The Wolf Of All Streets - Will The Fed Raise Rates Again? War On Inflation Continues | Macro Monday

Episode Date: June 5, 2023

Dave Weisberger, Co-Founder and CEO of CoinRoutes, and Mike McGlone, Senior Macro Strategist at Bloomberg, discuss the upcoming Fed's decision on the interest rate hike and the inflation problem.  Mike McGlone: https://twitter.com/mikemcglone11 Dave Weisberger: https://twitter.com/daveweisberger1 ►►OKX Sign up for an OKX Trading Account then deposit & trade to unlock mystery box rewards of up to $10,000!  👉 https://www.okx.com/join/SCOTTMELKER ►►THE DAILY CLOSE BRAND NEW NEWSLETTER! INSTITUTIONAL GRADE INDICATORS AND DATA DELIVERED DIRECTLY TO YOUR INBOX, EVERY DAY AT THE DAILY CLOSE. TRADE LIKE THE BIG BOYS. 👉 https://www.thedailyclose.io/   ►►NORD VPN  GET EXCLUSIVE NORDVPN DEAL - 40% DISCOUNT! IT’S RISK-FREE WITH NORD’S 30-DAY MONEY-BACK GUARANTEE. PROTECT YOUR PRIVACY! 👉 https://nordvpn.com/WolfOfAllStreets   ►►COINROUTES TRADE SPOT & DERIVATIVES ACROSS CEFI AND DEFI USING YOUR OWN ACCOUNTS WITH THIS ADVANCED ALGORITHMIC PLATFORM. SAVE TONS OF MONEY ON TRADING FEES LIKE THE PROS! 👉 http://bit.ly/3ZXeYKd  ►► JOIN THE FREE WOLF DEN NEWSLETTER, DELIVERED EVERY WEEK DAY! 👉https://thewolfden.substack.com/   Follow Scott Melker: Twitter: https://twitter.com/scottmelker   Web: https://www.thewolfofallstreets.io   Spotify: https://spoti.fi/30N5FDe   Apple podcast: https://apple.co/3FASB2c   #Bitcoin #Crypto #macromonday The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

The Fed has a $1.5 trillion problem. Actually, I should say the Treasury, but it could become the Fed's problem, which is now we've raised the debt ceiling and we're going to have a whole lot of bonds that we need to sell. And the question becomes, who is the buyer? Also, in that environment, we're still talking about whether the Fed is going to continue to raise rates or not into this environment. What's happening with inflation you guys know

it's monday and it's never been more important to understand macro than now even if you're just a crypto investor so guys we're going to talk about it myself mike mcglone dave weisberger let's go what is up everybody i'm scott melker also known as the wolf of wall street before we get started please subscribe to the channel and tap that like button i know we're a bit late today so we're gonna dive right into it and go ahead and bring on Mike and Dave. Happy Monday, gentlemen. I guess we missed last week because of Memorial Day, but not much has changed. I guess we did finally get the debt ceiling deal, Mike, which means that as you predicted many months ago, we wasted a whole lot of time talking about whether there would be a default and no debt ceiling deal, right? It's great clickbait. And I'm sure Dave appreciates that a lot.

Just, I mean, what better way to get hits and write about something that's silly? We all know. And even now politicians play the game, but we all know this is not going to happen. It's not going to be a fault. It's about moving on now. And even that's why I really, I think the good scoop I can provide this morning is we just got off my morning meeting with our key strategists and everybody is appreciating we can get past this debt ceiling issue. But from our economist, Chief Economist Ana Wong, she came out swinging against that this employment point

was weak. And the key point is self-employed workers are plunging. And typically that happens in recessions. You know, the people who do all their little gig like you. I mean, in a good way. It's good you're safe. But this is plunging. And then our chief equity strategist, Gina Marnat, pointed out the extreme concentration risks in the stock market, which is clearly, obviously, pricing for recession. Now she put a bit of a bullish spin on it. And this is where we disagree a little. Obviously, I'm still bearish. And she's been right this year. And then our equity, our interest rate strategies, Ira Jersey says, yeah, we're going to get aggressive rate cuts once they start cutting. The key thing I keep watching is every time I look on the Bloomberg terminal, I see we still have these bars that show they're going to be hiking in the July or June, July meetings. july or um or june july meetings and i look at that and like there's really no chance i see of things like an end to this deflationary forces we're seeing in commodities bloomberg commodity

index is about down almost 30 on a one-year basis um we're seeing a little bounce and crudel today but i don't really see an end to that until you get well past an easing cycle and we're not even started yet so we heard trickling every day now. We've seen trickling downward in China, which has been my expectation for years, but not make doing very well. And of course, they just pissed off their best customers, Europe and US. So that's kind of a problem, major disinvestment. But in the shorter term, like the key thing is about OPEC plus meeting cuts this week. And it's silly how people who are still trying to play that bullish game in crude oil, yet it's been in bear market since 2008.

And I did say 2008 because that's when it peaked and last year made a lower high. And people keep looking for that old scenario by looking at this old supply side that they still matter, but less so every day. And so we're getting a bounce again in crude oil. And that's what's been happening. We get a bounce on the OPEC cuts and then it goes back down towards the trend. So I see crude oil right now, it's pushing towards 75. It's still going to head towards 50. Natural gas has already done the equivalent. Commodities always go towards their cost of productions

in the long term, particularly when you've seen kind of dicey economic demand, which is not so great. So they always go towards cost of production. And the key thing I'll end with that's so important we need to point out is cryptos are showing divergent weakness now. This is on the whole quarter now. Q2, the Bitcoin's down 6%, 7%. Bloomberg Galaxy crypto index is down about the same. And the Nasdaq's up about almost 10%.

That's a sign of divergent weakness. Now, people keep saying the correlations have broken down. I'm like, yeah, they're breaking down the wrong way. The fastest horse in the race is warning everybody, warning us that there's a problem. I know I have to say this very carefully on this program because we all have to listen to ourselves and our views. Is McGlone saying what we don't want to hear, Or is McGlone saying what he really thinks and warning us? And this is one thing we always have to be careful. I add it myself as a trader and ex-trader, not like Dave, who still runs Money & You.

I'm just not to point facts at what's happening. And I have to sometimes, I know in 2018, a lot of crypto people get very upset with me for pointing out facts and my views. But this is a fact in crypto space. My sense is most people think the worst is over, yet there's a good chance it might not be. Back to you. Dave, do you have any specific thoughts on what he just said? I mean, look, the reality of the situation is that, I mean, you can't change the fact that Bitcoin has been a bit weaker. Ethereum has been a bit stronger than Bitcoin, but it is what it is. The fact is there's no catalysts.

And generally when there are no catalysts and you see this sort of falling lower volume market, I think it's setting up for a rally. But I think that it has to rally after the turn. The fact is we're not seeing liquidations. You can look at liquidation stats, they're tiny. The volumes on exchanges, May volume was worse than December in the post-FTX hangover. I mean, even derivative volumes are down. There's a lot less interest in the market. It's always that. What I was explaining to someone this weekend, a fact. And while I don't trade anymore for my own because we're running a vendor, so I can't trade, Mike, I want to be clear. I mean, yes, most of my

career was as a trader. So everything you say about me in fact is right, just not running money now. But I want people to understand the way cycles work. In 2006, actually starting in 2004 but basically in 2006 everyone and their brother was pushing as hard as they could to develop options market makers because i mean not pushing as hard it was the other way around everyone and their brother who had options market making was starting to panic by 2000 early 2007 many many options market makers got flushed out of the world because volatility was on the path from in the internet bubble in the 50s. It was on a one-way collapse from volatility, the VIX, going from the 50s down to the teens and seeing plumbing all-time lows. The longer it stayed towards all-time lows, the more people exited that market,

the more market makers were going kaput, people were going into more and more strategies that are what I would classify as shortfall strategies. Now, shortfall strategies, the things that are selling puts, there is an obvious example, but there are many. Basically, there are technical strategies. One of my all-time favorites was something called channelingstocks.com. When I say favorites, it's sarcasm, by the way. People claiming, oh, I can sell the bottom of this range, buy the top of this range, and make money every time. And that works great in a low volatility environment. Then 2007 and 2008 happened. Volatility spiked. What occurred? Well, options market makers in 2008 had their single best year in history. Why? Because so much capacity was taken out of the system.

Speculators were there. They returned with a vengeance. Speculation returns almost on a dime. It's like a Formula One car. It can steer so quickly. And the issue is getting into businesses takes time. So why do I care about that? Well, look at what we're in now. We've been on a collapsing vol environment in Bitcoin and Ethereum. We've been in a collapsing vol environment in equities. Fix is 15. Fix is 15 right now, which, by the way, historically precedes a major drop, but go ahead.

Yeah. Right. Exactly. So the question is, is volatility is, is prime. Now what does volatility mean when, when volatility is primed? Well, it means that there's not as nearly as much liquidity on the other side of major moves, except what's actually happening. And's actually happening and what is my thesis? My thesis is that the entire market is positioned for the Fed to ease because they see it. Mike is

telling us that the Fed's not easing until we get some catastrophe in the stock markets. And he may very well be right. But the absolute reality is that people always try to front run it everybody tries to fight the last war people remember that that you know that what happens and people always are expecting the bottoms they remember march of 2020 they remember all this stuff so trying to this is that that classic and i always use the princess pride example the glass in front i think the reason that the nasdaq isn't down it it's actually up, despite regional banks. I mean, look, the regional banking crisis is so far from over, it's not even funny. I mean, I believe that there are massive holes in bank balance sheets that's going to have to get plugged.

So I do think there's going to be an onrush of liquidity to try to kick the can down the road again. And that's really what I'm trying to say here. So I don't know whether or not we have to get a a major leg down and there's a delinkage uh but i do think what you're seeing in bitcoin is extremely clear in bitcoin you're seeing a long drawn out low volatility settling where the buyers are patient and they are you know there are there are clear there are clearly people, patient buyers, and the speculators are giving up on their positions and trying to move to faster horses, as it were, in the altcoin world, as you pointed out in your recap last week, Scott, and others. So I think that a lot of it is just people giving up and the old expression, sell in

May and go away. I mean, there's truth to that. There are people who are like, look, I'm not speculating anymore. I'm waiting for a catalyst. Meanwhile, buyers are happily lapping it up slowly. And you see that. So what do I think is going to happen? I think we are going to have some deep dog doo-doo in the economy. I think that we have a yield curve that the Fed, I believe, has been managing. And today is just an inkling of that. But when I look at the yield curve today, I see the long end yields going up more than the short end.

Now, I've never believed that it was because of a signal of recession necessarily. I mean, it could very well be true. They could be correlated. But I think that the Fed has been trying very hard to engineer low long rates. Why? Because the government has no way of making its debt service payments if the long end of the curve is at the 5.5 level where the six month is, the 10 years at 3.7. That's a very large difference, Scott. And that's the difference between being able to make this budget or not. So I so much done back. Yeah, go ahead. Finish. I just there's so much impact here. No, no, no, no, no. I wanted that because you just gave me the segue. There's been something I literally like I ignored my kids for way too many hours this weekend trying to dig into and figure out and I want to ask you guys about it and that that touches on it so obviously i kind of alluded to we have this 1.5 trillion dollar problem right we we raise the

debt ceiling now we can go uh we can go sell more debt right we can option off some more bonds the question i'm struggling with is who's buying okay so obviously we've seen for the last 10 years sort of a that uh foreign governments have become net sellers, but they only own $7 trillion of our $31 trillion in debt in general, right? And China, we always talk about, but they're $1.31 of our debt. China has to buy our debt because the dollar is pegged to the yuan. Go ahead, Mike. You can just go ahead. I got a problem. I know where you're going because I've heard it since 1988, actually since I started trading treasuries. That is a safe standard. And I knew Dave would laugh when I said it because he's heard the same. So I just want to be careful with these kind of things,

because just like the debt ceiling, it's clickbait. It's completely insignificant the amount of this or that country that might be buying U.S. or selling U.S. treasuries. U.S. treasuries are the world's highest dealing debt, the deepest market right now. If you're short the dollar, it's a negative carry trade. It's not that complicated. And I've heard it since I've been in this business. I don't know how many times, oh, I got a short treasuries because the debt's going up. First of all, let's start with the trend.

It doesn't matter right now. We're all turning to Japan. It will matter at some point. That's why Bitcoin is long-term on bullish. But right now, the biggest bridge that we have to cross is, as Dave mentioned, we're tilting towards this recession. What typically happens in a recession is the Fed cuts aggressively. This is not an opinion.

It's a fact. And yields drop a lot. And the trend in yields for 40 years has been down with a blip. The trend in crude oil for a long time until 2008 has been down. We had a blip back down. So also, that's just the fact, things I've heard forever. Like when people talk about owner's equivalent rent, I remember talking about that in the 80s. And now it's at the highest ever. It's just going going back down but i want to tilt back a little bit we need to just put a little closure on that um that when you have boomers anybody in plan who can get nine percent guaranteed in the world's deepest treasury market um for next two years okay 4.5 so two years guaranteed that's just a major suck of money and liquidity from all risk

assets but one thing i want to tilt back in is what, this is things that you really bring back memories of things I remember learning in the- Can I ask one question, Mike? Yeah, I just want to, okay, I had a follow-up on one thing there. Go ahead. I just want to ask one question. Who, I understand, absolutely, who's buying two years.

I'm trying to figure out who's buying 10. Who's buying 10 years. That's what I want you to come up with. That was my next question because I understand- Right, go ahead. Here's a good way to not get that one right is to you to come up with. guys in the New York desks, when I was all bullish treasuries during that massive rally, you probably remember it from the late 80s up to into the recession in the early 90s, they kept asking me the same thing. Who's buying? Who's buying? It's not who's buying.

If it's that big of a market, if the yields are that attractive on a global basis, they will drop. So that's what's happening. I want to get on to the next subject, and that is volatility. Again, you remind me of being on the phones and hearing the guys in New York desk complaining about things like volatility. I remember one quote from one of the smartest people I knew in the business at the time was Mike. Volatility is always mean reverting. And that's the number one thing to remember about. When you mentioned 15 VIX, Dave, you don't want to be short the VIX of 15. You want to short it around 30 or 40.

And that's a scary thing. So I'll keep back some of the best signals I ever had in this business. That was 2006. The VIX dropped to the lowest level ever. That's right about the time that the housing market peaked. And just like Michael Burry, I started shorting everything way too early. And then we'd pop from, I'm just looking like a 50 week, a hundred week moving average. That was the lowest ever then. And guess what's the newest low ever? It was 2018, right at the beginning. That's when I started pointing out volatility still hasn't had a decent, maybe a little spike, but nowhere near that 40 on the 50 or 100 week moving average. So volatility to me is still very low compared to where we're going in a recession. And it's a key thing to

remember is volatility is always minimum reverting. It's just too low. You don't want to short it here, but I want to tilt back a little bit to, to me, the biggest trade I mentioned right now is that consensus. It's a consensus everywhere that we mentioned the worst is over. So I look at, as Dave mentioned, even if you agree or disagree with it, what you're making investment decisions, pushing that button to get overweight long a risk asset or underweight a risk asset. You can also, what I used to do is hook up a strategy that would protect you.

And I just look at this as a point, this is a big trade that, all right, I look at it like the whole world says we're tilting the boat this way, that it's all good. We're not going to have a major recession despite all these signs that we might. And the market's priced for that. So what's the risk? Risks, I think that's what cryptos are telling us. The risk is we go back to the trend that really got started last year. By say started, the Fed is still tightening. Yeah, it sounds like you're just getting long VIX right now as a hedge.

Well, the thing to remember about the long VIX is it's a decay trade. I mean, it's going to crush you and decay. Yeah. So typically- The time it will. Yeah. I mean, and I remember as trading options, you would be, I was always very, when I was running someone else's money, my firm's money, I didn't want to be a person to blow up the firm. I had to always be careful being short options. So I was net long, means I had to trade a lot, but I did okay. And you always hear about the one or two people who are short options, make a killing for 10 years and they'd blow up the firm. So the different other ways, the head setters, you have the caves is also at the point last year, treasuries didn't

work, which is usually the thing to do when you go into recession you buy bonds but this year it's starting to go that way so maybe that trade's coming back and i like to point out is once we get that fed ease which i think is just a matter of time the markets will make it happen then your anti um your risk off trades like gold and bonds should kick in yes i've been way too early but the thing is we're pointing out now is bitcoin number one least risky crypto is still pointing to risk off. And that's what I'm looking at as a signal. I'm kind of concerned about it. Right. But Dave, so going back to, I guess, my original comment, that was my question, I guess, is who's buying the long-term, especially with the lesson that we've just seen with the regional banks. So I understand,

I guess, the answer to the $1.5 trillion, quote unquote, problem. If the rates are better on short-term yielding treasuries than they are in the reverse repo market, the money is just going to move there, right? So I guess that we know the buyers are going to be money market funds and such, but isn't this going to suck massive liquidity out, Mike? I mean, couldn't this be the catalyst for that stock market crash that you're talking about? But I'll let Dave go first. Go ahead, Dave. go ahead yeah yeah i mean look i'm going to say something that i think a lot of your viewers will agree with but is extremely controversial uh i believe the u.s treasury market across the whole curve is is despite being one of the largest in the world ever since qe started uh last decade and i go back to the ben burn famous uh youtube video with the cartoons from my friend whether you you know, you know, the Ben Burnank one ever since then, I think it's the most manipulated market on the planet.

I think there's too much. It's sort of like the very basic sentence. If there is an ability to do something that is necessary by powerful people, will they? And there's no check and balance stopping them will they do it and the answer is abso-fucking-lutely yes they will do it and the government absolutely needs to have the long end low and they've absolutely needed to raise the short end to show that that quite frankly Powell doesn't want to be the one to allow things to spiral out of control he probably I mean mean, look, his words

and his, look, I've been predicting what he was going to say almost to the dot, as you know, and everyone who watches this show knows for months now. The bottom line is he, like me, believes that inflation, a large part of it on the consumer inflation side is driven by inflationary expectations. And so he wants to crush people's expectations. At the same time, he can't allow the long end to go up and have positive real interest rates based on inflation, because if they did, the federal government literally would have no discretionary spending. This argument in the debt ceiling would be comical because an extra, you know, a 50% increase in the long rate would be enough so that the debt service would eclipse defense and the discretionary spending they're talking about. He can't afford

that. And so it's a big deal. I, as a result of that, when you're a trader, you know, the old, you always learn, don't fight the fed, but you also learn, you know, don't fight the house. And the house right now is still in control. And that's fine. You know, people have been talking about, and I quote the bond vigilantes since the seventies, forget the eighties, you know, Oh, the bond vigilantes will reign in what the government's doing. Well, they have been completely inept or, or lame to be able to do a damn thing for

20 some odd years. And there's reasons for that. They're structural. So I kind of look at this as, as it's just as accepted. It's a manipulated market. The government is going to keep the long end down. The short end is where the government is also pushing it up, but they need to. But Mike said something else that's really important. As bad as our market is, as much as I say, if you compare it to others explain i mean just look at at global bonds just look at whoops look at the global bond there's there's that music in your sky cranking it out look at the look at the global bond markets and and you start looking and you start comparing uh you know the u.s uh 10 year

is 3.7 germany is 2.3 japan is less than half a percent and that's fine now it does not go down in n-bomb i mean you gotta you gotta be short that you gotta you're using a lot of carry short the dollar in this environment good luck that's right i mean you know it's it's like you have to get to italy and in the uk to get 10-year bond yields in us. And both have big issues, right? I mean, you know, it's like Spain has a smaller 10-year bond yield than us. And Mario Speedwagon, that's what I really want to know. That was Roll with the Chasers, Mario Speedwagon. It is one of my ringtones.

Okay, just let you show me. Go ahead. But finally, what you said, Deb, is really important. I think it's profound, too, because, okay, if it's the vested interest of some major authorities to get the long bond yields down, and there's fundamental inklings going that way. I like to point out the Bloomberg Commodity Index down almost 30% on a one-year basis. It only happened twice in history, 1981, big recession. I remember it. And then 2009, we all remember that big recession and it's there's no sign of a bottom i mean they're usually it's like okay

china's coming out and the feds eased and we have 300 basis points in the u.s commie coming out we haven't even started this recession that is to me inevitable and it's just starting to show up in things like self-employed workers and housing. And so to me, when you have that, that to me is that's a big trade. And especially when you have people like me who got stopped out because of being early. And that's one thing I remember being with clients. When you're on the phones, and I remember one client when I first started in business, a big bond trader, and he was trying to call the bond rally and started in 88. It was all wrong.

And it kicked in in 89 and he got stopped out. He was all mad. He used to yell at us on the phones and hang up on us. It was our fault, of course, you know, cause I was the guy executing. And then he caught the year later. Um, but it was just early. And to me, that's what's happened. Yeah. And you know, it's, it's, it's like even, I haven't talked about it in a few weeks, but the other one that we watch, I mean, you know, everything is pointing to what you're saying in the real economy, right? Even my baltic dry index is now getting very close to the levels upon which uh officials panic uh and you can go back and look at it it's you know it's it had its pretty sear you know it's blow off top uh in

september of 21 as just as covid was opening up and then it came off a little and then it it went back and again it is less than one-third of where it was in May of 22 and so 19 now not 919 now there was I believe in October 21 it was 56.93 yeah so it's like you know it it's very sensitive to shipments and globalization so it's not only a pure economic indicator but look the real economy is there's a lot of a lot of cracks showing up and and we haven't talked about it today so i'll mention the other mate is like there was even a story about the tier one banks i mean the siffy banks getting having more capital requirements being posted on them because people understand the real issues there but oh my god what's going on with bank lending at the regional banking level when we know

that there's a multi-hundred million hole in the balance sheets of many of them that we haven't even talked about? I mean, yeah, sure, the US Treasury hole is a big hole, but a bigger, more important hole because there's no obvious backstop to it is commercial real estate. And it seems getting pretty obvious. I was talking to a real estate expert over the weekend, and he was saying that in New York, the only way out is to be able, because there's a tightness in the residential real estate market, mostly for structural reasons and rent control, et cetera, but we won't go there. But there is tightness in that market. And the commercial real estate market is an absolute disaster. They don't want to call the disaster as they're trying whatever, but leases are going to start to come off. And you find a company who has full offices five days a week. There aren't any. Even the ones that are

bringing people back to the office are letting it be only you know, only a few, three days a week and three days a week, you could stagger it and you're going to renew office space, which is, there are so many companies I was talking to and my brother works for a large insurance company. And he's saying that, yeah, you know, their leases are going to come up. It's their biggest cost is rent and commercial real estate. And you know, they need 40% less of it. And, and, and that's a company that's actually bringing people back to the office. So it's a big deal. And what does that mean? And Mike has talked about this a lot, but people need to understand if you don't have bank lending, then it's not the big companies that suffer, the ones that we're investing in. It's not Amazon. It's Joe's Steakhouse, who has three

alternatives. It's small businesses, which by the way, in the real economy is the engine of growth. It is the engine of job creation. We always keep talking about the big companies, but the absolute reality is that's who you invest in. But if you want to know what's going on in the mainstream economy, it is a small company. So if you combine a world where you don't have a wealth effect from the stock market and the smaller companies are not creating job growth, that's a prescription that the Fed is going to be confronting sooner rather than later. And Mike isn't the only person who thinks that if Powell does actually raise again and doesn't start cutting soon, he's going to go down as the dumbest Fed chairman in history. A lot of people think that.

I personally don't think he's dumb. I understand what he's doing, but I think that I can easily see why people would have that opinion. I just happen to think that he's going to get religion and he's going to let Biden declare victory on inflation going into the investment cycle. And, you know, whatever they're going to to do whatever it takes to make that happen. Yeah. I mean, we keep talking about this pivot and easing, Mike, and I know you're going to get into that. And Dave did touch on one interesting point earlier. I mean, with this debt service surpassing military spending, I believe I read it, I was looking for the exact quote, but about a third of that, a third of the U.S. debt is maturing in the next 12 months and will be refinanced from 1.7% to, what, 5%?

I mean, does that at all shake your conviction that they might pivot and get rates much lower before they need to refinance that debt? Well, that's a conspiracy theorist, which I think Dave is great at digging into and knows more about it than I do, but I think it's less conspiracy, just the macro. I mean, what's the yield in Japan? what's that been doing for you ever? You mentioned that Germany.

And since the whole world is heading that way for 40 years, we've had a blip, we're heading back down. But there's key things sometimes that Dave and I have learned that's inherent in what we do, and that is absorbing, studying, and listening, and reading, and studying headlines 24-7. And it's something I've been doing for decades. And when I just saw that headline this morning, big U.S. banks face 20% jump in capital requirements, it's like, I'm not going to bother to click through that story. I just look, okay, the macro is already bad.

We're already seeing a major jump in money leaving banks and going to money markets and to your notes. And it's classic fraction reserve bank contraction. It's just, you can't face it. It takes a while. And it's classic fractional reserve bank contraction. You can't face it. It takes a while. And then I see that headline. Okay, well, just throw gasoline in that fire. It's one of those things that also you have to also remember in this business.

It's very important to focus on the forest of what you're looking at and ignore those little trees that will knock you off your view. And that's what I see. The stock market is a pretty good tree lately, but it is actually, I think, aggravating my macro view that this is the biggest reset of a lifetime by keeping that Fed emboldened, by keeping those rate hikes still hanging on over ahead as so many other things are collapsing. And the people focus on the lagging things like unemployment. That's so not important. Let's look at the producer price index. The fact since 1948, it's never dropped as fast as it is now. And then I say that as a fact should scare me.

It should scare everyone. And what has been done to help alleviate that? Nothing. It's still going that. And the fact that we're having bank deposits on a year over year basisyear basis drop at the biggest the highest rate in our database since the 50s and what's what's out to stop that other than maybe just a pinprick every time one or two banks fall nothing the macro is still bad that's why i look at the big picture you have to think at least 12 months forward and um that's where i'm still concerned that you see the fed funds rate 12 months is still around 5%.

And that's still restrictive. Because if I'm going to get 5% and guaranteed 10% in two years, why would I invest in any risk asset? Particularly if you start roping over what cryptos have been doing. But how will the United States make those debt payments if they have to refinance at 5%? That's the thing. But that's the thing. I want to mention that. That's a tree in the forest.

When you've heard it as many times, I'll send you what I'll do. I have a picture of me on the cover of, I think, the Albany Times in the 90s and how bad the debt was and everything back then. It was around $4 trillion. We just want to know if you had hair back then. I did. I did. I need this picture. And you just get so immune to it because it obviously will be a big problem soon. It's a bridge to cross. Right now, the more significant thing is that bridge is this big recession, the Fed's still tightening, and maybe it's going to aggravate.

But remember, the enormous privilege of the world's base currency, enormous privilege of not so much a privilege. We've earned the right. We of the world's base currency, enormous privilege of, not so much a privilege, we've earned the right, we protect the world. I mean, just imagine this little veil in Europe, you know, we had these tanks coming down for us. Just imagine the U.S. says, okay, yeah, we're kind of done. You guys are on your own. It's just the strength of what the U.S. can do

and support its currency and its dollar and our treasury market so deep is just impeccable so i'm not worried about that it's just be careful with those little nuances about yeah i think you're a bit obsessive well i think i see the trees well no i mean i think that it's it's important to understand you're trying to read tea leaves here and yeah i think the economy is so much worse so once again conversation over the weekend uh this is you know my brother adam made the point that insure every insurance company he knows every financial analyst he knows are rapidly and have been rapidly uh putting people into

banking situations where they're spreading out the 250 250 250 the the fact of the matter is he phrased it simply he said yeah you know there's trillions in in protect in in in in bank deposits at risk and the fdic's account which assumed that every individual would just put their stuff in one place uh isn't ready for this a banking contagion right now would be so much the fdic would be gone in a blink i mean an app it it's it's it is such a thin line i mean i don't know how to explain it you ever play the game risk i mean the fdic is trying to hold on to this huge thing with like one thing in each country and you know there's stuff masked at the borders i think that it and and the government knows this i mean the fed understands this that's why the btfp was the bazooka they basically said

listen a hundred percent of all this impaired collateral will give you money against don't be horribly surprised to see something similar on everything else because they can't afford uh they can't afford you hear heard what mike said the bank deposit outrush is there they can't afford, you heard what Mike said, the bank deposit outrush is there. They can't afford to see the dominoes starting to fall on the whole banking system. And so I personally think that things are, I agree with Mike, I think things may even be worse than he's saying, not that I want to take over the title of McLume, but I can think the market should finally anticipate in front run what's going to happen, which is that companies that depend on the real economy are going to be in deep dog doo doo.

And companies that are speculative might actually do better when the Fed absolutely has to act to staunch the bleeding. Because we know one thing is certain. You're not going to get Congress or the president to be able to do a damn thing in this country, you know, to start stanching the bleeding. I mean, you know, they could barely, you know, it took the 11th hour to agree on a compromise that was, I hate to use the words, but fricking obvious, right? You know, it was, it was, is what they, what they needed to do. And now we'll, we'll talk about a lot of other stuff, but the truth of the matter is there's some serious problems. I, the difference between Mike and I is purely on whether or not the market will, will wait till the depth of recession to bottom or will it bottom when they see that that that they're going to try to pour uh liquidity in to try to fix it uh i think the i think that they

won't wait to the bottom i think they'll try to front run it that's the only difference between but that's that's semantics for everybody who's listening right like that's another the tree through the forest to to your credit right if the conclusion is going to be the same who cares about the timing i think it's my point we're all if we're if we're all here with a low time preference and for all of your viewers here's for all of your viewers what this means don't use leverage well i i like that I have to expand on that a little bit because I grew up, I was born and raised in leverage, in futures. I mean, I grew up 30 miles south in Chicago, border trade, starting that business and everything's about leverage. And we used to say, oh, he's trading without stops. It's just a lesson you learn when you're using,

typically it's 21 leverage in futures. You got to have stops. And then of course there's options. You can get 101 leverage and long-term capital management was getting 101. That's the lesson you learn when you're using typically 21 leverage in futures. You've got to have stops. And then, of course, there's options. You can get 101 leverage. And long-term capital management was getting 101. That's one thing you leave. I mentioned a little bit earlier. Treasury is the most leveraged market on the planet. You can get that financing for just about free. But to me, this is all part of the macro. We would ask ourselves, can we not expect a reciprocal response to the biggest liquidity pump in history that's dumping at the greatest pace in history?

And we've never raised rates as fast on a global basis. It's just logical. Yet the market's already priced that. That's okay. But that's human nature. And you pile on. Like this analyst is bullish and that analyst is bullish. And I love hearing these strategies when people say, yeah, but so-and-so said this.

And I say, well, what's their vested interest? Are they have a vested interest in being right and selling you that crypto or selling you that stock market going up or the crude oil going up and being right? Or is it, you know, is it foul what they're supposed to, they're paid to say these things. You hear these major strategies from major banks coming out with these bullish economic things. I'm like, that's the difference with me. I'm paid to be right in the longterm and get readers. I think it's, it's very important to understand. I mean, when you look at the stock market today, the vast majority of the stock market are in companies that are it's basically very much tilted by the large side now yeah last week we had nvidia is number four in the net i mean that that should terrify everybody because when that comes

crashing down watch out below but go ahead tip that's right no i mean that's kind of the point look at the end of the day i am not bullish bullish. I'm not even remotely close on the stock market, but I do think the carnage is going to be more in Main Street than it is on Wall Street. That is literally what I'm trying to say. And I think that the government has had a history of reacting to Wall Street as a harbinger of Main Street. But I think that sadly, decades of delinking, I mean, it's a lot like someone who's on drugs, right? You know, someone who's on drugs can't just off taking drugs or they go through withdrawal. I mean, the U.S. economy was addicted and is addicted to debt and was addicted to liquidity. They turned off the pumps and all of a sudden we start seeing massive cracks. And so what they do, they had to put back on certain liquidity patches. I mean, the BTFP is the moral equivalent of methadone for the economy. But it's not just the only one drug. I mean, I really think that there are a lot of people who are sitting in the halls of power who say, you know, we had a 30-year period of rampant asset inflation and zero consumer inflation because those assets replaced labor with capital, allowed for globalization, et cetera. And that was actually pretty good. And between the pandemic and our policy response, we, we mucked that up. And so they want to try to unmuck that up. Now,

can you, can they go home again? Can they make that happen? I kind of doubt it, but I do think they'll try. That's the difference. Mike. I'll let you transition on that one. Is it, by the way, this is totally like a sidebar, but Mike, did you see the article? I think it was yesterday. Yeah, yesterday in Bloomberg, the, actually, let me pull it up. I have it. A 1.5 trillion backstop for homebuyers props up banks instead. Did you see this? I did not see that one. Okay, we'll talk about it another day. This is basically saying that the federal home loan bank program that's meant, obviously, to help people get mortgages has been the fundamental backstop for the regional banks. And that's why they're still surviving. But I guess it's worth discussing on another day. And by the way, that's why Silvergate went kaput, because they were pulled out of that the uh the uh but the the

article was saying that the bonus i think for theresa basemore here it is uh the head of fhlb in san francisco was 2.4 million last year there's a chart it says that jerome powell made 203 000 last year and these people who i think are federal employees are getting like 2.2 million dollar bonuses because of success but let's talk about the the Fed and Jerome Powell, because that's the obvious pivot here. They're going to keep raising, people think, Mike. I mean, you think, I think pause June, raise July. I mean, this is one thing I've really enjoyed, how economists and people predict the Fed. It used to be my job at primary dealers, as Dave knows, the primary purpose of a primary dealer is to figure out the Fed and make money doing it. Now, there used to be 40 of them. Now,

there's like 18 left because we have markets do that for us. Now, on the Bloomberg term, I have this WIP function. It doesn't matter what I think. This is what the market thinks. The Fed is going to, and by July, there's a 55% chance they're going to raise rates another 25 base points. It doesn't matter the exact percentage. The point is they're still tilting towards raising rates. Why? Because they're following inflation data that's very sticky. Personal consumption expenditures, employment cost index, and it's all driven by homeowners equipment, rent, and things like that.

My economist, Anna Wong Wong says her models are saying they're supposed to start tilting towards cutting, but they can't because they're still following these lagging inflation metrics, which is the key thing that's part of the lose-lose from McLuhan. It's very rare you'd ever see this, but they cannot ease with the ease they have until markets make them. Or we have this long delay, which would be wonderful. And that's where i think cryptos are starting to trick the trickle down or saying okay guys there's a problem come on collapsing commodities are pointing out clear deflation

but the fed has to ignore that until their data shows we're okay and i think they're going to flip on a switch but that's why it's still not happening we've still not seen that give from the stock market that's the number one thing that i see right now where price for this 50.50%, 55% hike by the time we get to 25 basis, by the time we get to July 26th meeting. I want to point out on July 13th, we're going to get the producer price index, which is probably going to show negative year over year. And just the fact that the Fed's still tightening with that number dropping the fastest ever. Now it's a high bait and measure inflation is to me, it's classic. Like that number dropping the fastest ever. Now, it's a high bait to measure inflation. It's classic, like we mentioned, I think Mr. Paul's going to go down in history as a person

who helped aggravate this great potential depression, and only because he just happened to be in the wrong place at the wrong time and just didn't catch the inflation early on and didn't start cutting. But now, there's that consensus that he has to keep tightening. The market's priced for it. Yet there's a lot of reasons that, and he's stuck. There's nothing he can do. That's the lose-lose. He can't really cut now because if he's wrong, he loses. And in this case, if he's right, I think we're going to get a collapse in inflation. But that's already started. See, I look at it slightly differently i think that i mean i would happily bet you uh we'll

figure out you know steak dinner whatever that there will be no more rate rises this cycle i think that powell will take the june pause and extend it and keep extending it and whatever because they know what we what what we, you and I suspect, which is they understand the fissures in the banking system. And I don't think they could have realistically halted or paused rate cuts at any meeting before now, without having to admit that to the wider audience or the wider world. And that would engender panic and that, and they're trying to say everything is cool. So I think saying we're watchful and we're waiting, and if they get a PPI print, they'll

point to that as their reason. They'll use it as their justification, because look, at the end of the day, I thought they would raise rates and try to jawbone and talk about it last time. We all talked about it. But the fact is, is I think had had they not it would have been seen as panic and the last thing they can afford is to act like it like it act in panic but once they pause in june which i think most people believe they will i think staying on a wait and see attitude through the summer until they start seeing those turndowns is possible and if the ppi is negative they're

going to absolutely use that as their justification. So it's just optics? It's just optics. It's just optics. You just wait a bit like that. So we're not embarrassed and we don't look stupid. We just keep destroying the galaxy. That's how important human nature is here. Let's think about what the fact is.

What Dave just said is a fact that by not hiking or considering that they're panicking. I'm sorry. I'm kind of lost. I usually thought that meant if you hike, if you cut a lot, that's panicking. So see where we've switched here? See where the human nature is lose-lose? That's why Magloom comes out and signs. I mean, I can just buff the head a little. It's the fact that we've said these things that we all think, okay, if they didn't hike, it's panic.

Yet commodities are collapsing.'s collapsing and all these signs are saying that this is a historic event is just that's where to lose yeah no i mean look there's there's little doubt that that the that the the hangover of many things is contributing to a contraction on a pretty epic scale in the mainstream economy. And it's not just a collapse. It's a shift, a turning, if you will, to use certain people's whatever to new things. I mean, business models are changing. I mean, the entire notion of large companies with integrated workforces, all filing into the same buildings, watch a movie from the fifties or the sixties,

sometimes that's gone. The corporate mailroom gone, literally gone. You're seeing, you're going to see pods and people and, and, and a spreading effect of all companies across the country, uh, uh, doing things differently than they've done in the past. But at the same time, as that wants to happen, the ability to invest or the ability to raise capital to do that for smaller businesses is getting harder and harder and harder. And so, yeah, there's a lot going on here. And I think that we're paid to sniff out meta trends. I will often tell people that my timing is often wrong yeah that's fine so uh you know on my personal stuff i but look i called the

global financial crisis but i called it a year and a half to two years early uh i'm calling for a a very different investment thesis going out but i fully understand that we could see a disastrous fall. I mean, it's not, it's not, people think that, well, you know, it's a, it's just a coincidence that all the crashes we've ever had in the market start or either in the August through October period. And it's not like, you know, it's not not a coincidence it's no more of a coincidence and hurricane season is roughly in the same time period it has to do with a lot of things uh and the fact is that's always the rockiest period to navigate in the markets and do we have uh is there a crash in the in the fall um when too many people are predicting it my problem is too many people seem to be predicting

it yeah and when that happens i tend to go the other way i don't even know what is contrarian today right because there seems to be this barbell of people who are saying well you know corporate america is fine it's the government that's screwed uh so let's party on and then there are others like like like you and there are many people like you saying, yeah, well, look at this and look at that, and we're due for a major recession, and our stock prices are massively overvalued, and NVIDIA being the poster child for that.

NVIDIA reminds me very much like Cisco in 2000. Oh, yeah. Well, I think what you mentioned also, and part of that too is what you mentioned about so many people are predicting it. I remember seeing this a lot in markets because I used to put on the positions for customers. There's been so many people like, I can't trade anymore, but I know if I was trading, I'd been short equities and putting on derivative positions, I would have been losing money because I did this started doing the same thing in 2007. And it just got all paid back and then some in 2008. But that's the story of the big short. You can feel it because you just see it coming. You know it's going to come. But oftentimes it's that short base that keeps markets going. Keeps them bid.

And that's a classic case of what happened to Nvidia. And it's clearly some shorts getting screwed there. You can see what happened there. It's sad, but that's just the way markets work. And I think that's the case right now. It's the big short. Markets, people are protecting themselves. We all know you should be investing,

probably going towards two-year notes in the stock market. You probably may be underweight equities. And one way to do that, it was shorts. I talk to money managers doing that and they're losing money. So at some point you stop all those out. It used to happen for me.

You let those puts expire above the strike and then you go down. Yeah. I mean, there's been a recent spike. It's nowhere near historically massive or anything, but a recent spike in put buying as well because this happens, and then people lose their money. The strikes go off.

They lose it. I mean, we all know that people who use options to make leverage bets on Delta, it's a very expensive way to do it compared to other ways, you know, like perpetual swaps, etc. And those strikes are what they are. That's why I think that there might even be another short-term leg down in volatility. It may continue to compress, but when the dam breaks, which is how we started, you can see all sorts of interesting occurrences. Generally, just to be clear, because Scott said this before, but I want to be clear, if you expect a massive spike in volatility, you're expecting a crash because there is a high correlation. It's not always true, but it's a high correlation

between spikes and volatility being disasters as opposed to rallies. Rallies tend to be climbing a wall of worry, grind higher, grind higher, and push volatility down, crashes or crashes, right? Now, it's not always true. And in Bitcoin, it's a little bit different because Bitcoin itself is an option really. And we've talked about that before many times on its own adoption. You know, big people buy Bitcoin because they see a 20 to one or more potential in it. So why you would use leverage to trade that is completely beyond me. But you know, be that as it may, the fact is, is the market looks like there's a possibility there. I will just continue to

caution people that be careful what you're shorting because it may very well be, you could see a world where the, where non-listed small private companies or, or micro caps are the ones that get absolutely annihilated and mega caps do well. Uh, because I mean, there's like five companies holding up the entire market, right? Well, no, it's actually the breath last last week the breath was really good on the positive side i mean you know you you should have mike alfred come on one of these conversations so he could present the the counterpoint to mike because he he looks at this stuff and and is much more bullish on certain groups of companies but i don't think he would disagree with the mainstream economy i i don't know you should ask him well just piggyback a little

bit um we mentioned nvidia i put out a piece this morning i had to overlay the chart of bitcoin with nvidia and they just like copper in the stock market they're very close and all of a sudden bitcoin starts going down and nvidia is breaking out and i just so i like to i compared the market cap so we all remember when two years ago, Bitcoin peaked just above $1 trillion. I think it's 1.3 max. And we're having that really battle with NVIDIA now. So I compared the market cap. Right now, NVIDIA is about 50% or so of the market cap of BIM.

Sorry, Bitcoin is 50% of the market cap of NVIDIA. Total crypto is 1.1 now. Total crypto is 1.1 now. Total crypto is 1.1. It's lowest since 2017. And so this is the fastest horse in the race. We know massive amount of speculation in some areas less, like Bitcoin. And it's been trading lower, a lot lower last month, as we see the Fed tightening more and economy doing better, right?

According to the stock market? To me, that's the classic divergence sign. You'll look back from the future and say, yeah, that was a bell ringing. And what is ringing that bell? It's really simple. The hype on AI and the fact that people think NVIDIA is a proxy for investing in AI, which is literally insane, but it doesn't matter because that's what it is. Let's put a time capsule

two years from now. People who are long Bitcoin, short NVIDIA, Bitcoin's market cap will be higher than NVIDIA's in two years. To me, that is a great pairs trade. But it's a pairs trade that you could have the market...

The market will remain irrational longer than you could have the market... Not with leverage. Not with leverage. The market would remain irrational longer than you could imagine. Do you remember fuel cell stocks? Yeah. Remember that big bump in fuel cell stocks? What was it? 20 years ago? I mean, look, we've seen it. It doesn't matter. Things happen. People get

excited and they want to invest. And then where does that investment go? It goes into what they think, oh, my buddy told me that Nvidia is going to be there. And stocks become stories and not discounted future cash flows. And it happens all the time. It's particularly prone to technology. It's particularly funny because technology as a general rule has lower barriers to entry than almost anything else i mean brand has a much bigger battery to entry apple yeah it's their technology is good sure but it's the brand and the ecosystem that matters if someone came out with a faster chip than nvidia

how how you know what happens i mean you know it's it's it's important to understand. I mean, Intel's had the same thing, but it's fairly clear. But the fact is, is NVIDIA, are GPUs really what's going to be used for AI? Or is it going to be, is AI going to do the same damn thing that Bitcoin mining did?

Either way, if AI is going to be that big, everybody's going to catch up and NVIDIA is going to get a ton of competition. And I literally posted it. I don't know if I have it. We got to go. But I'm going to show it now because it's funny. Because hearing the NVIDIA, I can't find it.

I have a chart, though. But if you look at NVIDIA and Bitcoin, they literally peak. When Bitcoin peaked to 69,000 was NVIDIA's all-time high. And they both go down exactly in lockstep as Bitcoin goes down. And if you believe that we're going to see an AI hype bubble, now it's jumping over to a correlation with AI and we'll probably do the exact same thing. It's just like people weren't here two years ago or something when we were having the same conversation about the same company, but with all the Bitcoins going to a million dollar high.

Right. Exactly. Yeah. And that's how guys are 10 a.m thank you guys so much uh for joining everybody for listening mike you uh you know every day like obviously we do this you know like i never stop it's a very important reminder for me when i show up on uh monday to take a deep breath and see the uh forests and and not focus on the trees because i will say that i went down the deep rabbit hole this weekend focusing on the trees and you you straightened me out very quickly i hope i can live up to that and we'll see if the market war goes away uh either way or not it's good to just remember that sort of lesson that it's not the first time we've been having

these conversations and that uh the world's still here. David Collum One little thing. I just remember, I was my first year working in the trading pits. And I remember my boss was this guy had been traded forever and I was bullish treasuries and I was a 25 year old, nothing. I didn't know anything. And I remember he showed me like 18 charts, why he was bearish. And then I looked away and I said, okay, I just listened. I walked away and I turned out being right on that one. And I remember that was a good lesson to me that he was focused on too many of the trees. Yeah, I think it's perfect. Well, you guys, you guys maybe took a deep breath today, which I think sometimes is essential. No matter how many times you tell yourself to look at the big picture, it's hard not to get sometimes I think caught up in the noise. So everybody,

obviously, Twitter spaces in 15 minutes as we do. Mike, Dave, if either of you are around, you're welcome to join, by the way. It should be interesting. Probably largely a continuation of this conversation, I would think, to a large degree. Otherwise, everybody, I will be back tomorrow morning, 9 a.m. Eastern Standard Time.

Mike, Dave, every week, man. I just appreciate it so much. So much good information, I think, in a world of just horrible takes. I appreciate it. Thank you. Take care. Thanks, Scott. Thank you.

Let's go.