We Study Billionaires - The Investor’s Podcast Network - BTC091 (Part 1): Bitcoin Mastermind Group 3Q 2022 w / Jay Gould, Jeff Ross, and Joe Carlasare

Starting point is 00:00:00 You're listening to TIP. Hey everyone, welcome to this Wednesday's release of the podcast where we're talking about Bitcoin. Well, back by popular demand, I have Joe Carlissari, Jeff Ross, and Jay Gold to have our macro and Bitcoin mastermind discussion for the third quarter of 2022. This one sure won't disappoint because we had a wide array of differing opinions on where the markets are going, why they're potentially going there, and tons of debates and straw man arguments. You'll find out real fast that it's a very candid conversation.

Starting point is 00:00:30 This episode was broken down into two shows, but both are being released today. So if you enjoy the first part, be sure to simply click on the second part right there in your podcast app. With that, I bring you the mastermind chat of the third quarter, 2022. 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 our mastermind group.

Starting point is 00:01:11 Boy, these guys had some pretty good calls on the last show. They were expecting a bounce. I know Jeff was, Joe. Jay, I think you were a little skeptical like me as to whether what it was we were going to see into this quarter. But let's start off there. How are you guys feeling now based off of what you've seen? I'm curious.

Starting point is 00:01:33 Go ahead and take it away. Whoever, step right up. Joe, why don't you go? Yeah, I'll go. So I think it's, you have to be under a rock, not to feel that the, the real economy is decelerating, right? Like every single leading metric shows that we're headed down here in terms of real economic growth. In terms of the markets, kind of, we really have been in this, this huge range. I mean, we dipped down for a little bit there in the beginning parts of June, rallied quite a bit off the bottom. I think from our last episode on May 11th,

Starting point is 00:02:01 the S&P is, you know, 5% higher. NASDAQ, correct me wrong here, Jeff, I think it's close to 10% higher from our May 11th episode. Virtually, you know, even even high yield credit has bounced a little bit since we last recorded and checked in with everybody. The only thing that obviously has been a kind of a mess has been the Bitcoin market, right? Bitcoin's tanked. I think it's about 20% from our last recording.

Starting point is 00:02:22 But everything else is sort of bounced higher. I, you know, I still think that we bounce a little bit higher here. But obviously the time frame for this window of the bull market, I think, is closing rapidly. I really expect the real economy to accelerate rapidly into 2020. So enjoy these next few months because I think it can be a rocky season to 2023. So what do you think the driving factor for that peaking, this bounce that we're seeing right now, is it just once the third quarter earnings reports start coming in mixed with a whole bunch of macro factors? Is everyone's going to notice that it starts stalling out again?

Starting point is 00:02:58 Is that what you're thinking, Joe? Well, to me, you know, to get the equities, and I've long said this, to get the equities to really roll over hard, I think you need to see unemployment really tick up because passive investment plays such a massive role. I mean, people are just buying it reflexively every two weeks or month whenever they get paid. Those dollars hit the bank account and they bid up these things, particularly the SBY and the growth funds in NASDAQ. So to really have a sustained drawdown, you kind of need those passive flows to disappear. And to have the passive flows disappear, you need unemployment to rise, particularly you need to arise among the higher wage earners. So from my standpoint,

Starting point is 00:03:35 I think that's what I'm looking at. I also think that the yields having peaked, and I do think they've peaked, that's my view, that it has naturally been a boon to the equity market. As yields continue to trend lower, there's rebalancing into equities, which has stabilized all markets. So the bond market really is the whole wall game. If the bond market is stable, equities can be stable. And obviously during the first part of the year, the big headwind was that the bond market was a total disaster, right? We had a four standard deviation move and that crushed everything. So for my purpose is as long as you've got relative stability in the bond market, you can get a pretty good run here in equities. But it again, it is sort of a counter trend move to the deterioration

Starting point is 00:04:14 in the real economy. So what moves the bond? What was, sorry, Preston, what do you think is moving to bonds from here, Joe? Right now, at the long end, I mean, I think you've got sort of, you've got really two competing forces. At the short end, it's being held up by the Fed hiking, right? The Fed continuing to be aggressive all the way out to the two year that is driving those yields. up or at least sustaining them a lot higher than they would otherwise be. I think that on the long end, you continue to see the flight to safety trade. I think you see people, you know, finding safety in the 10-year, 20-year plus, the TLT-type trade. I think that is going to be a force for the next, for the rest of the year, really. People are positioning for very bad things economically.

Starting point is 00:04:55 And that's what an inverted curve shows you, right? It shows you effectively that they think the Fed is hiking too fast, but the long-term economic growth is deteriorating. Therefore, there's some flight to safety in the long end. So Jay, I was popping up a chart here, which I think is explaining exactly what Joe's saying on two fronts. So he's talking about the negative bond yield curve, which on the bottom of the chart, you can see the 10 minus the two year right now on 8 August is at a negative 0.45%. We haven't seen it that low since 2000. was the last time it got that low.

Starting point is 00:05:34 And then in the 2007, right at the start of 2007, it got to what looks to be like a point, a negative point two or something like that. So we're already lower than that. By the way, Preston, did you catch the same spread in the Canadian bonds is it's the most inverted in history? Oh, wow. I didn't know that. Yeah, it's the most inverted.

Starting point is 00:05:59 It's ever been in the Canadian long bond versus. their short end. So that's an interesting chart. We don't have that chart, unfortunately, but you can look it up. It's never been as inverted as it is now. I might be able to create it while we're talking here a little bit later. I'll see if I can make it while we're talking and pull it up. The top line here that we're looking at is the unemployment. And Joe, you said something that I completely agree with moving into the end of this year, which is, I think if we start seeing unemployment come from this 3.5% that we have displayed on this top line, if you start seeing that start tick up, I think you're going to see the markets get scared as hell. I agree.

Starting point is 00:06:39 I mean, just look at this chart when we had this negative spread. I mean, right there at the start of 2007, look at where it was at in 2000. And then think about the deepest part of the recession in 2008. It was really kind of the summer of 2009 is when I would personally describe it as like the darkest part of that crash. And look at this chart here. When you were like 2009 to maybe the start of 2010 is when you saw the worst unemployment numbers. And we are literally at the complete inverse of that right now like you saw at the start of 2007. So that's a great chart. You see a lot of people, especially in the political realms, kind of beating their chest and saying, We have the best unemployment numbers we've had ever, but that has been a, that indicator

Starting point is 00:07:30 has been the canary in the coal mine for in the coming 12 months. It's about to get nasty. I was trying to find this chart, but I heard a guy in CNBC say a few weeks ago that even though we have like the low unemployment, people are working more hours, like double jobs and stuff more than ever. And I couldn't find any data to support what he said, but he's just said that on CNBC last week. Yeah. So it's like, you know, the wages are low.

Starting point is 00:07:54 they're full employment, but they're working like two jobs. So it's like people are struggling. You know, they're really struggling right now. And you've had a structural change, right? Because you've had a ton of people leave the job force, right, since COVID. Some through natural things like retirement. Some saying, I don't want any more of this mess. I've got enough money. I'm retiring. I think that changes when equity prices decline. So more on that, I think people will reenter the workforce if you do see a sustained downturn in equity markets. But, you know, that's the big thing. like in Chair Powell's talked about this in a few of the pressors that, you know, the labor market looks really different. And I think there are reasons why it can hold out a lot longer structurally

Starting point is 00:08:32 because there is demand. There's a lot of, you know, a lot of my clients are talking about how they're always trying to hunt for people. They can't get workers. They can't get skilled workers in particular. So it may hang on for a little longer than people expect. But yeah, I mean, if that rolls over, you know, forget it. Risk assets are going to struggle. And by the way, this is why, you know, this construction where you have passive investment, this is why the high beta stuff gets hit much harder, things like Bitcoin, because they don't have the passive flows that the major indices have. Those guys will always get that bid that comes in. The high beta, the arcs, the bitcoins, they're going to get crushed whenever there's real liquidity being drained

Starting point is 00:09:07 from the system a lot faster than the major things because they, the major indices, because they are going to have that passive bid. I've never thought of it that way. Yeah. Joe, I want to throw up another chart and get Jeff and Jay your thoughts on this one. So I was interested. interviewing Joe Consorti last week. And this was a chart he shared with me. And him and Nick Batia had constructed this. And what he was showing me was on the federal funds, which you can see here on the, is the orange on this, compared to the two year, once they went to parity is when the Fed stopped hiking. Okay. So when we look at these previous cycles, you can go back to 99. So you can see. how the federal funds was underneath the two-year. Then once the two-year started getting bid, and it came to parity with the federal funds, that's whenever they continued to just hold what they got. And then as the two-year continued to get bid, because everyone's expecting the recession, that's when they started to ease in reverse course with their tightening. And so then we saw it again

Starting point is 00:10:15 in the 2006. You can see how they held in the 2007. The two-year starts getting bid, and then look in the 2017 through or not, it's more like 2018 and the 2019, you saw the exact same thing happening in. Now look at where we're at right now in the gap where the two year is at 3.2 percent. The federal funds is at 1.6. It's not even halfway there. And I'm just throwing it up there because the gap is still massive. And here we are kind of all expecting things to get nasty, maybe in the next quarter to two quarters. And like the spread there is suggesting that they're going to keep going strong. Isn't the Fed fun at 2.2 to 2.5 right?

Starting point is 00:11:04 Yeah. This is a little outdated, I think. No, you're right. That's a good catch, Jay. That is, this is outdated. I just pulled this tonight. I'm curious. I'm curious what that looks like.

Starting point is 00:11:13 The data is not pulling the correct. I'm only, I'm just saying, I wonder where the orange is that. relative to the two year, where the two years at, is it, is it now? You're still 100 bips off. Okay, because I'm looking at the 2018, December 24th, right? And that's where it like top ticked in the blue line. And then you, you didn't catch each other that time. So I'm wondering if there maybe there's something to that.

Starting point is 00:11:34 Maybe the both side of this is maybe we're getting closer to that. But I don't know. Yeah, I'll jump in here quick. Joe and I, Joe Consorty and I were talking about this on a couple Twitter spaces recently. And by the way, Joe is one of my favorite up-and-coming macro thinkers and bitcoiners. He's awesome. If you guys don't know him or follow him, I would highly recommend it. He's a great thinker.

Starting point is 00:11:58 He's just a good dude. I agree with the premise of this, too. So basically what people think, they think the Fed moves the markets, but in reality, the markets move the Fed. So the two-year Treasury yield basically acts as the cap or the governor for how high the Fed can raise the federal funds rate. So right now what it's saying, if you look at it, And I think the two-year yield actually is up to date, even though the Fed funds rate isn't on that

Starting point is 00:12:21 chart for whatever reason. It's basically saying the Fed funds can raise another 50 bips from 2.5 up to three. They might be able to sneak it up to 3.25, at least today, right? So these things can change. But as of today, they're allowing the Fed another about 70 basis points of hikes. So either 50 or 75, I think they go 50 at the end of the September meeting, and then we'll kind of see what happens. I do like to always hedge myself with a way out because we don't know.

Starting point is 00:12:45 know what the CPI is going to show. We're recording this before. We see the July CPI numbers, and then we get the August CPI numbers still before the Fed raises rates again. So lots can happen. But basically, they're putting a cap on what the Federal Reserve can do, and it holds true. So if they try to go above that, they break the bond market. And we'll start to see serious issues in the credit markets. The stock markets will collapse for sure. So it'll be very interesting to see how they proceed in the next couple of months. Well, to your point, Jeff, the two-year yield made a new high after the June hike, but it didn't after the July.

Starting point is 00:13:22 We never took out that top tick of, I think, a 3.45. So that's interesting, right? Because you have another big 75-bit hike and you don't take out the prior high. That's resisting, right? That's finding that bid there for the two-year. Preston, can you go back to that chart? I just want to see something real fast on that. I was just throwing up Joe's chart here on the CPI with kind of the, like, Jeff

Starting point is 00:13:43 who was talking about, like, where there's. this CPI number could potentially come in here in the coming week and how that might impact what they do as far as raising it. We'll come back to this chart, Joe. I want you to kind of talk this because you're the one that sent this to me. Let me pull up the other one. I just wanted to comment on what Jeff said. Joe and I and John Foucori, we debate this all the time.

Starting point is 00:14:06 This is the market telling the Fed what to do or is the Fed kind of pushing the market? The question I would like, what I'd like to see here is, overlay when the Fed made comments that were hawkish prior to these moves. This is looking backwards. So I'd like to see the forward because the market buys the future. And so it'd be awesome. I mean, we're not going to do that right now, but it would be awesome to see this and just kind of like throw a little marker as to when they started to talk down what they were

Starting point is 00:14:33 going to do and give guidance to what they're going to do or other federal governors, you know, federal reserve governors saying certain things in the market. Because I think that says a lot to what the market ends up doing. I don't think the market tells the Fed what to do. I think the Fed makes comments. then the market reacts before they actually make the move because that happens later. We know that, right? I mean, it has to be reciprocal to some extent.

Starting point is 00:14:53 Like, I agree with Jeff. I think that the market wags the tail, especially at certain periods of time where you're at. But at the same time, the Fed is having an impact. As they're tightening, they're causing these things. And it's this back and forth or this dance between. I just did a tweet storm back with John Fawc the other day. and he was saying that that's not the case,

Starting point is 00:15:16 you know, he's agreeing with you, I'm saying. And then I showed him the comments. I put screenshots of CNBC articles and stuff where the Fed made comments before they made moves on the rates, right? So the rates come later and they come much later, months later. So you'll start to see the market move before he actually makes. So it's cute to look at the chart and say the market move first, of course they move first because they heard what the Fed was going to do.

Starting point is 00:15:37 So they buy the future. That's how you invest, right? You have to gamble on the future. So that's, I don't know. I just this is a debate. this is, who's your guy, Joe, that you always listen to? Who is it again? It slips my mind. My guy. I think you're talking about Jeff Snyder. Snyder, Snyder. Yeah, this is all Snyderisms. A lot of Snyderism. I mean, he's great. He's smart guy, but I just, I think it's a little cute

Starting point is 00:16:00 because if you kind of really want to really tell the tale, you can't look at the charts. You got to look at what the commentary was in the market that moves the market. Yeah, that's a good point, Jay. All right. I'm pulling that CPI one back up, Joe. Can you talk this? By the way, Bill Alessander, Joe, he really likes Jeff, Joe. He's been watching his stuff now. Oh, has he? That's great.

Starting point is 00:16:21 He's telling you've been sending me to links all the time. So this is a chart, and I think it's research affiliates that sources it, and they develop the model and incorporated into the model. So you see basically a chart of the potential path for headline CPI year over year. Now, the reason why this is the focus, right, is because the Federal Reserve, particularly Chair Powell and his pressors has said repeatedly that what they want to see is the headline number. Obviously, it's kind of interesting. Well, actually, it's interesting because their research sort of dismisses the headline number somewhat and focuses on some of the other

Starting point is 00:16:58 metrics, particularly PCE. That's their main focus. It's not CPI. But for whatever purpose, Jerome Powell's come out many times and he said that what we want to see is we want to see the headline number year over year and on a monthly basis have a series, a sequence, of declines. The problem for us with that is that if you go back and look at the inflation numbers that we had last summer, and this has been referenced by Chair Powell a couple times, we had a dip right in inflation during the summer. Some of the months last year were not as hot numbers as people expected. So people said prematurely, that's it. We've sort of slain the beast of inflation. What we have now, we're coming into the next four months to be dropped. You're going to have

Starting point is 00:17:40 0.5%, 0.2%, and 0.3 from the 2021 numbers. Now, if you take that and you look at the potential path forward, and this is a model, best case scenario is we stabilize at this level, but you don't necessarily see a big decline in the month over the month or the year of year numbers for the next several prints. The worst case scenario is that even if we sort of trend lower on the second derivative of the growth rate, you still end up going higher for the rest of year. So I think that the takeaway from this is that the likely base case based on this model, if it is correct, and factoring in the drop months from 2021, is that you're going to get higher prints through the end of the year. Now, the Fed has two options, right? They can either reverse course and go back on what

Starting point is 00:18:22 they said just a couple months ago and said, no, no, just kidding. We don't really need to see months of months, a month, back-to-back months of declines on the headline number. They can do that. That's option A or option B is really, they say we have to stay the course. We're hiking for a lot longer. And I think that this, some of the most recent print and also the most recent remarks from Powell, I think that's why you saw this move between the December and the March contract for Eurodollar futures, which is another chart we can get to at some point. But for those just looking at this chart, I think the takeaway is that you should expect inflation to most likely either stabilize or head higher for the remainder of the year on the CPI year of year numbers.

Starting point is 00:19:01 To your point, too, Powell in the last meeting said that he will continue to make decisions meeting by meeting and carefully combed through the data. So this is the data. So he's left himself the option to pivot if he wants to. Of course he is. Jeff. Yeah, if I can throw my nickel in here. So I completely agree with this premise.

Starting point is 00:19:18 The only caveat will be if the markets tank seriously leading into this. So if the Fed does something, if something comes out as a surprise, something out of left field and the markets collapse, that will drive down inflation significantly and cause sort of possibly a deflationary type event similar to what we saw towards the end of 2008, 2009, early 2009. So that's the one caveat to all of this. If that happens, then we could see everything reset much sooner. We could see inflation come under control, although it would be at the expense of markets collapsing. That would mean the S&P 500 is probably down another 20, 30 percent or so from here and the NASDAQ even more. So that's something that I'm considering. But yeah, otherwise,

Starting point is 00:20:01 we have sticky high inflation. And it's going to be a tough, year. I don't envy the Fed in their position right now. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year bringing together activists, technologists, journalists, investors, and builders from all over the

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Starting point is 00:24:26 guys just to hear your opinions on it. I get frustrated when I'm explaining Bitcoin to somebody and like the first thing that they do is they're just like, oh, well, it's down whatever percent in the last year. It's down or in a bull market, people, and I'm guilty of this, will be like, it's up this amount since the last year. And it's almost like you're just picking random points in time. and I've always tried to say, well, to pick any four-year period of time because of the four-year-a-having cycle, pick any four-year period of time in what you're going to find is that you have just tremendous performance in it. But then I started with this contraction that the central bankers are doing recently.

Starting point is 00:25:13 I'm thinking, why not go back and kind of plot when they were expanding and when they were contracting based off of policy? and then let's mark each one of those points in time when it was when it was the peak of the contraction and they reverse course like that moment in time to the next time that it was peak contraction so that I can conduct a measurement from that point to this point, almost like if you were going to measure a frequency, you'd take it from the top to the top or you'd take it from the bottom to the bottom, but you would figure out whatever that frequency is. order to figure out how many hertz it is, and that's how you do it when you're dealing with

Starting point is 00:25:54 signals. So why not try to do that with Fed policy? So I'm going to plop a chart up here for you guys. Let me see if I can get it. And what I did is I took the global central bank balance sheet. The Fed, it was the ECB, it was the Bank of Japan and the Chinese Central Bank. And I combined all of their balance sheets basically over the last 10 years. And I dropped it onto this chart. And you can see I have two lines. And you can kind of see the cycles as they're playing out. Now, the top line is not adjusted for the broad money supply. The bottom line is adjusted for broad money supply in the denominator. And the reason that I did that, and I converted obviously all the central banks currencies into dollars and then I took the dollars and then I adjusted them for broad money supply and then one

Starting point is 00:26:52 that doesn't have the adjustment, the M2 money supply. The reason I like this bottom one, this light blue line on the bottom is because I think you can see the tightening and the expansion better and you can see how it's really not getting worse after it's been M2 adjusted. Like this cycle here, like when you're looking at the non M2 adjusted, it looks just enormous compared to the previous expansions, right? But then when you look at the bottom, it's pretty similar to the expansion that took place from 2017 through 2020, this most recent one that we're in.

Starting point is 00:27:28 And so the black lines that I have there is just kind of earmarking these expansion and contraction. It's like basically one cycle, right? That's one frequency. And then what I wanted to do is I wanted to go back and look at Bitcoin's performance during each one of those frequencies and then look at pretty much everything else during each one of those frequencies to see what the relative performance is, because I feel like that is a point in time that everybody could come to an agreement on as a good place to

Starting point is 00:28:01 kind of snap the chalk line, if you will. So this is the methodology. Now I'm going to show you the performance across just some different baskets. So this is the first, and just so you guys know, going back to this one, I'm going to start time now in the period. that we're currently in, and then I'll go back through each one of these. So here's the one we're in right now. You can see the black line right over there in the crash, the March crash of 2020. And you can see everything kind of reflade out of that. Now, just so people understand what we're comparing the performance to, obviously, Bitcoin there,

Starting point is 00:28:39 you got the NASDAQ, you have a bond index, you got gold, you got the Russell 3,000, you got a commodities index, you got high yield debt. And then the one, the dark red line that you guys can see there is actually just the central banks, the collective balance sheet itself to kind of represent the amount of units kind of being added in and taken out of the system, which was 44% since the bottom of the 2020 COVID. And so when I'm looking at this, Bitcoin is still doing the best with a 284% return. and the next best was a commodities index of 101%. I'm going to just pause there. What issues do you have with the methodology or just kind of what I'm walking you through?

Starting point is 00:29:31 I love it personally, if I can jump in. I think it's great what you're doing with this because I think exactly the same thing, Preston. I feel like I'm assuming it's going to go where we think it's going to go that basically when we have periods of liquidity expansion, risk assets absorb that liquidity and Bitcoin still being seen as kind of the world's, you know, of the most volatile highest beta risk asset, it absorbs the most liquidity in the good times. And then when that contracts, the liquidity gets taken away from Bitcoin and from other risk

Starting point is 00:30:02 assets. That's when we see that down draft. I think of it like an accordion almost, kind of expanding, shrinking, expanding, shrinking. And so you want to own these kind of assets when the central banks are expanding the monetary supply and when they're taking it away, you want to avoid them in general. Joe looks skeptical. Yeah, no, I am skeptical because I think it, and I like the idea, I think it confuses the causality versus the correlation. And the reason for that is I think it goes back to what QE actually does, which QE

Starting point is 00:30:31 traps safe liquid collateral on the central bank's balance sheet, thereby depriving the private sector of the credit creation impulse it needs to actually drive real lending, real, real money printer go burr in the economy. What QE really does and why you see this chart respond like this is that QE tamperes down volatility. And if you go, that's why I focus so much on like Bitcoin assessed in terms of the VIX or volatility in general. When you deprive the market of safe and liquid collateral, when you trap it on a central bank's balance sheet, both in the Fed and in the United States, you do provide a market of last resort for treasuries, right? It stabilizes the whole system.

Starting point is 00:31:08 It pushes people further out on the risk curve. It enables fiscal policy, makers to do a ton of stimulus into the system. But really what it's doing here, what you're doing is you're artificially suppressing volatility. And then you see this explosion in risk assets from the suppression of volatility. The system is trying to fix itself in these downturns and these liquidation events. And the contraction of collateral onto the central bank's balance sheet doesn't necessarily increase liquidity generally. So you have these metrics that show like global liquidity, which is a long discussion. But suffice to say, I think it's a correlation and the causation is really the suppression of volatility.

Starting point is 00:31:49 And once you start to drain liquidity from the system in the form of QT or rate hikes or any lack of fiscal stimulus like a fiscal cliff, what you do is you reintroduce that volatility. And in a high volatility environment, stock sell off, bond sell off, Bitcoin sells off. It's all about the volatility. Volatility and the efforts of QE to suppress volatility is what's showing you what's in front of you. That's what's the result of that chart. Joe, what do you think of Lynn's argument that instead of kind of getting caught up in the Jeff Snyder argument, which is QE doesn't induce money printing, which I think is partially correct.

Starting point is 00:32:26 But Lynn's point is when you got the Treasury and you have the Fed acting together as a team, you're going to see broad money supply expand, right? That's right. Which is the real printing. And so what I was going back to this. slide here, this bottom one is accounting, in my opinion, it's accounting for both of those. It's accounting for where the blue line is not, right? This blue line is just showing you the balance sheet and it's not accounting for the broad money supply adjustment, which you are seeing in the lower chart. So Lynn's exactly right when it comes to fiscal stimulus, right? We all agree that the government's spending money, that is solid money printer go burr. And that's

Starting point is 00:33:13 cash being injected directly into the economy. And it's spent on things like Bitcoin, it's spent on things like commodities and drives up the price of everything. The problem I have, or at least the question I have about how this is presented is that if a bank, okay, absorbs a bunch of treasuries, the central bank, rather, absorbs a bunch of treasuries, puts it on their balance sheet. Those banks now have a ton of bank reserves, right? Yeah. But those bank reserves can't get into the real economy. They can't even get into risk assets. Yeah. Unless, unless, right, They decide to lend or unless the government spends a bunch of money. And to the extent that QE enables the federal government to spend a lot of money,

Starting point is 00:33:51 that's a totally legitimate point. And Lynn's exactly right. I don't dispute that. It's kind of like the enabling for the policymakers. But then what happens when the fiscal stimulus dries up? That's the story of 2022, right? Now the rubber meets the road and you see people having less cash to go around. So you're counting it twice if a bank is just buying up your treasury bonds and it's sitting

Starting point is 00:34:12 on the Fed Reserve's balance sheet without any. accompanying physical stimulus. I think, you know, Lynn's comment to me on Twitter was like, that's just me. You know, so that chart you're showing is like, okay, unless there's the accompanying fiscal impulse, you're not going to get the rapid acceleration. And there's actually times you can see that on the chart. If the Congress has not spent money, you know, you could lay it over actual fiscal outlays from the federal government, you're going to see, you know, these periods where you're not seeing the rip. So you can see how there's the variation, right? What's the big difference with that last black bar there, Preston. The big difference is we pump, we finally

Starting point is 00:34:44 realize, hey, if we give people $2 trillion in direct stimulus and PPP and look what's going to happen, it's going to rip. So if you're explaining to Bitcoin to folks, to me, I look at it as a necessary inevitable conclusion that we move towards UBI. I think it's already done. It's just a question of how long before we have to move to that. And then I think Bitcoin's price is going appreciate probably beyond all our wildest, bullish dreams on this call. I think that comes. And I think it comes predominantly outside of the United States and eventually in the U.S. So I agree with everything you just said. I'm just trying to, where do you choose to snap the chalk line when you're conducting a measurement of performance of Bitcoin versus every other

Starting point is 00:35:32 opportunity you have in the marketplace. How do you, how do you say right here to right here is a true level of performance if I'm comparing it to the S&P 500 or the NASDAQ or you name it, anything on the planet? How do we decide where it starts and where it ends in order to say this is a true measure of the gain in the frequency? Yeah, I mean, it's similar how they do equities, right? It's kind of arbitrary to some extent, year over year sort of, you know, Jay and I have talked about this, the kegger of Bitcoin, right? Like, you know, I don't think it, I don't think it's a good necessarily, or I don't think it's a necessary metric to break it down to exact specific points. You have to take the years where you get outsized growth and the years where you get,

Starting point is 00:36:16 you know, the contractions and take it all together and say, look, on a long-term basis, this still has a ton of runway ahead of it just relative to all these other assets, which are much more mature. But how do you offset for the first four years of Bitcoin, which was growth beyond comprehension? Like, do you think that that should be included in how a person today should be looking? Yeah. So I'm trying to, I'm trying to say, okay, here's, and I think that those early years were, it was so fresh, so new, there was so few participants that it's, it's really hard to even remotely compare that performance to what we've seen in the last call it five years. especially once we got over $100 billion in market cap.

Starting point is 00:36:57 Like now you're now you're comparing something. Well, I mean, just look at this, look at this chart right here, right? Since the March 2020, you know, that was that was when they stepped in and they released the floodgates, right? So what's Bitcoin's performance versus every other major index since that period of time? And what I'm seeing is that it's a 284% return. Commodities were 101%. what's our like blue NASDAQ is 80%. And I'm saying, okay, so if you want to tell me that the cherry picker is going to step in and they're going to say, well, since October, it's down 60%.

Starting point is 00:37:37 And I'm like, yeah, but I haven't been in it since October. I've been in it since back then. And in my mind, I'm crushing it relative to like all these other things. And so that's it's too short term though, like one year here. What we typically do is you don't look at 2009 from the start point. You look at like 2013 on and it's still beating everything, right? So I look at it like it's a secular growth trend. I'm an early stage growth investor in technology stocks and private companies.

Starting point is 00:38:04 And I don't look at things of what they're going to do in one or two or five years. I look at what's the market size that they're in. What's the growth and how are they going to gain that growth over time? Same thing with Bitcoin, right? It's the scarce, the true scarce asset on the planet. It's the only true scarce asset in the planet. And everything else, including the stock market, They're creating more IPOs.

Starting point is 00:38:21 There's more inventory. There's more supply. They do splits, et cetera. You know, and add nor I should say they add more shares constantly. I don't see anything else there that is Sierra. So you have to just say, do you believe over time there will be increasingly more people that adopt and buy and own and hold Bitcoin? And there has been.

Starting point is 00:38:37 So rather than looking at the price action, there's other things you look at to try to convince people that this growth story will continue. And you can look at the number of addresses. You can look at all those types of metrics, the hash rate, et cetera. And I don't think the price action over a one year. period is very helpful for anybody. If they're a trader, it is. But if you want to be an investor and hold this for the long term, you can't look at price action over a one or two year period relative to every other asset. To me, that just makes, I don't ever go there with people.

Starting point is 00:39:04 Because you started this discussion a few minutes ago saying, how do you convince people that you're talking to about Bitcoin? I don't ever go on price action in the short term. Relative to other assets, it doesn't make sense. So I look at like, what's the big picture, what's the long term, what's the five and a 10 year plan? And that's the way I speak about it. Yeah. I guess it almost always starts off with a debate about the performance. And it always starts with what the price action was over whatever defined frame of reference they pop out. Right. And you're just like, all right. So anyway, let me show you the, so here's the, if you buy into the, the expansion and the contraction of the broad money supply based off of the balance sheets or whatever, whether you buy into that. or not. I'm just going to show you a couple more periods. So this is the period we're in right now.

Starting point is 00:39:54 Here's the period previous to the one we're in right now based off of the initial chart that I showed you guys. Here's the period before that. And here's the period before that, which this one's really interesting because the broad... What are these, sorry, these one-year periods? Is that what this is? No, no, no, no. It's going back to this, can you see this chart right here? Yep, yep, yep, yep. So each of those dark periods, is that what this is? black vertical lines. Got the periods. I got it.

Starting point is 00:40:23 I'm saying that that light blue is the credit cycle, the mini credit. Did you start from the 13? Do you have a 13 to present? Yeah. So here's the 13 to. Okay. Here's, I'm sorry. Nope.

Starting point is 00:40:35 Nope. That's not right. And the black bars, Preston, just so I got this right. The black bars go from the beginning of the expansion to the beginning of the tightening. Is that right? It goes from tightening to tightening. But I meant bottom to bottom. Yeah.

Starting point is 00:40:52 Bottom to bottom. Yeah. What I meant to say is you, I guess you don't have it, but I meant 13 to 22. Do you have that chart? No, I don't have 13. I mean, you know what that looks like. It's like not even in the same. It's like a straight line.

Starting point is 00:41:06 You have to show people that because it's like take a number, right? Take a number to get into the asset and you can hold. And if you're freaked out over the one or two year performance, you're not going to worry about that. And you can, you can lay into. it if it's performing well. And if not, you just hold on to it. That's the way I speak about it. So what I'm trying to, what I'm trying to identify, Jay, by doing it like this, I'm trying to look at, am I in the current environment outperforming, right? In this current credit cycle that we're in, which I would argue started, the bottom of it was March 2020. They stepped in. They flood the

Starting point is 00:41:42 system with a bunch of printing, right? Some of it turned into printing. Some of it didn't. However, you want to go down that argument, right? But I think it's pretty clear that some of that printing has entered the system. So how has Bitcoin performed since March of 2020 versus everything else? And then once it becomes really obvious, and I think we're going to have an obvious event, where they've reversed course, they're now flooding the system again with what Joe said, more UBI, you name it. Like they're going to have to go down this direction. That's going to be the moment in time when it's really obvious because things are breaking that you snap the chalk line to end the March 2020 credit cycle.

Starting point is 00:42:23 Right. And then I want to look at that exact moment, I want to see how Bitcoin performed to all these other major indexes. Sure. Because if it didn't outperform, if it didn't outperform, well, then what did outperform, right? Because that's the thing I really want to keep a close eye on. And the next cycle, what was it? Because I can tell you right now.

Starting point is 00:42:42 It shows you here. The second in line is what growth stocks. It's QQQQ. So this is the cycle. right now, right? Yeah, what's green? And the dark green is an index GNR, which is a commodity index. Right, commodities. And it did 101% and Bitcoin's at 20. Energy commodity, sorry. Yeah. And then last, what was the last one was it looks like? The second to that, the second to that is the Q's, right? The second is Q's. What's the light? Negative.

Starting point is 00:43:07 Negative 20%, which was the yellow, is TLT, which is a bond index. Okay. And that's been Long-dated bonds. Yeah. Yeah. Yeah. I think. Interestingly, high-yield bonds, H-Y-G has had a 9%. Isn't the blue color, the second one, right below the, right below G&R?

Starting point is 00:43:30 Yeah, that's the NASDAQ, 80%. That's what I'm saying. That's the second best performing. Second best, yes. I'm sorry. So growth is always, it's going to go to growth typically, right? Yeah, I mean. They're going to jump in for the next.

Starting point is 00:43:44 I think it's important. Based on this methodology, if you buy into this methodology, right, it's not over yet. Like, we're still, our expectation is in the coming six to 12 months that this thing's going to keep tightening. We're going to see more pain in the broader economy. So, you know, if Bitcoin sells off massively, it could maybe not outperform that commodities index. I don't know. I suspect it will. But can you, flip to the previous cycles, just go back. Why you're talking? I just started to interrupt you. I just want to hear. I want to see rather what what did I look like. Which one did you want to see, Jay? Well, you have the current current trend and then just go back to the other cycles.

Starting point is 00:44:26 Just one by one. So this was the cycle. This was the previous cycle ending in the 2020 meltdown. Yeah, and you can see on this chart, um, the cues were number two to Bitcoin. That's correct with the 42%. Okay. And then you really can't tell the rest. It was, I guess, number three was the bond stocks. Is it small caps? No, the next one down was TLT, which is your long-term bonds. You're talking to the next best performer? Yeah, which should make sense, considering I think everybody on this panel would agree,

Starting point is 00:44:58 that was the peak performance of the bond market, right? When 2020, March of 2020 happened, I think we could all agree that that that might, that moment might have been the highest prices you're going to see in. TLT. You mean forever? Maybe. It depends. What are these CPI numbers going to do?

Starting point is 00:45:23 And how high are they going to be before they step back in, right? Go one cycle back. Go one more back. I want to see. I think the 10 year goes negative next year. So that's my goal. So I think you could be right. I'm not saying that was the bot or the top in price terms and yield terms.

Starting point is 00:45:43 Hey, I'm open to that. that it could get bid like that. Yeah. I'm totally open to that idea. Now, do I think it's the most probable? I don't know. I think it's maybe a coin toss. But you know what?

Starting point is 00:45:55 I'm throwing this out here because I've been personally, I've been building these and I've been personally thinking about it. I haven't posted it on Twitter. And I'm just trying to think through a methodology that I can personally conduct analysis and be still objective in my thinking. to true performance. Let me steal man. Sorry, Preston.

Starting point is 00:46:18 Go ahead. Part of the problem is, is where do you snap the chalk line to between periods to be objective with yourself? Go ahead, Joe. So go pull up the 2017 chart, right? And we're all familiar with it, you know. Okay. So let's talk about liquidity and let's talk about tightening, right?

Starting point is 00:46:43 Right. Through Bitcoin had an incredible run. As we all know, I think somebody who came into Bitcoin in 2015, that was really the huge major bull run that I remember extensively was the 2017 bull run. And then through virtually all of 2016 and going into the top, the Fed was hiking. The Fed was hiking, tightening credit conditions. You had QT giving, you know, starting, I think in the Q3. or Q4 of 2017, continuing through Q18. But the question I have for you is like, how do you explain to somebody if you're saying that, well, it really is the central bank intervention and the central bank's monetary policy that's driving this. How do you explain to somebody that you see this rip in the Bitcoin price throughout 2017 as they're hiking and in the latter half of 2017 draining liquidity through the system in the form of QT?

Starting point is 00:47:39 But, Joe, they were hiking from 2015 on. They started that 50. Yeah, that's my point. Look how great Bitcoin did in the hiking cycle, guys. I'm just asking what's so. That's not what his chart is showing. The chart is showing expansion of M2, right? My argument there, Joe, would have, and I'm not trying the reverse engineer, a counter argument.

Starting point is 00:47:58 I would just say that based on the sheer size of Bitcoin back then, you're dealing with something that is it being driven by central banks or is it just being driven by, you got an extra thousand people in there buying it. And because it was so small at that point, relative to now, it could just move the market price. I still think it's that small. I think you see a few pieces on the macroeconomic chessboard move, confiscatory policies. You can see a whole host of different things from emerging markets that can make Bitcoin absolutely rip. Even with QT, even with hiking interest rates, it's still tiny market. It's smaller than single companies in the S&P 500. Yeah, for sure.

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Starting point is 00:52:01 advertisement. All right. Back to the show. Let me, uh, Let me see here. Sorry, I got lost in the slides here. I wanted to pull up, and this is kind of useful because I'm showing up right now. I'm displaying the NASDAQ. And you can see a little bit of this momentum that we've been talking about from the start of 2022. You can see, and just so people know, I have some different momentum tools kind of displayed

Starting point is 00:52:35 here on my chart, and just for people that are maybe not familiar with these momentum tools. So I personally like an ATR, which is an average true range, and I also like moving averages, and this is kind of both of them. And when they're both red or they're both green, for me, that's kind of an indicator that for a long-term trend, that's what I think is how I base my opinions on whether something's in a positive trend or a negative trend. So when I look at this, And whenever I really started turning bearish on the broader markets, I was looking at things like QQQ and the SPY and other indexes that helped me form the opinion. I think credits tightening.

Starting point is 00:53:16 It's going to be a rough environment moving forward. And as long as neither one of these are break or start turning green, I'm saying I don't think a pivot's in place. So with respect to QQQQQ and here, I'll zoom in on where we're at right now. And you can see, similar to like what Joe was saying, we're kind of at this crossroads where maybe it can bid a little bit more, but it's probably starting to get exhausted. I would agree with that simply because I think you still have this really strong negative spread between CPI and treasury yields.

Starting point is 00:53:55 And until that starts to get closer to parity with each other, either through a swift sell off like Jeff said, coming down to where the yields are at, or they keep raising the rates to get them closer to the CPI. I think that this is going to continue to be in a negative trend. It's short. I like it. I'll just throw it. I just wanted to throw out my two cents a little bit regarding kind of where we are in the markets. And I think for all of us, we all know when we see the Fed raising rates, right, we're in a rate height cycle, and we see the yield curve inverted like it is. we know that a recession is inevitable in some time in the future, but it doesn't mean it's imminent necessarily. And so this rally that we've been seeing since mid-June, it's possible that this rally

Starting point is 00:54:42 actually has legs and that this thing can go on actually for several quarters, which is kind of interesting. And so, you know, based on this chart you're showing here, present, it looks like it may be coming up against a wall that's also coming up against the 200-day moving average pretty soon as well for the NASDAQ and the S&P 500. It has reclaimed pretty solidly the 100-day moving average, which is another strong momentum indicator that a lot of people use. So I'm personally, I'm kind of 50-50 on where it goes from here. I think that we may, while I think we're on borrowed time for risk assets, and that includes Bitcoin as well for the time being, I think that they can go higher. It's just a matter of how much and for how long, right? And so based on the stuff

Starting point is 00:55:25 that I'm looking at, I think things might get ugly again kind of heading into the first half of 2023 based on GDP kind of metrics and looking at year-over-year comparisons. It's looking like we could see some even more deeply negative GDP numbers at that point. So to me, it would make sense that we kind of have this sort of impressive rally that most people don't believe heading all the way up until, say, mid-November, which happens to be right around the midterms or so. And then as the markets look ahead, usually about six weeks. That's kind of the metric I like to use. You know, one to two months is kind of where you start to see regime changes before the next quarter. At that point, things could get kind of ugly again. So I'm personally, I just,

Starting point is 00:56:05 love the chart, but I wouldn't be surprised if this actually broke through your upper line here after a couple tries and then went higher for the time being. So I don't know if that made any sense, but I'm actually kind of bullish at the moment. It looks like that's going to flip right there. and it'll flip green, right? Yeah. So on your moving average, and so this goes by this slingshot, if you're on trading view and you're looking that up, that looks like that's getting ready to go.

Starting point is 00:56:30 For me personally, both of them, so the ATR is that red line. And it's shown at about a 336 on the NAS, on the QQQ index for the NASDAQ is when that would also turn green. So I use two of them just so that they can kind of both. And normally they flip at the exact. same time. So this is kind of odd that on the moving average side, it's getting ready to flip green while the other is still pretty red for the most part. What is that about public math? Don't

Starting point is 00:57:02 never do public math. It's about 7%. I would guess it's about 7% more from where it's at right now on QQQ. Yeah, something like that. So yeah, let me stop sharing that before other people do the math. Now everyone's going to be laughing because it's probably not even close to that. Hey, Joe, you sent over a Is there anything else you guys wanted to cover on that one? Joe, did you have some charts that you wanted me to pull up from your bank that you sent over? Yeah. So let's talk about this margin debt chart. Oh, yeah.

Starting point is 00:57:34 Yeah, that was a water. And I wanted to hear Jeff's take on it. I know what I think about it, but he had commented privately about how he was kind of shocked by that one. So maybe we could pull up that one. Okay, there you go. Okay. So for those describing, just to listening and not seeing the image here, I've got a chart of yearly change in margin debt. We're putting in numbers here in terms of the yearly change. I think it's the biggest drawdown we've had in, I don't know, what, more than 20 years in terms of a yearly change. So that's interesting. Jeff, what do you think of this? Well, yeah, I mean, obviously this adds credence to if you're feeling bullish at the moment, right? if you're at kind of all-time lows from a year-over-year change.

Starting point is 00:58:20 Now, obviously, this is just a reaction to what happened a year earlier. So it was all-time highs a year earlier. Now we're kind of at all-time lows. That's generally a great sign, right? That generally means that margin is kind of being eroded away out of the market, that people aren't levered up to their noses to be more politically correct on what I talk about. That's a good sign. That means that people are kind of scared right now.

Starting point is 00:58:45 Confidence is low. that's usually that sows the seeds for the next bull run kind of thing. Now, it's interesting. You look at this, at this chart, you would think, man, are we at the start of the next major bull market and are we not going to have any kind of serious drawdown? I personally don't think so, right, because of what I see, because of what the yield curve is saying and the Fed Fund, the Federal Reserve is raising rates, we're going to have a recession, basically guaranteed at some point, somewhere down the road, maybe a year, maybe a year and a half, maybe even two years. I think it comes a little sooner because I just think things move a little bit faster now and the Fed is raising rates more quickly.

Starting point is 00:59:20 So I think it comes more quickly like probably the first half of 2023. And risk assets, equities markets, Bitcoin, they tend to react very poorly during recessionary type conditions. So I still think we're going to have a pretty serious drawdown before that's over. But you look at this chart and that at least for for me, this makes me optimistic at least for the next several months. Well, the one that makes me even more optimistic, if you can pull up Preston, is the margin debt as a percentage of the S&P market cap, which to me, this is this, this is a

Starting point is 00:59:53 really bullish chart. I mean, you see, you don't see the sort of bubbly market cap margin ratio that you saw in 2008. I mean, look how far declined. We are. In fact, the margin seemed to come down and bottom are on the same level as it did, you know, prior to the pandemic there in late 2019, which is fascinating as well. So yeah, I mean, look, look, I mean, you're, you're at 2,000 levels of margin debt in terms of percentage. So still relatively elevated. It's not like it's down to the, you know, 90s levels or at 2,000 levels. But I mean, this does not show you the sort of bubble exposure to equities that you had in 2008, at least with margin debt. Hey, if you're still listening, we pick up the rest of this conversation in the next

Starting point is 01:00:37 part, which is just right there in your podcast app. So just go ahead and scroll down there and click on part two and it picks right up where we just left off. Thank you for listening to TIP. To access our show notes, courses or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting. Thank you.

We Study Billionaires - The Investor’s Podcast Network - BTC091 (Part 1): Bitcoin Mastermind Group 3Q 2022 w / Jay Gould, Jeff Ross, and Joe Carlasare

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