The Wolf Of All Streets - Were Economists Wrong? The Economy Is Not Collapsing. Market Rally | Macro Monday

Episode Date: July 3, 2023

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The stock market continues to rally with the Nasdaq putting it its best first six months in decades. Unexpected, but does that actually change anything? Is the most anticipated recession in history not going to come? Was it all overblown? Is everything fine? I think we're going to have a breadth of different opinions today on the show, of course, with Mike McGlone, Dave Weisberger, and special guest Alex Kruger, who may be taking the other side of that to the one that we've been taking on this show for many months in the past. You guys definitely do not want to miss this one. Let's go. like button. Now today may be, not sure, we're working on it, but maybe my only stream of the week because I'm going to be traveling. I'm headed to London for the, not for bad reasons, I should say, for the British Grand Prix Formula One this weekend. I'm lucky enough that OKX is hosting me to be there. I'm also shooting a commercial with them this week in London. So

just going to depend on scheduling, availability, accessibility. But today's show, I could not be more excited about. Obviously, everybody knows at this point that Macro Monday is my favorite day of the week. I get to sit here and listen and learn from people much smarter than myself, which is generally the goal of the channel. On this channel, I like to bring on smart people so that I can learn and then hopefully through osmosis, you guys also learn from them teaching me, especially those who are extremely experienced. Also, I should mention Twitter spaces today at 1015 a.m. Eastern Standard Time just got confirmation that Kyle Davies and Suzu of Three Arrows Capital will be joining and allowing us to ask them basically whatever we want about what has happened in the last year. I'm not sure that they've done an interview together yet. Hopefully

our team is prepping aggressively for that in the background right now while I'm here. But that is the plan. As we wait for Alex to show up, I'm going to go ahead and bring on Mike and Dave. Gentlemen, happy holiday. I appreciate you guys being here today because I know that we're celebrating independence. We do get a half a market day though, right? So it's not a completely a day off for markets. I thought that we were going to have a day off today. Actually, I wasn't even sure the markets were going to be open that I looked,

but they'll be completely closed tomorrow. But do you think we'll see anything meaningful today, Mike? Or do you think that it's going to be slow? Yeah yeah we got it all it was the end of the quarter end of the first half on friday we got it all there a little bit of pullback in nasdaq this morning but today's a non a nothing day and i remember a lot of my european colleagues that they'd love this time of year because it gets work done because the yanks are gone so uh i but um now it's a nothing day but it's a good time to catch up and i i enjoy um i don't know if we want to start out with outlooks or anything because dave mentioned when the else comes out we're gonna have

a big bit of a debate i potentially completely potentially want to lose that debate because it's just reality i know i know i want him to be um i just like because i hear he's got these different views which is great. But sometimes I like to lose debates and let markets decide whether you win or not a year or two from now. That's what's going to matter. Well, that's the only way. That's the funny thing about debates, right, is that by the time the person, one of them is chosen correct, everybody's forgotten that the debate even existed. It takes a long time. Well, it's less of what, if we all agree on this bullish narrative

for all these risk assets, you know what Benjamin Disraeli says, it's one thing about why the expected consensus that usually don't happen. That was definitely what happened in 1H. I was, most people, bearish equities, guilty. Bearish equities,

obviously expected a bounce. I didn't expect this much. But now what does it mean is what we're really moving into. And I look it it's okay it's keeping the fed on that tightening mode it's got everybody bullish and long and cryptos have underperformed now bitcoin on a risk adjusted basis is basically it's got a basically two two x the risk of the nasdaq on a volatility um you know two annual volatility basically kept up with the NASDAQ. But if I look at the Bloomberg Galaxy Crypto Index, the whole space, with the exception of

Bitcoin, it was a poor quarter if you look at a risk adjusted. You're taking that much extra risk, you better be doing better than the stock market. So I asked myself, that's great to make money, but what happens if this tide goes out in 2Q and 2H? So let's look at ourselves by the end of this year. Our Bloomberg economics team expects unemployment's going to be inching higher at 4.3%. Look at that body in motion. Has it even changed yet? And expect a mild recession. I still love that mild recession. Now, obviously, those of us who've been expecting recessions have been wrong completely, but I fully expect just a normal historical recession reciprocal to the amount of liquidity we pumped and dumped from the system. And also a key thing that's really changing is there's been a lot of extra liquidity from people

not having to make their student loan payments. That's off. We've had some major government programs. Those are going to be not ending, but curtailed soon as we get to election season. But for me the bottom line is yes maybe we'll get lucky and get that announcement that blackrock will get that crypto um that bitcoin etf and then of course all the other people like the wrinkle boss twins and everybody's been complaining for 10 years we'll get kind of upset but we'll go back there but that's a key thing that's an if statement and then i have to look we have to ask ourselves in cryptos and this is a sense I got in a

year ago in Crudewell when I looked around and everybody I spoke to was so bullish. And I was called the idiot in the room. I really appreciate being called the idiot in the room. I just sensed so much bullishness because the market went up. And if you look at the details of a broad index, it's really trading very poorly versus the equity market, which is going up a lot. Just for really quick, Dave, for some context, the reason that we kind of came up with this stream play was the title, was this article in Bloomberg, Stock Market Rally That Shopped Everyone Is Broadening Beyond Tech, right? I pointed out that this is a historic rally of

the NASDAQ over the past six months, but then the criticism clearly was, oh, it's all five or six stocks, right? And now there's some evidence that that is, oh, it's all five or six stocks. Right. And now there's some evidence that that is broadening and it's not just those stocks, which is leading people to be even more bullish. I'm going to go ahead. Hopefully Alex is ready. I see him in the back, but we're going to add him to the stream as well. Go ahead, Dave. So the only thing I want to comment on is the argument on Bitcoin beta and correlation or risk adjustment. The only word I can say to what Mike just said is bullshit. There's no, and I repeat, no stability in the beta of Bitcoin

or any of these apples for a very good reason, which I have made many, many times clear. But the data, when you see the beta and the correlation bounce from 100 to negative, know not but you know in the high double digits to the low double digits and back and forth within a year that is a level of instability that predictions are it's just it's just it's random noise now why is it random noise i've made this point many many many, many times. Bitcoin trades like an option on its own long-term adoption, period. It is not trading like an asset because Bitcoin is every single Bitcoiner, not everyone,

but the 80 some odd percent of hodlers that are holding Bitcoin for a very long time at an all time high are doing so because they believe Bitcoin will demonetize gold and beyond. Now, a little bit of financial history again, just to make the point clear, is gold's market cap is right now, today, unlike 1971, represents about 10%, maybe 8% of total monetary aggregates in the world, and it's a double-digit trillion market cap. If you go back 50 years before that or 100 years before that, gold and silver more or less shared the monetary aggregate. They were at 100% then. Gold eventually demonetized

silver. Silver no longer trades monetarily. Metals like platinum, which are equally useful industrially actually more so, and equally useful in jewelry actually more so, and are much scarcer in the earth's crust, are worth a lot less. So the argument on so, and they're much scarcer in the earth's crust or worth a lot less. So the argument on Bitcoin, and it's really an argument, the market is pricing it at around 4% probability of it becoming digital gold, but actually there are people in the Bitcoin community who believe it will go well beyond that. And the fact of the matter is when you're talking about a 20x potential rise versus a fall into obscurity or irrelevance, that makes correlation with risk assets coincidental during periods of time. Now, the reason that you see high spikes in correlation is for a very simple one,

and that is it's a very speculative asset. It's an option after all. And the human beings that are doing speculation are the same ones that are speculating on risk assets. And so when there's a massive event, they have no choice. And so it becomes the first thing to be sold when there's one of these macro events. But when we're not having it on the downside for a macro event, that correlation evaporates and it actually goes the other way. So I'm tired of hearing the argument that when the market sells off, Bitcoin will get crushed, but Bitcoin will never have outperformance to the upside because I think that's wrong. I think Bitcoin trades based on its own factors. And we could talk about that, but because Alex is here and he's written-

Yeah, we got to go into here because we have varied opinions. And I think by this Monday, after all the months, I think we know where all the three of us stand on Bitcoin and its correlation or non-correlation and where that's going to head in the future. But Alex, obviously, you can see the title here. We're economists wrong. The economy is not collapsing. There's been consensus that a recession is coming and it seems to never come. The stops just had a historic six months. So where do you stand in general on where the economy is, where the stock market is, and where it's heading? Morning, guys.

Sorry for being late. No, you're good. Well, I've been bullish all year, rather openly. So I'm going to basically squeeze the bull by the balls. I've been trying this up, and we tried it as your friend. So there's actually many reasons for stocks going up the way they've been going up. There's particularly

three reasons that simply make sense, and one of them was clear from the very, very beginning. The other one emerged as the year went through, and the third one just hit us in the face with chat GPT and generative AI basically and the earnings literally blowing up to the upside

and just changing the market. The first one is the Fed. The Fed being basically done by at least 90%. Maybe it's the way to think about it is the Fed last year in 2022 delivered its fastest tightening cycle in history by a very large margin, delivered 20. In total so far, we've had 20 hikes. So the way to think about it is by the end of this year, we will likely have, if we believe the Fed, the FOMC, which I think we should, we will likely have 22 hikes of 25 basis points. And if you think about it, that will put the total number of hikes at 22. So we have 20 hikes so far in, which is what we have. So 5.25% versus 25 basis points at which point we started. That's 20 hikes. By the end of the year, we will have 22. That's basically 90% done.

So the way to think about it is very simple. What difference does it make if the Fed ends up being hawkish and instead of being 22 hikes, we get 23 or 24? Well, the answer is not that much. So that's the first point that actually was clear from January 1st. The second one is the fact that the economy actually has been doing very well, has been resilient. The U.S. economy, not Europe, not China, but the U.S. economy has been beating expectations very consistently all throughout the year. And although it emerged, this fact, it was rather also kind of predictable and i do want to say it's like i i i've been talking about this uh uh since uh last year and um it's the fact that basically when when we have

what's been literally the most widely predicted recession in history, what happens is economic factors front-run this. They start adjusting their forecast down. Everybody gets various. And then afterwards, when the time comes, beating expectations becomes rather easy. That's what happened.

So those are the three variables. If you have to think about it, again, it's AI, the Fed being almost done, and growth in the U.S., and once again, the U.S. alone beating expectations considerably all throughout the year. Mike? Well, thanks. Those are no-no's. We appreciate that, Alex. And number one, congratulations for getting it right. It's the next six months that matter. And I get that about recession. But here's the key thing I want to ask you about is the market went up. Did it go up? Are you expecting it to go up because it went up? That's what I love my favorite technical analysis. I remember dealing that with customers. So it broke through resistance. It's going to go higher. The key reason I think it might've gone up, most markets went up, is because it went down. That is the main reason the crude oil market went down. And that's the

main reason I think it's going to keep going down. But here's the issue is we are trying to predict with most of us maybe have in front of me, the terminal, I have minimum standard 50 years of data, trying to predict the aftermath of 100 years events with 50 years data. So last few weekends, I went back to analyze most of the crises over history. Main ones in this country is the panic of 1907 and then 1930. I didn't say 2089, I said 1930, because I compare this year to 1930. Stock market went up 50% from the bottom and the rest is history. So for me, the bottom line is we are still in the midst of the Fed tightening. So if you look at Fed rate height expectations, they're still probably not going to peak until five, let me just

pull that up until 5.4% in November and right now the 5.08, the effective rate. So there's still a lot more hikes in the system. And then the key thing I like to ask is, we have such a lagging, the Fed watches such lagging measures of inflation, personal consumption, expenditures, employment costs, and they've been stuck at 4% to 5% ever. But you look at the trajectory, they're starting to head lower, Fed funds still heading higher. So you have to expect all the lessons of liquidity not to matter for us not to have a recession and for us not to have a decent correction in the stock market. So now let's tilt that over to cryptos. I like to point out the fastest horse in the race, cryptos, have had an okay quarter. They went up about the same. The Bloomberg Galaxy Crypto Index went up more than the NASDAQ. It should

because it trades at basically a much higher volatility, but it's showing divergent weakness. Now, we're all getting bullish Bitcoin because we're supposed to get that ETF in the US. That's still in its statement. So I look at it going towards, let's say, by the next six months. So I hope you're right. I truly hope you're right, that we're going to get this continued. Now, we're not going to have a recession. Everything's fine. Fed can keep tightening. The biggest pump in liquidity that's dumping is not going to matter. To me, it's the delayed reaction. Then the numbers I'm seeing are specific. This is one thing I did expect. It's a market get all excited because inflation is dropping rapidly, but that's what happens

in depressions and recessions. So right now, the producer price index is negative. The finished goods index, it's a year over year index, and it's dropping. It's the fastest pace in history. Yes, my data only goes back to 1948. It was really hard for me to compare how fast that dropped in 1930. But to me, that's the macro I'm pointing out. And I'm really happy to be considered wrong by the end of this year for being Mick Gloom by pointing out these facts. And then we have to be, I'll end with this. We have to be very careful pointing out that market's going to go up because it went up. Now we're at the stage that might go down because it went up. Now I get AI. I mean, remember I was trading when we had the internet bubble. I was trading when we had all

those fuel cell stocks. I remember they're great. But the key thing for next half, the second half of this year is the way I look at cryptos, narrow this cryptos if we don't get a higher plateau from the stock market that to me is the domino factor that's extremely negative for everything meaning the fed will have tightened those those tightenings that have kicked in are still priced in and will be in for a while they're not going to be easing like they haven't in the past it'll start tilting lower and then there'll be nothing to save us. You've probably been trading for 20 years or so, I'm guessing, and every single time the market went down, the Fed saved you, that's taint. So I'll pass it back to you. And again, I hope you win this debate today. To me,

it's really what happens to markets by the end of this year. This is the most concern I've ever been in my 35 years of being in the business about what can happen. I compare it to the 1930. It's a massive bull trap, basically. I think so. Yep. Bottom line is don't fight the Fed. The Fed's still tightening.

Got another 30 basis points still priced in the market. And they're going to keep doing it. I think they're at the mode now. They're going to keep tightening until the market tells them not to, the stock market. That's the problem. The pricing in aspect of it is so laughable to me. You're correct. It's just it changes so dramatically on the whim of an individual Fed speaker.

And I mean, there's been times of this year when we were pricing in, you know, five cuts, right, by the end of the year. And then one statement from Powell, and all of a sudden no cuts by the end of the year. Or a 70% chance tomorrow that it becomes a 30% chance. So I find it hard to utilize anyone's predictions as to what's going to happen. But I think the only facts we have is that they keep saying they're going to tighten. So the market doesn't seem to want to listen to them.

I have, literally, every meeting says, we're going to tighten, we're going to tighten tighten we're gonna tighten i have the thing about um predicting something that's really never happened in everybody's lifetimes is you have to take that risk of going through these little nuances and i think we're in that i'm willing to take that risk that yes this is a very unusual thing for something like me in my position to point out but i see it every day i see all these indications i mean, you have to ask yourself, why did the smartest people in Wall Street completely miss the collapse in commodities this year?

Because they're missing what's happening geopolitically in China. China's tilting over to me. I mean, some of us saw the Soviet Union collapse and Japan collapse. I was trading equities in the 90s when that happened. These things are macro hundred-year cycles that are peaking in the 90s when that happened. These things are macro hundred-year cycles that are kicking in the way I see it. And the US, I published this morning, the Dow Jones Industrial Index divided by GDP at the end of 21, right before the Fed started tightening in 22, versus GDP was a high since 1937. So yeah, equities were expensive and still are historically

versus everything. And to me, this is that great reset that hasn't even started. But the key thing was the leader of all this for cryptos, 25,000 of them. And the point that they're still, yeah, they're bouncing, but we see what's happening. There's only one that's a star on an if statement and the rest are like, yeah, there's 25,000 of them. I'm long from way here and I'm hoping someone will save me and the Fed's not going to do that. Well, the way I see it, basically what's going to happen is

positioning is what's going to save us because everybody's been so bearish and a lot of very smart people with a lot of money being bearish all year and they're not positioned. Especially on crypto, we go into crypto and Bitcoin. They're most definitely not positioned.

From what I gather, most people on average exposure of smart money is under 60%. In a bull market, that will be 100%. So what's happening is we have Bitcoin, we have very strong news of the BlackRock ETF, the BlackRock Bitcoin ETF likely being approved. It's debatable if it's going to be approved or not. The probability is debatable. The point is right now we just put 20% on this news and the probability is definitely, its opinion but definitely above 50 percent if not around 75 percent so the point is the market on one hand market is not positioned right for this that's the first point the second point is the news are huge and not properly priced

in yet or in a technical basis, we're right at the edge of resistance with basically what is called an air pocket right above between 31K to 37K, 37K being the Luna level from May whatever, May 18th or that fatidic weekend where most of us had almost a heart attack and some of us basically went out

and danced in joy as their well anyway that's that's basically the point in bitcoin we're right at the edge of a breakout and once it breaks it should keep on running i do want to say on the correlation side it was the regulators in the u.s got very aggressive this year, starting early April. Many large market makers started taking a step outside of the market. That made correlations break down to basically back to 2020 levels before Bitcoin was a macro asset. That is temporary. I think I want to stress that is temporary.

This is very important. Correlations with risk assets going to come back up, especially if we get that ETF. We're going to get all these new market makers. They're going to make Bitcoin start trading just like it was before. So yeah, risk assets, if you're looking at Bitcoin, risk assets pretty soon going to start mattering once again a lot. So the correlations will return. It's interesting. Go ahead, Dave, please. I'm just going to make one point. I think that it's important to have two discussions, right? The Main Street macro discussion is extremely important and Mike's thesis,

which I think is true, at least in one to one and one for sure, and I've been agreeing with him for six months, which is the Fed will keep acting until the stock market forces them not to. Or I add to that, the presidential race has started in earnest and they're going to back the hell off because they don't want to be accused of electing one candidate or the other. But i do think on the bitcoin thing it's extra bitcoin side it's extremely important to understand that were that what happened last week in and of itself should be propelling bitcoin significantly higher uh if it wasn't for fact that there's all these macro factors. Keep in mind, whether or not BlackRock or Fidelity gets approved, what is incredibly important about the news from last

week is two of the top four asset managers in the world have both declared their support for Bitcoin as an asset class. It's no longer fake magic internet money. And when that happens, that is probably the single biggest news we had for probability of long-term adoption that we've had over the last year and a half, certainly since Luna blew up. And 20% in Bitcoin is minuscule. If you do a three-year chart of the Bitcoin hash rate versus price, you see one of the most obvious stat-arm plays in the history of stat-arm plays. I mean, literally, you can pull it up, Scott. Just do, you know how to do it. I mean, you see a monotonically, tightly increasing, looks like the S&P from 2009 through 2000 and whatever, whatever, through the pandemic, the the beginning of the pandemic is the hash rate the network growth and you see a double top followed by a

fall followed by what looks like a very obvious and i hate inverse heading shoulders i hate all the magic mumbo jumbo but a massive dichotomy uh if i ever see a chart like this i want to be short the top line and along the bottom line. Can you pull it up? Where do we look at it exactly? Let me usually pull it up. Yeah, just share it. You share your screen. Presents right below. Guys, we're treading into new territory here. We might see Dave's screen.

Crazy. Is this working? Yeah, you're gotcha. And you see this. This is the Bitcoin hash rate. I mean, yeah, it squiggles a bit, but the network is continuing to grow. Global adoption is continuing to move. This is the first, basically the first attempt and then the second attempt post pandemic, and then all of a sudden then we have Luna, ba-boom, ba-boom then we had Celsius, Voyager, ba-boom, ba-boom

then we had FTX down here actually right around here and then we've been kind of meandering higher. You know, this isn't random. You don't see these sorts of things very often. When you do, if you basically shorted this and bought this, you know, it doesn't really matter because this is the one fundamental on Bitcoin. And we just had last week, so I'm going to say

it again, two of the top four asset managers in the world, not just talk, but both said, this is a product we want to offer to our customers. That is a very big deal. And regardless of whether we have to wait for an end of the Gensler SEC or not, I personally think not. I think that that's much too much pressure for the SEC to continue to do something where the courts are effectively going to say your arguments are bullshit. I don't think they're going to be able to stand up to that. But even without that, if we're talking about long-term adoption, that is a very big deal. And I think that's worth pointing out. So those are completely agreed. And some of the things that you and Alex said are things that I wrote about years ago,

about when we, before we launched Bitto. Exactly the cash and carry trade. It's happening completely. This is just the next step of it. Completely agreed again, but it's an if statement. How many people do you know are getting long and leverage long

based on that if statement? I remember. I hope nobody's getting it. There's a lot. Yeah, there are a lot. I mean, I guarantee you, I just see it. I can,

what it is, it's some of the best things I've been doing, being a strategist, you put out your views. When people give you complete disdain, you know their position. And I'm just pointing out facts. I'm like, thank you. I know you're leveraged long now. But here's the key thing I want to point out. Bitcoin right now is basically two times, the annual volatility of Bitcoin is basically two times that of the NASDAQ. When it first reached the current ratio versus the NASDAQ, about four and change or so, that was six years ago. And it was eight times, almost nine times

the volatility. So here's what's happening. Bitcoin is mainstream. Yes, now finally, we're going to be able to push a button and there'll be less leverage going in. Your long-term accumulation, people going and buying in. I do fully expect it's going to get to 100,000 eventually. But ask yourself this, is this going to happen with the tide going out in the equity market, which I expect. Been wrong. Alex, you're right.

I've been wrong. But you can't, you got to be careful pointing out your views, your long Bitcoin based on what happened to Bitcoin. What's going to happen to it. Now, I'm pointing out the facts. It's going into the mainstream fastly. It's squashing the volatility. Remember the spreads we saw just then?

What's the last big vestige of that is GBTC. I fully still am bullish GBTC because it's going to narrow that spread. But what's happening is all that cash and carry that was in futures, that was seeing people saying, oh, you didn't get a good leverage, and it's still way too expensive to trade futures, it's getting squashed fast. This ETF is going to just bring it more in the mainstream. And yes, maybe I fully agree with all the big picture stuff that I've been writing about for years, the digital version of gold. Yeah, yeah, get all that stuff. We got to stop saying that because we're long. Let's focus on the more immediate. What's the issue here is we are heading towards a recession. Yes, right. Been hearing it for long. I get it. Been wrong. But what's

happening since it hasn't happened? Fed's tightening more. We have to expect the yield curve not to matter. You look at Fed funds this third year, it's the steepest in the probability recession from the New York Fed is a high since 1982. Yes, maybe that stuff doesn't matter. Good luck with that one. But if you ask David Rosenberg, he said the one indication he always watches if he was on a desert island, the only thing he'd care about was the yield curve. It's the thing I learned trading treasuries in the 80s. It's never fade the yield curve.

So here's the key thing I want to ask you. Well, the story glows here. Exactly. But why is that? Because of it's the lose-lose. Because it hasn't happened as fast as some of us thought. It kept tightening.

If the segment was flat in the year, do you think the Fed would still be tightening? Probably not. But it's not. So that's the lose-lose. They're just going to keep doing it. So here's a question I want to end with. I completely agree with that. I'm bullish Bitcoin long-term. I think it's going higher, but I think it's more likely to hit to sustain and maybe print below 20 than sustainable at 40Q. I'm sorry, 2. Yeah, it's 2. Just double the NASDAQ.

And it first traded at 19, 2017. And if you look at it, only it's hopped up big when we had that massive pump in liquidity. It's come back down. Now we're stuck here. Volatility is declining. It's coming in the mainstream. So I needed to outperform the NASDAQ.

And so far, it's kind of on a seven-year basis. If you had bought the NASDAQ seven years ago, you're doing the same thing. And the thing is the difference about being long in the NASDAQ. You got AI going for you. You got the Fed going for you. Because if NASDAQ goes down, typically the Fed will help you. If Bitcoin goes down, the Fed doesn't care. No.

Alex, that's the nod of your head. Go ahead. That's precisely where the opportunity lies. There's a lot of catching up to do. I mean, we're trading in the future, not what's happened. So right now, Bitcoin, if you think about it from that point of view,

it's cheap. I do want to say that as a trader myself, I have a point where I have the risk and it may be helpful to know that basically at this point in time, that point should be very obvious to everybody looking at charts. Bitcoin should not go down to the beginning of this move to where basically the BlackRock news hit. If we go back down to basically low 25s, expect 25 to break and a flashdown to go. That's something I would trade. If we go down there, the risk, it's like I'm likely wrong.

The risk reassess. That being said, I'd be very surprised. I'm levered long right now, and I'd be very surprised if that happens. Risk reward pays to basically stay on press rather than basically take profits or even flip. So you've done the robot leverage? I mean, I bought, that's it. Maybe I bought not leverage, but that was my train of the year was it's going to come back to 25 and I'm going to buy a bunch of Bitcoin. The robot leverage, my background is futures and all futures leverage average about 20 to 1. The robot leverage is usually, leverage is perfect for removing positions from people who are leveraged and putting them into rightful owners.

So I hope you're right. I hope it doesn't go there. I'm just pointing out facts of leverage. And that's, as David pointed out, and facts I've seen with my customers have blown up and I've seen the Ds, the deaths and the divorces. I just, just be careful. I hope we don't get there, but that's what markets do.

So what would we do this year in stock market? It proves everybody wrong, including me. But now it's like, okay, well, gosh, it's went up. It's going to keep going up. But one thing that it's, and that's what I published when the direct correlation between the stock market going up and Fed rate hike expectations going up in the yield curve steepening is just to me as a seriously scary pattern that I really concern I have never seen in my life in this business. Okay. Could I ask a question of Alex? So I've had this, and I know you linked to, or someone linked to the Jason Furman stuff about Goldman Sachs financial conditions index.

That to me was fascinating. So I'd never seen that before. I'd love to hear about that. My working theory, which sounds tin hat, I realized this is going to sound like a conspiracy theory. So please, you know, whatever. But my, I've been saying for about a year that when the Fed started tightening that what they really care about is yield curve management. And then what

they really want to do is make the long end much low, keep the long end low and push up the short end to slow main street, but help out the government so they can refinance because government debt services is becoming... We're almost at the point where if we had a normal yield curve at this point, the government literally couldn't afford to any discretionary spending. 100% of the budget would be on debt service. Certainly at 7%, 8% in the long end, which would be a normal yield curve with the short end at 4% or 5%, the government would be functionally bankrupt and trapped. So I think they've been doing this on purpose. I'm not 100% sure how. And when I see stuff like this, it makes me think that maybe I am right and that's a better explanation. But I'm curious what you think.

Real quick. So Dave, to be clear, you're basically calling this yield curve control. Well, what Japan has been doing for forever. Just for everyone. I think, look, the fact of the matter is everyone knows Japan's doing it, and the market, of course, when you know that it's happening, the market adjusts. I don't think that, I think they're trying to be more subtle about it. Certainly they want.

I'm just not sure how they're doing it. Sorry, go ahead, Alex. I know he asked you. I just wanted to be clear so people understand what we're talking about here. Yeah. First, I'd like to add on the yield curve that was shared before. Basically, I think it was a 10 and twos, if I'm not mistaken. The yield curve is something important to understand that the yield curve is not the cause. It's a consequence of the Fed's is that the fastest and most aggressive tightening in history and furthermore we are we are too focused for good reason and bad reason at the same time we're too focused on the us sometimes the that the sample size of uh yield curve inversions is very low it It's a small sample size. And if you broaden the sample size

and then you start going abroad and you go to emerging markets, for example, you're going to notice that the curve does invert all across the curve multiple times through history without recessions. And they do not precede recessions. So I actually contest the importance of the yield curve predicting recessions. I think this time it may likely be different, or let's put it this way,

may not be different, but it's also a matter of how big the recession is. Just another recession is not enough. For markets to crash, we need a hard landing. We need a very bad recession. We need data to start printing really bad surprises to the downside. We need a core CPI to basically not just continue going down or flip here and there. We need core CPI inflation to come in extremely hot we need pmi readings to come in the 30s um that's that that's on the yield curve and basically for markets to go down we need what what i call an information shock it has to be something new if you think about if we think

about basically what happened in 2022 the push down it all happened really fast bitcoin was faster but but markets basically uh we started getting uh the market started getting bearish on the inflation reading uh uh of uh november 2011 uh things got serious like the fed told us okay we're gonna screw this market in the FOMC. It became clear on the minutes of January 2023. That was the wow day. It's like shit getting serious. And then they got extremely aggressive at the end of March, like March 28th, March 31st. That's when they got really aggressive.

And the whole move literally happened two and a half months. Most risk assets, let's assume that the UK didn't happen and the October UK blow up, to put it in a way, didn't happen. For most risk assets, the bottom was in, in June. That CPI reading, which was a very, very, it was a surprise, the CPI reading, I think it was June 11th on a Friday, the week after we bottomed.

So, yeah. So that, on what you were saying, Dave, about governments trying to engineer this, I understand the thesis. It may be right. I don't think so. I think it's more of a conspiracy theory that people like to talk about it. As they said, I have no client. But I understand it.

I respect the view. I don't know that I have the view. What I have is data, and the data says that's what they want, that's what's happened, and I can't understand why it would be different. And I noticed you backtracked. I find it amusing. Every smart trader that I know knows that the easiest way to go bankrupt is to say this time is different. Yeah. Well, so here's what I want to follow up with a very profound statement.

And that is, I think most of us assets, cryptos and stock markets are going to go down in 2H because they went up in 1H. Bottom line, that's it. It's going to be tough. But the thing is, think of the reiterations. If we're sitting here in December and say the NASDAQ's down 10%, what's that going to feel like? What's we're going to think? If that's going to be a true recession, what's the Fed going to be doing?

And then this is where we just disagree, Alex. I completely respect your view that yield curve doesn't matter. My view is it matters more than ever. And I think the US matters more than ever. And I have to ask yourself is why is virtually every central bank on the planet scrambling to catch up to the Fed? Because the Fed matters more than ever now, except for one made country, China. Why are they easing their trying? That's all the narrative I hear. It's, oh, they got to add stimulus. And why? Because they are falling behind. Yeah, that's true. I mean, I think that-

Sorry, Scott. Go ahead. please no please i i was going to say i think that it's very it's it's fascinating you know being contrarian generally pays off uh we all understand that but i think that there are a couple of questions that are the ones the ones that underlie the reason why there's a consensus is the thing that troubles me. I mean, we know there's literally a gaping hole in the balance sheets of all of the non-systematically important banks in commercial real estate. And it's a gaping hole that's because of a secular change, not a cyclical change. I mean, banks can weather cyclical changes easily, but those 50%

open offices are in the major cities and they're not coming back. Those at a minimum, even if we don't end up with full-time remote workers, et cetera, we're going to have more geographically dispersed workers because people realize that the need to congregate in the same hugely expensive area is going to decrease. I mean, we know this. There's no question about it. We know generative AI is a very big deal, but what people don't talk about is how many companies are going to get disrupted and how many people are going to get thrown out of work because of gendered AI.

And we are absolutely not positioned at all to handle that. Now, those two cross-cards are interesting. One is extremely bullish. One is extremely bearish. The bearish one is obviously commercial real estate. The bullish one, why am I being bullish? Well, it's not good for humanity. It's not good for all the people to get thrown out of work, but there is zero probability of a restrictive Federal Reserve or restrictive fiscal policy if people are starting to get thrown out of work. That's just not going to happen.

But Alex's point, which I find persuasive, is we've not seen even workforce participation. We have not seen anything close to the misery index of the 70s yet. For the bear thesis to be right, we have to be before the- Hadn't even pivoted yet. It hasn't even turned yet. Yeah, right. We still see employment long-term below trend. And even if you play with the workforce participation numbers, it's still below trend, just not

as much. And to me- I don't know what those numbers are now, but you're talking about misery index. I think people are doing exceptionally well, and that's the story that's not being told that's right that's my point my point is look i i remember the 70s that in high school uh and i remember you know uh what getting in line for gas was and inflation in double digits and i was at school and learning economics right when Volcker tightened. So I was there during that. And we don't have conditions

even remotely like that. They're not even remotely the same. They are unprecedented, but they're unprecedented from a crazy low level. And I'll leave you with this one other thought is in Volcker's case, and I've said this before on the show, it was a while ago, so I'll repeat it. In Volcker's case, we went from effectively real interest rates of zero to slightly positive to 6% positive, 6, i.e. interest rates 6% higher than inflation. We're still negative in real interest rates today. So we have had the greatest increase in history, yada, yada, yada. We're still fucking negative. And at the end of the day, inflation is still higher than interest rates in pretty much any

way you measure it. At a bare minimum, it's not 6% negative interest rates where interest rates are much positive, where interest rates are way higher than inflation. So one could make the argument that if the Fed really wanted to shock and awe, and they really wanted to cause a recession, that what they would have had to have done is raise interest rates even higher because we were so low for so long and so dumb that it's kind of hard to argue. But the fact is, if you just forget the velocity of where we got to, and that's why I was so interested in those tweets that Alex shared in our private conversation from, is that Mike's right on the velocity, 100% sure, but at the absolute level, totally wrong.

It's not only not unprecedented, not even really all that restrictive. So if you just parachute in today and had no idea of history and said, okay, where are interest rates versus inflation? You would say, meh. And if you parachuted in and said, let's ignore the last two years and where are interest rates versus long-term historical average, you would also say, meh. So it's extremely important to put everything in context, but a hundred percent, Mike is a hundred percent right. My favorite context, but 100%, Mike, is 100% right. My favorite quote, Mike, you used and I used it last week is the Fed is driving looking at the rear view mirror as opposed to you looking at leading indicators. I think that's true too.

There's all sorts of cross-current sides, but I'm curious, Alex, what you think about that, because it's really about perspective, right? And what time horizon you're looking at and what you're seeing. Yeah, well, I think it's important to point out that the inflation, that you're entirely right on the Fed rates and interest rate and inflation. But that being said, inflation is dropping consistently and it will continue dropping consistently. And a way to think about it is, even with the Fed not hiking next year, we're going to see as inflation drops down due to base effects and lagged effects of the Fed's policies, we're still going to see a tightening of about 2% as inflation goes down.

So it doesn't really matter that real rates right now are not that restrictive. The point is that they soon will be. So it becomes a mute point. The economy is tightening. And back to the first point you were saying, I think it's very important, is commercial real estate.

Actually, I think we talked about this when I may have been in February and the last time we were together on this podcast. And I think the way to think about this is that it's a very high probability that commercial real estate sees a big crush. The question is, how does this spread to the banking system?

If it spreads and we start seeing a few banks going down, we're going to see panic again. Now, the thing is, because of the trend, because of the chart and because of positioning, that would be your buy the fucking BTF, the moment for many of us um that have basically spare capital to allocate so uh it's it's just a matter of the chart and positioning so it's it's we should be actually not that fearful of that happening and And on to the third point that you mentioned in AI,

I do want to stress that this thing, I think it's impossible to predict how big it's going to be. That's the thing. We can't even fathom. So if we can't fathom it, what is the probability that the markets and we are able to price it in accordingly so fast? It's zero. we can't so that being said ai is a thing and at the same time and finally i'm going to wrap it up here is

this ai bubble has just started it's tiny we're at the very beginning with the Fed basically pausing soon, eventually say they pause in December, Sunday pivot. I mean, pivoting would make sense on a historical basis based on their own forecasts sometime in the first half of 2024, based basically on the Fed's, without putting our views, based on the Fed' own projections of unemployment and CPI, it would make sense for the Fed to start cutting rates and basically pivoting sometime in the first half of the next year. That's a good question. Sorry, go ahead.

Go ahead. No, I would love to go ahead. The question is, why does the Fed pivot if the stock market doesn't crash? Exactly. That's the problem. I mean, that's obviously... That's really correct. I agree with you on the data. I just think something, maybe it's unemployment goes up high enough.

I don't know, but I just don't see them pivoting without stocks crashing hard. That's the problem. We're at a stage now that's something that's really never happened in modern history, normal history. I look at it, you're sitting at the Fed and you read all their statements and what they say is they're worried about core PC, personal consumption expenditure, which is 4.62%. Their target's two. And for me, I look at it as there is actually no incentive for them until something makes them, something breaks, and obviously nothing's really

significant broke, the number one thing to break, to them stop tight. I didn't say ease yet. There's no reason for them to ease. Everything's perfect. Inflation is going down for them. Economy is fully employed. Why take the risk of what I think they're going to go back in history of being what Irving Fisher said. Irving Fisher, the famous economist, said we've reached a new higher plateau in 1929.

That's going to think what's happening. So this is how historic it is. But the key thing I want to point out is, what did you fully expect? Some of us fully expect in this environment is people to say, oh, inflation is going down. It's great. It's not just going down. The producer PPI core at minus 9 tenths, next month is going to be much lower, is dropping at its fastest pace ever in history since 1948. So why is that? Why did it go up? And that's the key thing I look at. I have a chart in front of me just looking at personal consumption expenditures. It went up for one reason, because we pumped the most liquidating system ever.

And now we're taking it away. Just look at money supply. Money supply didn't matter. I remember trading in the pits in the 80s and we stopped looking at money supply because it didn't matter. When it goes up the most and it goes down the most, that's what matters. And I just read this book recently. I knew it was facts, but called Bo, that's what matters. And I just read this book recently. I knew it was facts, but called Booms and Busts. And all the biggest booms and busts in the history have come back. And the back of liquidity goes away. That's what this is. We're still in the liquidity going away, yet the market doesn't believe it.

The stock market does. Now, the bond market does. The yield curve does. The commodity market doesn't believe it or does believe it. Cryptos believe it, does believe it, crypto's believe it. I look at the opportunity here for next half is that the big money is going to be made, not in leveraged long, because we already made tons of money in leveraged long. Opportunities, I look at it as structuring positions in these risk assets going back down. Because if they do go down, look at

the iterations, they have to stay elevated. I'd look at crude oil. I don't see crude oil going up unless the stock market keeps going up. And if the stock market is down, it's going to crash. What's going to make it go up other than a war? Anyone have an answer to that? Go ahead, Alex. Leverage on the Bitcoin side hasn't gone up that much. That's something I want to stress. Actually, yeah, Alex, just to say, it was actually open interest was completely wiped on both sides

over the weekend and on that move on Friday. So it's actually very, very low at the moment if we're looking at retail traders. That's exactly what I wanted to point out. Open interest on Bitcoin is almost at the same level as it was on an aggregate basis as it was at the very beginning of this move. So on the future side, there is not much leverage. There's no additional. There's always much leverage. But there's not much additional leverage.

There has been a lot of leverage put on the options side by institutional players. That happened. But at the same time, that just started happening. I think we're seeing, we're at the beginning of a regime change on Bitcoin volatility. Basically, players have spent an entire half a year selling upside ball nonstop, literally making implied Bitcoin and implied volatility drop down to historical

levels. So when the move after such a long period and a long regime of volatility selling and suddenly the market changes, it doesn't adjust that fast. From a risk-taking perspective, it pays off and makes us to keep embedding more upside for that break. Yeah, that. Mike, just for clarity,

do you think that we're talking past each other a bit because he and I are talking about leverage mostly on perpetual swaps and retail exchanges and maybe you're talking about it institutionally i haven't really looked at cme i i i made me look at it i really appreciate you bringing that out i have a colleague who's based in sydney who looks more on chain day that you watch more closely the cme open interest is right about the all-time high it's fully expected there's

a bull mark and that's one thing thing I really enjoyed pointing out last year when everybody was bullish commodities and open interest was going down. And Bitcoin is going down, but open interest is going up. I'm like, well, that's not going to last. And Bitcoin bounced, and commodities went down. Now the point is we've had that bounce. We bounced 100% from the lows.

And now everybody's bullish, and the fundamentals might be tilted the other way. I look at it as, okay, buy low, sell high. But as far as that, the key thing I think of some smart people don't know what you're involved in is probably buying dips, adding longs in Bitcoin and selling anything else. I mean, look what happened on Friday. We see that little move in Bitcoin and we lifted some of those shorts and some of those positions in the alts. I see this as the IRS is coming after you. I mean, it's there as we know this. I remember seeing this in the alts. I see this as the IRS is coming after you. I mean, it's serious. We know this. I remember seeing this in the training. I had a brother who wasn't paying

his taxes. They went to his account and cleared it out. You think that people are cripples all paying their taxes? I mean, they're going down and cracking today. I think that's what's going to happen. We're going to find out that a lot of the people who weren't paying taxes, all that information is going to be coming out. It's just logical. I mean, I've seen it so much when you can kind of get away with it for a short term and greed comes in there. So then I look at this 25,000 of them, that's massive purging, still way overdue in the

broad space. Bitcoin's going to come out ahead, but the whole thing might go lower, just Bitcoin going less. It's just a key thing you have to ask yourselves. If I'm long cryptos or long bitcoin now what's my position what's my view on the stock market for the second half if you're bearish the stock market and you expect that divergence i like yeah good luck maybe hopefully that'll happen i've been hoping and waiting for that forever and i still see mad still trading like leveraged stock market that's the way i look at it except the rest of the space is trading like the like more sellers on every rally first yeah i'd like to know

where i mean i guess if they're going back to 2020 and 2021 taxes that's fine but you know unless you were leveraged short which u.s investors aren't legally allowed to do anyway. I mean, who the hell made money in the United States in 2022 in crypto? That's what I say all the time. I'm like, yeah, there's wealthy crypto investors Biden keeps talking about. Go find me those guys at this point. But Mike, I think I tend to agree. Listen, I know we got to go, but I want Alex's opinion on one other thing, which you just hinted at, Mike. Okay, let's say Mike's completely correct about stock market. It's going to crash. The Fed continues to tighten. Can Bitcoin come out ahead in that environment? So that's where we always get stuck here. So I would love Alex's view since everybody else's is somewhat known.

I hate to say it, but this time is different. I'm betting on that. So you think we could go into a legitimate recession even worse and Bitcoin could perform well as a hedge against that? Like 2001, like recession, you know, the mild one, I think it's fine because Bitcoin right now still has the ETF story to play out. That's the point. It's enough for it to do its own thing for a while. Again, I do want to stress people get very concerned about, but is it going to happen? Is it going to happen? And the answer is, we don't know. But it doesn't matter because it's not yet priced in like so. So we can still keep it running.

Yeah, it's so tenuous. We saw that a sort of misleading headline on Friday dropped Bitcoin $1,000 just at the hint of the idea that the SEC might not be ready to approve. So I 100% agree with you that it's a tailwind. I just think it's important. We just saw that very quick evidence of how quickly that can change, even with a headline, right? I think what Dave, what you brought out of that and what Dave brought in that Twitter spaces,

you did with Rand, it was perfect. That was ideal. I remember I read it. I listened to it on my bike ride home. Like you guys nailed it. It's actually a good sign. They're asking for more information.

I'm like, yeah, thank you for that. I, and then that to me is coming out, but yeah, thank you for that. And that, to me, is coming out. But, yeah, just, okay, when? Yeah, we're going to need more. The hype of the ETF will fade, right?

We'll need a new narrative to push to 40,000 or something. We'll have to see an approval or something else. I don't think so scott i think for 40 for to reverse 2022 requires uh because that's really all we're talking about is a little reinforcing luna and whatnot it's going to require a lot of things the most bullish i mean we've had two hugely bullish stories we talked about one but the other one that's massively bullish that no one's talking about it didn't move the market at all, is what's going on in the UK. The fact that they now have a parliamentary agreed, signed into law framework.

It's not just that, but the point is people have said, well, Micah is ahead and the UK is behind and they don't want to do this. The UK has a prime minister that we would salivate over if it was in the US. If Rishi Sunak's policy were in the u.s if rishi shunek's policy were in the united states crypto bitcoin would be trading over a hundred thousand he is massively pro digital assets and crypto wants to set london up to be that he has been stating that from the beginning and people wonder why the fca dragging their heels well the answer is they didn't have a framework for it now they do and nobody's talking about that, which is, to me, I tend to line up with Alex.

I like bull markets that climb a wall of worry. Obviously, there's a wall of worry here. And to me, that's another matter. I mean, these are very big deals. And we'll talk about them more in the Twitter spaces. But I would love to hear from some of the other people who are outside the US. But I think that's a big deal. I mean, London has always been one of the world's

biggest financial centers, and the fact is there are a lot of companies and a lot of money that's still sitting there, and to host brands of the world could be a big deal. So I think that's another story that we haven't talked about, but is important, and we should be mentioned. Okay, so there's a chance.

So you're saying there's a chance, and dumb and dumber, right? Welcome to all that one in a million talk. I'll take it. And speaking of erasing 2022, Dave, I know you're joining. Both of you guys are welcome if you want to, but in 10 minutes, we got the three Arrows Capital guys on Twitter Spaces, and I'm not sure they've done that. I don't really want to interact too much with info.

You can just sit on the... They're more friendly with Rand, so I've told them, like, you lead because they know... I think my opinion has been somewhat clear, and maybe I'm not the guy to take the front on that interview. The one that's going to

make your blood boil is to publicly say, you know, who made the phone call? Did Ehrlich make the phone call? No, I have some. I've told you this story, right? Yeah. Really quick before we go, I'm sorry to keep you guys, but I met, I crashed a meeting with Kyle in Dubai in February. I was not invited. And I just sat down, he gave me the oh shit eyes. And I said, dude, what lie did you tell Steve Ehrlich to get him to give you $700 million of Voyager's money? And he said, Scott, I know you don't like me, but I swear to

you on my mother, on everything that is holy. All these guys were so desperate for yield. They called us, they offered us unsecured loans. They didn't even ask for a PDF of our balance sheet. They just said, 3-0's capital. You guys are amazing. You guys are making money. We need yield. Here's the money. He swears by it. And you know what? As much as I dislike him, I tend to believe it based on what we've seen in the past. That hunt for yield. I don't

doubt it. One thing you do is you bring out great educational information. I really appreciate what you do. You have to. Thank you. Alex, you're welcome back anytime, man. This was really great. I appreciate what you do. Regina, you helped me. Thank you. Thank you. Alex, you're welcome back anytime, man. This was really great. And I appreciate everybody

listening to one another. I guess, well, I don't know about tomorrow. Tomorrow I will not be here, but guys, see you on Twitter Spaces in about 15 minutes. Thanks, gentlemen. Bye.

Guys, can I say something quickly? Basically, I wanted to share I'm launching with two partners, a macro advisory firm. I didn't know that. Basically, it's basically today. The name is Asgard Markets,

and we'll be talking about it a lot in the coming future. Where can people check? Have you tweeted about it? Not yet. Not yet. It's happening very soon. Okay, awesome. We'll check that and just send me the tweet.

We'll retweet it and everything. Awesome, thank you. Awesome, guys. Thank you, guys. Bye. Thanks, everyone. Bye-bye. Let's go.