trillions of dollars add to when you have S&P 500 since 1927, actually. And back in the 70s, you know, S&P 500 was well below the one to one ratio. Now we're about 1.9 versus GDP. If you know, like I said, GDP, just take those 28 trillion add to zeros. And it's just how expensive the U.S. stock market is.

So to me, that's the biggest problem. I'll tilt over to crude oil and I'll end with crude oil. I think crude oil has peaked for this year. No risk in saying that. But when you talk about crude, Mike, you've got to put it in context in relation to the 70s of how powerful an impact to the stagflation that was back in the 70s. So it's back up right now. Exactly. 70s, we all lived through it. It was significant. It took decades to get there. This has been people are misunderstanding inflation now. This took a series of 100 year events that all happened in a short period of time with the unlimited friendship in the war and COVID and supply chains and just shutting down. And then the massive biggest money pump in history. Now, money supply is still negative. It's just going to take a while to go lower.

And it's just a matter of time reverting to lower. So you mentioned the 70s. 1979 was the first time WTI crude oil printed $40 a barrel. The last three lows in crude oil since 2015 or so have been around 40 or lower. I expect it to happen. So I'll just end with what I think happened in crude oils. Like I mentioned, $83 was the first trade in 2007. And what was big this pocket into the micro is managed money net positions in all petroleum

futures peaked around 15% of open interest. That's exactly about what they did last year when it was around $95 a billion. And it dropped to the end of the year below 70. I think it's going to happen. And here's the key thing to think about. It's not underestimate who drives crude oil prices. It's not opaque. It's leveraged futures positions. A lot of us have done that and i used to do that and they were

they're just starting to liquidate and the key thing to keep crude oil up is you need some demand pull from china which is you look at bonnie it's the same there's a big problem there and some kind of supply disruption from geopolitical events which is not happening in the lessons of all the wars iran ira, and then Iraq, Kuwait, is these wars oftentimes produce significant pressure on commodities after the bounce. And I'll also end with the key, what was the epicenter of Vladimir Putin's invasion of Ukraine was the grains, and the grains are plunging. I want to, Dave, before you jump in, I just want to say something. James, you obviously pointed out that debt to GDP is a much bigger problem in this environment than it was in the 70s. But if we're just covering stagflation of the 70s versus now, there are also things that are quote unquote better now. Obviously, we have high stock market. Unemployment is half of what it was in the 70s. And CPI is meaningfully lower than it was in the 70s for now. So this could be the early,

as you've always said, unemployment's a hockey stick. Once it starts going, it really starts going. And I want to point out one other thing, Dave, before we jump in. This is what's commonly called the misery index, unemployment rate plus CPI. For people who don't know, if you look at the 70s, it was above 12 for an entire decade. Now we're still down at seven. And even in COVID, only got up to about 15, very temporarily. So a lot of people pointing at this and saying it may be stagflation, but it's not killing people in the same way. Yeah. Yeah. The point is that we're headed in the wrong direction. And and a few, you know, if we do have a steep drawdown in the markets, like Mike said, it's going to solve the inflation problem. But if you have the Treasury come out and this week they're going to announce the

refunding, and it really depends on how much stimulus we're getting out of Congress. How much are they going to spend? How much are they going to spend this year? And how much stimulus we're getting out of Congress. How much are they going to spend? How much are they going to spend this year? And how much is that going to ban the fires of inflation? And does that exacerbate the issue? Because higher rates on the long end are actually, they may not really help inflation as much as people think. And we've got, I can't remember what exactly the

number is, the amount of debt that has to be repriced this year. It's like 35%. This year, 32% this year has to be repriced. So it's significant. and the amount of T-bills that we're tilting towards is significant. So because we are in we are going to be paying one point two to one point five trillion dollars on interest, you know, by the end of this year. This is that this is just on interest out of the Treasury. So it's it's a it's a significant difference. Your turn, Dave. As the only monetarist on this panel, I'm sometimes amazed at the philosophical differences. Repeat, with $2 trillion deficits, there's no such thing as deflation. We have inflation. It is monetary.

We are printing money full stop. Commodities, which are impacted by our technological ability to extract and directly impacted by industrial demand, which when things get bad, go down, is not the only thing that matters. When we look at all the statistics that are going on, there's a lot of cross currents here. I mean, I lost track of how many things I disagreed with over the last five minutes, but let's see if I can get a few of them. We already talked about commodities, unemployment.

Our unemployment statistics, if you get rid of the gig economy, which you didn't have in the data in the 70s because there was none, would look remarkably different. Most of the new jobs, we've already shown it. I mean, we've talked about it's in the data. Most of the new jobs that have been created,

in fact, almost more than all of them because we've actually lost jobs that are full-time and part-time. And so that misery index doesn't really, really apply. And government jobs. Right. Well, that's true too. The government jobs. They're real jobs. They are real jobs. Government ones are real jobs. It's just that they crowd out the economy.

Debt to GDPs, there is literally one example of a country, and we need to talk about it. There's one example of a country throughout history who need to talk about it, there's one example of a country throughout history who's gotten to a debt-to-GDP where we are now, everyone other than Germany and the G7 is, one that hasn't gone into a debt spiral. That's Japan. How are they looking right now? I would argue that having gone into debt spirals is a very strong statement. If you look at how the yen traded just last night. I'm going there. I advise everybody to run to read Arthur Hayes' last message. And what he says, and I think he's right, is that between Japan and the United States, liquidity is coming.

You know, he likes to phrase it differently. I would say my Paul Revere moment is liquidity is coming, liquidity is coming. If you look at what's going on, think about it this way. You're the Japanese government. You are stuck. You cannot cannot imply create export controls or capital controls because you're a trade dominated economy right so that's just off the table so now what do they do they have bond yields that are crazy low considering their debt to GDP over 200 and whatever percent it is and and you know they understand that the carry trade huge. I don't know what the number is. I've heard it anywhere from 5 or 6 trillion to 20 trillion in the carry trade. For those who don't know what the carry trade is, it's when your local neighborhood hedge fund borrows a ton of yen,

short uses it as collateral to short JGBs, and at the same time buys us treasuries. So you have, you're buying treasuries, keeping our yields lower. You're selling JGBs, which theoretically should make the Japanese yield go up, except the Japanese government is like, screw this. We can't allow our yield to go up or our government can't fund itself. So we're going to buy the JGBs. So what's the hiccup in this? Well, what happens if the Japanese exchange rate starts to get weaker and weaker? And just so we understand it, 150 was their line in the sand. We're now at 156 or so. So obviously that line in the sand is gone. We'll wait for the next one. My guess will be somewhere around 200. Well, this is, I mean...

Well, let me just finish the thought because this is going to end with a question for you. Yeah. So where does the game theory play out? Well, the weird part is, is if the yen continues to depreciate against the dollar, the carry trade guys make more money. The people who lose are,

is obviously the Japanese. And you end up importing inflation. So if you're the Japanese government, and you have these hedge fund guys, and they are, they're all piled into this trade, making absolute fortunes. And when it depreciates, they do better. What do you do? Well, I mean, look, there's only one or two answers, really. Either they hope the U.S. cuts rates so as to make the trade less profitable, or more likely, they're going to start making it much harder to borrow and short sell JGBs. That has to happen because it's literally the only thing they can do other than than that other than qe infinity and buying it from them so i think it'll be really interesting to game theory this out james and i'm very curious what you think what you see because it feels it feels to me like the japanese he's like well never mind let's just say just to be clear we saw 160 to 154 on the USD-JPY pair today.

In hours, in a few hours. That's absolutely mental. In a major world currency, this is absolutely mental that it is traded in that range today. This is insanity. So what's happening, and dave you make the awesome points so so important about the yen and about what's going on in the carry trade and about the big players who are who are involved in this trade what's important to understand though is that the yen is the escape valve that is where the pressure is being relieved and so as as they continue to borrow the yen and and short the jgbs to buy u.s treasuries for better yield and it it's

more complicated than that because you have future uh hedges in this but the long and short of it is it's it's just pure pressure on the yen so what does the what does the bank of japan the ministry of finance have to do in japan They have to support the yen somehow. How do they do that? They have to buy yen, sell dollar. How do they do that? Well, if people don't realize this, but maybe, I mean, I'm sure some of your viewers do realize this, Scott, but for some of you who don't understand this, Japan is the largest holder

of U.S. treasuries in the world. They hold over $1 the largest holder of U.S. treasuries in the world. They hold over $1.1 trillion of U.S. treasuries. It's very easy for them to turn around and go sell U.S. treasuries to have dollars to sell to buy yen. Sell U.S. treasury, get U.S. dollars, sell U.S. dollar, buy yen. That's the Bank of Japan trade right there. And to think that they didn't come in last night to intervene, of course they did. When asked about it, it was no comment. It's a Japanese holiday today. And the only thing that they have done that, in my opinion, has been very clever is to keep the markets guessing because they just keep they will not answer exactly what lines are drawn in the sand they keep giving you ranges they won't

answer when or how they will intervene they just do it and on a holiday and they and then they step away so as a trader as a hedge fund that is it's dangerous to get over extended in a trade when you don't know what the rules of the game are all you know is that the game is being played and it's violent these moves are violent and you can get upside down very quickly and that's what they're hoping to do they're hoping to hurt enough traders that they get out of this game and it helps their cause but the reality is they have no choice they have to keep printing yen and play this game and it helps their cause. But the reality is they have no choice. They have to keep printing yen and play this game. They don't have any choice.

The only other thing I would say is that I would expect, and I wouldn't, let's say this, I would not be surprised if we see Yellen get on a plane to Japan sometime this next quarter. And when she does that, the question is, what kind of swap lines are we opening with Japan to make sure that they have enough dollars

in order to keep their currency in check and they don't have to sell treasuries and compete with the U.S. Treasury on their refunding, which I think is going to get into the trillions this year. So that's kind of where we're at.

So at a basic level, you're saying Yellen's- That's liquidity. Just think about that. That was literally Arthur's exact point, that the swap lines are going to increase and that money is coming into risk assets, full stop. You're saying the fear for the US is that they have to sell treasuries to support the yen.

So Yellen flies over there and says, don't sell our treasuries. If our U.S. treasury needs a trillion dollars of liquidity this year, then how are they going to compete with Japan with a trillion? They can't. That's a non-starter. They have got to stop that. So how do we stop it? Swap lines. Dave can unpack the swap lines. Well, I mean, without going into mechanics, I mean, look, the reality is there's no alternative but somehow to float this stuff. And, you know, the various ways of injecting liquidity differ. It will depend on what the Japanese government does. You know, if you look at Japan with an aging population, inflation there is disastrous. If you think inflation is bad here, actual inflation in Japan with the number of people on fixed incomes would be catastrophic. The government would be voted

out immediately. So they're going to do everything they can to keep their stagflation going, right? They want Mike to be right. They want you to be able to print infinite amounts of money and have consumer prices continue to go down. That's what they want and need. And just like the US government needs long rates to stay at least in the level where they are now and not break above 5% or whatever. From a federal funding point of view, Japan needs the consumer inflation to stay low. Never bet against a desperate government with the power that they have.

And so to me, it feels like almost impossible to see that. But liquidity matters. And every time, the core of Mike and my disagreements over the last two years, when he talked about a great reset, is I call bullshit that the liquidity is going to stop, that they're going to do a reset. Yeah, they raise rates, but they've been continuing to pump liquidity into the system at the same time. Don't confuse the price of money with the amount of money. I mean, theoretically, they're related, but they have a lot of levers to pull. And that's what we've been seeing.

So, look, I'm not a doomer. I don't believe the carry trade is going to implode and we're going to have an Asian currency crisis, which is a large part of what people have been saying over the weekend and whatever. I just don't see it because the funds are actually making more money as the end goes down and i think that the escape valve james is exactly right at the end will go down and it's a question of how much can the bank of japan accept well yeah question what what the people will accept so scott i put a uh a chart up uh to show the relationship for to understand what we're talking about. And Mike probably has this chart on his desktop right now.

So that white line, that's the difference in the rates between the U.S. 10-year treasury and the Japanese 10-year treasury. And you can see that that is up at 153 basis points. Right. So that that difference is that's what is causing this move in the end. You can see the yen, the blue line move along with that, that that increase in the difference in the yields. And that's the carry trade right there. But look at the end there, this blue line area at the end, it just pops up and that's where we are. The yen has tremendous pressure on it, but something's got to give. These will converge again.

It's just a question of where, are they gonna converge higher? Or is the yen gonna come back to earth and converge lower because the spread allows to decrease and Japan allows the spreads to move? So that's the question. But they will converge. It's just a question of where and when. Yeah, Mike, we got to get you in here. It's very simple.

We are turning Japanese. That's why I have to dispute Dave a little bit because it's happening in China clearly. Chinese government bonds have dropped to the lowest versus Japanese government bonds in our database. It's 150 basis points different just a few years ago. It's 300 basis points different just a few years ago. It's 300 basis points different. The property crisis and the valuation of the stock market in China last few years reached just about the same percentage that the extremes in Japan did when they peaked in 1989 and 1990. I used to work for Japanese firms. I remember being there, running around that palace. It was the same value of the entire state of California. It's happening in China now, and you have to expect it not to

trickle down to this economy. And then we have the situation in the U.S. We have this unstoppable U.S. stock market that's lifting all assets. It's keeping the Fed vigilant from keeping inflation high. And that's going to flip at some point. Here's the key thing is the Fed will not ease until the stock market goes down, in my view at some point it's here's the key thing is the fed will not ease until stock market goes down in my view partly because it's part of the key thing is driving inflation there's your i'm not a doomer i'm just pointing out facts of trends that are happening now and then i look at what gets looked at volatility in in and it's vix the vix volatility index 52 week mover average of that minus the t-bill rate it's the lowest since right before the financial crisis so things i see are not doom and gloom. They're just factual based on trends. And that's why I

have to disagree with Dave. Because we are turning Japanese. We're going to go that way. And things like that, you don't get that massive liquidity pop until assets drop. And that's what's happening in our history. We didn't get the debasement of the currency until 1933 until the stock market was down 90%. We didn't get that in 1971 we didn't drop the gold standard until um until you know we could not pay for the dollar gold anymore with inflated dollars and japanese didn't start buying you know etfs until the stock market went down and that's why reasons gone up so that's one the missing link is asset valuations of stock market in this country are staying high means everything's fine.

That's where things trickle when you just get a normal correction after the biggest liquidity pump in history, which we haven't had yet. We've only had a little blip. I want to be clear. First of all, I don't think you are a doomer. I think what you just said is you've been very consistent about it. When it comes to the stock market and stretch valuations, I very much tend to agree with you. I think that a point I made before is the one that matters. What is the government managing? What do they care about? You just said it, and I don't disagree with you. I think we are completely on the same page. They care about the stock market. They care about keeping financialization ahead. What did I say two and a half years ago,

like when we first started this show, I don't remember when it was, but it was like two and a half years ago, I said that the genie got let out of the bottle and they all regret it in terms of we had asset inflation and consumer disinflation, and that's what the policymakers want because it allows them to make claims. It allows them to keep their jobs. That's what they want. And when you gave money directly to people and you cut the supply, as happened in the pandemic, well, not the pandemic, the pandemic response, which everyone keeps forgetting, is something that was completely mishandled. And effectively, what you did is reverse decades of policy that did what people wanted. Well, the reality is that Jeannie got let out of the bottle.

And now what do you do? There's only one way that the U.S. government could ever recover from the debt to GDP. There's only one way. And this administration is literally doing the opposite. They make George Costanza, the character on Seinfeld, look smart. I want to repeat this. There is only one way.

And it's massive deregulization and unleashing of innovation. It is the only way. And they are literally doing the exact opposite. And if people ask me why, people ask Ryan Selkis from, people ask, you know, Ryan Selkis from Masari, why is he like become a Trump supporter? I'm not a Trump supporter, but, you know, I can't vote for this administration. You can't vote against innovation.

And that's what they're doing. And it is a big deal. It is literally the same problem Japan had when Japan started. I didn't work for a Japanese firm, although Citi had a big stake. You know, we had a merger and we did a lot. I spent a lot of time in Tokyo in the 90s and in the early 2000s. And the one thing you learned in the 90s was that the Japanese government, Koretsu, the cross ownership and everything that was going on there, absolutely stunted any innovation and they lost the mantle. People, young people who are watching this don't remember will not know this but you go back into the archives it might be on

the internet you may have to go to a library look on microfiche but look at what newsweek and time and every single publication was talking about in the 80s they were talking about the japanese ex you know their way of manufacturing their companies, taking over the economy because they grew so fast. Well, what we learned was it was mostly stock market hype and that they weren't really innovating. What they were doing was being more efficient at manufacturing the stuff that was invented elsewhere. And that innovation stopped and the Japanese system couldn't innovate. Mike has made this point many times on this show, that America is the envy of the world,

our this, that. It's all about innovation. I'm driving to a point here because I want this to be clear. The reason the American economy is different and can get out of this optimistically is we could unleash our innovative forces, and it's something that matters. Yet last week, we saw arguably the single dumbest policy proposal ever made in this country come out of the Biden administration. Literally the dumbest. And by the way, people who have been watching me for years need to understand the magnitude of what I'm saying. But the literal dumbest policy proposal put out as a trial balloon to see if they want to put it in their platform in the summer.

Obviously, they're not going to because they look like idiots. But the policy proposal came out last week. Forget the 44 percent capital gains tax. That's dumb. But the notion of taxing 25% of unrealized capital gains is literally the single dumbest thing that's come out of someone who is employed by the federal government since this country was founded. This is a very low bar, by the way. By the way, it is a low bar. But I want to be clear about this, because if you did that, Silicon Valley, it would look like, I don't know if any one of you have watched the prime video show Fallout, where there's this huge smoking crater around where a city was growing after whatever. It would literally do, Palo Alto would be gone, literally gone.

There'd be nothing left because you cannot do venture capital. Cannot. If you're going to tax the unrealized capital gains of founders, they will all leave the shores of the United States. Gone. It would be that dumb. And I honestly, to me, it is breathtakingly stupid that you have advisors to the cadaver in chief, as people call it. I don't understand how anybody with an economics degree cannot understand that literally not one private startup would stay in the United States in that scenario. It would be that bad. I mean, just do the math. 25% a year.

Dave, for the record, I see a lot of people, I see a comment now, but I see this everywhere. The unrealized capital gains on those who have over 100 million in assets. These people firms, firms all have more than 100 million in assets. People. That's right. This isn't about me with my little firm, but let's look at other firms. So let's take my friend. And I am friends with him. So in my business business one of our competitors talos right you know they got a valuation in 2021 of one and a quarter billion okay from wherever where's that stock going to come from how are you going to sell that how are you going to motivate employees now you look at others you know you know how many private companies are worth over a billion dollars and have founders that on paper are over a hundred million? I mean, come on.

Just get a grip. In 1913, when they passed the frigging income tax, they said it would only be 1% or 2% of income and only be for a few people. It never goes in any direction other than- Oh, ever. Ever. And what's amazing about this, Dave, is that, first of all, an unrealized capital gain is going to become a very realized capital gain because if someone made $100 million on stock that they didn't realize, they're going to have to sell $25 million in stock to pay the quote unquote unrealized capital gains. And then it's going to obviously immediately go down and then they're going to have actually lost money. But think about what that does to the stock market if every single meaningful stock on every single meaningful exchange is getting

dumped on December 31st or whatever date because somebody has to pay unrealized capital gains. It would crush the entire stock market for everybody. Which, by the way, would allow the Fed to cut rates because Mike would be right. Yeah, we should move on. This is not going to happen. But if it does... But the reason I bring it up, Scott, because Mike is absolutely right. It is so mind bogglingly stupid that it will not happen. That is true. And I had four, five phone calls from people who basically, oh, my God, are they going to do this? What do we do? And my answer was what Mike said. What I said, what I said to Mike is it's not going to happen.

But what does it say about the people governing our country, running economic policy, that they would even float it as a travel? It's the getting votes and there's that disparity of rich versus poor. Exactly. You got, you nailed it. You can get more votes out of it, but yeah, it's silly, which is crushed the entire. Yeah, but they will get more votes just by floating it. That's right. That's right. The evil, the evil entrepreneur and billionaire and is the enemy if you want the votes for on that side. And so you can just say really stupid things and then people read the headline.

And most of those people will think that that thing actually passed or happened because they'll never bother to follow up and they'll vote. What's happening in the tape and the universities lately is the protests that typically that's bad for the incumbent. And now I think President Biden's getting it. But what are we seeing? The trial balloon is from Trump lately that they would Trump needs to control the Fed. Number one, it was a trial balloon. And if your employee federal government need to be loyal to Trump, that was kind of shocking. These things are third world country stuff. So they're both putting out pretty extreme streams out there. I mean, it's just but the bottom line populism, it's both populism. Yeah, that's it. Yeah. But one thing they both nailed, and Trump just kind of tipped the scales, was bashing China.

Everybody gets that. Bashing China works, particularly now that we have this unlimited friendship. Could have made it cozy. Could have coaxed up with Biden, but he coaxed up with the archenemy of the world. And that's kind of where I think things are going now. That's where the unstoppable power of the dollar is unstoppable. That's why I want to tilt back a little bit. We're talking only about intervention.

The Japanese have to intervene to support their currency. The Chinese have to intervene to support their currency. I've been reading Lynn Alden's book lately, Broken Money. And it's one thing, all history of dollars, it's always been the problem of the other countries. It's too strong. Why? Because there's no system that's even close or even better. And you're still getting a 5% T-bill rate.

That's the problem. That can't last. It's just crushing the world this five percent people at some point it's going to drop to japanese levels i think that's just a matter of time yeah and and it's you know i can share this so you can see we're talking about here um And here, let me share this one. Sorry. Just bear with me. I feel like Dave here. You guys see this? Yeah. So, so this is this we were talking about the refunding and where we are and what is maturing when so you can see here, we've got, you know, $9 trillion of debt that's maturing in a year or less.

It's 35% of the debt. And over 20 years or more, it's just 10%. But what you've seen is that we've basically taken this, the one to five year, the notes, and we've dropped them down to T-bills. So if you go back to before the pandemic, back in September of 2019, before we had that repo spike, it was just 27% was due in a year or less with 41% due in one to five years. And there were 12% of longer treasuries. But you can see that we've tilted all the way to the short end because of everything we're talking about because we we have we we have such a high rate of deficit here in in peace time this is just i mean this is just insanity it's it it this is the problem that we're that we're faced with right now and so everything we're talking about is yeah dave is right it's it we are we're going about is, yeah, Dave is right. We're going to have more capital come into the

markets because there's no choice. We have no choice. We have to keep it going. We must keep it going. And the question is, where does the intervention come from first? That can happen without rate cuts because we're seeing it. It can continue to happen on the fiscal side without it happening with monetary policy. So here, Fed rate cut. I brought this up before. Fed rate cut debate shifts from when toward if on inflation data. If you guys have been listening along here, we've been if. We were never when over here about the Fed rate cuts that have been priced in.

But they can do this without the Fed. Jerome Powell can just keep doing what he's doing and they'll find these other levers to pull. The other point that, I mean, because there's been so many statements and it's crazy. We talked about it last week, but I saw three more people. I mean, it's becoming a crescendo. There's a ridiculous narrative that cutting rates actually will lower inflation because it will lower rent. I mean, I keep, I mean, I'm presenting it without comment because I kind of want to hear Mike explain how dumb it is. I want him to get as jazzed as me, but I keep hearing it. What? You're on today. No, it's persistent. I mean, it's, it's look, all of this, it's like, you know, George Orwell is wherever he is, is, is, is just smiling thing. You see, you see,

and it doesn't matter what the issue is. I mean, there's so much nonsense out there, but it's great nonsense. So, because it's only happens at extremes. I remember hearing it from a Japanese client 15 years ago, um, about they should start hiking rates because it wasn't working. Um, and,'t working and a friend. And it's just what always happens at extremes. And that's why I think you're getting the sign of now. It's also people are, we all know how this happens. People in this country are too accustomed to risk assets going up. We've only had minor blips.

It's just always has happened in history. They have to learn the hard way that risk assets, your home can't double in 10 years every time the stock market can't double in just a couple of years, every time people get overweighted, it always happens in the center of your hearing scene. Now in the evaluations we're showing on the screen about the most I've ever seen from a U.S. stock market standpoint. That's why I look at, I tilt it over to me. The number one thing that matters right now is has this correction started or is it just another blip? But I like to point out that last week was the biggest up week in almost like a year and a half.

That usually happens in bear markets. Yeah. And it's because it's just purely political, Mike. There's no incentive for the for the administration to do anything and to put any pressure on the Fed to do anything that would, you know, push the market into a nosedive. It's purely political. They're not going to stop spending and they don't want the market to crash because that would look bad before November. And there is tremendous pressure on the Fed to lower rates. But I think that this week, I think that Powell is going to come out and I agree with Anna Wong. I think that they're going to come out and they're going to be they may turn hawkish.

I agree. I agree. And if they're going to turn super dovish, they'll do it in September, October. When we have to actually talk, Mike, sorry, I could just hear you clicking. When we have to talk about the election, when Biden has to look good, that's when we might start talking about it i still think we see mike's uh stock market correction over the next few months if we're going to see it and then it upticks back again in september and october ahead of the election everybody forgets we had a shitty summer we've seen that really now it would be but i don't it's really hard for me to see what do do you think, Mike? You said that Anna, she believes that the Fed's going to turn hawkish. I think they're going to be way less dovish

and probably turn hawkish and kind of walk back almost every single rate cut. Does turning hawkish mean a potential cut? I mean, a potential hike? No, but they're going to balance it with lowering QT. That's because they have to for the Treasury. The they're going to balance it with lowering QT. That's because they have to for the Treasury. The Treasury is going to come out with an announcement today on how much borrowing they need.

And then just a couple of days later, the Fed is going to be coming out as the same day that the actual schedule comes out. And so this is a tense week between these two entities. And so where is it? Let me ask you a question, James. So I'm looking at the yield curve right now. One month is, what's the overnight rate now? Five and what? Five and a half or five?

Five and a half. Five and a half. So their pricing to one month is 5365, right? So, you know, halfway, which is kind of in between, you know, in the target. So it's not really a cut. It basically, the curve is completely flat out to six months and then has 20 basis points down to a year and another 20 basis points out to two years. And then, I mean, another literally 20 basis points out to 10 years. You know, it's not very much. Right.

You know, so the question is, is the market more or less is saying the bond market is more or less saying maybe, maybe there'll be, you know, one 25 basis point cut. And that's that's what that is where the bond market is right now. Yeah. What does the hawkish mean? Does that mean that that you expect, mean that you expect that you'll get? Yeah. I mean, what does it mean? It doesn't do anything.

What do you think the yield curve should look like given where we are and given what we think? Yeah. But this is the question for the markets, the ages today, right, is is the 10 year being driven by the expectation of rate cuts or is it being driven by the expectation of entrenched inflation that the markets want to be compensated for? Are the bond vigilantes back? And that's the question. I don't think they're back yet, but the question is, how bad does this inflation turn for the next three, six months? And that's going to control the 10-year, in my opinion. How much is the treasury going to need to borrow? Because if you see the treasury come out and say that they need to borrow, you know, over $300 billion this quarter, then that's going to weigh on the 10 year, in my opinion, because it means that they're going to have to start moving out

on the duration curve. And that means that they're going and that investors are going to want to be compensated for that. Theoretically, yes, but I agree with Mike. When you look at the U.S., why is our yield so much higher than all these other countries that are less credit worthy? The answer is obviously manipulation, and it has to do with us maintaining the dollar as reserve currency. Mike's pointed out, I'm not exactly where we are today, but comparing us to Greece and Italy, what sane human being, if you were actually worried about being compensated for inflation risk, is saying, oh, yeah, you know, I'm really, I believe in the Greek and Italian government's ability to repay my debt in 10 years, much better

than that United States people. You know, come on. I mean, you know, these markets are there's a lot going. There are a lot of moving parts here. Right. But but but Mike's made that point many times. And he nails it every time he does. But I'm always laughing whenever you talk about it, because it's true. You know, the people, Bitcoiners and here's my Bitcoin snippet for today. Bitcoiners are all most Bitcoiners are all understanding that, yeah, the dollar may be the best damn fiat currency, but if the house of cards of fiat currencies, which is still an experiment that started in 1971, it is just not that long when it comes to economic history. If the fiat experiment is going to unravel because of the need for more and more liquidity and more and more does less and less in terms of the real economy, that that's why sound

money alternatives like Bitcoin and gold to some degree, but Bitcoin for sure in the digital world, that's why it will shine eventually. But it's still a risk asset right now. It's still a wannabe. It's still a, it right now. It's still a wannabe. It might become that sound money alternative. But everything we're talking about, you can't listen to this hour and come to the conclusion that, oh, yeah, everything's great. The fiat experiment is working beautifully. Everything is working exactly as prescribed. Our central planners,

they have our backs. Everything's going to be great. And unless you can come to that conclusion, then that's why you have an allocation to Bitcoin. Yeah. What do you guys think? Let me get Mike off from you. Go ahead. Yeah. So I'm sorry. I'm on my alternative technology this morning. I had to check the WRP function in the Bloombergberg terminal so when do we the thing that you've enjoyed scott forever you know when we're going to get that next cut now it's pushed out to november 7th and that's right around the election for the first time we get a 25 baseline cut it's not going to happen like i said until we see starboard go down i just don't

there's no reason for it and that's unfortunately the problem that markets start to figure it out but yeah it's not that complicated. It's just the pendulum has just swung way too far. So here's the problem. Still, I point out is I agree with the big picture of Bitcoin, but we just had the perfect storm for Bitcoin to make new highs. Now we're in the hangover. They had the perfect storm with ETFs, with beta going up and the habit. Now people just have to realize it's a hangover and it's still three times the volatility of the stock market.

That's my point. I just look at it as the fastest horse in the race has to be careful, and that's why I still tilt over to gold, because gold ETFs have been so much significant selling, so much despondency in gold. That's why I always like to look at an asset that people hate, and then I still have to admit the treasuries. I still think long bonds are going to be one of the best performers this year

i've been early been wrong but um it's that's the whole thing look what's happening in china second largest economy in the country in the world it's imploding and their their bond yields has collapsed um yeah maybe the government's buying the white because they have to yeah i don't know i actually just want to i just saw this literally hit the tape and it's kind of big and is not that relevant but we have five minutes i'm going to bring it up new court filings show sec chair gensler believed ethereum was a security for at least a year in this consensus suit it's saying that behind the curtain for better or for worse no matter what he says in public, and he just digs in pretty deep in the actual language between consensus and the SEC, but they very clearly believe it's a security, the SEC.

So if he hasn't said it publicly, the SEC has behind the scenes said that Ethereum is a security. Can I say I told you so? We know that, right? to do anything with digital asset securities as being told by the SEC something that they're saying in a fight with another organization, with the CFTC. I mean, it's just, it is such a mess. And the fact that you have Elizabeth Warren, you know, championing this, championing Gensler, taking the approach that we have absolutely no way to regulate or handle or even want to facilitate non-security digital assets. We believe that the second largest crypto is a security, except for the fact that there's another agency which says it isn't. And oh,

by the way, we approved ETFs on the basis of those commodity based futures on Ethereum. It's it is a self-contradictory Gordian knot clusterfuck that I don't know how anybody could think that what they're saying makes sense. You have people withholding the levers of power in this administration who have indefensible positions in terms of understanding the economy. The only way you could defend their position is if you come to the conclusion that all of digital assets is just a casino, that there's nothing remotely relevant in the technology going forward, and that it wouldn't solve problems in, lots of problems in terms of inefficiencies in capital markets. You have to take that extreme and, oh, by the way, be willing to destroy it without any congressional representation, i.e. taking the FTC from a neutral arbiter of investments that are not a merit-based regulator, that's Hester Peirce's nice, you know, sanitized version of saying it, it was set up not

to be a merit-based regulator, but basically taking that and flipping its on its end and saying, well, you know what, actually it should be, and we're going to trust them to run the economy, comrade, because that is literally what they're doing. And, you know, I know I'm a little bit crazy today, but it's maddening that this is what is running the economy. And what's maddening and just drives everybody crazy is we got craziness all over the place. I mean, we don't have an adult in the room here. We don't even have the prospect of an adult in the room here. And it's just, it makes everybody insane. But in this particular case, this story, I was going to respond. I saw Eleanor Tarrant, you know, breaking it on X. You know, this deserves some comment.

And trust me, I will comment on it. I totally agree. Go ahead, James. I agree with Dave. What can you add to that? It's true. I mean, we don't have an adult in the room. We're waiting. Do we have an adult on the planet? I don't know. Where do we have an adult? Which of these central banks or which Fed equivalent? I mean,

where do we have an adult? Yeah, we're not going to have an adult out of D. Yeah. We're not going to have an adult in, in, out of, out of DC just because, and go back to, you know, what, uh, just go back to what Jeff Booth says and you just follow the incentives and, uh, and that's, what's driving all of these decisions. And it's just, it's simple. The, the, the incentive based structure that we have is just, it's broken. And so so we need we need new incentive based structure and uh that's why bitcoiners are ultimately optimistic we sound like doomers we sound like what like the world's falling apart this everything's broken but we're we're ultimately optimist because we believe that there could be a better future if we had a different base for the money and get off this experiment that's just been disastrous in so many different ways yeah before we finish go ahead mike yep i just want one thing from

jeff booth he points out that humans are about a series of error corrections and we made mistake of too much liquidity and inflation and just two things i want to say about ethereum etfs will be a matter of time remember what happened with the Grayscale Bitcoin Trust? Well, right now, the Ethereum Bitcoin Trust, ETH, is about a 25% discount. Yeah. Really funny. We had Matthew Siegel on Spaces last week from VanEck. And he said, I keep joking with Jan, his boss, obviously, on VanEck,

that all we need is for gold and Bitcoin to go up massively so that we can have the war chest to sue the SEC on the Ethereum ETF. He literally said that out loud, which I thought was very funny. And one last thing, Mike, you said, you know, we had all these tailwinds and this perfect storm for Bitcoin. And now where are they? I mean, I've been saying this whole time, I could be wrong, but we always get this four to six month hangover that you mentioned, even with just the halving and without the ETF highs, right? I mean, this, for anyone who's surprised that we're just kind of chopping sideways and floating down, you haven't been here in the past for these cycles. I'm not saying it will repeat again, but it just doesn't concern me yet because we're still

sitting here kind of above 60,000 and ranging sideways after a new all-time high on low volume. We'll see, right? But if things get really ugly and Bitcoin's sitting around 60,000 and ranging sideways after a new all time high on low volume. We'll see. Right. But if things get really ugly and Bitcoin sitting around 60, yeah, we could we could see some fireworks, I think. Guys, this is continues to be my favorite hour of the week. I love the angry people in the comments arguing with one another. We've cultivated such a positive community. Oh, my God, it's hilarious.

Maybe we can be the adults in at least this room. We can try. It gives some perspective maybe people aren't getting elsewhere, but you guys are absolute legends. I love that we show up every week and do this. Thank you for that. Thank you everyone else. We'll see you Twitter spaces, I guess, in 15 minutes

and otherwise, see you back next Monday, 9 a.m. Eastern Standard Time. Thanks, gentlemen.