The Wolf Of All Streets - Will Bitcoin Surge in July? Also: The Debt Crisis & Ethereum ETFs | Macro Monday

Episode Date: July 1, 2024

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It's July 1st, which means we get to talk about seasonality and the excitement of Bitcoin in July. Actually, though, out of the last nine years, only one July has been down. In July, Bitcoin tends to trade up on an average of about 12%. Is that something that we can look forward to before going back to the summer doldrums of August? Or will this time be different? That's just one of many topics we have

to unpack today. The Supreme Court went on an absolute shooting spree on Friday, destroying regulators, and there's a lot to dig into as to what that means for the SEC and for crypto in general. Let's just get started, guys. We have so much to discuss. 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 and smack down that like button. I'm going to bring on the gentleman now. I kind of joked last week, you know, that saying that sometimes not much happens in a decade and then you have an entire decade happen in a week. Well, that was last week, right? Not only for the crypto industry, but Supreme Court absolutely going nuts with major implications, I think, for our industry.

But at first, before we get into all that, I do want to talk about, will Bitcoin surge in July? Obviously, seasonality here, just to give you guys some quick stats. 2019, the only downtime we've ever had in July, minus 8.2%, but every single other July, 10% or more. 2022 was 9.8%. So an average of about 12. We know the summer is generally boring, but apparently July, not boring. I mean, is seasonality a real thing? Is it something you can actually trade on? Is it even worth discussing? I mean, Dave, I know you have some specific thoughts here. Listen, we talk about Santa Claus rallies and sell in May and go away. These are all symptoms of seasonality, but they're sort of memes to some degree as well.

Yeah, I mean, before Dave gets into the Bitcoin itself, just workers and businessmen have to take, businesswomen have to take like four weeks off. It's mandatory in the summer. And so if you remember back in the 90s, and Dave and Mike know what I'm talking about, is you would get to July and August and you would have contacts out in Europe that you just not only could you not get a hold of them, you weren't supposed to. Like they were just gone. You couldn't get a hold of them. And it was pretty good because it would create a backup system where you knew that you had redundancy and people would be able to take care of your job.

But, man, there were times where you could not get anything done. If you wanted a deal done, it better have been signed before July because you were not going to get that push through. So that's kind of where that comes from, the summer lull on Wall Street. America never really liked to stop, but that's where we were so uh it's not this goes way back i mean i have some funny stories about this in the august of 92 i was uh running uh equity or agency program trading in italy for morgan stanley and that in Italy for Morgan Stanley. And that was the year that, well, you know, I guess it doesn't matter now. Soros kind of saw what was going on in the world. Soros quite famously that year had his attack on the British pound, but in the equity world was selling Italy aggressively.

And I know that the cell programs that I was executing caused trains to be overflowing, coming back to Milan from the various places that people go to vacation. So the Amalfi Coast train line from the Amalfi Coast, which is, you know, I don't want to go through all of the various places up to Milan were overbooked because people were being yelled at. They had to come back to the office because the market was crashing and they had to deal with it. It was just kind of funny. I just always find it amusing, and I'd love to get, we should definitely go back to Mike in the morning report, but I always find it amusing how seasonality always seems to, you know, kind of work with news flow, trading ranges, et cetera.

Technicians say, well, it's just the way it is, but it does seem to be that way. The reality is June, we saw Bitcoin in particular kind of go from the top of the trading range towards the bottom of the trading range. Guess what happened the weekend as soon as June ended? It bounced off the bottom of the trading range and started moving back a little bit higher, but it's still not even to that middle of the range. Do I think that we're going to stay in the trading range all summer?

Yes, I've said it a million times. What does that mean? That means that on Scott's chart, I would expect by the end of July, we will start to be getting towards the top of this range that is at a rally. No, it's a range. And I think people should understand that until new money. That's actually the best chart I've seen yet. Now, all of that together, we should talk about what happened last week because the simple fact is that the coiled spring that this is creating means that barring a stock market collapse I think Bitcoin explodes out of the range maybe sooner than people think which a lot of people are calling for in the fall but there's a lot of that there are so many

so many tailwinds at this point and And the only headwind is the nonsense that Bitcoin is beta and tip of the spear and all that other crap, when in reality, it's underperformed the S&P massively over the last several months. So whatever. And we'll talk more about that. But I do want to talk about the legal tailwinds, the CFO tailwinds, basically, there's just a lot of tailwinds. So we can talk about what those are. Yeah, I want to finish with seasonality. And Mike, I know he kind of just alluded to, obviously, the tip of the spear. And I wanted to point out something interesting, actually, from your newsletter this morning, if you don't mind.

No, please. So I was reading it right before. Leading indicator, Bitcoin is lagging versus gold beta. Listen, if you guys watch Market Mavericks, you've seen Mike obviously share all these charts. It shows obviously what Dave has a bone to pick here with, which is that Bitcoin has been a leading indicator. Gold might be outperforming. Obviously, sort of peaks in versus 100 week moving average we can talk about. And there's one thing I have a bone to pick with myself, though. Right here in the intro, traded 24-7, Bitcoin is gaining status as a leading indicator, but has been underperforming

in the aftermath of US ETF launches akin to the advent of futures in 2017. So the issue I have with it is that in 2017, when futures were launched, it was at the dead top of the bull market. And that was it. Literally the day that those futures were launched, we saw nothing but a downturn for multiple years. In this case, the ETF was launched at 45,000 and we went to 74 and are still trading well ahead of it. So I just, that comparison to me doesn't hold water unless you're expecting. It's worse than that, Scott. It's worse than that. At the time that the futures were launched, it was the only way for people to short it. And so you created a vehicle which allowed people to short what was obvious froth. It was maybe one of the most obvious pins to pop a bubble

that you can get. Now, remember, that top that happened then compared to, you know, if you adjust for network strength, et cetera, was so much more frothy than where we are today. You know, that top was, you know, and, you know, the 60-some-odd-thousand top was you know and and you know the the 60 some odd thousand top was frothy it was was more frothy than we are today too but that 20 000 froth when there was nothing there uh was way more frothy and so the the futures gave the ability to short the etfs literally just opened up the ability to go long to accounts it's it's it's different and that's why by the way when the future started trading, it marked the absolute top and basically on the express train to losing 50% of its value.

Whereas here, it effectively gained 50% more value. And so that's not surprising. Yeah. In Mike's defense, we do have a history of large announcements being tops, right? So I can see where the idea of that comparison would come from. We had the launch, obviously, of futures. Then we had the Bitcoin futures ETF launches, which were a top. And we had Coinbase IPO or direct listing, which was also a top. So it's not unusual to see these huge events come at the top. Mike, obviously, your chance to dig into this.

Well, first of all, it's an unbiased outlook of what performance has been since this launch of ETFs, which I think was one of the biggest things in Bitcoin since it started. I mean, some of us waited for 10 years. So we're getting there. And I just pointed out it's been underperforming. And typically, when a leading indicator is showing lagging, and if you can show that last chart, that's when what concerns me the most is Bitcoin just is doing a normal rotation above its 100-week moving average heading lower. And then you look at beta. So we have to tilt over what you said earlier, never sell quite market. The average, the last 10-year total return for the S&P 500, not just return in July was 3.1%. That's 10 years. Actually, the best month is November, 3.8%. If you look at Bitcoin, sure, it goes up in July because everything goes up in July,

most normally beta, but it only goes up 10%, which is what you expect versus 3% S&P 500. Its best month is October. It's gone up 20.3% in the last 10 years. So it's number one thing to remember about July is you don't sell quite market, especially this week in beta. It's all you know, you got to expect the stock market to go up. But I just point to how expensive everything is. And this leading indicator is showing that if I'm right about a normal reversion, just a little back and fill in the stock market, then beta should drop more. And I think it's leading that way. That's my indication for now.

I'd love to get stopped on that trade. But if you look at Bitcoin, as you do in that naked chart, I look at it and they said, yeah, maybe it should go higher. But if it's going higher and it's going higher because the stock market goes down, now that's the holy grail for Bitcoin going to what some people have told me is going to happen. I said, I haven't seen it. I've seen the opposite. So to me, the thing is right now is every day I look at the stock market making new

highs and Bitcoin languishing, that's shown me a problem. And I'm pointing out that fact. And I think the problem is getting worse, particularly at the stock market making new highs and Bitcoin languishing. That's shown me a problem. And I'm pointing out that fact. I think the problem is getting worse, particularly with the stock market getting more expensive, volatility getting low, and everybody is so bullish. You just see it everywhere. So this quote I want to point out about bubbles. You're seeing everybody saying it's not a bubble. That's usually when you have to think that maybe it is a bubble.

And I just point out the risks of the leading. I hope, Dave, and everyone on this everybody, I hope you're all right. I'm just pointing out facts of poor performance and it's been kicking in. And to me, for very good reason, the launch of ETFs that hype around that. Sure, maybe the high didn't come in that day, came in within a few weeks, maybe a month. And now we're languishing. So I just look at it as looking in the second half of this year, if we can get another 16% return in S&P 500, yeah, that's great for everything. Maybe Bitcoin will make a new high.

If we get a normal back and fill, say 10% correction S&P 500, I fully expect what should happen is everything will drop a little bit. Gold will survive. US Treasury long bonds will do better. And Bitcoin will suffer. I just, my brain just hurts at asymmetry. I'm not that OCD, but when I hear two statements that contradict each other in the same paragraph, I immediately just think the entire thesis is bullshit.

So you can't say Bitcoin is beta and the leading tip of the spear. I didn't say it's beta. It's been led by beta. That's a misunderstanding. Bitcoin is lagging beta. Beta of the spear. I didn't say it's beta. It's been led by beta. That's a misunderstanding. Bitcoin is lagging beta. Beta is the S&P 500. Yes, because Bitcoin's correlation to the S&P is breaking down because the investment case for Bitcoin, for all the new money coming in, is what James basically does for a living,

which is provide an alternative to fiat money in terms of savings. And that is, look, I had two conversations when people saw my coin route shirt. I wore it, you know, at a local gym in South Jersey and another one where people said, you know, I've been talking to people about Bitcoin. And that is something that is just starting, you know, because of the ETFs. It is literally financial advisors are just thinking about it. But this divergent weakness that you call weak, Scott and I will call bitcoins in a trading range. And, you know, at the same time, the S&P is still getting inflows.

The thing that drives me nuts about your comparison is that the relative size, what's the size of the market cap of the S&P and how much US retirement funds are put in the stock market? What's the size that are in gold and what's the size of Bitcoin? Bitcoin is less than a 10th of a percent. And so it doesn't take very much for there to be divergent strength. And I frankly know it is strong and by the way you still owe me the state dinner we do need to do that that's right uh i i think bitcoin outperformance of the s p as we have head into the as we head into the the fourth quarter is if anything dramatically more certain uh than anything that we've had i mean look it's an election

year i don't expect to see a major stock market correction although you know if trump wins and does impose a 10 tariff yeah you're gonna have problems if biden newsom obama or whoever wins and tries to reinvigorate the regulatory state yeah bitcoin, Bitcoin and everything else is going to get, you know, unless they actually pivot and, you know, who the hell knows. But, you know, if you get a Democrat win, the money printer is going to go off the hizzle. So I just don't really see a strong political reason

to sell the assets. I mean, we have to talk about the embarrassment that was last week as well. We're going to, but so Mike, do you have something to respond to that? Or should I move on? Let me see it in markets. I agree completely.

I hope that happens. I think it might. I think we have to be very careful of one of the massive speculative boom we have here. And so many people are so long. I wrote into it and bought it for a while. I just pointed out the facts of divergent weakness in the fastest horse in the race. And if you're right, then I'll be pointing it out and I'll point it out. Oh, by the way, it's beating gold. It's beating S&P 500. It's catching up. It's not showing that downward tilt I show you. That thing I showed you versus 100-week moving average,

it's not showing you that anymore. It's showing back up. The S&P 500, that stretch, volatility that low. I just point out any risk asset, particularly the riskiest, this is a time to be lightening up. And you're sure you can ride the momentum, but I'm showing you, Bitcoin's showing the stop out. Can I make one point? Because Mike, you were right.

You were just wrong in terms of what? So you were right that the riskiest crypto assets were very toppy. And if people listen to you, and I'm talking about if you the farther out on the risk curve you went the more annihilated you got Bitcoin acted the way I said it would which is stay in the range because there's more demand than there is supply and

there's a bid and that's fine but you go out on the curve and you look hell before the Solana ETF announcement Solana went from 200 to 120. okay and what do you think meme coins on solana did yeah well here dave really quickly just to sort of echo your point something i was going to say when mike said you know it could be a bubble which it very well could yeah you know and he's right sentiment wise this is total market cap sitting at 2.25 we haven't even sniffed the three trillion from last time. And if you go to total three, which is crypto market cap, excluding Bitcoin and Ethereum, it's just destroyed. And this is with adding hundreds of thousands of new coins a month. The market cap

outside of Bitcoin and Ethereum is only at 600 billion right now. And it was at a peak in 21 of 1.13 trillion. So this is the data behind what both of you are saying. This was a Bitcoin-only move. Everything else is wrecked and has not even had a sniff of a bull market. Right. And I think so. The point is, that's the tip of the spear.

That is interesting to me. And I think that you could be right while being wrong if we focus only on Bitcoin. If you focus on the rest of the crypto market, I think your thesis is playing out, arguably has played out. That doesn't mean it can't go farther down. And so I just want to be clear, my points are on Bitcoin only. And I'm going to shill Solana in a bit, because I think that when we get to the courts, I think they're the major beneficiary. OK, so listen, you said, obviously, two scenarios, depending on who wins the election. And it leads us, obviously, to the regulatory state and the risks of higher or lower regulation. But I think that might have changed on Friday. I think regulators are fucked under this Supreme Court, no matter what, for better or for worse, because specifically, Supreme Court guts agency power in seismic Chevron ruling. We can talk Chevron deference to death. You guys should just look it up. We don't have to go

through it. But effectively, this is the biggest deal for crypto regulation, regulation in general, but crypto regulation in history, outright in my mind, or top five. And the reason for crypto is because... Let's talk about this, Scott, because there were three decisions last week that were incredibly meaningful. Any one of the three would have been alone, you'd be hyperbolically screaming about it you know loper which is the which is the chevron it's all you can read about today but and we should talk about that but there were two others that mattered there was the decision i was trying to look up the name of the case where the sec's ability to use administrative courts uh was tossed out now that sounds like the

same day the solana etf was announced and the same day the Coinbase suit, the SEC, FDIC, Gary Gensler's. And the day of the debate where Gary Gensler had the worst day of his life. But yes, go ahead. So we have three cases that came out. We have that one, which basically said the SEC can no longer use their own independent tribunals, which of course is why corporations up and down the chain have always elected to travel with the FCC and pay them blood money rather than actually fight them. They lost that. That's gone. Now that is a big deal. That means that regulation by enforcement, now they have to go through regular courts to do everything. And that means that the entire

traditional financial system is basically saying, okay, wait a minute, I'm no longer playing with both arms tied behind my back when I have to fight with the SEC. Okay, this is cool. And that's going to have a very big, big change. It also means that Congress has a way easier way to rein in the SEC. They just decreased their budget for external enforcement action and hiring lawyers because it was way cheaper and more efficient for the SEC than the old one. So that would have been a very big deal against regulation by enforcement on its own. The second, which was Judge Jackson's ruling in the BNB Binance case, is also seismic because now

we have two judges saying that secondary trading of tokens that are otherwise not equities or bonds, i.e. not securities, are not securities. That's a big, big deal. And it was in much more unlike the, you know, Rakoff's nonsense, which was in the context of Do Kwon, which everybody said, well, he's committing fraud. So in the context of fraud. So basically, what you now have is a second judge saying that the trading, secondary trading of non-fraudulent cryptos is not subject to SEC regulation. This matters, as James Murphy, metal lawman, our mutual friends pointed out. The entire basis of the rule of law is that people know what the law is before you can charge them with violating the law. That basically, that along with everything else means that their case against Coinbase, their case against Kraken,

and frankly, the case against Binance, that piece of it, they're gone. They're done. I was just going to say, I don't understand how Coinbase stock hasn't doubled. The court case is over. I mean, Gensler, there is no way a lawyer who had to justify the expense of time and money to use their lawyers would do anything other than drop the Coinbase and Kraken cases at this point. If he does anything other than that, we know that he literally is a terrible steward of the public's funds because he has just to be clear right you you unpack those but just to be clear with chevron specifically this effectively says that a regulator is not allowed to interpret the law themselves and their interpretation of the law is irrelevant in In the case of crypto, this literally says the SEC cannot use the Howey test. The court gets to decide at the end.

No, no, no. That's not right, but it's close to right. In a court case, when it comes to court, either way, listen, there's bad sides to this, right? I mean, I guess there's a lot of people who would argue like you don't want environmental policy being made by a politicized Supreme Court. Maybe you call a scientist every once in a while. Can I give some background here, Scott? The original case, the Chevron doctrine, was actually, this is the irony. People just read the headlines. They haven't dug in.

The Chevron case, the original case in 1984, was actually, what they said is that the agencies, the Reagan administration, shouldn't be able to gut the EPA's original laws. And so it was actually done to protect the environment. It was literally the opposite. which gutted the ruling, had to do with the fact that there were agencies who were prosecuting these fishermen and saying, oh, by the way, you have to pay for the prosecution and we have the ability to make this rule because we have power. It's completely abusive power on agencies. It's almost as bad as- And for us, we all have the example of Gary Gensler and the SEC regulating by enforcement and passively deeming things securities. That's done. Which, by the way, amazingly

and James, it's like 926 and you haven't even gotten a chance to take a breath yet. But amazingly, on the same day, I want to say as Chevron was overturned, which apparently the SEC did not get that memo, they tried to go after consensus and passively named like six or seven more assets securities, which

they literally legally couldn't do as of two hours before that. I mean, the SEC beating here is just astounding. And you go back a year and we never saw any of this coming, right? I guess never saw any of it coming. It's absurd. But James, I would love your opinion on all of this because it's so much that I don't think people realize or can process it all at once, including probably the regulatory agencies that have been kneecapped. Yeah. And again, going back to the fact that we're in the summer lull, I mean, you've got a lot... I mean, I'm on vacation. You've got a lot of people who are just not focused on it. And Dave makes a good point.

People are reading headlines. They're not really digging in. You got to go back to the history of the cases to figure out exactly what this means and what the implications are. And I think it's going to take a little bit of time. But I agree with everything you guys are saying. This is monumental and it's going to be impactful.

It won't be right away, but it will be over the course of time. It will absolutely have major effects on the industry. So what I want to ask you, James, because it goes back to the original point Dave was making, and I think he's not wrong, but we've talked about what happens in the election. If Trump comes in, we deregulate, he's pro-crypto, et cetera. If Biden gets reelected, maybe he goes right back to his old policies because who cares? And Gary Gensler keeps his job. But does it matter if Gary Gensler has his job if these Supreme Court justices are going nowhere? It matters less. Less, way less, way less. And yeah, and the election is looming and we're talking about a lot of things that are kind of shaping up and, and, and sorting themselves out with the, with our community here. But, you know, the reality

is we've got a lot of uncertainty coming down the line. I mean, we all watch the, or heard, um, snippets of the, of the debate last week. And, you know, this is it there's the, I, I, I painfully watched it. I think we might have lost James here. The only way... We got a frozen James. When James comes back, my only comment on the debate, because, well, I'll make two comments. One, it was embarrassing for the United States of America.

And as an American, it embarrasses me who talk to people outside the United States all the time. It was a train wreck. And, you know, there are so many things that are in cross currents going on here. But, you know, look, I've said this before on this show, so no one should be surprised. I never thought Biden would would manage to make it to the finish line and actually be a candidate. Nothing has disappeared. If anything, I'm fairly...

They doubled down and said he'll be at the debate in September, and he's definitely not backing out. I don't believe them, but that's... Well, if they want to guarantee... I mean, look, honestly, I'm not a massive Trump supporter. We all know that. But I do think he's better for our industry. But the reality is,

the fact that we have a president who literally can't function out of a six-hour window uh our enemies don't function in six-hour windows we need we need to just do america from 10 a.m to 4 p.m man i mean you know us in here it's into america those other hours like the stock market versus bitcoin. Right. But I think that the macro stuff that's going on, what matters here is, and you saw it at the debate, neither one, I mean, yeah, I mean, Trump says what he's going to say and Biden says what he's going to say, but the simple fact is, is they're going to be printing money on a lot of it. Certainly if Trump gets in and does whack a doodle it does literally take a weed whacker to federal agencies as as you know people have talked about and decrease regulation

he did actually mention it which but he didn't highlight it uh yeah we might be able to grow our nominal gdp enough so that it wouldn't be as bad no chance man we're not going our way out of this debt we need need James back to talk about that. But Mike, listen, we were talking on Thursday, right, Mike, right ahead of the debate. And you made an incredible point. And you said, listen, the bar is so low. I didn't even mean to talk about the debate today. But you literally said three hours before the date or five hours before. The bar is so low that alliden has to do to quote unquote win this debate is be able to put together a coherent sentence and effectively stay awake and he somehow came in under that bar so

where are you at on this i mean that was pretty astounding objectively guys it doesn't matter who you support here the guy was barely awake i mean it was he couldn't put together a sentence it was embarrassing and i was listening to them debate their golf handicaps it was the most embarrassing thing ever yeah mike that i had i had turned it off by then the after the first 60 minutes it was like as we all mentioned it was painful james back first i'll just i want i want to hear mike's uh take on the the morning call this morning because we haven't even hit that. Well, we'll get there.

We'll get there in a minute. Yeah, we're finishing the unfortunate debate. The thing for me is I look at it as markets sometimes get to the point they're just looking for catalysts, the tinderbox waiting for sparks. And this is something I started pointing out in 2007. When you get volatile, it's low and interest rates that high. And prices that high. this is the problem. My point with all risk assets is part of the reason I'm still biased towards US treasuries and gold. And we've had the pump in Bitcoin, it's showing dump. So maybe that'll work out okay. And I mean, relative to beta. Okay, again, this is relative

to the broad market. But the key, so that to me is just waiting, a thing waiting to happen. So I'll just also measure from my commodity standpoint. I see nothing but the typical cycle that I pointed out two years ago. Always happens. You go to low price curve and you see pretty severe deflation. Now corn, number one measure of, it's like corn is like food is, to food is like crude oil is into energy, it collapsed on Friday. Why?

Because supplies are high. There's more and then there's more coming on. Same thing in natural gas. Supplies are high. And hedge funds are really long. So that could collapse over. And hedge funds are really long. Copper.

All the things I see in China going in decline. And decline in demand for diesel and unleaded gas and container boards. All that stuff is pointing towards pretty severe deflationary stuff, which would be OK for the Fed to ease. And I also look at this year in terms of commodities, the Bloomberg Commodity Index has bounced like 6% because it has to be 500 and stuff, 5%. It's up 16%. So it's pulling it along.

To me, the risk is everything just tilts a little bit towards what used to happen, normalization in markets. But I'll point out what, from our morning meeting, this is from Stuart Paul, our economist. He says, the household survey is driving our view towards cooling. 4% risks in unemployment rate might go to 4.1 or maybe 4.2 by the time we get to the September meeting. And their goals, their targets get up to 4.4 in unemployment. You know, we always say, as James and I have been pointing out a lot, it's never gone this bottom from this low without going to 6. It's not a big problem.

Points out jobless claims are creeping up. We see the upper pressure unemployment rate downward for inflation. I see from commodities, it probably can get that to accelerate at some point. And that's why everything to me, that's US stock market has to keep going higher. And I'm just looking at it as Bitcoin's telling me, well, maybe there's going to be a bit of a normal correction. That's maybe more of a trade compared to what Dave's looks like. But with that, maybe we can tilt over to what James was saying before we lost him. Yeah, no, I mean, that all makes perfect sense. And I agree.

And I've been looking at the same thing on the uncertainty on the employment side. I mean, the fact that we don't actually know what the numbers are on the jobs and you have conflicting data that comes out in each report and revisions in each report, the number of government jobs that are created, the number of people who are taking second and third jobs. I mean, it's a survey that's problematic at best, number one. Number two, that unemployment rate, it's a lagging severely lagging indicator for a recession we've talked about it ad nauseum that once the employment rate spikes to five percent that's kind of it it's over we're we are in a recession we're we are uh we're going to have a a sharp downturn and we're in a sharp downturn so um i am looking at that we're looking at all the indicators and there's a lot of um there's a lot of confusion out there again because you have so much money

coming out of dc that they're the fiscal dominance is uh it's continuing to hamper the fed's uh attempt to bring down inflation so inflation is just stuck at three percent do i think they get it down to two percent not without a recession and 3%. Do I think they get it down to 2%? Not without a recession. And I just don't think it's going to happen. Yeah. I guess the next question, but we don't need to discuss against it, is whether they'll just stop north of 2% and give up and give us a new target, right? Well, there's going to be, and that goes back to the political debate and political pressure on the Fed. And come September, I mean, there's going to be tremendous pressure for them to be lowering rates from all sides of the current administration.

So we'll see what happens. I mean, I can't see them getting through November without making a cut unless we have a jump in inflation. Unless something happens where oil spikes and causes everything in the pipeline to be more expensive, I just don't see that happening. I think they're going to cut before the election. The political pressure is going to be tremendous. Really quickly, go ahead. But I just want to say something interesting. You said there's so much money coming out of Washington. I think mainstream perspective is still Fed hasn't cut rates, so there's no stimulus, right? Or there's no money coming out. And like you said, you look you know, it's not we're not deep in a hot. No, it's not a hot conflict yet.

So but, you know, it is it is you have to you have to focus on the fact that there's money pouring into the economy from Washington in certain areas. And it's not it's not uniform. It's in pockets of, you know, of the economy, and it does not, it's not affecting everybody. And that's why there's confusion. And it's certainly not affecting everybody in the same demographic. So both different different sectors and different demographics. Yeah, that's absolutely right, James. It's absolutely true. But I just want to come back to the political pressure. I mean, you know, we all know that Pocahontas has been yelling and sending letters to the Fed to cut rates.

But what's interesting is all of her minions are doing it as well. I mean, you can't go read, well, it's hard to basically read anything on any day without somebody making a claim that the biggest driver of inflation is rent. And the biggest reason rents are higher are because of higher rates on mortgages, which by the way, is nonsense. The reason rents are up and all those things are up is because insurance costs and carrying costs and service costs and all this stuff, the real costs, anyone who pays an HOA fee fee understands or is either on board or talks to the board of their of their their association they know that that's a bunch of happy horseshit but it is a narrative that i talked about on this show many many months ago and you know it's what once

once something gets to narrative land where it becomes common knowledge that it's true then as far as the the the policy you know know, heretics down in D.C., you know, they basically will consider it true. And so there are people out there, and it's becoming louder and louder, saying cut rates to cut inflation, which, I mean, it's, I know we live in a bizarro world, and clearly we talked about multiple ways we live in a bizarro world, but I do think that that political pressure is going to become unbearable because on the other side, we have Trump basically saying, I don't want the Fed to be independent at all. So it's not like Fed independence is guaranteed. And it's a fascinating cross current. The other thing you didn't mention, James,

which I really would love to get your take on, the yen breaching 160 is now 161. And what does that mean in terms of U.S. swap lines? And, you know, what happens if and clearly based on bond yields, which have not really moved, they're still in the same 440 to 450 range, 4.5 to 4.4 to 4.5 range. You know, clearly, Japan hasn't done anything in terms of selling its U.S. treasuries. The question is, how much farther can that go without intervention, which will require some amount of U.S. paper to get pushed into the system? Yeah, well, I mean, we're bumping up against 20-year levels here, right? Mike's got the charts. I don't have the charts in front of me, but just from memory, the yen is bumping up that level. And so the question is, how much can the Bank of Japan stomach before they have to step in? And then there are two options. So for everybody listening and haven't heard this before, this is interest rate parity. Our 10-year treasury is trading at yields that is so much higher than the 10-year treasury of the JGBs because they've been held down artificially and they've been manipulated lower, those yields, for so long that that spread on the yen, you would see that it correlates almost to the percentage.

It has deviated recently, though, and that's what everybody's looking at, and that the yen has gotten weaker than that spread. Does a treasury allow the Bank of Japan to sell their treasuries or do they just start filling that gap with the swap lines? They're open. And do they lend them dollars so they can sell dollars and buy yen? And then with the hope that they can buy those dollars back cheaper later when our rates come down? That's the question because there has to be some sort of escape valve for this trade, which is when you've got JGBs that are yielding less than treasuries, you sell the JGBs, you get yen, you sell yen, you buy US dollar, you buy the treasuries, and that's the trade. And it's a little bit more complicated with the dollar swaps and the futures um but that this is

essentially what it is so the question is japan's got a trillion dollars of u.s treasuries are we actually going to are we really going to allow them to sell those or are we going to accuse them of manipulating uh the currency which is suddenly a narrative. They were manipulating it here. Yeah, they manipulated the whole time. And suddenly it's a talking point that we've been hearing that we're watching them carefully that we can't let them manipulate it. What does that mean? It means you better go to your swap lines because if you're going to manipulate it, you better manipulate it through us.

And that's the way I interpret it. That's right. We're going to manipulate it, you better manipulate it through us. And that's the way I interpret it. That's right. We're going to control that manipulation. But James, kind of along the same topic, I do want to bring up your newsletter from yesterday. I thought it was great and horrifying at the same time. We're going to talk about money printing and slashing. Obviously, we have $175 trillion social security shortfall. People aren't realizing, according to this tweet, that comes to roughly 1.4 million per American household. We constantly talk about the federal debt and where it's at, but nobody seems to, because it's politically unpopular and it's the big quiet secret, nobody's talking about the unfunded liabilities. $175 trillion in Social Security and Medicare of the future are unfunded yeah let's unpack that for a

bit so um you know social security was started back in the 1940s right dave when you know when you were a kid so when he when he was first starting to drink in his 20s when they raised the when they raised the drink games at 21 so but um so what what what we're talking about here is the fact that social security is not fully funded i mean it was it was built on the premise that uh workers would pay into this uh system and with payroll taxes and they would uh and they would be secure in their old older age we didn't have we wouldn't have you know a bunch of 80 year old um people on the streets because they didn't have anything saved up but um the the and it

happened and started in wartime but the issue is that the the trust fund that the social security trust fund has been so poorly managed with the 60 40 bond portfolio whatever they were doing it it's underperformed at the same time that boomers have been leaving the workforce uh partially just because of early retirement from covid and uh and then partially we've got a cola increase the cost of living increase and it's just it, it's made a major, a major hole. It's created a major hole in the system. And so now it's literally a Ponzi scheme where I've paid in all my life. And I, you know, when I retire and retire in 10 years or so, I'm going to get somewhere around 70 cents on the dollar, according to what the new pay in from the only money that we'll get.

Scott, you and I will only get money from new workers. That's it. That's all they're going to have. So they're going to have to keep. But anyways, so the point is- Literally a Ponzi scheme. Literally a Ponzi scheme. So the Treasury puts out a report and the Treasury put out a report on this and they detailed it back a couple of months ago. And so Dr. Ange saw it and I dug into it this weekend.

But the point is that they put out this report and it says that they have this hole. But they use a 75-year horizon. And that 75-year horizon is like a hundred trillion dollar hole but you that doesn't take into account all of the benefits that need to be paid out for all of the people who are already born or in the womb so when when you do out the the full horizon which is the infinite horizon it's 172 trillion dollars net they've got they need 175 but hey we've got three trillion in the in the kitty so we're okay so we only have 172 trillion dollar uh shortfall but the whole point of all this in the punch line is when during the

debate biden says i've got a plan we're going to tax the billionaires and trillionaires, you know, millionaires and billionaires. If you taxed, like if you were going to raise the taxes, payroll taxes on this, you'd have to triple them for the next 75 years for it to even out, okay, on the current value, right? And if you taxed all 741 billionaires in the US, they only have $5.2 trillion. So you're still $167 trillion short, even if you took all their money. So it's just a laughable comment. It's not workable. So what are they going to do? They're going to issue more debt. We're just going to print it away. That's all we're going to do? They're going to issue more debt. We're just going to print it away. That's all we're going to do because it's politically unpopular to cut it. You can't tax it. That's right, Dave. It's the money printer. You just have to print it out. And that's what's going to

happen. The dollar is going to be worth less. We're going to be paid our benefits, but they're going to be worth less than when we paid in. Mike, I say, I know Mike has to jump in. So listen, we all agree though, that America is still the strongest economy. So if we're going to devalue the dollar, it's still going to be more valuable than the others. Right. And so the Ponzi continues. Let's go where we started the yen 161. It was last traded there in 1986. That was two years before I started the Chicago border trade bond options pit or bond pit, where I learned the lesson every single time. I learned since 1988 that every time people say, oh, the deficit's going up, you got a

short bond, yields are going up, they've been wrong. Then I just tilt over to the, I'm just pointing out facts. I'm going to point out to the rest of the world. You look at, well, China, okay, the next largest country, where their 10-year no-deal is 2.2. Okay, well, okay, they don't matter. Then you got Japan, Germany, England, India. The average of those other five countries, their 10-year note yields are 100 basis points less than the US. Before the great financial crisis, they're about 100 basis points higher. So the tilt here is, the risk is what's been driving the strong dollar for almost since the financial crisis in 2011 and right after 2009

is the complete correlation with the us out stock market outperforming the world in the us dollar so what it's going to take for that to reverse and the world's breaking now you see the yen breaking they have to support the the yuan is having a problem the euro is potentially having a problem is the u.s stock market has to give up some, or we have a, it's just all breaking. And that's the problem with the fed. If they cut, they've already priced in the eases and they're not happening. So that's why I point out to me, the biggest risk is just a little normalization beta. Everything goes down.

I mean, normal deflation after the big inflation. So yeah, I'm making the call of a lifetime. And I think there's a much bigger risk though. 175 trillion in unfunded debts is a bigger risk than normal reversion. I know you say normal reversion because you don't want to be panicked, but I do know that you believe also, and I don't think you're wrong necessarily, the data's hard, but we're at a great reset here. We're going to get the normal reversion, but yeah. Let's talk a normal reversion of 20% to to 30 percent right so what does that do the stock

market which is a massive driver of our economy they can't have that so what does that lead to printing so what does that lead to higher bond yields on the long end so what does that lead to everybody else in the world printing i mean it's just more printing that i don't see any other how could it not have that that That's what used to happen. So I guess if I have to admit, I've been doing a lot more reading of history. The latest book I've been reading is The Devil Take Its Hindmost by Edward Chancellor. It's about the history of markets that always get too expensive. You've heard it.

He also wrote The Price of Time, which is what happens after markets get too addicted to zero rates. So to me, that's the problem. When something can't do something, it has to do something. And I hate to say it, but that's what used to happen. Yes, I'm only 60. I'm used to have bear markets and start markets. It goes down more than 25% and stays down for two, three, five years. That's what market's so addicted to and that's what's over. And that's one thing that really triggered me with Dave said earlier is people have changed from saying if Bitcoin goes to 100,000 to when it goes 100,000. I just look at my little radar goes up, say, OK, do I see market that's a little bit overdone? Yeah. Is this a leading indicator? Yeah.

I'm just pointing out that's what I think is going to happen. Yeah. I say when Bitcoin goes surpasses gold's market cap, which will be five or six hundred thousand. That to me is a when, not an if. And that's and that's a different that's a different argument, which has been, you know, it has. Look, Mike, I my my point is that they can't because it will collapse. We will have a we will have catastrophic collapse of our system because of all the leverage and so what there's only so much pain we can take do we want to go through a period is there this is the way i see it the choice is do we want to go through a long

protracted you know protracted period of of pain where everything devalues and we have more or less the Great Recession times two? Or do we want to just print more money and have high inflation for a period of years that just benefits those people who have assets, which is what we've been doing all along anyways? Is that the choice we're going to make? And it comes down to our, you know, our system and where the incentives are. And so if you listen to Jeff Booth on the price of tomorrow, there's, they're not going to have a choice at some point. And at some point it does all collapse or it all feeds into a system of, of deflation because of technology and advancements there. I don't know which way it goes when or how this all plays out. I'm not, I'm not, you know, um, Nostradamus, but I do believe that the most

likely case and the easiest path to take is more printing, more inflation, and just keep kicking the can down the road, at least for the next number of years. I just cannot see them allowing- I don't disagree with that. Here's one difference. We did that. We've done that for decades, and we've learned the lesson of too much liquidity and too much inflation. So I'll make a prediction about what's going to happen next.

I don't disagree that's going to happen, but we all learned that inflation hurts the average person the most, and they vote much more than rich people. There's a lot more of them. And they all know that, okay, the next thing, the next time we have to come, the Fed starts cutting rates. We're going to end inflation still high. We'll say, oh, you're going to benefit those rich people again. Let's vote for anybody who's going to say that we're not, we're going to do anything against inflation. What helps us, the most voters in this country. And to me, that's the point we've reached that inflection point, $56 trillion. That's the market cap of the U.S. stock markets, two times GDP. It's the point. We've reached that inflection point. $56 trillion. That's the market cap of the U.S. stock market.

It's two times GDP. It's the highest it has been on the way up since 1929. Just the fact of over-evaluated risk. And it's the greatest relative value versus housing market and versus the rest of the world's stocks. It was the highest versus the Blue Market Money Bloomberg money index for 25 years, just a couple of months ago. I just point out that's, let's get through that hump first. Do I disagree with you? I don't disagree with you. I think that that is very possible that that's where we head, but I don't think it lasts very long. And the reason is because of all the

leverage, we didn't learn our lesson because we've just allowed more and more leverage. And so we've only increased leverage in the last week. We're running $2 trillion deficits. We haven't learned nothing. We're just continuing. 1933, 1971. You know what that means. What does it take to get to that?

Usually you have to have risk gases go down before there's something that triggers it. We need the trigger. I agree with that. Usually you have to have risk gases go down before there's something that triggers it. We need the trigger. I agree with that. And I agree that the trigger will be a cannon, a money printing cannon. It will be a bazooka. And we'll see multiples of what we printed last time. That is where I see it headed eventually. In which case, that's your catalyst for Bitcoin to dramatically outperform on the upside, because honestly, listening to Mike, if you if you ignore the divergent weakness in the chart stuff, you listen to everything else you said, you literally could be a chapter in the Bitcoin standard. I mean, it is it is literally the case because it's confidence in the financial system. And the one point that I want to add to this is something that I have said on this show many, many times, but I think it's important to bring it up again, which is the avowed policy, whether they were the goal of policymakers in this country and throughout the civilized world has been to prioritize capital over labor, a.k.a. create inflation in assets while depressing consumer inflation and the things that are obvious to consumers.

That has been the policy. They fucked up in the pandemic and gave money directly to people at the same time they constrained supply chains. And that created, that tilted it back from, put all the inflation into the things people actually see. And that was a disaster. And they've been trying ever since then to stub the genie back into the bottle. And we'll see what happens. But I don't see there's any alternative other than try to pump up asset prices.

Now, that said, can you pump asset prices, you know know do trees grow to the sky the answer is no I mean Mike's point on the S and P being valued at double GDP is is is that that's the neon flashing thing that none of us disagree with which is you know how do you value a company on discounted future it's discounted future cash flows at double the number that's normal. He couldn't go to triple. Sure, because, you know, markets can get wrapped along your main solvent. But but that's the issue. That same thing doesn't apply to Bitcoin or gold for that matter.

Can I can I just ask a question based on history and inflation and the way that inflation numbers are calculated. Instead of actually solving the problem, shouldn't they just take the Arthur Burns approach and just take the inconvenient things out of CPI and just keep cooking the way that they actually calculate these numbers and try to convince people that the price of their chicken really isn't going up as bad as they think? Because the historical approach isn't even to solve it. It's just to create like this magical CPI number and include or exclude things like the price of your house.

That's inflating should not be viewed as an investment. It's reviewed as part of it. We have to be careful. Let's just be careful. Let's just be careful with the political conspiracy theories here. We're talking about some very very sophisticated actuaries you'll understand markets and things like this much better than the average person does but the average person pooh-poohs and i just remember hearing this my whole entire career in the market and i point to commodities the price of corn this week has dropped to the price last

week that first traded 1974 so okay that's a commodity i get it jeff booth nailed that but it's just remember cpi can't measure the same way it did 20 years ago i mean i just i have my chevy volt i have had it for 10 years it gets like the awesome gas miles it cost me nothing i only have had to do is new tires on i plug it in and it's runs great before i was running it on on solar in my house which i got got for – I mean, let's be careful with average persons pushing back. And maybe there's a political theory, but there's a lot of smart actuaries in our government doing these statistics. I used to work with them. So let's just be careful.

I just want to point out, what I'm pointing out is in terms of Bitcoin, a normal 50% correction is normal. Potentially, beta drops 10%, 15%. I'm just looking for that, and then I think it would be time to reset. When I get those phone calls, when people say i get i've gotten every single time that a bear markets mike it's going to zero this time and i'm like okay i'll get bullish again and i get the same thing mike it's going 100 this time okay i'm going to get bearish that's just the way i see it i just it's just a normal cycle and i just want to be caution people to be get long here at these levels there's derivatives you can use that'll'll save you when we have such complete consensus that everything's going higher at very elevated levels.

And we have a lot of things. But let's just remember, I'll end with this, is those of us who lived through detente when the Soviet Union collapsed, that is completely reversing. We have a cold war that's getting hotter every day. So I'm not calling for sparks, but there's a lot of things that could just make us have a little normalization of risk assets. We could definitely be derailed on both the economy and the markets, no doubt, 100%. I would say though, that if you look at Bitcoin, I don't think that there's any feeling of euphoria and hype. I was going to say the same thing. I think there's just as many doomers as moon boys right now in all markets,

but maybe I'm wrong. Maybe Mike would know better. And we didn't even talk about Roaring Kitty. Did Roaring Kitty really? Oh, yeah. I was about to bring that up. Chewy. We're back to like pets.com here with Roaring Kitty, right?

Just something with a dog. Chewy. We're back to like pets.com here with Roaring Kitty, right? Just something with a dog. Chewy. I mean, the funny thing about the whole Roaring Kitty story is, you know, we could talk about why and how it came from, but where it's morphed to is anybody who thinks that there isn't a pile of money desperately trying to, you know, chase, you know, the latest and next shiny toy isn't paying attention. And so when your catalyst happens, it will do that. And, you know, the idea of everything falling upon itself because prices are extended, I mean, I guess it could happen. You know,

I just think that they're going to print a lot of money to push their say around it. I think the Fed put is real. It's not really the Fed put. I mean, you know, there was another one of, you know, I don't even know who this guy is, Walter Bloomberg. But, you know, Fed Williams must be a Fed governor saying the Fed's got, you know, control of inflation or, you know, we're the ones who are doing it. It's like, you know what? You can't control inflation. You can't control anything by only affecting one side of the equation. Right.

You know, you could have if you have fiscal if you have as much spending as is happening. The only way to control inflation is literally to redirect it into something that might bring down consumer prices. That is literally the only thing they can do, which is basically- Creating nuclear reactors in every single state, exactly. Yeah, it's really ridiculous. And Mike's point, which I look, as I said, I agree with completely,

is when you're investing in stocks as means, and that is what's happening, you no longer care about their discounted's happening. You no longer care about their discounted cash flows. You no longer care about their being tied to GDP. You're not buying it based on price, which to me, I mean, at my core, I still think value matters, right? You know, whether it's, you know, Cliff Athens at AQR, you know, yelling at people about, you know, how things are, although he's much more practical than that. And I actually have a lot of respect for him. The fact is, is whether you go back to Graham and Dodd, or you look at what Warren

Buffett has done throughout most of his investing career, there's generally some reason to buy a company and you can't evaluate. When someone says, what do you think of NVIDIA? My answer is, it's an incredible company, caught the wave, is right there, is the market leader, obviously the most valuable company on the planet. But the question is, is that's not what you're asking. When someone says, what do you think of NVIDIA? They don't care what you think of the company. They care whether you think number will go up. And number go up is very related to price. reason that I think that Mike and I have this disagreement on Bitcoin is I think Bitcoin's

inherent value is larger than is more than 10x where it is today. I think it's intrinsic value of where gold's market cap is, the monetary component of it. And that, by the way, is continually increasing. Gold is dramatically undervalued if you look at it as monetary components. I was talking to someone yesterday and they said what's your elevator pitch right elevator pitch is simple gold used to be a hundred percent of monetary aggregates it's now less than seven percent bitcoin is a liver of a fraction of one percent i think that some in some sense the combination of gold and bitcoin will go back up well over ten percent of monetary aggregates, and monetary aggregates are going to double over the next decade at a minimum. They may double over the next two or three years, the way things are going.

So that's why I am bullish on Bitcoin. I can't say the same thing about the stock market or NVIDIA, because will their cash flows double again in the next year? Yeah, maybe. But the overall S&P cash flow is no effing way. And Mike's point basically says it's tethered to reality. It can only be tethered to the GDP. So the only way the S&P could be worth this is if we inflated the GDP significantly, in which case the stock market will, of course, follow that. And that's kind of my point. Mike, do you have a final thought on that? It's 10.02, but you're muted.

You're muted, Mike. Yeah, I knew that. Maybe it was better. Sorry, I can't. Yeah, it's just great. The gold-Bitcoin ratio, I literally started watching it a decade ago. I'm just worried it's breaking down. And I'm hoping I get signed that I'm wrong. And I published today that I'm not getting those signs.

I'm fearful that I'll be right, potentially with volatility so low and stock markets so high, I'm afraid that Bitcoin gold ratio will continue down for a little while before it bottoms. All right. Good thing is we'll be here to see whether it happens or not in 47 years

when we're still doing Macro Monday and talking about how bitcoin's trading sideways 97 percent of the time james thanks for showing up on vacation man i love you guys are always here we will actually we're going to do i think you guys got the macro monday next week will be on tuesday because i'll be traveling at the end of the holiday weekend there but hopefully we can all do do that for all you guys as well. And that's all we got. I love the conversation today.

I like that we went in some other directions and we didn't just argue about the same thing that we tend to get caught up in, which people love as well. But really great insight. I still don't know how we fund $175 trillion in unfunded liabilities. James, maybe you can come up with a plan

for us for next week. Print it, print it. Let the money bring it over. Thanks, everyone. Have a good one. Bye.