We Study Billionaires - The Investor’s Podcast Network - BTC112: Bitcoin Macro Mastermind 1st Q 2023 w/ Joe Carlasare, Steven McClurg, & Jeff Ross (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. So this is one of my favorite types of podcasts because we get four experts in a candid conversation. And we discuss all sorts of investing ideas, opportunities, concerns in the markets, and anything else that they want to offer up to the group. This quarter we have back by Popular Demand, Joe Carlisari, Jeff Ross. Jay Gold wasn't able to make it this quarter. So we brought in a Valkyrie founder, Stephen McClurg. This conversation was a whopper, and we cover all sorts of current events that are unfolding,

Starting point is 00:00:36 such as the DCG Genesis and GBT Trust, Gemini, Binance, treasury markets around the world, the impact that they potentially have on the Bitcoin cycle, risk assets, legal battles, and much, much more. So without further delay, sit back, and I hope you guys enjoy this chat. You're listening to Bitcoin Fundamentals by The Investors' Investors' podcast network. Now for your host, Preston Pish. Hey everyone. Welcome to the first quarter mastermind discussion. I have Stephen McClure here. I have Jeff Ross and Joe Carlosari. Gentlemen, welcome to the Investors podcast. Let's talk.

Starting point is 00:01:30 Some mastermind stuff. What's going on, Preston? Not much. Hey, Preston. Nothing but these crazy markets. That's what's up. That's an understatement. Yeah. Yeah. So, Joe, I've been dying to talk to you specifically about the SBF stuff just because as soon as this happened and then he was there in the Bahamas just kind of frolicing around. As parents came down the visit, I shot you a message on Twitter and I said like, what the heck's going on? Like, because I mean, you understand this stuff better than anybody as far as what's likely to happen. And you say, oh, he's definitely going to be. What did you say? Because you're going to remember your reply. Yeah, no, he said he will most certainly be in jail.

Starting point is 00:02:11 he will most certainly face serious charges. He will be arrested. And the question of how significant time he serves, I think he's going to depend on what evidence they're able to turn up. Obviously, even since I made that comment, tons of stuff have come forward, including cooperative witnesses, which does not vote well for him. So although he just recently entered a plea of not guilty, that is likely pro forma. It's likely just going to be a placeholder until he can successfully broker a deal that is suitable and acceptable to the prosecutors. Given the evidence they have and severity of the crime and charges that he's facing. I am going to be one who is very optimistic that he serves a long sentence. I don't think they're just going to hand him,

Starting point is 00:02:50 you know, a slap on the risk type thing. So I think he's going to rightfully so be facing serious, serious prison time and eventually he will plead guilty in a plea bargain. How in the world do you post the bond amount that he posted and keep it a secret? How is that, How is that even possible? Well, you don't need to post a full amount of the bond, right? There's a bond holder that can, you know, give you the larger amount, and they just require sufficient collateral. So, you know, the collateral was, yeah, but that's not sufficient collateral, is it?

Starting point is 00:03:22 I mean, I saw a number. It was like 10 million on the house or something. Yeah, so, so it's four million. Right. So, so they're, you know, they're putting up that for the bond holder and the bondholders securing the rest of it. So they're the one really assessing the credit risk, they're assessing the flight risk, and it's their dime.

Starting point is 00:03:38 runs. And so how about the news that came out? I think it just came out this week where they were requesting that the names aren't released at who posted the bond. Like, that can't be normal. Is that normal? I would say it's not normal. It is, but it's not unusual either, right? It's not the normal way of doing things. A customary, normally you get that information. But I think because of the folks involved and sensitivities and also, you know, the political impact of this whole import of at all. I think it's very likely that, you know, that they don't want certain figures to be exposed for, you know, supporting him. So I would say, you know, we've seen it before. Some of our white collar folks have talked, I was talking with them and they said it's not something

Starting point is 00:04:20 that's unheard of, so to speak, but it's not, you're right. It's not customary. It's not normally what would, you know, take place. So Caroline just sang like a songbird to, I saw she showed up in New York and was out getting coffee. There was like pictures showing up online. And it seemed like she was pretty comfortable coming back to the U.S. under, I suspect, some type of conditions that allowed her to. So I guess where are my questions going? So like, what's her deal? Yeah. No, I mean, so listen, there's anecdotal evidence. It appears that she's cooperating fully. I will say this, okay? And I think folks on Twitter that I was reading about, you know, they were really sort of pushing conspiracies about why hasn't he been indicted yet? Why has any been

Starting point is 00:05:00 arrested? Why hasn't he been extradited? They have all of him dead to rights, right? So everything we know, that's public knowledge shows that he should be dead to rights, the prosecuted, there's no doubt. I will tell you, though, the way the system's set up, the way you have to go through certain lengths to impanel a grand jury to present evidence, particularly in the case of financial crimes, it takes a long time. Financial crimes prosecutions can last years, right, before charges are ever brought. Just to impanel the grand jury, they move very slowly. They are meticulous. And by the time the DOJ prosecutors actually seek that indictment, they have everything, right? They know everything. They've talked to everyone.

Starting point is 00:05:35 They've got every document. They've left no stone unturned. In a crime of this magnitude with billions of dollars that have been misused, misappropriated, the fact they were able to put this together in, you know, a handful of weeks approaching the holidays, it may not seem like it for people who are not in this world that I'm in with litigation. That's exceedingly fast. That's moving with all due haste to get it done. So they wanted to send a message and they did.

Starting point is 00:05:59 You know, one point here, if I might interrupt, and this is, you brought up Caroline. You realize her dad is a behavioral economist, and he actually wrote several papers on Sulema. And I actually pulled up one of the papers he wrote, I want to say it was in the 90s. I pulled it up a couple of weeks ago for some light holiday reading. And that was her playbook. Wow. So I challenge everybody to go out and find that paper that he published and read through

Starting point is 00:06:32 it, and it's exactly what she did. Yeah, and keep in mind, it's not just Carolyn. There are other folks at FTX that have cooperated. We've seen anecdotal examples of those folks offering assistance to the prosecutors. So my guess is virtually everyone but SPF is cooperating at this point. I mean, even, I mean, when the Enron guy goes in there and says, this is like nothing I'd ever seen before, you know it is nasty. I mean, direction via signal. I mean, I don't want to, you know, I'm, I know everybody's pretty well first on the story. at this point, but I was just, I was curious to just kind of hear your, your point of view from a legal standpoint. So you think he's, they're going to, they're going to toast them. Absolutely. He will plea. This will never be a trial. I put me down as a hard, hard belief in that, hard prediction that this will not see a trial. I think this will be a plea. The question is, you know, how long it's going to take and negotiate with him, given the stakes and given his,

Starting point is 00:07:29 the effect on him, he's going to serve time. He's going to serve time. It's going to be a very difficult for him and his family to go through. If we were counseling him, we would try to do whatever you could to gain leverage. Now, what that is, to me, that's the most interesting part. What information does he have in his position, in his posture, really the heart of quote-unquote crypto, which I have a lot of problems with just generally. You had problems even saying that. You had problems even saying that, Joe. Yeah, I do. I do. But, you know, it's obvious right now. And the things we, as Bitcoiners, we talk about for years, right? It all starts to come to light in the end. But from my standpoint here, if you're him and you're trying to play your cards, the best ones you have, what else can you go out there? What can you use with prosecutors to cooperate on? I'm not in the business of spreading FUD, but there are other big players in this industry. There are other people that have some mud on their faces. And if there were people that I had to guess had privilege inside information that could expose some of these folks, I would put SBF at the top of that list. So we'll see. To be determined if anything comes from this.

Starting point is 00:08:34 Oh, that's really interesting. That's a really interesting take. I agree with you. I mean, he was the ringleader of all the cesspool that existed. And there's some other, like, strong can. I suspect there's a few other, like, really strong candidates that are in there. How is Machinsky? Am I saying his last name correctly?

Starting point is 00:08:55 Yeah, Alex Machinsky. How is he still running around? Because he's not. No comment. I can't talk about that one. But Stephen or Jeff, feel free to chime in on that. I mean, I'll be really brief here, but it's what's really interesting about what everything that you just said and then bringing up a Schinsky is it seems like there was one party that

Starting point is 00:09:19 was at the center of everything that was going on, right? It was, it was Genesis, right? Oh, wow. They had, they had, they were involved with FTX with Alameda. I just, I don't know. this is true, but I read an article that coined desk, which is owned by DCG, wrote that said that they called in $2.5 billion of their loans that they made to Alameda in Q2. Wow.

Starting point is 00:09:47 Stephen, it's interesting. You said one entity. I thought you were going to go for DCG because you could make the same thing. They've got tentacles into everything, right? They've got only true. That's, yeah, I think that's only same. Yeah, yeah. DCG Genesis.

Starting point is 00:09:59 And so it's co-mingled. It's co-mingled. Celsius. Was Voyager involved with those guys or not? Yes, absolutely. No. The three arrows going down brought down Voyager. I mean, my understanding is three arrows owes Genesis $2 billion.

Starting point is 00:10:18 Wow. Yeah, so the biggest turd hasn't been flushed down the toilet yet is where we're kind of going with some of this. So the Winklevoss posted their letters today basically pleading for their yield. product and I think it was like 300,000, 350,000 customers that evidently had yield on Gemini that school teachers, Preston, school teachers had yielded. You saw how that was crafted, right? You saw how that was crafted. Very interesting. And so it seems like Barry's tactic is, hey, if I can just kind of hold on as long as possible and hopefully we get a big reversal from central bankers and the market rebids, then maybe I can survive this. Is that really kind of the play?

Starting point is 00:11:02 If you want to call that a play. Barry came out and Silbert, he came out and said that that's not true. We didn't default on the $1.6 billion. We haven't missed a single payment. You know, he basically rebutting most of what the Winkleby have said out there.

Starting point is 00:11:16 I don't know. It's hard for me to take that at face value their claims when, you know, they opened up the casino and let the school teachers gamble inside their, you know,

Starting point is 00:11:24 earned products and everything else with these unregistered securities on their platform. So it seemed like crocodile tears to me. But who knows? Joe, if I'm going to push back, like, people can't, people can't withdraw their funds, right? So to say that they that they haven't missed a payment, right? Like, that's just total crap.

Starting point is 00:11:42 Like they- Well, why can't they withdraw their funds? Preston. Why can't they withdraw their funds? They can't withdraw their funds because the Winklewey opened up the earned product on their platform. So whose fault is that? Where does the yield come from?

Starting point is 00:11:54 I mean, come on. Like, where does the earn platform yield come from? And if you would have custodyed funds and not re-ipoticated and not lent them out like folks thought you were doing, there wouldn't shouldn't be a problem with withdrawals. The problem is you had this interconnectivity among all these entities, whereas if one domino fell, everything fell. And it was, you know, a handful of market makers. You know, my clients are increasingly frustrated about this because they're, you know, they're people that are trying to put on trades. They're trying to make markets. They're trying to get involved in this. And to deal with

Starting point is 00:12:24 some of these folks in litigation and internally is just a total hassle. Dealing with Genesis is a complete hassle. I've been through the ringer with fights with them. They'll change terms on the fly. They'll make, you know, statements that they won't live up to. They'll change the deal midstream and renegotiate it. It's a mess. The whole industry is a mess. And you still don't have legitimate market makers coming in here because they can't figure out who's on the other end of the trade. They can't figure out what the level of leverages in the system even. I mean, it's a mess. The whole industry and where is the SEC? You know, they'll go after Kim Kardashian, but they've been asleep at the switch, you know, for months. I mean, if there's one takeaway from this whole cycle, it is the

Starting point is 00:13:03 abysmal failure of Chair Gensler to do anything, right? And I'm very critical of him at this point, because this is all on him, as far as I see. He was meeting with SBF regularly. He was meeting with a lot of these folks and no red flags came up. You couldn't figure out anything in your diligence with all your powers as a regulatory agency for the United States of America. I mean, come on. It is, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's Everybody should be upset about this. Do you guys agree? We all knew that Jim and I was working with Genesis on the earned product, right?

Starting point is 00:13:34 So that wasn't a big, that wasn't a secret at all. I mean, that was in the documents. We all knew that they were posting your funds to Genesis. Genesis was lending it. They were creating a two-sided market, which what they said they were. And to look, I hear what you're saying on Gemini in the weakly, but to defend them a little bit, you look at Genesis, they're a registered broker dealer under FINRA. They are lending money. They're borrowing money. They're making a market. And that's, I mean, this isn't anything out of the ordinary

Starting point is 00:14:05 in traditional finance, right? The earned product wasn't paying crazy yields like some of these other platforms were. They were pretty, they were pretty reasonable yields for the market they were making. So it wasn't like they were, it wasn't like a massive casino like, you know, like BlockFi and FTCs and Celsius. was, it was a little bit more reasonable when they were working with the FINRA registered broker dealer. So, you know, yeah, they should probably shut it a little bit better due diligence on who they were lending out to. But at the same time, at the crux of it, you got this registered entity that, you know, the FINRA should be looking into. What are your guys' thoughts on

Starting point is 00:14:43 finance? Because there's a lot of FUD being spread around on, I guess I shouldn't be calling it FUD because I have no idea what's true or not true. But when people are looking at what has happened and they're looking at the actions of CZ online, his behavior is markedly different than what it was prior to the FTX failure. So it seems like there's something off. I'm curious if you guys have any opinions. And if not, and if you're not comfortable saying anything, that's fine too. But we can move on to broader markets. But the only thing I will say, say is this entirely reinforces the arguments that have been made repeatedly in the orders denying the ETF, the spot ETF by the SEC, which is that these offshore exchanges, particularly

Starting point is 00:15:34 the leveraged derivative exchanges, the bitmecs, the by bits, they're black boxes. We can't see into them. We don't know what their balance sheets looks like. They're not willing to share it. Even the public stuff that gets out is questionable whether it's authentic or reliable. So they're black boxes. And to Stephen's point, just a moment ago, well, you know, when you're saying, well, we did our diligence, we were registered, we went and we contracted with these folks, in many ways, it doesn't matter because of the interconnected nature of this market, it's too small and there aren't big entities to come and back stop it that you can really ever properly assess the risk and leverage in the system. There's no way to do it. We found through public

Starting point is 00:16:14 documents now that some of which have been leaked is that, for example, the FTX bound. balance sheet, the Alameda balance sheet, these things were propped up with tokens that they literally created out of thin air. Literally created out of thin air. So when you're saying, well, we did our diligence as Gemini, I mean, I don't know how they could have done their diligence. I don't how it was possible. Because you can never get to where is the root of all this. It's just a house of cards built on a house of cards. It's a complete opposite of what Bitcoin's supposed to be, by the way. Well, and look, all I'll say on it is really simple, you know, and I'll address finance directly too. I was having a conversation with one of my my former, former colleagues

Starting point is 00:16:52 from Tradify who's still there. And we were talking about risk management. And one of the biggest parts of risk management, and this is a lot of people, a lot of people in crypto don't get this part, right? A lot of the hedge fund managers and people that are managing money here, they, you know, they were a trader at Goldman or a trader at somewhere else. And they're like, oh, yeah, I know how to trade. Well, that's great. But portfolio management's a lot more. than just trading. It's risk management. And the biggest part of risk management, believe it or not, is counterpart risk.

Starting point is 00:17:24 Yes. Amen. The risk matters more than anything. It's like you can't even move forward until you've assessed your counterparty risk. And so we've avoided Celsius, Locfi, FTX, Voyager, all because when we ask for certain things like, hey, where does your yield come from? We couldn't get answers or, you know, another thing that you do in traditional finance when you're, when you're analyzing a counterparty is you ask for their balance sheet, right? You want to know

Starting point is 00:17:55 their assets and liabilities. Well, there's a lot of people that won't give that to you. So that was actually a big part of FTX. We tried to, we actually tried for six months to onboard with FTX. Okay. Now, granted, there was a couple of things that they asked for us that were weird, but the one thing that they would never supply us was was proof of funds. And we just were like, well, we can't onboard until we get that. Well, everybody else works with us. So either do it or not. And we're like, okay, well, we tried.

Starting point is 00:18:25 We legitimately tried and couldn't get there. So we avoided all of that mess because of that, you know, just really simple process and really simple questions. And if you don't get what you need and you can't evaluate your risk, you can't take a risk. Clean it simple. Amen, Stephen. You can't evaluate your risk. You can't take a risk.

Starting point is 00:18:43 Same thing we can. Even that, that's such a great point that people should play that on loop because it's so, so critical for people to understand these markets. Yeah. And this is the thing. I'll invite at the finance. Sorry, Preston. Oh, no, I was just going to say for people, just pause and really comprehend what he's

Starting point is 00:18:59 saying, because in the face of all of that, you and everybody else, it was looking at FTX, what they're seeing is endorsements from Tom Brady, umpires at World series wearing their logos, sports stadiums named after them. And at a point, you start to think you're the crazy person because here's this rocket ship, what appears to be a rocket ship. And everybody else is getting it, but not me, because I'm using these really core principles of counterparty risk. Let me see your balance sheet. The really simple stuff. And in the moment when the market is raging, everybody's, you know, clobber in it, you start to ask. You start to Ask yourself if you're the crazy person.

Starting point is 00:19:43 But once that trend reverses, these core fundamental things will keep you in the game when everybody else is, I mean, in this case, getting locked up in prison, right? Keep going, Stephen, sorry to interrupt you. And I'll say, I'll say on that, Preston, by the way, I did think I was crazy. Yeah, I believe it. I did think I was the crazy guy. I'm like, I mean, I had one of my traders literally every day complain saying, why aren't we on boarded with FTX yet. And I would say, well, they just haven't given us everything we asked for. Well, we're missing out. We're missing this trade. And only they can do it. We can only do it there.

Starting point is 00:20:21 And, you know, and I kept saying, well, I can't approve this until we do. And luckily, we also have a really good head of operations who I worked with for years. He was head of fund operations at Guggenheim before, you know, before as well. And he's also very firm on those types of things. And luckily, he had my back, right? And it was two of us, not just, not just one guy that was saying, I can't, can't do it because of this, right? And yeah, so luckily he had two people that were crazy in the room. And everybody was calling us, you know, crazy boomers that move too slow, that don't, that don't understand crypto, you know what I mean? Yeah. And, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, number one, I did think I was crazy. And number two, I'm going to say this right now. I did not predict that there was fraud.

Starting point is 00:21:15 Yeah. I just knew that I couldn't get what I needed. That's it. I had no idea. When the fraud happened, I was like, whoa, I had no idea that that was going to be the answer. I thought I was crazy. I thought that they were killing it. And I thought that they were going to rule them all. One bring to rule them all, right? And I was shocked to find out that there was fraud involved. But then looking back, I'm like, well, I should have. No. The ultimate irony The ultimate irony for me is the organization

Starting point is 00:21:44 that broke the story is CoinDesk. Barry owns CoinDesk. It blows up FTX and then like ricochets back right in his face. The irony is just totally crazy to me.

Starting point is 00:22:03 Yeah. Yeah. And then my final thing I'm going to say is because you ask the question about Binance, right? Yeah, yeah, yeah. Sorry. You know, I had to say all that to lead up to this. I don't know what's under the hood of Binance,

Starting point is 00:22:14 and we don't use them. I'm not saying there's anything wrong with them. Yeah. We just don't know what's there. Same principle. Same exact principle, yeah. Yeah. And by the way, I haven't really tried.

Starting point is 00:22:25 Don't really care. So just not use them. I have. You're not going to have a whole lot of luck issuing subpoenas to them. You guys are something. else. All right, that was awesome. 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

Starting point is 00:22:52 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 They're activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now.

Starting point is 00:23:30 You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to but end up having dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedom Forum.com, with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference, it's a place where ideas

Starting point is 00:24:15 meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. Nesuite is the number one AI cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the Netsuite AI connector, you can use the AI of your choice to connect direct.

Starting point is 00:25:03 directly to your real business data. This isn't some add-on. It's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, Netsuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide, demystifying AI at Netsuite.com slash study. The guide is free to you at Netsuite.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats. Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters.

Starting point is 00:25:47 For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10% of all e-commerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place. inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business

Starting point is 00:26:24 today with the industry's best business partner, Shopify, and start hearing... Sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. Let's go ahead and talk about traditional markets. So, Jeff, let's get you into the mix here.

Starting point is 00:26:54 I'm going to pull up some charts here. Describe for the folks that are just listening, Jeff, we're going to go ahead and get some slides up here. Okay, I think I've got them shared. That's the 10-year treasury. I think you wanted to start off with this one here. Is that correct? Sure, this is a cool chart.

Starting point is 00:27:12 I have to give props to Dylan Leclair, who shared this with me. This is a lot of people have been talking about it. It's gained some popularity lately. Net liquidity, right? So people are talking about liquidity expansion, liquidity contraction. What does that all mean? And one way to look at it is, is factoring a couple things, right?

Starting point is 00:27:32 So when the Fed is withdrawing liquidity, doing tightening, right? So they're letting bonds roll off their books. And then you take that and you subtract it from the Treasury General account, how high that is. That also subtracts liquidity from the system in a way. And then third is the overnight reverse repo market. Our institutional, like our banks, big banks, are they parking money there or are they putting that into

Starting point is 00:28:00 risk assets or not. And this is a cool chart because what it's showing is if you take that net liquidity and then you sort of morph it onto the S&P 500, it gives you some bands kind of upper and lower ranges of what the S&P 500 should technically do if the markets happen to move in terms of liquidity or net liquidity. So that's what this chart is showing. And it's pretty interesting. As you guys can see, it starts, we can go back further, but it gets more accurate basically after COVID. the 2020 crash and then and then lots of interesting things started happening after that. Basically what it shows is there was a surge in liquidity, right? So, so what we think of as quantitative easing in general, basically ramped and it peaked in the

Starting point is 00:28:44 fourth quarter of 2021. And then you'll notice an abrupt peak and a descent from there. And it's been descending ever since then until we get to kind of October of 2022, where it ramped up a little bit and which also happens to coincide when we had a a nice little bare market rally. And then heading into the end of the year and into the beginning of 2023, it's kind of taken a dive back lower again. So that's just one thing that I like to look at personally when people talk about, you know, are we in a liquidity expansion environment? Are we in a contraction environment? If so, how will risk assets respond? Historically, I think most people have come to realize that risk assets don't do well when liquidity is being sucked out

Starting point is 00:29:26 of the system. They tend to do really well. And I don't consider Bitcoin to, be a risk asset, but it responds like a risk asset, especially in its early days that were in in the price discovery phase. It tends to mop up liquidity when it's available. And what this chart shows me, at least for now, is that liquidity is still being withdrawn from the system at a rapid pace. So I would not expect risk assets to do very well unless something changes. So I'll throw that out there for you guys. Go ahead. Yeah, Jeff. So just so I understand this, this is measuring liquidity being drained from the system as of the role. off and maturity of bonds on the Fed balance sheet. Is that, is that the, the method? That's the

Starting point is 00:30:05 equity. So that's the primary one minus the overnight reverse repo market minus the treasury general account. Does that make sense? Yes. Yes. Okay. And you see you've got three, three bands here. You've got the upper band, which I don't think the S&P got above 5,000, right, but apparently that would have been one of the fair values based on liquidity in the system at that time. Exactly. So the upper green band is kind of the upper fair value that it could reach based on liquidity. The red band is the lower boundary. And then the black line is at the actual price of the S&P 500. Lynn Alden talks about this in her newsletters. She has a similar chart where she actually does it on the actual sites, the Fed site, the Fred site. Darius Dale speaks of it as well. I don't know. Anybody else have any thoughts on this? This to me is, I think, super, super interesting. And it kind of goes along with the saying, especially I think Preston the last time we were. were on, you were showing those charts going way back and showing the expansion of liquidity and the contraction of liquidity. And then you put that up with the stock market and then you also put it up with Bitcoin and it almost perfectly coincide. So, you know, correlation is not causation,

Starting point is 00:31:15 but man, it sure makes a compelling case for it. I personally like it for if you're a short term person, it kind of shows you the vol ranges. So like if it starts getting up into the upper band, you could probably expect maybe a pullback or that the volatility is kind of reaching its local max or men. It seems to kind of follow that. But I'd have to dig into the calculation more to really have much confidence in that idea. But it seems like it could be useful for something like that. I mean, look, you know, S&Ps at, you know, 3858.

Starting point is 00:31:49 I absolutely love looking at liquidity in markets when I'm looking at what risk assets will likely do. I mean, it looks like this is kind of pricing the SMP, possibly going at 3,500. I'm a little bit more bearish on this. And I kind of get there a different way, but it's the same concept. I look at the bond market because it's the only thing I know how to do to get to see what SMP prices are.

Starting point is 00:32:14 And the way that I kind of get there, I look at where rates are going and specifically look at the high-yield bond market. right so if if we think if we believe cash carrie and and believe that the fed will raise rates at least another hundred basis points this year which i think is entirely possible if not too light then you're you're probably looking at high yield bond rates for you know on the five year somewhere around you know call it nine percent which means that you know probably double digit default rates because companies can't afford their debt service at that level, and they won't be able to really refinance and afford that debt service.

Starting point is 00:33:03 The way the high-yield bonds work or issuers work is that they typically issue five-year debt, and then after four years, they're already starting to refinance it because they're not like the bigger corporations that can just pay it off if it matures. they have to act early and they're usually acting, you know, when you're out. So when they try to roll it, so when they try to roll it, that's when you really start to see it. And that, is that the point you're getting at with that, Steve? Yeah, that's exactly right. And for all these companies that are having to essentially roll an issue new debt this year, yeah, they're not going to be able to afford the debt service. So based on where we're

Starting point is 00:33:41 looking at potential high-yield bond defaults, I see the S&P going as low as 31. 100. Wow. Because the S&B is correlated to the high yield bond market. And so when we look at the chart, so I have the government bond yield curve pulled up, and I would imagine that the yield that you're seeing in the high yield sector that you're talking about would kind of have a parallel movement to what we're seeing. And so I have it highlighted here.

Starting point is 00:34:08 I don't know if you guys can see where I have the line drawn. It's showing like January of 2022 is where we watched the yield curve really kind of break what was a traditional kind of trend. and it started selling off like crazy, and it's just been in a rip ever since. And so we're coming up, or we're basically at the one-year anniversary of this move, this aggressive move, and you're saying that as they try to roll that debt, we're now at the one-year mark, and you kind of expect that to really start to play out here in the coming quarter, two quarters. What do you think, Stephen? Yeah, probably closer to Q2 and Q3. And here's the problem with the current yield

Starting point is 00:34:48 curve, right? So right now, you know, just, you know, five-year treasuries are at 387. Okay. Sorry, guys. So usually in typical markets, if a company can't afford the debt service on five-year debt, they just go down the curve and they issue, you know, two or three-year debt or floating rate main loans. The problem is, is that two years at 430. It's higher. It's higher. Yeah, I look here. Right? Yeah. Or if you're like, okay, well, maybe I'll just issue six months, six month paper, commercial paper.

Starting point is 00:35:22 Four seventy five. Wow. So you're forced into the five year. But a lot of issuers don't want to give five year paper to companies that are potentially failing either. So I think there's going to be a lot of problems in the high of phone market. Now, explain to people why they just couldn't roll into a, into a 10 year or something with a longer duration. No no issuer or no bond buyer wants to give a high-yield bond company, which don't even know if the business is going to be viable for 10 years to pay off the debt. Yeah.

Starting point is 00:35:58 Based on their burn rate of, you know, or total lack of earnings and whatever they have on their balance sheet, they're expected to go negative on their balance sheet in six months or a year or whatever. Yeah. Gotcha. Yeah. I mean, typical investment-grade bond issuers, you know, like some of the big banks, you know, or manufacturing companies, Apple. I mean, they can issue 10 or 30 or even 30 or debt all day long. Yeah.

Starting point is 00:36:21 But, I mean, if you're like Toys Over Us, I mean, he's going to give you 10 your debt. Yeah. Stephen, why do you think some of the high yield proxies like, you know, things like HG are in the same basic ban they've been in since June? You know, we really haven't seen them sell off hard. I mean, HG, let's see. I'll try to pull. 74th, 60.

Starting point is 00:36:41 It's the same was back in June. some of these bond ETFs. Yeah. It usually has, it all has to do with duration, right? In risk on bonds or basically what that means is if rates start going up, if you're in higher duration bonds, longer duration bonds, then your price changes more dramatically, right? So things like U.S. treasuries or investment rate bonds is not what you want to be in.

Starting point is 00:37:11 You want to be in lower duration bonds because the, the price movements are less drastic. So people are scrambling to hold lower duration bonds. And the way that you get lower duration is either have a shorter maturity or a higher yield, which essentially is high-yield bond, is high-ield debt, right? So people are moving into that for price protection. But once that price protection is taken out and that duration risk lowers, then that's when people are going to start moving back into longer duration.

Starting point is 00:37:43 higher grade products. I'm just going to quickly pull up. And this is, you know, we were looking at yields earlier. I'm showing prices here. And this is an ETF. This is the I shares, high yield corporate bond, ETF, which is a ticker, HYG. I'm just going to pull this up so people can see the chart.

Starting point is 00:38:02 I think this is it. There we go. And you can kind of see where high yield bonds are at from a price standpoint. Right. Yeah, that's right. And for those just listening in on the podcast, it's in the same range it was basically in June, where most of the damage is done in the first part of the year in terms of the sell-off. I got a question for you, Stephen.

Starting point is 00:38:27 So, you know, I made a chart with Lynn where we're tracking the global M2 because everybody pulls up the U.S. M2, but when you combine it and you're looking at it from a global perspective, it's really interesting how it's slightly different. and we've seen, and let me pull up the chart here so that I can kind of show people what I'm talking about. But when we're looking at the global M2, you've seen this enormous bounce since, what is it? The start of November of this past year. Here, let me click on the right thing. Share. Sorry.

Starting point is 00:39:04 Okay. So here's the chart. And you can see how much M2 global. M2 was added into the global economy post-COVID. I mean, it just ripped. They then decide that they're going to get serious. They're tightening the U.S. is tightening M2. Europe's sitting on their hands doing nothing. Japan's, and we can talk about that. But then out of nowhere, it seemed like out of nowhere in early November, the global M2 just went on another rip again. And I, you know, I've been told this is due to the dollar devaluing during the same period of time.

Starting point is 00:39:44 So if we go back, sorry, I got the high yield one pulled up here. Let's go DXY. When we look at the DXY, you can see here in October and there you go, the start of November, the DXY starts selling off aggressively. How did the U.S. do this? How did they weaken the dollar so much? because whenever I'm looking around and I'm looking at the disaster that's happening in Europe, I'm looking at the disaster that's happening in Japan, and how much debasement they're having to do

Starting point is 00:40:19 in order to offset the energy issues that they both locally have, I just don't understand how the dollar could be selling off in the face of that environment. You would think that the dollar would be getting bid in the face of those other fiat currencies. So how did they do this? Yeah. Well, what a lot of other central banks around the world do is they're constantly trying to peg themselves to the dollar or if not pegging themselves to the dollar manipulate their currency versus the dollar. And the reason why you do that, people are like, well, why wouldn't you, why wouldn't you do the opposite, right? And really, it comes down to if the dollar's too strong, right, then here in the U.S., we can't export. Yeah. Right. I think, the dollar is weak, then we can export a lot, you know, and our manufacturing thrives. So, so essentially what happened was the Fed took action and started aggressively raising rates, which essentially took liquidity out of the system, began to devalue the dollar, but then all the other countries around the world had to very quickly catch up so that

Starting point is 00:41:26 their global manufacturing and global exports don't get weakened. So, so they had to start taking action to go in the opposite direction. that they were going in. And then, so it's always a laggard effect. That's why you see these bounces and strength and weaknesses. Because in some cases, they're trying to, they're trying to gain what the U.S. is going to do. In other cases, they're just trying to catch up.

Starting point is 00:41:50 So that's why you see that type of volatility. Do you think, and this is just purely gut, I have no idea. I just kind of feel like the dollars sell-off that we've seen since, call it, November, is coming to a close and we're about to see a, rip on the dollar. Do you agree with that or what's your point of view on where it goes from now? I don't know. And here's why.

Starting point is 00:42:16 We just passed a $1.7 trillion omnibus spending package. So everything that the Fed is doing to fight inflation, the U.S. government, through policy, is doing everything they can to create inflation. Right. So I don't know who's going to win. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up,

Starting point is 00:42:46 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 SOC2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks.

Starting point is 00:43:16 Companies like Ramp and Ryder spend 82% less time on audits with VANTA. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. Get started at Vanta.com slash billionaires. That's Vanta.com slash billionaires. Ever wanted to explore the world of online trading but haven't dared try? The futures market is more active now than ever before, and plus 500 futures is the perfect place to start.

Starting point is 00:43:51 Plus 500 gives you access to a wide range of instruments, the S&P 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4x, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity, you'll be able to trade it in just two clicks once your account is open.

Starting point is 00:44:22 Not sure if you're ready, not a problem. Plus 500 gives you an unlimited, risk-free demo account with charts, and you can't even if you're charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income

Starting point is 00:45:04 strategy is available to investors of all sizes thanks to the Fundrise income fund, which has more than $600 million invested and a 7.97% distribution rate. With traditional savings yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com slash WSB to invest. in the Fundrise income fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be

Starting point is 00:45:52 found in the income fund fund's prospectus at fundrise.com slash income. This is a paid advertising. All right, back to the show. I got to love it. I want to go quickly around the world on some other yield curve. So we had the U.S. yield curve pulled up. Let me go back to this chart. Here we go. Okay, so here was the U.S. yield curve.

Starting point is 00:46:17 We had talked earlier about where it kind of broke a year ago when we were talking about the high yield. Here's the U.K.'s yield curve. You can see, unlike our U.S. yield curve, where it's highly inverted, where your lowest duration is kind of producing the highest yields. Over in the UK, you still got the one year at the bottom of the yield curve producing a 3.17% return and the 20 year and the 25 year up there close to 4%. This thing's moving out, like aggressively moving out. As you guys look at that, do you think this is a reversal?

Starting point is 00:46:54 Because it doesn't look like a reversal to me. It just looks like crazy, crazy volatility and it's still nothing is demonstrating that this thing has reversed and is starting to bid. Any thoughts? Nothing. Joe, I'm dying to know your thoughts on this. Yeah, well, they've got some unique issues, I think, with how their bond market is constructed, particularly how they borrow at the long end. So I would view this as an anomaly, but that's just my takeaway. I think the consistent message from the global bond markets is that the long ends consistently

Starting point is 00:47:30 are rejecting the notion that the rates are going to be able to stay high for this for much longer. I think that's the message to the tenure that I sent over the chart press and that we'll get to in a little bit. I think this is an anomaly from a global perspective at least. Yeah. And I know Jeff asked you that. The audience might not know this, but Jeff asked you that because Joe, and don't

Starting point is 00:47:48 let me take words out of your mouth, but Joe, you're looking at the U.S. yield curve. and you think that we are seeing a sell, the peak sell off is over and that we're maybe starting to see a bid in U.S. Treasuries. Is that your point of view from going into 23? Yeah, long end. I mean, you had the window dressing at the end of the year, which you typically see because they have to clean up some books. And so you saw a little bit of a sell off, particularly at the long end.

Starting point is 00:48:16 So you got this bounce. But bam, look at this week. I mean, look at the week we've had with it catch a real bid. and yields fall 10-year-plus across the board. So to me, that is where you want to be in the face of recession. Obviously, I was early to this trade, but I still think it's the right one, moving into next year with the deteriorating economy and very much likely a recession baked in. The problem we have is that we can consistently still have this thing that, you know,

Starting point is 00:48:44 good news for risk assets is bad news, right? And what I mean by that is that the economy has not deteriorated as rapidly as many thought. You know, many astute market analysts, macro analysts thought the Fed could hike, you know, a couple times, three times. They've been on the fastest hiking cycle in modern history. And you haven't seen, quote, unquote, something break. In fact, we've got some spending data, which even adjusted for inflation seems to be flat for the year.

Starting point is 00:49:11 You get the master card data that's another chart I gave to you. You know, you've got restaurants spending year over year up by 15%. That doesn't scream economic collapse and things are falling apart. Now, obviously, the risk assets have been ravaged, right? but even as late as I think November, you had the Dow five or six percent off the all-time high. I mean, the markets have responded extraordinarily well to the fastest hiking cycle in history. And there's a couple of reasons for that. We can get into structurally, but nothing in any chart is telling you impending doom in the next month or two.

Starting point is 00:49:44 Now next year, I think it's going to be awful, right? I think you're going to keep. But the problem is I think a lot of investors, they are conditioned to fight the last war, right? They're conditioned to fight, you know, 2008 or the COVID bus where things just all fall apart very rapidly within a short span. And if you go back historically, that's not typically how recessions play out. Recessions are long, difficult periods, right? In the 2000 recession, March of 2000 is the peak. We do not find the bottom until I believe April or March of 2003, right?

Starting point is 00:50:17 Somebody might remember this better than I do, but it's a three-year process. and there's some evidence here that this thing can take a long time to play out. And that's not what investors want to hear probably, but it is the reality. We've seen it through all 2022 when people were thinking that the wheels were going to come off the car really quickly. I don't know. I do feel like there are a lot of people that are really suffering. I mean, for the last two years, there was a big group of people that didn't have to work.

Starting point is 00:50:46 They were just trading monkey JPEGs. Now they're moving into their mom's basements and they're having to get jobs flipping burgers at McDonald's. So that's painful. That's hard. And I think we're going to see a lot more of that in the coming year. Definitely agree with you that next year, the economic prospects are not rosy by any stretch. I mean, I think you have to at least bake in a mild recession. But the JP Morgan data that we have from checking count balances on a real adjusted basis, adjusted for inflation, still shows elevated balances from where you're

Starting point is 00:51:18 were pre-pandemic. So, you know, I think, yes, I think you're exactly right. People were paid, you know, so many paper millionaires in 2020 and 2021, maybe the reality is setting in now. Maybe they're finally pulling back and saying we got to tighten our belt. But that's different than imminent economic collapse or breakdown of the system, right? That's, we're on a path towards recession. Yeah, absolutely. Absolutely. Isn't it interesting, though, because I'm sure you guys follow this to the PMI data looking at manufacturing. I mean, manufacturing is already in a contraction. It's already in a recession, right? But services

Starting point is 00:51:52 is still really strong. You know, the Joltz data basically just says that we never recovered the workers from COVID and that disaster. And we still have the supply side issues that caused inflationary pressures, right? I mean, just the... Why is that, sorry, let's talk about the Joltz data. Because that's really key. Why do you think that even with the fastest hiking cycle, the Stimmy checks running out,

Starting point is 00:52:16 why haven't those people returned to the workforce? To Stephen's point about, you know, why aren't they back at McDonald's, flipping burgers? Well, there's multiple reasons, right? I mean, so there's big reasons like demographics, right? But that's too long term. Demographics are bad. So there's just fewer and fewer people.

Starting point is 00:52:32 I think the work, the labor force participation rate, I think peaked in 2000 and it's been on the decline ever since. COVID changed everything, right? COVID shut businesses down. It scared the crap out of people for right or for wrong. some people just refuse to come back. Some people can't come back because of medical conditions, maybe long COVID or whatever. I won't get into that. So there are people who just aren't coming back to the workforce. And I've heard, and I think Powell for the first time I actually brought that up,

Starting point is 00:53:00 at least the first time to my knowledge at the last meeting, talking about we have a loss of maybe a couple million, three million people. I've seen some estimates as high as five or six million people that just aren't coming back to the workforce that were there pre-COVID and they're not here now. And so that's all very interesting. And I think that's why the data looks so weird and so skewed. And then I'd love to hear you guys a stake on this too. But also it seems like the services sector is still trying to recover from COVID. So they're desperate for workers. They're dying for workers, but they're just not finding them. And then on the other hand, manufacturing is just falling apart. Orders or new orders are, you know, just non-existent supply. their supplies basically, their inventory, excuse me, is just super high.

Starting point is 00:53:42 People aren't buying their stuff. They don't know what to do. So manufacturing is already in a recession. How does this affect the overall economy? That's the tricky part. This is why it's so difficult to see what's going to happen. That's why I'm personally confused trying to figure out, are we going to, are we going to, are we standing on the precipice right now and we're going to crash and fall off within the next

Starting point is 00:54:01 couple of months? I can see a scenario that says that with the inverted yield curve, with the way the data is going with the slowing economic cycle, right, with this disinflationary period and a hawkish fed, all of those things just pretend to just terrible times ahead for risk assets in the near future. But then I can see to your point earlier, Joe, and Stephen, you're kind of alluding to this too, these things take time to work out. So is this going to last for a year, two more years, three or four, you know, Michael Burry, I think, thinks it's going to last many years from now. Four, four years, you said. Sure, right. So it's somewhere, it's somewhere between four months and

Starting point is 00:54:34 four years, this recession is going to go on it when we bought him. And I don't know what the answer is. I'm still waiting to see. Just real quick, Jeff, the thing you said that was really fascinating is I remember Powell making that comment about people that have left the workforce. But at the same time, he's persistent in all the FOMC press conferences that there's imbalance in the labor market and that they're actively trying to trigger people to be unemployed. They're actually they want people out of a job at the same time saying a bunch of people left the workforce. It's so bizarre. It's bizarre old land. Yes.

Starting point is 00:55:03 But there's a complete behavioral shift that happened that happened and is happening over the last three years. And it was during COVID. We went from a, we kind of went from the United States to something along the lines of France. Right. And from a behavioral standpoint, people just don't want to do menial jobs. They'd rather just not work. I mean, people got paid to not work for. long that they either don't want to do something they just don't want to do, but they also have

Starting point is 00:55:40 an expectation that now that after that whole event occurred, that if they run out of money, the government will just take care of them. And that is a social shift in our thinking as a society. And it's going to take us a very long time to get out of that if we ever do. Right. So that's just a shift in people's behavior towards work. And I don't know if any of you hire people, but even when you're hiring now, and it's the whole hiring millennials kind of thing. It's not that at all, but it's a very different attitude where people just don't want to work more than 30 hours a week.

Starting point is 00:56:18 Or coming to the office. Yeah. They want to work in their house. Yeah. And that's just a shift that's happened, you know. And you've had a lot of companies that have laid off tons of people. We've laid off a ton of people. And we're not really seeing those people going back to work.

Starting point is 00:56:32 They're just like, yeah, I don't want to work. Some of them are moving in with their parents. Some of them are doing other things. They're doing other things other than working and they're okay with that. And I think Powell's going to have a very hard time trying to force unemployment because we are below fully employed, right? I mean, if you look at a, if you look at a typical society, you know, full employment is 5% of unemployment, right? Because that 5% of people you don't want to hire anyway or just unhirable. So you have that.

Starting point is 00:57:06 And I bring this back up again. But at the same time, our government is also passing massive spending measures that are hiring more government employees. So as much as we're getting people to be laid off in the public sectors or the private sector, the government is hiring more people. And sometimes those are easy jobs, right? I mean, not always, but some of them are easy. And that'll probably be where a lot of people shift. We'll just have more government employees. And when you look at the value creation that's being rendered by these abundant government jobs, like,

Starting point is 00:57:48 what are you saying about the thing? I thought about putting my job and joining the IRS, man. You get to carry a sidearm. Some of those memes that came out. That IRS employment stuff was outrageous. Hey, I'm pulling up a chart here that shows the 30 year minus the three month. And what I find so interesting about this, you guys were talking about how long this could potentially play out.

Starting point is 00:58:13 And when we look at previous cycles, on this chart, you see the 30 year bond minus the three month note. And underneath of it, you can see the S&P. P 500, and you can see the peak of the S&P 500. And when we look at the peak of the S&P 500 on previous cycles and we take a measurement on when the 30 year minus the three month is at its highest level, it was, what was this, 863 days after we saw a negative print on the 30 year minus the three month. So let me take one more measurement.

Starting point is 00:58:55 This was the 2007 time period. So here we are on the lowest. It's not perfectly synced to the top of the S&P 500, but it's very close. And when we go to the bottom of the S&P 500, we got 717 days. We on this current cycle right now have not even have a clear bottom on the 30 year minus the three months. So let's just Let's say I take 750 days or 800 days, and let me extend that out to the right. And this is giving us basically February of 25. So, Stephen, do you think that that's a pretty good estimate of like how long risk could be punished going forward? Or are we in a new paradigm where the response that central bankers are going to have to supply once things would potentially get nasty is going to be so unprecedented compared to anything that we've seen historically that we get another COVID-level 100% face-ripping equity market

Starting point is 01:00:07 in the span of months. Look, if you look at the last year, you know, the S&P is down, you know, just under 20%, right? I think it's 18 and a half, 19%. Yeah, 19.7. Yeah. And we'll, so we'll go down another 20% from here, right? Based on what I'm looking at in the bond markets based on rates. So even if we go up another call it 100, 125 basis points this year,

Starting point is 01:00:45 I do believe that there's going to be a point that probably won't be until 2024. Q1 or even later that the Fed is going to have to start dropping rates again. Not because, and so we're not going to get lower inflation anytime soon. So the Fed is going to have to deal with that. We're not going to get higher unemployment anytime soon. So the Fed's going to have to deal with that. And these are all policy decisions, you know, again, that the Fed has to deal with. the thing that's going to push the Fed is going to be a failed treasury auction.

Starting point is 01:01:23 Mm-hmm. Mm-hmm. Right. So what that means is people are just going to capitulate and say, well, I still own treasuries here. Because, you know, why would you continue to buy treasuries at the, so the Fed is selling treasuries at the same time as raising rates? Governments around the world are going to kind of give up on buying treasuries.

Starting point is 01:01:45 And money managers are just going to say, well, I'd rather own something else that gives me a better return, especially of my expectation as inflation is going to be higher. So a failed treasury auction is going to be, all right, well, we're going to have to step in and do something. We're going to, and likely what that action is going to have to be is the Fed is going to have to capitulate themselves and say, well, it's time to start buying treasuries on the ballot sheet again, which of course creates more liquidity in the system, creates more inflation.

Starting point is 01:02:15 I don't I want to hear sorry no sorry go finish Steve I apologize Joe's very excited to respond we're in a death spiral we're in a death spiral right now yeah and it's going to take a lot to get out of it so 2025 is unheard of well okay so let's go back a second inflation isn't I think and I don't want to put words in your mouth I thought you said something like inflation isn't going anywhere down I don't see a metric on anything I look at that isn't showing inflation going nowhere but lower. You have gas prices today in the United States on an average basis lower than they were a year ago. Okay. Every forward-looking future contract tells you inflation across the board from purchasers,

Starting point is 01:02:58 from manufacturers, even services inflation is heading lower. If the real estate market continues on the path that I think we're all headed to, owners equivalent rent is going to sink like a stone. So in terms of inflation, I don't see inflation being the story at all of 2023. I think if anything, it's disinflation and potentially deflation, especially if we get these hard downs in financial markets and in the real estate market. No one's going to be talking about inflation. They're going to be talking. So let's put that there.

Starting point is 01:03:26 But you're saying you think we're going to get a negative inflation print? No, no, no. I'm just saying. No, disinflation is the rate of changes slowing. That's general disinflation. It's not growing as fast as it was previously. So if you have, if you look at any forward metrics from commodities, from services across the board, I mean, just like look at energy, right? The backbone, the lifeblood, I think we all agree on that and how energy is critical, right? Gas prices lower today than they were last year at the same time. Joe, how do you, how do you, I'm sorry to interrupt you, how do you look at the rest of the world and the impact that that might flow? Because that's the thing that I'm struggling with. I think in the U.S., I hear everything you're saying and pretty much agree with you. But whenever I look at you, Europe and I look at the UK and I look at Japan, they're not having that scenario. They're actually,

Starting point is 01:04:14 it's still going up. They're double digit inflation. And so my concern is, is how does that potentially come and spew and trickle itself into the U.S. economy where, I mean, there's no central bank, in my opinion, that's able to really kind of do something all out on their own? It's so coordinated at this point. So how do you handle that? The way I view it is that the U.S. has been more aggressive than nearly every other central bank. People make arguments about Australia because they move faster. But virtually, U.S. has been the fastest, okay? They've hiked the fastest.

Starting point is 01:04:52 And you're seeing the effects in real time. You're seeing demand beginning to crush. And manufacturers, the savvy home builders, look at the price of lumber. They are recognizing this and they've sniffed out that we are headed for really rocky economic waters. There isn't a CEO you can talk to professionally, personally, that won't tell you, they're in batten down the hatches mode for a recession. Okay. And they see it in the consumer data.

Starting point is 01:05:14 So tell me how you get inflation when across the board, every single person is saying we're cutting and reducing spending. I don't understand. That doesn't make any sense. I don't think that's what he was. But that's not what Stephen was saying that you're going to have a treasury market that sees us up. He's not necessarily.

Starting point is 01:05:29 Yeah. We'll get to that in a second. So when you talk about inflation, okay, inflation, you know, obviously it took longer than most people will think. But it has pete, right? The rate of change is 0.1% month over month. You're getting cooler prints. And with consistent demand destruction, it's going to come down.

Starting point is 01:05:46 Now, what I do agree with Stephen on, I think what I think the key thing is that you could have long run inflation remain elevated for the remainder of the decade, right? But that could mean, you know, instead of structural inflation at 2%, you're at 3% for the remainder of the decade. I think that's very likely, right? And that changes the way investors have to position. It changes what central banks and policymakers can do. But to answer your question about globally,

Starting point is 01:06:08 If the U.S. has moved the fastest and has hiked the fastest and crushed demand the quickest of everyone else and the U.S. enters a hard downturn, you're going to see, I mean, the U.S. is still the 800-pound gorilla economically globally, right? And if the U.S. is in a hard recession, other countries are going to follow suit. In other words, you're not going to see a situation where the U.S. goes into a hard recession, but the remainder of the world somehow averts that recession or avoids that recession. It will pull down prices across the board globally. But there is definitely concern to your point, Stephen, I think about liquidity issues in the treasury market. That's one of the reasons why the SEC and some of these entities are trying to do this reform for clearing. The key thing,

Starting point is 01:06:46 though, again, to bail out the treasury market is how to investors position, because you have to put those trillions of dollars somewhere in the face of a very difficult economic downturn. You're pulling them from risk assets and you will pull them to bail out the treasury market. That's where there's a mandate to effectively bid these things up. And I love to hear your comment. as a former bond trader on that because, I mean, isn't that the normal play in a recession and a hard economic downturn? You're going to go into the Treasury market because if at all, if there's one thing we can be certain of, it's that the United States government hopefully won't fail. Well, right now there's a big move to make up for the fact that we've got

Starting point is 01:07:25 a lot of unfunded pensions and we're not hitting our actuarial rates and for insurance accounts. And we've missed that as a market for so long that right now you're playing catch up. The rate that you need in insurance, for instance, is about 5 to 6 percent. And pensions, it's anywhere from 7 to 9 percent. And even where bonds are today, you're still not getting that without taking extraordinary risk. And the way that pensions have gotten there before is they've offset their bonds. bond portfolio by investing in private equity. Well, private equity and public equities are expected to go down. So you can't really invest there. But you're not going to move into the bond market

Starting point is 01:08:12 because the yields are high enough. So you have to go into, you have to go into corporates. And the corporate, the only corporates that makes sense right now are really your triple Bs, right? Because the spreads are still very over, over treasuries in single A through triple A corporates. mortgage rate, mortgage-backed securities don't make a lot of sense right now too, just because of what you just said with the housing prices going down. So you don't want to be in that product. So triple Bs and then barbelling your strategy with high yield and investment market corporates is the way that you sort of average it out.

Starting point is 01:08:51 But treasuries just don't get you there. So you're going to have to have the Fed step in and take that nut. Now as far as inflation go, you know, taking a point of time, and trying to make a trend out of a point in time doesn't always work. I don't think that we have a trend going down. I see us having a reversion to the mean. So, you know, I don't think we're going to get down to two, three percent because a lot of the inflation numbers that we saw a year ago where we spiked to a one time,

Starting point is 01:09:21 even though we were trending higher overall. And then a lot of the numbers that you're seeing for commodities and other prices today are a point of time that are probably closer to a bottom because we had, you know, one-time release to strategic ore reserves, but energy will, and we've had a warmer winter than a lot of people expected. So that's just a point of time data, reversion to the mean, but I still believe that energy prices are going to continue to go up. Despite the fact that a lot of companies are laying off, you're mostly seeing that in the tech sectors and the banking sectors,

Starting point is 01:09:59 people that don't really produce anything. Trust me, I know. I've been in the finance sector. We produce a bunch of spreadsheets. We're losers, man. But people that are in the service in the manufacturing industry, it's still very hard to find that labor.

Starting point is 01:10:14 And the labor price isn't going down. So anytime you have wage inflation, so wage inflation was one of the primary movers of inflation over the last three years. And we continue to see wage inflation for important jobs for things like service and manufacturing. So those are the factors that are really pushing inflation to continue to trend higher, even though we've had a reversion to the mean that we're seeing over these two points of time. So, Stephen, would this be properly, I'm curious if you agree with this opinion,

Starting point is 01:10:48 is this, are people forgetting about how broke the supply side is and are just focusing on the demand side like we've seen historically over the last 40 years where everybody's looking at the demand metric, right? Oh, everybody's losing their jobs. They're not spending as much. And so that's what's going to cause inflation to start going down without even talking about how ports are jacked, how shipping, you know, transportation is jacked. And these things that you just can't get it as fast. You can't get the quality that you got before. And that's the thing that and just don't have the people. You don't have the demographics to work. And therefore, it's going to cost more in order to offset those things from the supply side. Well, I think it's still both, right?

Starting point is 01:11:41 I mean, we talked about earlier how despite the fact that people are losing, losing their jobs and moving in with their parents. And we still, you know, bank statements still show that there's plenty of cash to go around. So there's still a lot of demand. It's not as high as it was a year ago, but there's still a lot of demand. And then on the supply side, that's really driven by the labor market. And skilled labor in areas like manufacturing is still hard to find. I mean, who's going to hire, you know, the community organizer from Twitter to go work in your manufacturing plant?

Starting point is 01:12:15 For 15 mil. For 15 mil. They're certainly not going to go work at Woffel House, right? So you still have those both supply and demand side issues that I believe is still is still trending us for high inflation. Now, I don't think that we're going to hit, you know, in CPI of 8.9% again. But it might be at a steady, you know, 6 to 7%, which is still bad. And by the way, I'm unpopular in this opinion.

Starting point is 01:12:49 You know, there are a lot of other economists, more economists than not believe that we're going into a deflationary environment. I'm just not there. You know, I focus on, I focus more on on looking at labor trends and other issues when I'm really thinking about this. And I know, I know I'm kind of the anomaly here. So just you think, you think CPI is going to be. like this time next year will be year over year annualized above, say, 6%. Let's call it 5 to 7. But yeah.

Starting point is 01:13:23 5 to 7. Yeah. Gotcha. Steven, can I pick your brain for a little bit? Why do you think the high yield spreads haven't really blown out much yet? Are you surprised at how calm the spread is so far? Or do you think this is just because it's going to be such a slow process that they will blow out, but it's going to take maybe a year or two, two years to happen?

Starting point is 01:13:45 Yeah, I think it's going to be a while before. I don't think it's going to happen until we start seeing defaults pick up. But spread really has more to do with demand as well. Even though what the spread should be is probably, you know, 200 basis points over what they are. There's just still so much demand for yield. And I know that's hard to say because yield has gone up, but it's only caught up really in the short end. right so it's really been unmoved relatively in the long end of the curve and that's where big money buys you know we're talking about you know insurance and pensions so so yeah there's there's still a lot of

Starting point is 01:14:28 a lot of demand on the short end of the curve a lot of demand for yield and we're just we're just making up for the fact that well let's take let's take a life insurance company or let's just take any any insurance company right now for instance okay there's a lot more claims that have come in in the last three years, right? Whether it's health claims or accident claims or more claims are coming in, which means that the premium you have to charge for insurance is higher or the return you have to get in your bond portfolio has to be higher. So premiums have gone up, but that only works in the short run.

Starting point is 01:15:07 People just stop buying certain types of insurance or they start, you know, reducing their policies. And then what happens on the, on the management side of things is you've got to you've got to produce that higher return. So return demand has gone up and that's just, that's compressed spreads even though, even though yields have gone up. Joe, just another wrinkle in the argument about inflation coming down. How much do you buy into this China coming back online narrative that you keep seeing

Starting point is 01:15:42 in the news. Not at all. I think that it was China, in many respects, was never offline. They've got political instability that has forced their hand. And so I don't get in trouble for it. I'll quote Mike Green, who talked about this extensively in a recent podcast he did. You have people literally in China that are locked into factories, forced to do work to support the government.

Starting point is 01:16:09 Okay. By any stretch of the imagination, if you just love, look at what the reality is in the ground, it's, let's modern day slavery. That's what's going out in China. Yeah. And we should call it what it is. And in some ways, we continue to be complicit in supporting this by buying all the cheap crap from China.

Starting point is 01:16:25 And I do not believe that the, this was at all COVID related. I think the zero COVID policy was a fiction created to disguise the political instability and threats to the government over there. So put that for what it's worth. That's my overarching view in China. And I can tell you as an investor, as an investor who likes to support value-based principles and companies where, you know, I have confidence in the governments in which they operate. I don't put any money in China. I try to keep a little exposure to China as possible.

Starting point is 01:16:56 And I think it's good that you got some of these companies moving out and trying to disassociate themselves from China. I think it's really positive. So you pay attention to counterparties. Of course. Same thing we're talking about earlier, right? I mean, it's China, you know, that's all I'm going to say. on that. Stephen, I'm curious to hear your thoughts, because I tend to agree with Joe on this one. I agree with Joe as well. I mean, I actually spent a small portion of my career working in China,

Starting point is 01:17:22 and I mean, this was 2005, I think. And I predicted that this would happen way faster than it actually did. Just watching these cities being built in the middle of the year with nobody living in apartments. They're just building empty apartments. empty buildings. And the really interesting thing is, is, you know, the economy kind of opened up and you would have these people from the,

Starting point is 01:17:48 from the Communist Party that were given land grants. And they became developers overnight, and they made a lot of money. And what they would do is they would borrow money from a, from a bank, build their project, somebody else would do the same. This guy would sell his building to this guy,

Starting point is 01:18:04 and then he would sell his building for this guy, and they would create a bunch of paper wealth. It kind of reminds me of FTX or Genesises. But it was the same kind of thing. And I thought that the whole thing would fall apart way sooner than it did. But with all of these things that are being built, and it wasn't just cities and office buildings. And it was also manufacturing plants. And there was a big demand and drive to produce things, to sell to the rest of the world so that they could collect all the money.

Starting point is 01:18:35 Right. Well, there weren't enough people to do it. So they forced people out of, out of the countryside and out of their farms to come and work in these manufacturing plants. People just don't want to do it, you know. They were happy farming on their farms and being self-sustained. But the government didn't like that. They forced people into the cities to, to fill them. And I saw the forced labor even then.

Starting point is 01:19:02 And the fact that it's just now coming out and causing problems. I mean, the problems that it's causing is they still can't produce the things that they want to produce and ship around the world. There's just not enough labor to catch up with the demand, which is why they changed their one-child policy. Yes. So the stuff that Ray Dalio puts out about China, it almost seems like he's compromised or has a severe conflict of interest. At least that's my opinion, right? I'm looking and seeing a lot of these things that you're talking about. and the things that I hear and the things that you see on Twitter that are being posts that you know are leaking out of there that are closely contained from their general population from seeing.

Starting point is 01:19:47 And, you know, then I read these books that Ray pumps out and just, I mean, he's just talking about how everything's moving to China and how that's the beacon of like, hell, you even have people like Charlie Munger talking about. I was just going to say, Charlie Munger, he's getting pretty old. But I just, it really seems strange to me that you have these really high powered macro investors talking up the game over there when people that maybe don't have billions of dollars coming as investment capital into your fund from such nations like China. It just, it's very strange to me and I think extremely suspect. And I think it's something that people should pay close attention to when when they're hearing these, these narratives that are being shared by these people. Yeah, when you manage a fund as large as Bridgewater, you're getting capital from all over the world. And you will begin to stop talking negatively or even hinting at issues from some of the areas where you're getting capital from. It's just the way it works.

Starting point is 01:20:54 Yeah. I've seen that past too. It's like, you know, once you start getting pension money, you know, the pension system is the best thing in the world. white. Yeah. So just to be controversial and a little bit of moral based on the great arguments that I agree with all of you guys, by the way, and your points on China, if I had to invest in either the U.S. stock market or the Chinese stock market for the next three to six months, I would absolutely invest in China right now. Okay. Go ahead. I want to hear this. It's January 4th right now. So China just from a momentum standpoint for the first time since May of 2021, they just popped above their 200-day

Starting point is 01:21:30 moving average. They have a lot of solid momentum and heading into the second quarter, it looks like they're actually going to have some positive GDP growth. And it looks like, for me, at least from what I'm looking at, I think the U.S. is going to be like in the heart of, you know, a recessionary bear market at that point. I think we're going to have negative GDP growth by the second quarter. So stocks looking ahead, you know, this is just for what it's worth. But it looks strong to me right now and it looks strong for the first. It's just interesting we're talking about it. Because for today, for the first time, I've gotten interested in China for probably, it's been a year and a half since I've been serious about it.

Starting point is 01:22:04 So take it for what it's worth. I still think for the long term, I agree. If you want to invest in what you believe in, you should absolutely not be investing there. But if you're just a crass, you know, capitalists and you want to make some money in the next six months, that's where I'd put my money. I'm really interested in that. So you think that as the U.S. enters a recession, which sounds like at least the consensus folks here, that's what the consensus is, you think that the Chinese equities will rally on the U.S. entering a recession? Yes, because I think they're on a slightly different business cycle than we are,

Starting point is 01:22:33 and they're a little bit ahead of us, and I think they're going to start doing some easing well before we do here and well before Europe does as well. So I just think they're going to be pumping their markets higher. And I think the Chinese stocks are already sniffing that out personally. So, Jeff, I've got a chart that I just pulled that shows all major equity indices around the world. I'm going to go ahead and share this with the group. Okay, so as you're looking at this chart, I'll just go through the colors as people are looking at them. And these are all converted into U.S. dollars. The top one there you have India is the purple. The U.S. broader market index. I think it's the Russell 2000 there, the IWV. No, I'm sorry, Russell 3,000. That's the second best

Starting point is 01:23:24 performing. The snapshot comes from the start of 2014 until today. You can see the credit cycles in the markets, the global equity markets on this chart. As we go down, we have the dark green. This is Japan. This right here is China, GXC. The next one's Canada, Europe, Hong Kong, and then Korea on the bottom, as far as the performance goes. When I'm looking at these, I'm just seeing China as being a pretty volatile version of whatever the credit cycle is. Historically, like, look at the bottom here in the markets of January 16. I just don't, I'm particularly looking at the China won the GXC, which is, I guess, orangish.

Starting point is 01:24:12 It doesn't seem to really front run or, here, let me slide this over so we can get a snapshot of the actual performance. You can see. I think it all, I think COVID is when. did business cycles. The current ones started because China got hit first and then it spread to the rest of the world and that affected everything from there. Okay. So here I'm going to pull that up just to kind of give people a snapshot of that. So here's the bottom of COVID and this is their performance. And what I'm particularly paying attention to is the bull portion of it, assuming

Starting point is 01:24:44 your narrative there of them running hotter or faster than the rest of the markets. In this scenario, or at least in this last one, it looks like Korea actually really. the hardest. So notice how the Asian markets kind of peaked first and then started their descent. Yeah, Japan. Yep. China was next. And then U.S. and Europe was delayed behind them. So they're like a three to six month leg behind, excuse me, like we are relative to China and to Asian economies. And so that's why I think they snap out of this from a business cycle perspective sooner than we do. But if you go to that longer duration that we talked about earlier, and I'm not

Starting point is 01:25:21 saying I know what's right or wrong, I'm just trying to push back a little bit. on the idea, you know, if this would push out till 25 before we find a bottom, like trying to time an Asian recovery might be a little preemptive. Because I think you're going to have some type of capitulation that's going to end this cycle. Would you guys agree with that? Possibly, unless it's a slow grind lower. Like we were talking about earlier, this is where I'm struggling because I look at business cycles and things. And from what I see is that, like in the U.S. here. To me, it looks like the business cycle bottoms in the second quarter of 2023, and then we start growing a little bit more strongly from there. And if risk assets can sniff that out,

Starting point is 01:26:03 they could start growing. China looks like it's going to bottom like right around now and then start to accelerate into the second quarter. But that's the smaller business cycle picture. And then we have this larger secular picture of this, do we have this recession that lasts a process for two to three years or even four or five years or so, and it's ongoing. And maybe we just get this sort of sideways choppiness. To me, that actually seems probably the most reasonable and things like commodities and hard assets and things actually outperform equities and the bond market as well. And we just deal with kind of volatile inflation throughout the 2020s. That seems most likely to me, but are you trying to work at Bridgewater? What's going on here? I think it's really hard

Starting point is 01:26:48 to understand how it plays out because I can understand your point. That's why we do these, right, these macro podcasts, because I think it's really challenging to look at the data in front of you and even forecast, you know, six months, let alone several years. And, you know, to the point we had earlier about, you know, where do equities perform? You see that chart, the precedent you put up. Look at, you know, look at some major Asian indices. Look at the NIC, right? You still haven't taken out the prior, you know, early, what is it, the early 90s hike, all-time high. We never even got back with, talk about the country that's done the most liquidity injections of all. We unlimited.

Starting point is 01:27:24 You still haven't taken out the 1990 all-time high on the NECA, despite unlimited money printer go burr. So, you know, that's why I think it's fascinating. And again, this is not my base case at all, but I threw over that chart about growth versus value breaking out of a long-term trend. I think it's fascinating to think, you know, maybe we're all wrong in this. Maybe we do see a changing of the guard with respect to leaders. There is a history, and if you go back decades in the market, that the leaders that emerge from a hard bear market are not the ones that led you as bulls in the prior bull market, right? So if the story of the 2010s to 22 was the high growth, the speculative companies, the QQQs, the

Starting point is 01:28:06 NASDAQ, the over-concentration of U.S. equities, maybe the story is some of the smaller markets, things like India, right, could be entering into a decade bull market. I love any inequities. I have exposure, full disclosure. But those are things I think about. Do you really see a decade that looks very different than the past one? And you have to at least keep that on your radar and not assume we're going to go back to what we've experienced for the last 10 years. Completely agree.

Starting point is 01:28:31 I will. I think it's going to be akin to the post.com bubble after that crash. You know, the dot com, obviously tech stocks led up into that. They didn't recover for 10, 15, sometimes 20 years. Cisco still hasn't recovered, I think, from its all-time high. back in 2000. And I think it was a decade of value, right, up until the global financial crisis. And I think that we're going to have a similar, and I think we're already seeing that right now.

Starting point is 01:28:56 I think it was to your point to a chart you showed, value is already starting to outperform for the first time in like 12, 13 years. I think that continues for this decade for sure. And it's not going to be the decade of Kathy Wood. In fact, I don't know if she makes it out of this decade. I don't know if ARC survives. Honestly, I don't know if they do. So anyway.

Starting point is 01:29:14 calling for her death. She's going to die in this decade. She's not going to die. I'm saying Ark might die. I think hopefully she lives. I don't wish any ill on her. But those types of stocks I don't think will do well this entire decade. Yeah, it's possible, right? Because that chart of the S&P is great because you look at it and everybody remembers, right, the post 2008 collapse and then just the vertical line, right? But look before that. Look at those two mountains that you see where, you know, we peak around the same exact range every time and then sell off hard. It could take, you know, and again, this is not my base case. not calling for this, but it can take a long time for these markets to recover. And I highly

Starting point is 01:29:48 recommend everybody listen to a read. Lynn Alden's article, The Capital Spunge, she wrote it, I think, last year. It was very good. It talks about the concentration of foreign investment into U.S. equities and how you've reached sort of critical mass with a lot of those in terms of relative share of the marketplace. I was pressing we were talking about like, you know, the global ETFVT, and I've been doing a lot of research under the hood on that. You know, what does VT look like in terms of global share of equities with respect to the U.S. composition five years from now? That's fascinating.

Starting point is 01:30:19 I don't know. Is it still stay around 60% of equity exposure globally by market cap is in the United States? I don't know. Yeah, I kind of tend to agree with Lynn's thesis there, and I don't think it will be. Guys, we could talk on, we could do this all night. I'm like a pig and mud having these conversations. I want to respect your time. Guys, go around the horn.

Starting point is 01:30:41 Joe, kick it off. Give people a hand off to your Twitter feed or anything else you want to share. Go ahead. Yeah, we didn't even get to talk about Bitcoin. How do we talk about Bitcoin? We did. We started off with the Samson. Okay.

Starting point is 01:30:55 What do you think is going to happen with Bitcoin in the coming two quarters? Is it a grind? Is it a sideways grind? What do we think? I think that that's the general consensus. But go ahead. Yeah, unfortunately, it's tied up with the equity market. So tell me what the equity market's going to do. If you get a, if you get a countertrend rally, if you get a bear market rally from here, which is possible. Okay, you can't, you can't say no that we've seen it a couple times. And bear markets tend to have really vicious rallies. If you get that, I don't think it's crazy that Bitcoin, you know, bounces up and does well. I think it's going to be, it's going to be hard in this environment for Bitcoin to get a sustained rally forward. And I think that's the general consensus. But to me, the big story that I'm really interested in, is GBT

Starting point is 01:31:35 what's going on with GBCC. We haven't talked about that. You guys good? You guys good on the timeline here? Preston's trying to wrap up and we're in a second time. No, no, no. I'm not trying to wrap up. I want to just make sure I'm not like,

Starting point is 01:31:48 you know, we want Stephen to come back. We want Stephen to come back. Yes. Go ahead. I read about, you know, just public information. I don't know if you can talk about it,

Starting point is 01:32:00 Stephen, but this Valkyrie effort, I'm aware of some other entities that are trying to, to become the sponsor, replace the sponsor for a gray scale on GBT. I know a lot of people are upset that hold it and upset about the thoughts. I'd love to hear Stevens take on it if he has anything you can say. Look, I mean, plain and simple, we have a hedge fund that looks for opportunities in the market.

Starting point is 01:32:23 One of the opportunities we found was GBT at a massive discount. And we decided that we would take an activist position in it. And that's really how all this started. And then sure enough, one thing after another, the FTX failure, we realized that Genesis was really at the crux of a lot that had happened. We were talking about all this part. But the most interesting thing that I, I don't know if this is true, but this is what's circulating around out there.

Starting point is 01:32:53 And there's certainly evidence pointing to it that Genesis was creating loans to people like three arrows or Celsius or Alameda trading, that they were essentially creating loans out of nowhere for them to buy GPTC, say, hey, we'll give you a loan, but you got to buy GPTC with it. And then they were immediately taking that as collateral. And we just kind of, the light went on and we're like, wait a minute, that violates rule 144. Because if you're buying it on the primary market, you're not allowed to assign it or sell it to anyone for, in the case of GBDC, six months. So we're creating leverage and liquidity out of nowhere, just kind of like what our government does anyway in the FIOS system. And then, but then,

Starting point is 01:33:45 but for a specific person that you're supposed to be, our specific purpose that's supposed to be arm's length to create shares of this thing over here so that they can make money off of it. and then refusing to even file for a reg M exemption. Yes. But people can actually get their Bitcoin out at par. And we're like, this is awful. Something has to be done. So we took that activist position.

Starting point is 01:34:10 Look, I can't really say anything beyond that, but there's a lot of people out there, not just us. There's a lot of activists out there that are really upset and going after this thing. And going back to the price of Bitcoin, And usually, usually there's three legs down on a chart. You know, I'm not a chartist, but this is also a behavioral thing. The first leg down, we had a massive leg down when Celsius and BlockFi and Voyager all blew up. So we actually got ahead of the equity markets.

Starting point is 01:34:44 So I actually don't agree necessarily that if equity markets go down, Bitcoin goes down two because we're already ahead of those markets. We got there last spring. And then the second leg down was FTX. That decimated the market. We still have one more leg down. We still have one final shoe to drop. And I truly believe that that is the leverage provider,

Starting point is 01:35:07 the group that was at the middle of it all. And I truly believe that Genesis, gray scale, DCG, all the entities that are related to them, you know, the so-called journalistic coin desk, they're all the problem at the center of everything else that happened, and it's bigger than FTX. And that's what I believe.

Starting point is 01:35:29 I don't know if I'm right. Well, that falls apart. Bitcoin will not go up. And so we need to cleanse the system so that we can get back on the right path, number one. But also, I do agree with you that until equity markets start going back up again, we probably won't see Bitcoin going up. So there's two things. There's the macro factors.

Starting point is 01:35:51 but then there's also just the systematic issues that really rest on DCG and everybody related to them. So I want to be sure I didn't miss it serious, Stephen. So are you saying you believe that that group that you just outlined does blow up, that there is a liquidity event with them, a liquidation event? Absolutely. Wow. That's absolutely. I don't see any other way.

Starting point is 01:36:18 I mean, I think Jim and I is serious, you know. And they're not the only ones. I mean, that's one group that's posted $900 million a collateral with Genesis that can't pay back. How many other groups are out there that are still existing today that are posting collateral with Genesis? And when I'm saying posting collateral, they're, you know, they have, you know, it's either collateral for a short position or a long position or some kind of margin trade

Starting point is 01:36:49 or other types of lending vehicles. They've posted the collateral. They're owed money and they can't get their money because they're owed money from three euros, from FTX, from Celsius, from BlockFi, and they're not getting it back. And we don't know how many other entities are out there. And they've created leverage out of nowhere to buy, you know,

Starting point is 01:37:09 to create shares of GBTC. And that trade is absolutely distinguished. Do you see Silvergate caught up in all this as well? I don't know. I think Silvergate's actually fine. Here's the problem with Silvergate. Their deposit base has gone down about 70%.

Starting point is 01:37:30 And any time a bank has operations that they built around a deposit base and then it shrinks that much, they're, they're operationally in a lot of trouble. But I don't think they're ill liquid. I don't think that they're, you know, I don't think they're going bankrupt. I don't think depositor, I don't think there's any depositor risk. But I'm not holding my funds at Sorgate. Nor am I holding client funds at Sorgate. Wow.

Starting point is 01:38:00 And here I was going to wrap up the show. Thank you, Joe. Thank you for making sure I did not wrap up the show, Joe. Go around the horn. Let's close this out. Yeah, I'll start. I get sidetracked. Joe Kirlis, sorry again, with Amundsen Davis Law for him out of

Starting point is 01:38:17 Chicago. You can find me at Joe Carlisari on Twitter. He's this way to reach out. DMs are open. If you Google my name as well, you can readily access my professional web page and my firm's page and shoot me an email if you have any litigated dispute whatsoever, commercial litigated by day, especially in digital asset disputes. So if there are scammers or people breaking contracts or people reaching their fiduciary duty or committing fraud, I'm your guy. Love to help you. Steven? I have Stephen McClure from Valky. Twitter is at Stephen McClurg.

Starting point is 01:38:50 It's really hard to remember. And you can probably just Google me and find all kinds of things you don't want to find. Jeff. Jeff. Jeff Ross. My Twitter handles at Vailshire Cap. I spend way too much time on Twitter. I run a hedge fund in a RIA business called Vailshire.

Starting point is 01:39:12 You can look that up. And it's super fun being on the show again, Preston. Thanks for having us on. Oh, what a pleasure. This was just such a fun chat. I can't thank you guys enough for hanging in there for such a long conversation. But like I said earlier, I'm a pig and mud and I could do this all night. I absolutely love these quarterly mastermind discussions. So guys, thank you for making time and coming on the show. Thank you. Thanks, Preston. 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 listener.

Starting point is 01:39:51 If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it's something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening, and I'll catch you again next week. 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.

Starting point is 01:40:21 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.

We Study Billionaires - The Investor’s Podcast Network - BTC112: Bitcoin Macro Mastermind 1st Q 2023 w/ Joe Carlasare, Steven McClurg, & Jeff Ross (Bitcoin Podcast)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.