We Study Billionaires - The Investor’s Podcast Network - BTC088: FED Policy, Bitcoin ETFs, & Euro Dollar Impacts w/ Steven McClurg (Bitcoin Podcast)

Episode Date: July 27, 2022

IN THIS EPISODE, YOU’LL LEARN: 01:48 - Steven's quick lesson on the bond market. 07:17 - How should people think about the securitization of lending? 14:20 - How banks are dependent on credit duration on their balance sheet. 24:53 - Steven's opinions on what to expect from the FED. 35:42 - Steven's thoughts on oil moving forward. 37:52 - At what point does the FED have to reverse course? 41:45 - Steven's thoughts on the inverted bond yield curve. 48:48 - Why are we seeing banks starting to buy homes? 51:44 - What's the difference between trust, futures ETFs and Spot ETFs? 56:07 - Is the SEC not approving an ETF to prevent dollars from leaving the system? 01:08:35 - Steven's thoughts on the Euro Dollar system. *Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members. Steven McClurg's Twitter. Steven's Company Valkyrie. Our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Check out our favorite Apps and Services. Browse through all our episodes (complete with transcripts) here. New to the show? Check out our We Study Billionaires Starter Packs. SPONSORS Support our free podcast by supporting our sponsors: Bluehost Fintool PrizePicks Vanta Onramp SimpleMining Fundrise TurboTax Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Hey, everyone, welcome to this Wednesday's edition of the Bitcoin Fundamentals podcast. Our guest today is Stephen McClurg, who has multiple decades of experience in fixed income and private equity. During our discussion, we talk about Stephen's experience as a bond investor and why credit markets are impacting the global economy so profoundly right now. Additionally, since Stephen is the CIO of Valkyrie and one of the few companies with an approved Bitcoin futures ETF, I ask him about the differences between a trust, futures ETFs and spot-settled ETFs and why we're seeing the actions that we're seeing

currently out of the SEC. Finally, we talk about his opinions on the Eurodollar market and why it is or isn't something that's currently concerning him. We cover all of those and much more, so hold on tight because here's my chat with Mr. Stephen McClurg. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. Hey, everyone, welcome to the show. Like I said in the introduction, I'm here with Stephen. Stephen, welcome to the Investors podcast. Hey, Preston. Thanks for having me. Awesome having you. So we had some chats up at the Bitcoin conference last week up in Nashville. And man, I just enjoyed meeting up

with you and chatting so much. I was like, dude, we got to get together and record something. This, it was an amazing chat. So thanks for making time. Absolutely. Thanks for your time last week, too. And, you know, our common friend Pete has been saying that we needed to get together for a long time. And I guess we did back at the Bitcoin conference in Miami. We did a little bit, but we didn't have. Yeah, we didn't have enough time to actually have a good conversation. But, hey, so you have this background in the fixed income bond market. And I just love picking brains for people that actually have experience in this space.

You know, I've had Greg Foss on the show a lot. And talking with you last week, it was just became a bunch of. abundantly clear, like you have a depth in understanding how this market functions. So I guess, you know, if you were going to explain to somebody who's just tuning in and what I find is so many people don't understand fixed income. They don't understand the bond market. They don't understand why it's so large relative to everything else. If you are just going to kind of level set and just explain it in your own words to make it understandable and digestible for the beginner or intermediate person, how would you explain kind of what's unfolded over the last 30 or 40 years

in that market and kind of like, where are we today if you then had to give a good foundation of where we sit? Yeah, absolutely. I'm sure you've had some colorful conversations with Greg. I've known him for years, and we often geek out on bonds quite a bit. I didn't know that. I didn't know you guys knew each other. Yeah, we both kind of have similar backgrounds in the more esoteric bond space. He was He was, you know, well, we were both traders, but he was, he was primarily on the, on the sell side and I spent a lot of time on the buy side. So we actually have to, you know, hold the risk. But one of the things that people don't really understand about bonds, you know, they think it's, it's this really boring asset class where, you know, you buy US treasuries

and you get paid 2% for holding it over 10 years. And a lot of cases, it actually is pretty, pretty plain and a lot of pretty boring. But you can get into some really interesting lending structures through fixed income. And one of the things that a lot of people don't understand about bonds is that it's quite a large pool of capital. It's probably about 10 times the size of equities. And most people are familiar with equities because you can open up a Schwab account, you can trade Apple or whatever it is that you're trading. A lot of companies that people know, if you're trading, you know, equity and say, you know, let's take an example, American Airlines. You know, exactly what you're getting, or at least you think you know what you're getting. If you're buying

American Airlines stock, you can see it's price to multiple. You can, if the economy's doing great, it travels up, it should do well. But then if you start looking at American Airlines bonds, it can get quite complicated because every time they issue debt, it's structured slightly different than the last time they issued debt. So it's not just a simple, oh, it's more debt issued by America, let's go buy it. There's a lot of things. things to consider. You know, there's call features, there's the maturity of the bonds. There are covenants, both restrictive and non-restrictive. And you really have to dig into every single bond venture to understand what it is that you're buying. And a lot of times people think it's like,

okay, well, you know, if Apple, I mean, sorry, if American Airlines goes under, then, you know, they got all these airplanes, but actually they don't because they issue another set of bonds called Asset Back Securities, where they take all their aircraft or they take their aircraft engine or machinery or all these other kind of things and structure them in special purpose vehicles that are bankrupt remote, then lend against itself and then have income coming in from the parent company. So when you're in the bond world, you understand all of these structures where it's like, okay, that's a certain type of ABS, that's a certain type of company issued mixed income, and everyone is very different.

And I say that because there's some real interesting intricacies in that market where it's not just boring, you know, treasuries or foreign debt. There is a lot of asset-backed securities and they get really intricate. And it actually applies quite interestingly to crypto. So, and I know we're kind of going off on a tangent here, but I wanted to explain that, you know, there's a lot of intricacies to the bond market. It's very large compared to equities. It's hard to understand except for the plain vanilla side and about 50% of it's not plain

vanilla. But the bond market is really what drives most pricing in the economy. And that's why when people like me or Greg, you know, when they say, hey, look, you know, the two's tens curve right now is inverted by negative 15 basis points, what that means is is the yield on the twos, which is, you know, two-year treasuries, is actually higher than 10-year treasuries. And that's important because that usually is what comes before a recession. And that's kind of where we are right now.

So the bar market is usually a leading indicator of what's going to happen next in the economy. And even when we talk about the Fed, you know, a lot of people in blockchain have gotten really interested in, you know, what the Fed's doing, you know, because. because it's causing markets to go up, it's cars and markets to tank. And really what they're doing is manipulating the price of bonds, very simply. And then the price of bonds is what's driving the rest of the economy. So I'll pause there for a second. And then, you know, if you have any other questions around that before we get any deeper.

I love these points that you bring up with the American Airlines example. And the reason why is because what you're talking about is something that's actually securitized versus something that might not be securitized when you're talking about debt and how it precedes equity in common stock. And this is things that, you know, I used to talk about a lot on the show back when we were covering traditional markets, but when I've been doing so much Bitcoin conversations, it's not something that we talk about a whole lot. But for people that are putting deposits on exchanges and they're not thinking through all of this risk that you're talking about whether it's securitized or not, they're going to learn a painful lesson real

fast too, because like we always say, it's, you know, risk comes at you pretty dang fast. So talk to us maybe just a little bit, and I don't want to get too far off topic here because I really want to stay in this fixed income space for a little bit with you. But talk to us about what some of that means to you when you're thinking about exchanges and securitization and this borrowing and lending space, which has had face melting meltdown as of recently to help educate people on things to think about and things to look at. Yeah, well, that's actually a really good question, Preston, because securitization, all the devil is in the details, right? And if you have to understand exactly how the structure

works, you have to understand what the underlying security is. And I'm going to take us back in time, you know, to the financial crisis that, you know, some people might remember, some people might not, they may have been too young, but, you know, I'm one of the old guys that remember several financial crises. But back in 2007 and 2008, a lot of, you had to look really closely at securitized structures. And one good example is in the world of non-mortgage-related asset-backed securities, you may have had, you know, we just talked about the example of aircraft paper where, you know, securitized by aircraft. There's also paper. that's securitized by automobiles, locomotos, cell phone towers, container ships, boats,

right? So in 2008, all that paper traded off. And if you started trying to pick through and find the winners, you would say, okay, you know, the aircraft paper looks really good because, you know, aircraft have really long lives. You know, commercial aircraft has about 30-year lives. Military aircraft could have, my God, you know, how long has a B-52 been around? right. And so, you know, you've got like, you've got these, this underlying collateral that's very valuable. Or if you look at boats, you're like, okay, well, how well do boat sales work in a recession? Not very well at all. And the maintenance is really high and the storage is really high. So you might want to skip over the boats. You might want to sift through some of the cars,

the autos. You might want to pick up the aircraft. And some of them have really light securityization, like mortgage back securities were pretty light in the way. that they were securitized. And then you had these things called CDOs, CDO squared, CDO Cube, which is basically securitized by a securitization by a securitization of a mortgage that may have been subprime. And when you look at, you know, the dangers of some of that securitized paper, you know, the good stuff versus the bad stuff, it's very similar to stable coins, right? And like at Valkyry, for instance, most of our team is, or a lot of our team is old bond guys, right? Like myself.

And we look at that, you know, we look at things as if they're asset back securities, right? So if you have USDC versus Gemini coin versus Tether versus Terracoin and some of these other ones, you know, we used to, you know, before Terra blew up, you know, we, you know, we would look at those different structures and say, okay, what are they holding? What's its underlying? Is it, is it dollars? Is it U.S. Treasuries in some cases? Is it nothing? Is it phantom like Terra? And if it was really structured poorly and held nothing and was really held together by an algorithm like UST or Terra was, then we would avoid it. If it was something like USDC, which was a little bit more, I would say a little bit more plain vanilla without a lot of the risk, then we would hold that.

The problem was some stable coins about probably three, six months ago was they had a lot of backing by bonds. And you think, okay, well, that can't be that bad. It's just holding U.S. treasuries. Well, if you looked at bond prices from the time that the Fed mentioned that they were going to start quantitative tightening back in October, then bond prices actually went down as yields went up, which meant that the bonds that were being held as collateral and things like tether, and it was all of tether, but a certain percentage of tether was held in bonds.

And if those bonds dropped in price, then that means that if there was a massive redemption, then you might not be getting one for one. You know, you might be getting 96 cents on the dollar. And we looked at those types of things when we, you know, tether was never really an issue. But for us, it was a big enough risk where we got out of it for a little bit, right? But we stayed in things like USDC and Gemini coin for, you know, our dollar-based stuff. So when you look at that and then you look at the exchanges that are sponsoring or holding those particular things, right? You know, you've got to look at the underlying of some of these exchanges and lending platforms, too.

You know, you've got examples like BlockFi and Celsius where there wasn't. a whole lot of transparency. When you tried to do due diligence, it was just like, hey, trust me. You know, my name's Alex, I'm good. And we just, we can't trust that, right? You know, we, we could trust the places like Gemini and, you know, and Coinbase and, you know, a few others, but we couldn't trust Voyager, you know, we couldn't trust Block 5, couldn't trust Celsius, and we never used them. And it ended up working out for us and it harmed a lot of other people. But, but you have to look at that underlying. You have to understand, you know, when you put your money in, who owns that money? Do you have a right to it? Do you have a claim to it? Just like bonds, right?

When you hold a bond, you know, you might say, oh, well, you know, this Russian bond, this Russian corporate bond looks really good, you know, it's yielding 12 percent. It's like, okay, well, what if they go bankrupt? Do you fly to Russia and sit in Russian bankruptcy court and try to get your money back? How's that going to work against the oligart that backs Putin, right? So, You've got to look at all those different types of things in a bond, and you've got to look at all those different types of things on exchanges and some of these securitized tokens as well. You live in the fine print. Live in the fine print. Devils in the details.

Yeah. You know, it was interesting you had mentioned about the stable coins and the backing, and you can see how when you live in an environment where you have a positive yield over the inflation prints, the CPI inflation prints, how they have an incentive to try to get into longer. duration stuff because they're able to capture more yield and it gives them more of a incentive for profit as they're running as they're running that. But as you're well versed on, if you start to getting in an environment where it starts selling off aggressively because you have higher CPI prints than what they're yielding, that long duration stuff, the price moves way harder than anything else. And so what I find fascinating is the government has an incentive to try to issue the long duration stuff as much as they can, but it appears like a lot of these stable coins,

and I'm sure a lot of the euro dollar debt or the, you know, just offshore dollars, have an incentive now to consume or to have on their balance sheet much shorter duration things to guard against this negative rate environment. that were in real terms, environment that we're currently sitting in. So it almost seems like a dichotomy between what the government wants and what everybody else might be demanding in the market. Yeah. Well, and one of the things that drives the bond market to is there are a lot of very large

investment organizations that have a mandate to hold a certain percentage of bonds, right? And this might be with respect to duration or like, well, just to hold bonds, period. Period. Okay. Okay. And because so because of that, if you're managing money for a large pension fund or or insurance company, what you can't do is just say, oh, well, you know, CPI is well above any kind of yield that I can get, no matter where it is on the curve. I'm just going to rotate into equities. You can't do that. Yeah. So what bond managers have to do is they have to manage the yield curve. Yeah. And there's two ways to manage the yield curve. One, one that you just mentioned, right? where it's like, okay, I need to buy longer duration paper. And by the way, duration, you know, just for people listening, most people when they hear duration, they think, oh, that's the life of the bond. Duration is actually a calculation based on the combination of the life of the bond or the expected life of the bond, you know, because some bonds are callable, you know,

we want to get into that. But the expected maturity, maybe we'll say that, and the expected yield to worse. Okay? And the yield of worse is calculated based on, you know, several different factors of if it might be called or when it could be, you know, mature. So generally, the longer the maturity is, the longer the duration is, but also yield is a factor, the higher the yield, the lower the duration. So duration is a risk management. We call it duration risk, right? So like a high yielding bond, you know, a 10-year bond that's a

junk bond has a lot more, has a lot more yield than a, you know, 10-year treasuries. So duration will be actually a lot less. Because you're, you know, because it's so high already, your, your duration risk is lower. And that's because they have an incentive to roll it over. Well, they do have an incentive to roll it over, but what happens is the other factor of really what duration is if you say, okay, you know, if duration is X, that means that as interest rates go up or interest rates go down, that duration calculation is what you, the math that you apply to the principal, the current principal value of the bond to calculate what the price is. Yep.

The principle stays the same, but the price will adjust based on what the risk-free rate is. And the higher, you know, the longer the duration, the more it fluctuates when interest rates are changing. So if you have like a 30-year treasury and really long duration, it'll go down in price very quickly when interest rates go up. So this is why, for instance, in the six-month period between October of last year till March of this year, October is when the Fed, that they were going to start quantitative tightening. March is when it really started taking effect. But in the meantime, the risk-free rate started going up. 30-year treasuries dropped about 30 percent in price during that six-month period because they're so long. Now, you know, 10-year bonds or I would say, you know, just in general, the Barclays Ag, which is a which is an index that

measures just a basket of bonds and its average duration. know, somewhere between five and seven, which means that it's closer to like eight to 10 year bonds. It only dropped about six percent, right? Or, you know, six to eight percent. So that's why, like, you know, these longer bonds have much more duration risk than shorter dated bonds and higher yielding bonds. So I know we went off on a weird tangent there, but what's important there is when interest rates really started going up, that 30-year bonds, that 30-year bond took a massive hit. So if you think you're safe, holding 30 year treasuries, your price goes down. So some of these stable coins that were holding bonds against it. So if they're holding, like,

just say the index of bonds, well, that's where I kind of get the math for, you know, what the price action for tether was. The underlying had gone down in price at least 6%. And, you know, depending on what the duration was of what they were buying. So that's why I I said it's possible that it was down at, you know, 94 cents on the dollar. Our math is somewhere closer to 77 or 98 cents on the dollar, but that was just the price action of the bonds underlying in that six month or even 90-month period until today. Yeah. So that's where you have to be really careful.

He's like they think they're really smart by buying a bunch of bonds because, well, it's a few U.S. treasuries they're going to pay, but, you know, you don't think about the price and then redemptions happen when the price is low. That's when you get wiped out. Yeah. That's how bank runs happened, too, by the way. Yeah. Let's take a quick break and hear from today's sponsors.

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That's Shopify.com slash WSB. All right. Back to the show. Hey, so when you're trading bonds, you have to be an expert on the policy. You have to be an expert on, you know, when they're going to pivot, if they're going to pivot, if they're just, you know, the forward guidance in this last. decade has just been crazy, Stephen. I mean, it's just been, they're saying as little as they can and as many words as possible. Give us the interpreter. Give us the little red decoder thing that

comes in these games to what they're saying right now, as we're looking at the market here at the end of the summer, going in the middle of July, I should say, in 2022, what are they saying right now and if you were going to tell a bond investor or an equity investor what to expect in the coming two quarters, what's your interpretation right now? You know, investing in the bond market used to be a lot easier before 2008. And really, we were in a generational bull market starting at about 1982 when interest rates had peaked. And interest rates slowly came down, which means that you buy bonds and it's always going to

be a winner, right? It's always going to go over the price a little bit and the rates are high. But it got to a point where you really had to watch the Fed a lot more closely, I'd say in the last 14 years. The Fed has had a lot to do with bond prices and the economy. So first of all, the Great Recession was largely caused by the Fed. They kept rates too low for too long, which allowed people to speculate on, on real estate and to package up really exotic,

and allow people like us to package up really exotic instruments to sell to other people and sell to the market and to keep driving rates down. And it caused a lot of speculation. And then when they finally caught up with themselves, it was almost too late and then they tanked the market. Right? That's really what happened in 2007.

And going into 2008, They waited too long and then they moved too fast. And then they had to move too fast in the other direction, which was in 2009. And February 2009 was really an interesting time because that is when the market turned on a dime. And it was when the Fed decided that, look, we're going to implement measures that have previously been unheard of. We're going to print as much money as possible. possible. We're going to ease as much as possible to turn this economy around. And the Fed went from a mandate of a stable rate of inflation of, you know, two to two and a half percent to a dual mandate of

stable inflation and full employment. And during the Great Recession, what happened was unemployment were really high. And they needed to get that back under control. Full employment at 5%. So we went from a world where you invested more in the structure of things and the viability of companies to pretty much hold a basket of anything because the Fed's going to bail out the banks. And all rates sort of converged regardless of where the risk was from about 2012 to about 2018, everything converged. So it was really a game of buying the curve and you had to watch Fed speak very closely. So analyzing every word that the Fed says, you got to listen to the governors, you got to listen to, you know, the underlying current. So for instance, back in October,

I called a top in the market and I said, look, this is probably the top of a Bitcoin. It's probably the top in equities for now, it's the top in bonds, because I'm listening to what the Fed is saying. The Fed is essentially saying, we're now noticing that inflation is not, maybe not transitory, which we've been saying it wasn't transitory for a long time. And we're going to start unwining the balance sheet by March. And what that told me was, okay, they're going to, so they were still increasing the size of the balance sheet between October and March. But what that told me was, is by March, they would, you know, they're, they're kind of sloping up. And then by March, they were going to start unwinding and they're going to

start, they're going to have to start implementing rate increases. Because we all knew that inflation was here to stay. And if they didn't do something soon, then it was going to get out of control. And sure enough, it has gotten out of control. The time to start raising rates and unwinding the balance sheet was a year ago. But Stephen, I don't want to take words out of your mouth, but are you suggesting that they're really not going to change course, whether they're expanding or contracting the money supply? They're not going to do that on a whim. They're going to give you a quarter's notice before they start doing that so that everyone can start forward pricing it. Is that what you're suggesting with your comment? Yeah, absolutely. I mean, they start, you know, they, you know, they,

they start showing you their hand, you know, a quarter before, a month before. Yeah. In October, it was really, I mean, they let us know six months ahead of time. Yeah. You know, it was, it was kind of on the quiet. It's like, okay, we're going to start unwinding the balance sheet. We think the economy is pretty good. And those of us that are really, you know, the Fed watchers were like, no, that's, it's not going to end there because that's not enough. We knew that they were going to be, their hand was going to be forced and that they were kind of quietly saying that they might have to start raising rates in March.

And sure enough they did, even this last rate hike that we got, you know, the Fed had said one number and they ended up going with a higher number. Why? Because the market knew that inflation needed to be resolved. Yeah. And started pricing it in as if the Fed was going to do it because they were fearful that the Fed would have to. And then the Fed kind of came back and said, oh, okay, well, I guess the market's priced it in. So I guess we'll. Yeah.

Exactly. Exactly. And that's actually pretty rare that, that they don't signal exactly what they're going to do before they do it because they like order the markets. But if the market's already orderly, it gives them the opportunity to actually raise rates at a higher clip. Now, what's interesting about this particular FMC meeting coming up at the end of July is they've already indicated 75 basis points at the last one, right?

because we were going up by, you know, clips of 50. And then the last FOMC was just kind of like a surprise 75. And then people started speculating, oh, they're going to go to 100. Well, I wasn't so sure that they were going to go to 100. The market started pricing it in. And I said, well, you know, it's possible. But there's two things happening right here, right? You know, kind of in the back end, the Fed is looking at a few different things.

They're looking at number one, inflation, which they have to contain. And they're going to do what it takes to contain it. no matter if they tank the markets or not they don't care number two full employment and when you say tank the market you're talking stock market stock markets that's all they care about right because it's not 30 percent doesn't matter right they need to get inflation under control at the at the expense of the markets the second piece is well where's unemployment well unemployment's lower than 5 percent is 3.6 so if 5 percent is full employment we're at 3.6 okay we're safe there, we can do what we want.

Okay. But then there's this third issue. And that is the foreign markets. And that was the reason why I'm not so sure that, you know, I'm going to be contrary to what the markets are saying or the what the markets were saying a couple of weeks ago. They're saying, oh yeah, they're going to go to 100. You know, after that CPI print, they're going to 100. And the reason they can't go to 100 is this. Okay.

If they were to raise rates 100 basis points in two weeks, weeks, then the dollar would strengthen even more than it's already strengthened against a basket of currencies. Okay. We're already causing, you know, we're almost a parity with the euro. Where last I looked was, you know, one, two, five against pound sterling. And those are, that's a lot of strength against two massive economies that are already probably in recession.

to have higher inflation than we are. So we're essentially exporting our inflation away. But here's the important part. If we get too far ahead of ourselves and ahead of them, and particularly we're ahead of Japan right now, Japan's going on the other direction, they have an aging population that relies on a pension, so they have to drive asset prices higher

so that they don't have to deal with the social security issue, right? So that's why they're continuing to go in the other direction. You know, they're worried about that retiree population. If we get too far ahead of ourselves and the dollar strengthens too much, then it kills manufacturing in the U.S. Because a strong dollar means that our goods are priced too high for other countries to buy. And if we're priced too high, then that means competitive goods from places like Japan, Europe, Korea, UK, China are then cheaper to the global economy. and people will buy their goods and not ours.

So there's one thing to tank the markets. It's an entirely different thing to tank our actual economy, especially the manufacturing base. So that's why they have to, so that speculation of, oh, it's going to be 100. And the Fed probably thought about it for a moment and said, yeah, the markets priced it in may not be too bad of a thing. And I guarantee you the advisors to the Fed said, hey, hold up. we've got to think about manufacturing and we've got to think about the strength of the dollar

because it'll essentially just create a death loop. So that's why there was that leak that came out that they were only going to do 75. So I don't think that we're going to see 100 for a while. It's probably going to be 75, probably another 75 in September. We've got to manage that side of things while fighting inflation at the same time. So when you look at the CPI numbers, how do you see this plane? out going into the fall, do you think oil is going to kind of just go sideways here and maybe even keep running? A lot of people are saying that the demand is going to dry up and you're going

to see everything really kind of get reflationary and go into a recession. But do you buy that? Yeah, I don't really buy demand drying up on oil or gas or diesel. There's still a demand for things like food. And, you know, food, food gets to our tables by petroleum in a lot of different ways, whether it's fertilizer, whether it's, you know, the trucks that are taking it from, you know, from the farm to our table. So that's not going away. People are going to eat, you know, we still have money to pay for it. The bigger issue is probably supply. And the supply issue is we don't have enough supply. You know, a lot of a lot of the supply. A lot of the supply was really shut down in the last year.

So there were a lot of environmental policies that had come out that really caused various areas to shut down drilling or to shut down pipelines. Not that that's good or bad, it is what it is. And then we looked at the possibility of releasing some of our national reserves. And it looks like we didn't necessarily release it into our own economy. We released it to China, which I think is pretty alarming. And then, of course, you have the energy crisis in Europe, right? Yeah, so this is even worse over there.

Like, way, yeah. I mean, Germany is something like 85% dependent on Russian gas to heat homes or to heat their stoves, right? I mean, you know, it's summertime. You're not really heating your home so much, but you still, you know, but gas, is really the major thing that they use for, you know, for, you know, for food preparation and home heating. Whereas here it's kind of a combination of electrical gas. So the concern that I, and I agree with everything, obviously, I agree with everything

that you just said. My concern is at what point does the Fed have to reverse course? Is it because they break something? Is it because there's some type of credit issue or impair, there's so much impairment in the debt markets that it forces them to go back to a QE type setting. Like, walk us through when you would think something like that could, the earliest and maybe the latest that that could, that we could see something like that play out and maybe where you see some of those vulnerabilities or some of those weaknesses in the market today.

Yeah. Well, one of the things that I've been saying all year is, you know, midterm elections is a good reason to slow things down because what you don't want is people's portfolios and pension funds to be down 30% going into midterms. That's really bad for the current administration. But you also don't want gasoline to be too expensive. You don't want food to be too expensive. So it's sort of a double whammy. Yeah. And they're really going to have to balance that. But how? You can't really do one and do the opposite and the other. Like if you like I don't know how you could do that. So if the markets are going down by too much, closer to the midterms, we might see either

a reversal or a pause on the current direction, just so that markets can catch up a little bit, as long as inflation is other controls, as long as we don't see a double-digit print, which, by the way, is entirely possible. Inflation right now is really caused by wage growth. It's one of the reasons why we didn't see inflation from 2009 until 2020. money. We had a lot of easy monetary policy, but wages remained relatively flat, you know, versus versus the amount of money that was in the system. And then when wages started going up, and that was really triggered by COVID, by the way, or the policies that resulted from

the COVID lockdowns, when wages started going up and there's really no end in sight for wages going up, then that's when inflation set in. And you really can't control inflation. until you clamp down on spending. Okay. All the monetary tightening in the world isn't going to cause inflation to stop. It has to be government spending at this point in time or a combination of both. So when will we see the reversal? Well, that reversal will probably not happen until we see inflation go below 3%.

Or until unemployment gets above five and a half. Or if there's a major meltdown in the credit markets? Really? You don't think so? Well, I just don't see a major meltdown happening in the credit markets. Really? I mean, yeah, fixed income might go down in price, but the type of meltdown that would be needed in order to really sway the Fed would be for, you know, banks to go down. Yeah.

Right. And right now, the major bank. banks are fine. I'm actually more worried. I actually do have some concern about regional banks and any kind of bank that's consumer banking only. We can get into that if you want, but the major banks that have diversified businesses across things like capital markets and investment banking and banking itself, you know, they're fine. Where we might have meltdowns of credit markets is we might have a very high default rate. on high-yield bonds.

And by the way, that's needed. We have so many zombie companies out there right now, they need to default. They need to go away. So whenever I think about banks really run into credit issues is when you have an inverted yield curve or it persists where the short end of the curve is yielding way more than the long end of the curve because that, for all intensive purposes, that really causes major challenges for their balance sheet management for any bank. when we're starting to see that, you had mentioned the twos and tens, explained for people

what the two's and tens are. And just to give people an idea, you said it's negative. It's at negative 19 percent right now. We had touched, just for context for people listening, we had just touched it basically zero in, what was this, September of 2019 for what looks like a day. And, we hadn't had a negative spread between the twos and tens since the 2007 time period, just to kind of give people some context of what Stephen's talking about here. So explain that a little bit and then talk to us about this inverted yield curve and how it makes it difficult for banks to manage their balance sheets. Yeah. So in really simple terms, banks typically borrow money at the short end and they lend at the long end, right? So I'll give you an example. If you go to your bank

and you want a car loan or you want a mortgage, your mortgage is going to be like 30 year mortgage. Your car loan's going to be, you know, six years is what they're doing a lot of times right now. So, and car loans a little bit higher, but it doesn't matter. They're lending at that rate. So if the lending rate or the rate that the rate that they're lending to make money is lower than what they're able to borrow at, then that's what creates the dislocation. Right. They're always borrowing at the short end, right? Especially, especially members of the, members of the Fed, right? So they're borrowing at, you know, in the Fed on the Fed window, right? That's where they're borrowing money. And that dislocation causes a dislocation in

lending versus borrowing for banks. And it's very difficult for them to to make money at that level. And if it gets too high, you know, like mortgages, for instance, they become unaffordable and they stop going to the banks to get mortgages, right? People, you know, will, you know, they'll buy a home, they'll, you know, they'll end up falling out of escrow because the rate's like six and a quarter as opposed to 3% when it was, you know, a year ago. And you're seeing a lot more of that.

And that's, for instance, you know, a lot of the big banks right now and they're quarterly, announcements are stating that they're letting go, JP Morgan, for instance, is letting go a large portion of their mortgage unit, right? Because they just can't make money there. And people don't care for getting to get mortgages at that right. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up. And customers now expect proof of security just to do business. That's why Vanta is a game changer. Vanta automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a stock two or running an enterprise

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to unwind this behemoth, they want to own the equity with very little down. So, A, do you see it that way? Did you agree with that description? And more importantly, what's your description, Stephen? Man, I remember back in 2011, I started getting all these decks come across my desk. This is what I was in traditional finance, you know, from names that you mentioned saying, hey, we're launching this fund, we're raising billions of dollars to go out and buy single family homes. It's like, wait, what?

Yeah. You know, I mean, you used to come across that all the time for, you know, commercial mortgages or commercial, you know, property. but wait, BlackRock is buying single family homes or all these other hedge funds are now like opening up, you know, a hedge fund to just buy single family homes and sit on them. Like, yeah, you know, our assessment is, is that, you know, there's a lot of easy monetary policy right now. There's easy money and prices are going to go out, which they did, right? I mean, it's quite a brilliant trade. And what ended up happening is people, first time home buyers, and

now competing with hedge funds on single family homes all over the place, right? And they're buying them up in blocks. And sometimes they're just buying them and sitting on them, not even renting them out, not even getting a mortgage behind it. Now, they might take a group of these single family homes and getting some kind of lending against it and collateralizing the portfolio so that they can actually leverage up that portfolio. So they might be doing that, but it's not your traditional mortgage. And even in this, this timeframe right now where you think, oh, okay, surely housing prices are going to drop right now because they're not affordable anymore. Rates have literally more than doubled.

And people have a little bit less money to put into the market, but guess what? Inflation. So due to inflation, asset prices will continue to rise. If you can't make money lending to people, well, you're just going to invest in a portfolio that's going to go out and buy the homes and sit on them and inflation will take that value up and you don't have to worry about the 6%, because you're going to earn 6% a year in inflation or more, right, which drives real estate prices up. So yeah, it's a really interesting time and there's more and more of these portfolios that have come into existence in the last five years. That's crazy.

Hey, so you're an expert in just ETFs, ETNs, trusts, like all of this stuff, because you're Because with Valkyrie, you guys have, you have a product, which, you know, please tell people about what that is. But more importantly, talk to us about the mechanics of these various vehicles because this is something that we've never talked about on the show about like the underpinning of how these things work. And there's no better person to describe it than you because you understand this stuff at a very high level.

So if you were going to make it simple for everyone, how would you describe these things? Yeah. So what I like to do is, you know, let's talk about Bitcoin from, you know, just very specifically Bitcoin. There's a lot of different vehicles that you can buy Bitcoin through. I like, I like to diversify because I'm not the smartest guy in the room. You know, if I put all my Bitcoin on a hardware wallet, I'll probably break or get lost in a voting accident. So I would, you know, you can, you can buy it directly, put it on a wallet. You can, you can go through one of the internet, you can go through one of these exchanges or custodians. And then kind of on down the line for less sophisticated people like me, you might want to

buy it through an ETF, a trust, a, you know, or some other type of vehicle, you know, like a private vehicle. So there's really three different things at play here, you know, and a lot of people throw on the terms like you said, ETN, ETF, a trust. What those are as different structures that can be publicly traded. A trust, for instance, can be private or it could be publicly traded, like a lot of trust that we know about, right? And the trust structure really is a more tax-efficient structure where you essentially

don't have to have a K-1 because it's like owning property, as long as like a single token. So if you own Bitcoin through a trust, you actually have ownership of a piece of that trust, your percentage of it based on how much you own. And then, of course, the manager or the trust manager charges a small fee for holding it, for securing it, for putting it on a custodian. So for instance, the funds are pretty safe in that structure. What's unique about the trust structure, again, is there's no K-1s because it's a single

asset property trust. When you move over to an ETF, well, the other thing about a trust, too, is, of publicly traded, you can't necessarily redeem your shares directly. You have to sell it on the open market. So that's why, for instance, the trust that exists right now have large discounts because it's still liquid, right? You can only sell the shares to somebody else. You can't actually redeem your shares out of it. And that's the difference between the trust and an ETF. An ETF is designed so that on a daily basis, if there's sufficient demand to liquidate it, you have to liquidate it.

Right. So if I say, hey, you know, I've got $1,000 with a Bitcoin sitting in this ETF over here, you know, I want my Bitcoin. Well, they have to honor that on that day. And that's why ETFs typically trade very closely to the net asset value of the underlying, as opposed to a wide premium or a wide discount. They have daily liquidations, whereas trust have no liquidations. It's essentially closed-ended.

And then what a lot of people also hear about is an exchange-traded note versus an exchange-traded fund. And really, it's not that different. A fund is managed by a fund manager. They're a fiduciary. They're an RIA, typically. You know, we're an RIA. So, you know, the ETFs that we manage are, you know, our funds.

We can also manage ETN, so that's fine, too. But an ETN is essentially a note. where you, it's almost like a note as if it's a loan. So anything you hold inside of it or when you buy it, it's more like a, a lend to as opposed to a direct holding ownership. In practicality, it's not that much difference. It's just the structure of it. Got it.

Recently, Doomburg had a thread on Twitter where he was describing why he thinks the SEC is not approving an ETF. And effectively it came down to he thinks that they don't want that buying power, leaving the dollar system and they're just trying to drag their feet as long as possible. I'm curious, your point of view, or if you think that that's truly what it is, or, you know, and you feel free to describe what you've heard to date on the SEC and why they're not allowing a long ETF. They have approved a short ETF.

Talk to us a little bit about some of those ideas and just maybe some of your opinions on why you think some of it's happening. Yeah, so there's really two things at play. And I've spent a lot of time, actually, I think since 2017, working with regulators like the SEC to try to bring something to market.

And the biggest issue back then, and up until pretty recently was really custodial issues. You know, there's, there's been Mount Gox, there's been other custodians or exchanges where people have run off, you know, with the money or there's been a hack or there's, there's been other issues. And what they don't want is, you know, that type of thing to happen. And it's very understandable, by the way, right? You know, if you own Apple stock, you know, yeah, somebody might be able to hack your account

or hack, you know, the, you know, the transfer agent where the actual equities are held. But there's provisions to be able to claw back. It's sort of like a bank, right? You know, everybody's like, well, you know, be your own bank, hold your own Bitcoin. Well, you know, if you hold money in a bank, yeah, there's other issues. You know, sometimes you can't get access to your funding. But if you lose your password, you call your banker and they reset it for you. If you lose your keys, it's gone.

It's gone forever. Right. So that's sort of, that used to be a worry. We're not going to put something in the public markets that has these issues right now. And by the way, most of those issues have been resolved. I would say between the years of about 2017 to about mid-2020, we got through a lot of those issues with them. Right. And you really, you know, hats off to, you know, Gemini and Coinbase.

I mean, they worked really hard to get the SEC to understand that they had these valuable custodian solutions that they were trying to protect investors, that they felt like they had a fiduciary obligation to their investors. And it was a lot of work. And we finally got there. The issue now, I would say, has more to do with transparency on trading itself. And they just can't get their heads. around that, right? It's like, okay, well, you know, if, you know, most markets have an efficient way of showing price, you know, transparency of price like bonds and equities. And you can, you can look them up. You can see them. You can see exactly who sold it to you, who didn't. When it comes to Bitcoin, a lot of times you just see the wallet. Is it, you know, is it some wallet from North Korea? Is it some wallet from Russia? You know, we've got issues with those states right now. We, you know, we just, we just, we just, we just, we just, you know,

don't know. And we're getting there. We're getting close. But I still think it's another couple of years. But it really is the trading and the issues around the exchanges. And this is why Gensler is very adamant about oversight of the exchanges in the U.S. before they allow it. That really is the last piece. And it's a difficult one because the SEC really only has purview on securities. And Bitcoin's not a security. So if there was an exchange that only traded Bitcoin, should it be under the SEC? Probably not. But who's going to regulate that exchange? CFTC thinks it should be there. A lot of people, I kind of agree. I think the CFTC should be, should be to really be monitoring that. But that's why we have some of these other products.

You know, we got a Bitcoin futures, uh, ETF launch. Uh, there's a, there's a short one out there, and really all they're doing is utilizing futures, but the futures are monitored by. And there's oversight from the CFTC and it's on regulated exchanges. So that's why they're behind futures and not behind Bitcoin spot yet. All right. Uh, circling back to fixed income. These are questions. This is a little bit of selfish on my part, but you have such an expertise in this area that, you know, I try to, I want to learn as much as I can't. Your opinion's on yield curve control. So we have this happening over in Japan right now. Where do you see it showing up next? I'm assuming you see it showing up somewhere next. Walk us through

some of your thoughts around this. Well, you know, I've been saying for a while now that what the Fed should be doing right now and should have been doing this for a while, you know, we've, you know, inflation's gotten out of control, is they really should be unwinding their balance sheet more aggressively and not so focused on short-term rates. because that unwinding of the balance sheet will actually drive the long end of the curve up, you know, because it creates, you know, more supply versus the demand that's there. And that inversion that it's creating is really causing a problem. So there should be a more aggressive unwinding of the balance sheet.

Now, the problem with that is if you own most of the treasuries, U.S. treasuries in the world that are long dated and you're aggressive, unwinding it, guess what? You're selling it off at a price that's lower than where you bought it. That's a whole other issue within itself, right? So you're buying it at par, you might be selling it at like 70 cents on the dollar, 80 cents on the dollar just to unwind the balance sheet. So the Fed's kind of, you know, in a bit of a hard place, you know, like they have a, they have a habit of acting too, too aggressively, too late. And, Once the damage is already done, then they try to reverse course really quickly.

And this is exactly what's happening right now. And we'll probably see that same type of behavior when like, oh, shoot, we went too far. Now let's go the other direction really quickly. So I actually expect that, you know, soon. And I'm not saying within the next month or two, but I'm saying probably within the next year, we're going to get to a point to where they said, oh, we went too far. The economy is completely tanked. Unemployment skyrocketing. We still have inflation. Oops. But we're going to have to reverse course here or else, you know, we go into a really, really deep recession. By the way,

we're probably already in a recession. Do you think Powell had mentioned that he's trying to roll off the balance sheet by two trillion? Do you think that they can get to that number? That seems like a really big number to get to without breaking something? I think they can get there. I think $2 trillion is doable, but it probably should be more. But it won't be, right? I mean, they're offsetting what should be more with more aggressive rate-height policy on the short end.

It seems like there's so many problems over in Europe and Japan that are going to force them to pivot faster, to me at least. But, I mean, that's just seed of the pants opinions, right? Like, I don't, I'm not basing it on anything other than seat of the pants. Yeah. I mean, and you have to look at, you have to look at economies collectively. Yeah. What's China doing, right?

What's UK doing? What's Europe doing? What's Japan doing? I mean, those are the major, you know, major economies that we're competing with from manufacturing perspective. Japan just has issues. I think, I think we act independently of what Japan does, you know, regardless of what Japan does, because they've been doing their own thing for two decades now.

Europe is probably the bigger problem. If we completely go in a direction where it assists the squashing of the European economy while a major war is going on, you know, then, you know, that's definitely something that is going to be politicized. And the Fed has to be cautious of that. It's not their primary driver. It's probably like the fifth bullet point down. But it is something that they have to be aware of.

So I'm looking at the numbers. So I combined the ECB, the Bank of Japan, the Fed, and China. And I combined all their balance sheets together into dollar terms. They expanded through COVID. They expanded what looks to be about $11 trillion. And they've already bled off already, but they've bled off. about 1.5 trillion out of that 11 trillion expansion collectively together. When I look at the last, and I'm just throwing this out here.

And if you don't have any comments, I'm sorry to just like talk here. I'm just, I'm trying to pick your brain on what I'm seeing here. So on the previous, from 16, from 2016 to 2018, they had an expansion collectively, all four of them. they went from 15 to or 15 and a half to 21 trillion. So let's just call that 5.5 trillion. And they went sideways with the balance sheet from 2018 right up to the COVID period of time. And they drew that down by about a trillion.

So it was about a 20% reduction, which would be on par with what Powell was shooting, for, which would be a $2 trillion reduction from this most recent collectively $10 trillion that they inserted, which would imply that they're about halfway through that. Yeah. Well, I'm actually looking at my handy chart back over here. I happen to just have it on my desk of, you know, details around the federal or balance sheet. Yeah. And I'll just read it.

I'll just read this to you because it's quite interesting based on what you just said. Right. So despite the fact that the Fed has, they slowed down their purchases of new securities from October to March. And they began unwinding. The current balance sheet sits at $8.8 trillion. On the U.S.'s balance sheet. Okay. Yep. A year ago, it was only $8 trillion. Yeah. Just think about that for a moment. So we have. added, we were adding so much from June all the way to March, you know, despite slowing down in October. And what we bled off isn't even come close to what we added since last, you know, when I say the end of June. Yeah. So that's as of, you know, June 30th, 2021. So we're still up almost a trillion dollars from where we were a year ago. That's crazy. When,

when you take a step back and you look at it, and anybody who's been living through these markets since the start of the year is saying, the pain train is destroying me, right? But on a net basis from a year ago, like, we're not only up big on what's been inserted into the system, but like up a tremendous amount. Right. I mean, we're up 10%, right, as far as assets on the balance sheet. Now, think about that for a moment. We're up 10% year over year. CPI's up 9.1% year every year. Yeah. Yeah. By the way, it's not that related. It's actually not that correlated. It's just a coincidence,

but it's a fun coincidence. Yeah. I guess this would be my final question. So Jeff Snyder, and I know you haven't because we were talking about it a little bit before we recorded here, a lot of people online talking about Jeff's recent interview with Peter McCormick, He's talking a lot about the Euro dollar system or if I was going to simplify that for anybody. It's just offshore dollars in foreign bank accounts and they're not having to basically follow Fed policy and U.S. regulatory guidance as far as how many deposits you got to have on hand versus lending out into the system. And you have all this dollar denominated debt all over the world.

And so all those dollars that are offshore can fall under whatever regulatory guidance they want, which means you're going to have a little bit riskier behavior. And it's almost like holding a gun to the Fed's head because you have impairment in those markets and the Fed's got to have enough dollars in the system because they're acting as a global reserve settlement layer. That's my recap of the Eurodollar system for people that want to simplify it or make it simple. I'm curious if you see it differently than how I just described. described it. But what are some of your thoughts on the Eurodollar system? And what triggered this,

going down this path is Jeff had some comments where he does not think that the central bank balance sheets really kind of play any type of correlation into, and I don't want to take words out of his mouth if he's not here to defend himself, but he didn't really see too much correlation to do with any of this balance sheet expansion and contraction and QE and all the things that we were just talking about. Yeah. So there's always been this speculation, right? That, you know, outside of the U.S., you know, the People's Bank of China has a lot

of control over what we do because they're the, you know, one of the largest holders of treasuries. And you have all of these other holders of dollars and dollar denominated debt and treasuries. As a matter of fact, what's interesting, though, is. Chinese holdings of treasuries hasn't really changed over the last year, even over the last two years. It's been relatively flat. They simply buy treasuries to manage the rim and be. It's their way of pegging the rim and be to the dollar. So we complain about China being a currency manipulator by pegging the rim and B to the dollar,

but the mechanism to do that is buying U.S. treasuries. So we really don't complain about them buying the U.S. treasuries, right? So the point is, I actually don't. see it that way. There isn't a whole lot of control that whether the people's bank of China or US-denominated debt or Euro-dollar has over the US market. The US can decide to honor things are not, very simply put. And we can simply inflate our way out of issues. We can export our inflation, we can try to manipulate inflation going the other way. But it's it actually doesn't have that much of an effect. And there's not a whole lot of control that comes out of, you know,

foreign holders of US dollars. It's sort of like, you know, here's a good example, Russian debt, you know, that was to nominate it in dollars. We can just simply say, yeah, we're not going to transact in that anymore and create a default situation and Russian debt. So, yeah, I don't really, I don't really, I don't really buy that theory. Yeah, I just wonder how much, because it is a huge market, there's, there's tons of offshore dollars, there's tons of dollar denominated debt. And I'm looking at Japan. I'm looking at Europe.

And I'm seeing this energy situation that's about to play out into the fall and into the winter. I kind of suspect it's going to get really bad. And I just wonder how much of that is the tail and how much of that is the dog at this point when you're talking about offshore dollars. And is it forcing the Fed to make policy decisions that might not be in the best interest of the U.S. citizens simply because they have, by de facto, become the globe's central bank. They have to keep stability in this global system and it has become a global system. So, you know, I'm not trying to argue with your, with your counterpoint. I'm just trying to defend it as best I can to think through like how much of this is actually in their control and how much of it are they

actually acting on behalf of U.S. citizens versus the global citizens, because it almost feels like it's a little bit more of the latter than the former. Yeah. I mean, and I definitely understand the point, but at the same time, you know, it's, that's a factor that's very far down the list, right? If it's, if it even makes the list at all. The Fed doesn't care if, you know, somebody holding dollars just lost 10% because, you know, due to inflation that they created. They don't care about that at all. They do care about it from a policy standpoint within the U.S. You've got massive inflation within the U.S., well, that's an issue. When its own citizens, are experiencing it, you know, that's an issue. If other people are experiencing it,

who cares? Right. It's a way of essentially taxing anybody to choosing dollars. And it's something that we've been doing since, you know, 1971. I just wonder, so you talked about the full employment, you know, under 5% unemployment, the inflation under control, and then this third mandate of stability, I just wonder how much of that last one is really starting to force them into a corner because it almost seems like as we go further down this concoction of monetary policy that we've experienced since 2008, 2009, it almost seems like everything is funneling into that last one where they have to have this stability in the system. I mean, look, when you look at it from the perspective of what we were talking about earlier, right, where if the dollar becomes too strong versus other currencies, there are issues that it causes, right?

So I think it's more from that perspective. Gotcha. Right. And, and, you know, they're not, they're not completely done, right? You know, they know that if the dollar strengthens too much, then, okay, now we have a manufacturing problem. Now we have a trade imbalance. And that's going to cause problems down the road.

Let's be cognizant of that. Let's be aware of it. It's why we're not going to get 100 basis points versus 75, but we're still getting 75. Yeah. Right. It has less to do with them caring if other people are, you know, paying a tax or inflation or the large euro dollar concerns as more to do with, like I said, that trade imbalance due to the strength of the dollar.

Last question, and you don't have to answer it if you don't want to, any bold calls right now in the middle of July of 2022? Man, okay, bold calls in the middle of July. We've had quite a rally, and that rally's been due to the leak of, no, it's going to be 75 basis points, not 100. We've got this relief rally that's happening. Bitcoin's kind of lagging in that relief rally. So I think that Bitcoin will probably go up a little bit further from here. But this is, this is a trap. You know, this is a selling opportunity if you're a trader. You know, we get these rallies, you know, and all these eth heads are like, yeah, we're up 8%. You know, now let's go buy a bunch

of auctions, you know, because they're lagging. And sure, they may go up a little bit from here, but once this relief rallies over, what you really have to keep in mind is there's liquidity going into the system and liquidity coming out of the system. And right now, liquidity is coming out of the system and there's nothing to replace it. So these little relief rallies that you're getting right here, don't be fooled by it until liquidity starts coming back into the system. I don't care what the asset cost is. If it's a financial asset, it's going to go.

back down. So I'd be selling, not buying right here. I love it. I don't know if it's that bold. Some people would strongly disagree. I've had them on the show. I argue with them online because I agree with you 100% on that call, Stephen. You know, and it's for me it's the negative spread. Like the persistence of this of these CPIs are just going to be devastating, in my opinion. Until they show some type of doveish. transition of, oh, yeah, we're going to start doing QE again and whatever else. Yeah. So. And by the way, you know, we have all of this, this blowback from Tara, Luna.

Yeah. You know, we've, we've got these exchanges and lending platforms that are going into bankruptcy proceedings. And the call that most people are saying right now is, okay, well, the worst is behind us. Well, the worst might be behind us, but there's a lot of aftershocks that are still coming even within the ecosystem, even upside of macro. Yeah. Right. So, so, so, so think about this for a moment. If you're, if you have money in, and, in crypto hedge funds right now, and you're seeing what we're seeing, what are you going to do? Well, you, you want dry powder right now. Yeah. Yeah. So I think we're going to have massive redemptions coming out of hedge funds over

the next six months, which that alone will drive the market down even further. Okay, so you couple that with the Fed and tighter monetary policy driving down markets. It's a double whammy. So, bold call, ETH 600. Wow. Yeah. How about that one? I love it. It's like, well, it just almost double. I love people take a stand, right? And if you're wrong, you're wrong. It's no big deal. At least you actually threw something out there, which I love. So, Stephen, talk to, talk to Valkyry, explain people a little bit about yourself, maybe where they can find you online, just give them the handoff. I'm sure they enjoyed listening to some of your comments here. So give them a handle. Yeah, absolutely. You know what? I'm going to be really

ashamed to admit. I don't even know what our website address is. I just know that Valkyries are company. You know, Leah, Leah's the smart one. She can tell exactly what the website is and everything. She's going to be so mad at you. You can't be so mad at me. I don't even, I can't even, I don't think I've ever looked at our website. I just look at charts all day and I, and I read boring publications and try to figure out where the markets are going. But, but, but, but, but, but, but, but yeah, we're, yeah, we're, we're, we're, we've been around for a little bit now. And, And yeah, I think Twitter, I'm Stephen McClurg. How's that one?

And we're going to have show notes. We're going to have a link to that. It's Valkyrieinvest.com. Oh, thank you. Thank you, Preston. Yes, sir. Well, that makes sense because, yeah, okay. Yeah, that's my email address.

Oh, you're hilarious. I really enjoyed this. And boy, what a depth of knowledge in the fixed income. And the Fed watching stuff I found fascinating. So, Stephen, thank you so much for making time coming on the show. We're going to have links in the show notes to all this stuff. So check the show notes and we'll have it in there. Awesome.

Thanks, Preston. It was great. Great talking to you. Blast. If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires. The Bitcoin-specific shows come out every Wednesday, and I'd love to have you as a regular

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