← The Peter McCormack Show
The Peter McCormack Show
The Truth About Inflation with Lyn Alden - WBD343
01:08:15
Location: Remotely Date: Friday 26th, March Company: lynalden.com Role: Macroeconomist Bitcoin was born out of the 2008 financial crisis when central banks worldwide started printing money at levels never seen before to bail out the banks for a mess...
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- [00:02]
Lynn Alden
CPI is a really crappy statistic for the most part. Housing has gone up faster than a cpi. Food has gone up faster than cpi. Health care has gone up faster than cpi. Tuition's gone up faster than cpi. The COVID price of the New Yorker magazine has gone up faster than cpi.
- [00:19]
Peter McCormack
Hello there from Costa Rica. How are you all doing? It's 2am here and I am jet lagged as fuck.
- [00:26]
Lynn Alden
I'm also not going to be as.
- [00:27]
Peter McCormack
Loud as normal because I don't want to wake up my neighbors in this hotel. I am off on my magical mystery tour so I can get to Miami for Bitcoin 2021. Honestly, the things I go through to buy you savages a whiskey and talk about bitcoin. But I'm on my way. I will be in Miami. We will drink whiskey, we will talk bitcoin. Very exciting. Anyway, welcome to the what Bitcoin did podcast which is brought to you by Gemini, the only place I am using for buying bitcoin. I'm your host Peter McCormack and I'm back for my monthly update with the amazing Lynn Orden. This time we are talking inflation, but before that, I do have a message from my amazing show sponsors. And today we're going to be kicking off with sportsbet IO and I've confirmed with the team, we will announce the competition that we are running to win a Lambo in Miami at Bitcoin 2021. I will let you know how you can win that prize, but there is going to be a nice little extra bitcoin edge to that prize. You're going to love it. Anyway, sportsbet IO is the very best place for online gaming and they accept Bitcoin because they're badasses. And with sportsbet IO you have every market you could possibly be interested in. They cover football so you can bet on Tottenham losing and laughing their faces. But they also have tennis, American Sports, Motorsports, they even have esports. They have every sport you could possibly think of. And for new customers, they always have a range of promotions available. If you want to find out more, check. Just head over to SportsBet IO promotions which is S P O R T S B E T IO Promotions. And next up we have Exodus Wallet who I have been using as my mobile and desktop wallet for my bitcoin. And recently somebody said to me, well, how are you using Exodus Wallet? What are you using it for? And as you know, Lloyd's bank closed down my bank account. But also, look, I'm increasingly running my business on bitcoin. I get Paid in Bitcoin. And I pay people in bitcoin. And every month, my accountant is always bollocking me. She's always like, pete, I have no idea who you're sending this bitcoin to, who you're getting it from, what it's for. I can't do your goddamn accounts without this information. So when Exodus reached out to me, I had a look at the wallet. And in their advanced features, I can keep records of this. So every month I stop my account at nagging me, which, honestly, is a massive relief. Now, they have crushed the ux, but if you want to check it out yourself, please do head over to exodus.com or. Or just search for Exodus in the Google or Apple app stores. Also, we need to talk about casa, and we need to talk about your bitcoin security. Now, I know some of you are sat on a decent stack of bitcoin. You've been crushing it this year. But if you aren't custody in it yourself, or you've got it all on a single wallet, it is time for you to consider casa. And I know what you're thinking, do I need this, Pete? Isn't this going to be a pain to set up? Maybe some of you are thinking, what the hell is a multisig wallet? I know, I know, I know. I had all the same questions. But honestly, it could not be easier to set up. You get so much peace of mind from having a CASA multisig solution. Now, a CASA multisig wallet allows you to custody your Bitcoin, but only move any Bitcoin by signing transactions from multiple wallets, ones which you distribute into different locations, protecting you from a range of mistakes, errors and vulnerabilities. Now, if you've got any questions about casa, you can DM me, you can drop me an email. I do reply to everyone. So there is never a better time to upgrade your bitcoin security and get total peace of mind. You can find out about all their products at Keys Casa we, which is K E Y S casa. Okay, so onto the show today and I have one of the interviews I look forward to most every month. My hour I get with Lynn Alden. The amazing Lynn Alden. Now, this was actually meant to go out in April, but I couldn't fit it in. Last week we had a crazy amount of shows booked in. But the good news, it means you're going to get Lynn twice this month. So in this one, Lyn and I get into inflation. And with the ridiculous amounts of money printing that we've seen over the last 12 months, Bitcoin has been used as a hedge against this inflation. And when I spoke to Michael Saylor back in October, he said this was a massive driver behind MicroStrategy's Bitcoin purchase. Now, I know the link between money printing and inflation is not black and white. And this is something I was really keen to get into with Lyn. How is inflation measured and what is the market telling us right now?
- [04:37]
Lynn Alden
I also wanted to know what real.
- [04:39]
Peter McCormack
Inflation is like, where it really is showing up. I think perhaps sometimes people can use stats to highlight that people should be buying bitcoin, but perhaps there is some nuance behind some of the inflation numbers. I mean, there is. There is no doubt that we have seen inflation. But I wanted Lyn to give me her lens on it all. As ever, it's a monster of a show. You know what Lynn's like. She's incredible and I know you're going to love it. But if you do have any questions you want to reach out to me, you know you can. My email address is hellohatbitcoin didt.com. the rules are always the same. Don't send me any weird shit and I will reply to everyone. Okay, Enjoy the show and I'll speak to you.
- [05:14]
Lynn Alden
Lyn, hi. How are you doing?
- [05:16]
Pretty good. How are you?
- [05:17]
I'm very good. I've just had my first vaccine dose.
- [05:22]
Oh, nice.
- [05:23]
So if I collapse during the interview, Bill Gates has won.
- [05:28]
Peter McCormack
Right?
- [05:28]
Lynn Alden
My favorite hour every month. Looking forward to this. Got lots I want to talk to you about. I do want to do a good chunk on inflation. I'm sure that's high on your radar. Yeah, not much has happened. Well, not much has happened with the bitcoin price since we last spoke. It's gone up and down, but we're fairly flat from where we were. But just before we start, what have you been generally looking at? What are you looking at right now? What's on your mind? What have you been thinking about over the last month?
- [05:55]
A couple of things. One is inflation base effects. Right. So we're entering, and I don't know if we talked about this last month, but in case we haven't or new people listening in, inflation is often compared year over year. And so last year, during April, May and June, inflation by most metrics dipped very low because you had the initial shutdowns, things like that. And so when you're doing a year over year comparison, you can actually get some pretty high numbers because you're comparing to like a bottom of a Dip. Whereas if you were comparing to say, you know, February to February, it'd be less extreme because you're comparing to what was already a reasonably strong month. You know, it's kind of before the pandemic. And so we're going to get some pretty high headline CPI numbers. And there's all sorts of issues with cpi. You know, I, you know, I have charts coming out showing how like, you know, most prices that we care about have gone up faster than cpi, but even the official CPI numbers are likely to be, you know, over 3% during this base effect period. And you could, you could overshoot to 4% or, you know, potentially higher. So I'm kind of watching that to see how the bond market responds to that. That the topic is going to be the idea that it's transitory, that this is an inflation spike. And because of those base effects, that's partially true. But then if you're a bondholder, how sure are you that they're transitory? Or how big is this spike going to get? How persistent is it going to be? What's going to happen with ongoing fiscal stimulus? And so this could be kind of an interesting period for bond market, gold market, bitcoin market. Just kind of see how this plays out. The other thing I'm watching is that as the base effects, the other side of that, as we look into quarter three, that's where some of the euphoria of really good year over year numbers. So it's not just inflation that has those base effects, it's also GDP growth and construction spending and retail spending and corporate earnings. They all had a really bad quarter two of last year. That was their worst point. And so their quarter two here is going to be incredible. But then once you get into like quarter three, you know, we've pumped a lot of money into the economy. Some economies are not really kind of pumping a lot more. Some of them are even kind of just starting to pull back and normalize. And so some of the euphoria that's propped up, you know, assets ranging from, from Tesla to Dogecoin to, you know, basically across the board, good assets, bad assets, you know, a lot of that's what's propped it up, could start tapering and, you know, pose a challenge and that the risk there is that even some good assets can dip and pull back if you get a broad market that kind of isn't being held up by tons of stimulus anymore.
- [08:38]
Right, okay, let's talk about some of these inflation numbers because there was a tweet that got Widely shared. I think it was last week with a list of different commodities and various items and it was showing the year on year inflation rate. The headline standout number was lumber. And I keep seeing various tweets relating to that. Somebody saying 2x4 is now $7. This is ridiculous. But at the same time the energy prices will also have massively risen. But I saw also Joe Wisenthal replied to somebody said, well, what happened a year ago? And we know that energy prices dropped quite significantly related to the COVID lockdown. So what are the standout, what are the standout signals for inflation that you're actually seeing? And is there anything that's been slightly misleading? And I say that because I think sometimes bitcoiners can cheerlead some of these figures as an indicator that people should be invested in bitcoin.
- [09:40]
Peter McCormack
But perhaps they're misleading.
- [09:43]
Lynn Alden
Yeah, and I agree that some of them are misleading. And it's one of those things where because it's a sensitive topic, inflation, there's kind of misleading aspects on both sides. And that's it. So the misleading part about some of those year over year numbers that Joe is correct about is that you're comparing that one year where commodities fell into a hole, right? Because China just stopped buying energy, stopped buying copper. They're the biggest buyers. They were totally shut down and then you kind of exploded out of that big down part. And so the year over year numbers are ridiculous. But for example, if you back up and you look at commodities over the past 10 to 15 years, most of them actually are not at all time highs. So lumber is, that's been like the, it looks like a bitcoin chart. And then you have gold touched new all time highs in 2020. It's been in a correction, but it still touched it. Beef is at all, all time highs. But for example, the overall, if you take an aggregate of most commodities, it's actually been in like a 10 to 15 year bear market. And just because we had a period of, you know, in the 2000s, you had a period of, you know, China had a fast growth rate, there was a lot of commodity demand, we brought a lot of new commodity supplies online. And then when China slowed down and the whole world kind of adapted to this, you know, we've been in this period of commodity oversupply. And so I think a lot of those year over year numbers, you know, basically a lot of commodities are just getting back up to where they were before. Like oil is just back up to where it was before the pandemic. There are some like copper that are, that are elevated but still not at all time highs. And then there are some that are at all time highs like lumber. But then the funny thing is if you look at timber, right, which is, you know, before it becomes lumber, it's timber that's actually, you know, not that expensive at all. It's really about the bottlenecks of turning timber into lumber, right? So that, you know, the, basically the refining that has to go into cutting that up and, you know, getting it treated. And so I, a lot of that is about supply chain issues. Same thing we're having in the semiconductor industry, where there's just not a lot, there's not enough foundries to make the semiconductors. And so on one hand, kind of focusing on those year of year numbers can be misleading and can, you know, for readers that know what those base effects are, that could even turn them off, they think, okay, people in this industry don't know what they're talking about. On the other hand, people that are saying there's no inflation, especially over these several years, are also misleading because CPI is a really crappy statistic for the most part. And I actually have a chart coming out later today that just shows housing has gone up faster than a cpi. Food has gone up faster than cpi. Healthcare has gone up faster than cpi. Tuition's gone up faster than cpi. The COVID price of the New Yorker magazine has gone up faster than cpi, a lot faster. And so basically we've had a couple deflationary areas like consumer electronics or things that you can outsource to China. Those have been globalization, technology. They've really pushed down the cost or things. Same thing your cell phone can now do what 10 of your electronics could do a decade ago. So that's been the deflationary area. But then pretty much anything you can't outsource or that isn't automated has gone up faster than cpi. And for most household budgets, that's still where they spend most of their money. You know, housing, education for their kids or themselves, health care costs, you know, either through themselves or through their employer, which eats into their compensation total. Those are the areas where we spend most of our money. And so it's one of those things where we actually have had pretty significant inflation over the past, you know, 10, 20 years. But that year over year number is still somewhat misleading for how fast it's been. Some of the things I'm looking at are the producer price index, which is kind of a precursor to inflation that's been spiking just the overall kind of, you can look at the bottlenecks in the industry. Like we talked about the semiconductors, we talked about lumber. We've seen that in shipping over the past few months where there's only so many containers and container ships. And so we have had various supply chain issues. And so that's how I'm monitoring it, where it's often the case that the truth is in the middle. And that's what I'm finding here with inflation as well, that we are getting an inflationary impulse from this fiscal spending. But it's not like inflation is absolutely massive in that 12 month period.
- [14:06]
Yeah, I don't even know if I retweeted it myself. But I did take a step back and reconsider it and thought, is this misleading? Are we getting, look, there is a fear and a risk of inflation, but are we cheerleading this as bitcoiners as a way to support our thesis on bitcoin? I worry that we do that sometimes. And I was trying to theorize with what is going on here with lumber, is it because house prices are going up? And I know out in the U.S. for example, a lot more properties are built using wood. Is there like an increased demand for house building or is it anything else? I know, for example, here, because of the lockdowns, a lot of people have been doing work on their houses. So I spoke to a friend who's a plumber, he said they've never been so busy. There's so much demand. And because of that there's demand for electricians, there's a demand for plasterers, there's a demand for carpenters, there's a demand. So is this just some pent up demand? The economy is finding a place for people's money to go because they can't have holidays, they're not going out to restaurants and to dinner. I kind of wondered, is it part that also is it part pent up demand? With the economy starting to pick up again as people come out of lockdown, is it a temporary inflationary event based on supply and demand less so than an increase in the money supply?
- [15:18]
Yeah. So lumber does have some of those temporary issues. And so as you pointed out, basically, you know, in many countries, especially United States, there's been a movement from cities to suburbs and this, you know, this big kind of grab for single family homes that, you know, in the US at least, and some other countries are made up a lot of wood. And then there has been a lot of remodeling and there's a bottleneck in terms of how many sawmills out there are able to turn timber into lumber. And now there's also a money printing component because for example, if you didn't have the fiscal stimulus, if you didn't have the stimulus checks, the unemployment benefits, then fewer of these people would have been able to afford it, there would have been more solvency events and so the prices would not have been able to go up as much as they did. Same thing. I've often pointed out that over the course of this pandemic, personal incomes are up even though unemployment's down. And that's because we did various aid programs to keep people afloat. So that allowed them to keep spending and do things like that. And so there is an element where the fiscal stimulus was a part of these prices going up. But for these individual things that are going up way too much, like semiconductor shortages or lumber prices, that's also due to specific supply chain issues that given enough time should be rectified. So for example, I wouldn't buy a lot of lumber here and hold it for five years because however long it lasts anyway. But basically this has capacity to eventually address itself. Whereas there are some other areas like say copper, where you can't just bring a lot of new copper to market. And so mines take a decade to bring online. They've actually been Harding, it's been challenging to find big deposits. And so there are areas where there are commodity bottlenecks. And actually I find that when it comes to economists predicting inflation, I think the big blind spot that a lot of them have is the long term, say 15 year commodity cycle where you have these periods of there's tons of commodity demand, so a ton of people go out and find new commodities, then they oversupply the market, then we enter a long bear market and then no one does any capex, or at least capex goes way down because it's unprofitable to do all the exploration and bring these mines up. And then eventually you get really tight commodity markets and then price starts going up and then you're like oh no. And then we're behind on our capex and so you have to spend years kind of keeping up with that. And so that long term commodity cycle has a big impact on inflation, especially when you also consider different policies that are increasing the broad money supply, which is what we have seen over the past year, where the broad money supply has gone up a lot. And that certainly has been a big factor for prices.
- [17:57]
So it's a mixed and complicated and more nuanced picture than people may be believing that's happening there. That's fair. So can you go back to what was it you were referring to a moment ago? They said there's something you were looking.
- [18:12]
At that's the precursor to inflation, the producer price index.
- [18:17]
What is that telling you?
- [18:19]
It's basically like what does it cost producers to make things? And also you can look at different. There are surveys that are done every month and also you can find out that companies are talking about inflation in their supply chains. And so basically before inflation reaches consumer prices, it's often, you know, shows up earlier in the supply chain where it costs it. You know, producers are selling their products to other producers more. Right. So a company buys from another company, those prices start going up. And if the company can't pass those prices on the consumers, then they get a margin squeeze. And so basically there, there's, there's kind of like precursors you can watch about inflation. And some of those, they tend to be bigger swings than, than the final number. And so during a recession they can fall a lot more than inflation can. And then during booms they can go up a lot more. But they generally tell you that the direction of what's happening with inflation a couple months in advance. And so that's kind of the stuff to watch. And again, part of that is related to supply chain issues that are kind of localized due to. We made an unusual number of changes over the past year, like our housing choices suddenly changed more rapidly than normal, things like that. But then it's also due to the increase in the broad money supply. And so that's, those are a couple of things worth watching as it relates to, you know, estimating inflation a couple months out.
- [19:41]
And what's the producer index showing you?
- [19:43]
Last I checked, it was, it was something like 7% year over year, which, which, you know, that, that points to CPI likely touching over 3%, potentially touching over 4%, you know, as we get these, these spring reports. And so April inflation will be reported in May, May inflation will be reported in June. And so we'll see what the headline numbers are. And some of the, of course, like, you know, the bond market and other big markets kind of care about the official CPI numbers, even though those generally understate based on the typical basket of a household expense.
- [20:21]
Is the CPI a fair measure of inflation? Because one of the things I struggle with inflation is, I think it's one of those things that's quite relative. It may be a good measure of the general cost of living. The changes in the Cost of living month on month for people. But for example, someone like my children doesn't really affect them. But what does affect them is if house prices accelerate to such a rate where maybe they're in their 20s and they will want to buy a house, it's really pushed it out of reach for them. So is the CPI a fair rate of calculating inflation? Should we have multiple calculations?
- [20:57]
I think there should be multiple.
- [20:58]
Yeah, I was going to say, is it just a good one for the government?
- [21:01]
Yeah, it's good for the government. I think there should be multiple kind of measures of inflation. And in some sense there are. I mean, that's why there's things like producer price indexes are useful. You can also just look at what is the raw commodity index doing? So what are commodity prices doing? That's one of the big factors of inflation. Generally you don't have strong inflationary periods without commodity prices also going up a lot. But like I said, over the past decade, the problem is that the big areas of spending that most people spend their money on have gone up faster than wages and have gone up faster than the official cpi. And so that includes housing, that includes food, that includes health care, tuition, child care, things that you can't outsource or that are not deflated away by technology and smartphones and things like that. And so whereas, you know, on the other hand, your TV got cheaper, your computer got cheaper, but those are generally pretty small percentages of a household budget. And so some of those other things are really important. Another factor that's weird about housing is that obviously CPI does not really take into account most asset prices. So it doesn't take into account asset price inflation in the stock market or private businesses. It only partially factors in real estate, but it does it in a weird way. And so you actually have a thing where houses have gone up faster than inflation in most markets, so they've outpaced inflation. But then, for example, because we've been in this kind of multi decade trend of lower, lower interest rates, including mortgage rates, the actual monthly payment to afford a house hasn't really gone up that much, even though the cost of the house has. And so that can push down kind of the quirky, wonky, the cost of owning a shelter. However, it's unfortunate that doesn't change the fact that people still have to take on more debt relative to their income in order to afford that house. And so basically it just means that of the monthly plan that they're doing, more of that at least goes to the house than goes to interest to the bank. But basically those policies are still propping up housing prices. And so an ideal case would be to, especially for new people entering the market, for housing prices to be cheaper than they are, especially on a ratio of housing price to median annual wages.
- [23:22]
Is there any risk whereby we come out the long term debt cycle? And I don't know what point that would be, but interest rates will then start to go up and people might be trapped with payments they can't afford on houses they've taken on with these low interest rates. Is that, is that a serious risk, is that a serious concern for central banks when setting interest rates?
- [23:42]
Well, that was a huge, that was a big factor in what caused the subprime mortgage Crisis back in 2007, which was that these people, they bought it, there's predatory marketing, really dumb things by banks. And then people bought into houses they couldn't afford. And so a lot of them, the way they did it was they had a really, really low variable rate. And so after like five years that had like a contracted thing where it could bump up to a market rate and suddenly they couldn't afford that house anymore, which they really couldn't afford it from the beginning, but now they literally couldn't afford the payments. And so that, that triggered this cascade of defaults that happened. So that's not a problem for people that have say 30 year fixed rate mortgages or even 15 year fixed rate mortgages. I know different countries all have different kind of practices for what is normal for kind of a housing financing scheme. And so it is a factor for variable rate mortgages. And so generally after long term debt cycle, usually interest rates normalize. But there's always a big question of what is a normal interest rate. And obviously it changes based on what society is doing, what demographics are like, whether there's a period of kind of technology boom happening. Technology doesn't really happen linearly, right? We have, you have these big discoveries like using oil or the internal combustion engine or electricity or the Internet and smartphones. You have these kind of bursts of growth and that can kind of temporarily suppress cost for a number of years. But over time, interest rates should eventually normalize. But I wouldn't expect that anytime very soon. And it's one of those things where if you had a theoretical environment, like say the free banking era in the United States, where you didn't have a centralized yield setter, then you have different institutions setting different rates, which is actually kind of what we see in the crypto lending markets where you have different entities setting rates, some of them are more conservative than others. And so you basically are willing to accept a lower rate, other ones push that more. And so you kind of saw that in banking systems in some periods of time, whereas lately we've had a more centralized rate setting mechanism which doesn't necessarily correlate with the actual what the cost of capital otherwise would be.
- [26:03]
Right. Okay, last question on inflation, because you mentioned there the producer rate at around 7% would hint to a maybe 3 or even 4% CPI inflation rate. What numbers are concerning? I know it's for different people. What numbers would be starting to say, I don't know if it alarms you, Lyn, but makes you really kind of think, okay, there's a problem here. What numbers do you think concern the government or do they not? I mean, is this what we've talked about previously, where they want higher rates so they can clear their debts? What numbers perhaps should people listening be concerned about? Sorry, tricky one.
- [26:42]
Yeah, it depends on what assets you are focusing on. And so, you know, from what I'm looking at, the math shows that, you know, about 3% CPI this spring is kind of just the entry fee. So that's like from base effects alone and kind of moderate inflation, we should touch around 3%. Now if you were to get 5%, that means there's more than people are expecting. And so there's numbers like that to watch out for. Now from the government perspective, obviously different central banks have different policies right now, for example, they generally are looking for more inflation and it's their way of measuring it. And so for example, the Federal Reserve uses core pce, which kind of like the CPI basket. It's not a fantastic gauge of inflation, but from their perspective, they want that to run hot. And so the Fed's long term average annual inflation target is 2% a year. The way they measure it, it generally undershot that for most of the past decades. And so now they want to overshoot it a certain period of time so that they can have it so that in hindsight it averaged 2%. And that's again, that's the way they measure it. And so the challenge for them is it looks really bad if say PCE is like 3% and they're saying we're still going to hold interest rates at zero. Right, because that means if you're holding money in the bank, then based on the way they're measuring inflation, you're losing 3% a year. And so there. And also there's concerns of, well, okay, if inflation gets out of Control, is the Fed going to let that? How are they going to let it run? And so they have a delicate balancing act of trying to. You're going to push the narrative that it's transitory and they're also going to push the narrative that they have tools in case inflation gets out of control. Now, the problem is that their tools are also things that would crash a lot of these bubbles that we see. And so that's kind of goes back to how, as we look later this year, we have to be kind of, we have to be mindful about some of these central banks maybe trying to taper some of their activities because they could start causing some fun activities in the market, you could say, where the bulls and bears kind of wake up a little bit and things don't operate so smoothly. And so that, that's how I'm kind of watching that play out. And another factor is that when we look at inflation is the idea of transient inflation. But that implies that prices go up and then come back down. Right? So that's what you think of when you hear transient inflation. But what history usually shows is that inflation often comes in bursts. So the rate of change of inflation is transient, but then it inflates, but then it stays up to that level and it's like a new plateau. For example, if, look, in the 40s you had three inflation spikes and they were transient in terms of what the annual inflation rate was. So it didn't keep accelerating, but it never came back down. It just went up to that new level and stayed there. And of course you can have individual things come back down. For example, I think lumber will not be at this level permanently as an example. There will be individual things that come back down. But for example, we're starting to see companies like Coca Cola or, or Procter and Gamble raise prices. And I don't think you're ever going to see those. You know, they're not going to be like in 2022, like, oh, the pandemic's over, we're going to go ahead and reduce our prices. No, we've permanently increased the amount of money in the system. And so a lot of these prices will be sticky even if they don't go up at the same rate every year.
- [30:19]
Well, and we're also seeing shrinkflation. A really good tweet the other day, an email newsletter from Marty Bent where he shared something from a guy he was shown, I think it was just a packet of kitchen roll that has gone from 160 sheets down to 140 sheets. A very sneaky and easy way of getting away without increasing your rate. So you see much of that as well?
- [30:38]
Yeah, that one, there are analysts pointing that out. And so I know Jason Burak has, has pointed that out a lot, the idea of shrinkflation. And there are a bunch of analysts that follow that. That one, you know, the tricky thing about that is it's hard to measure. And so in theory, the CPI baskets are supposed to adjust for that sort of thing. They're supposed to have a like, by, like kind of comparison. But in practice, you know, I don't trust that to actually be happening. And so I even posted a thing where, you know, the Economist has the famous Big Mac index where they just track the price of a Big Mac. And it's iconic, it's funny, but also it's useful in the sense that it requires multiple commodity ingredients plus labor and energy to make it. And so it's actually not a, not a terrible, you know, inflation measure, at least, at least kind of one of them. And so that has gone up faster than cpi. It's gone, you know, not, not quite as fast as the broad money supply has gone up, but it's gone up faster than cpi. But then, of course, some of the questions from commenters is like, well, is the Big Mac the same as it was 30 years ago? You know, and so, you know, probably not. And so, you know, if they, if they, if they trim around the margins that there's less beef in it, if they've added a couple processed ingredients, things like that. And so it is really hard to track a perfect kind of apples to apples comparison. And that's one of the reasons that one of the rawest commodity consumer price inflation measures is raw commodities, because copper is still the same as copper and oil is still the same as oil and gold is still the same as gold. And so that's, those input costs are important to watch. And that's one of those things where we have gone up a ton in the past year, but that we still, the 2010s were a decade of consolidation in bear markets for commodities. And so the risk is that as we look out to 2000s, this whole decade, I think we could see another decade that looks more like the 2000s or the 70s or the 40s where you have a rise in general commodity prices.
- [32:37]
Wow. Okay. The next topic I wanted to cover with you is Biden. I know you've touched on his tax proposals over the last month, but generally speaking, I mean, he's been in office for a few months now. Have you got a read on how he's doing? Have you got a read on the economic policies from his? Don't know what you would call it in the U.S. i mean, we call it the. You call it an administration.
- [33:05]
Peter McCormack
Right.
- [33:05]
Lynn Alden
What's your read on the performance of the administration so far? Are you getting indicators of policy direction?
- [33:11]
Well, overall, I mean, they seem to be trying to channel the FDR concept of kind of government going big on aid and fiscal spending and things like that. And that's obviously going to be a controversial thing because there's some people that are loving that, some people that are hating that. And so obviously the vaccine rollout in the United States has been one of the more successful ones. So has the United Kingdom. And so they have that. And that was also set in praise before. So they continued to accelerate it. That's been one of the areas where the United States has been doing very well in terms of the fiscal spending. The big controversy coming up is that how we define infrastructure. And so it's actually a pretty bipartisan issue in many countries, including the United States, that we need some degree of infrastructure spending. That basically United States, for example, most of our interstate highway system was built in the 50s and 60s and a lot of those bridges are still the same. It's just kind of like it needs a lot of work. Our roads are not very good. If you look at kind of third party measures of infrastructure equality around the world, the United States is pretty weak in that regard. And so overall there is infrastructure work to do to give a lot of those materials better replace lead pipes that people drink out of, have faster Internets, more widespread access to fast Internet, things like that, that can actually boost productivity. So you put like a dollar in and you get like $3 of economic activity out because you're allowing people to work more.
- [34:47]
Just, just a question on that. Is there also another incentive to invest in these infrastructure projects during tougher, tougher economic times just to create employment, to create jobs? I know that's something that's happened quite regularly in the UK and during recessionary periods, we tend to have seen our government invest in infrastructure projects.
- [35:07]
Yeah, the general idea there is that those recessions tend to be periods where you have a lot of people looking for work. Sometimes you have lower prices. This time it's not really the case because of the aid we've had, but in most recessions you have lower prices because there's less demand for commodities. And so they come in and say, well, if we're going to build a Hoover Dam, this is the time to do it. And so you get people to work, you make use of the fact that there's kind of that extra capacity in the system. And that kind of goes back to that classic economic idea of kind of trying to have a countercyclical spending policy to smooth things out. Now, the kind of the controversy in the current administration is how you define infrastructure. And so in addition to those obvious forms of infrastructure, there's also things like childcare or things that a lot of people don't have access to childcare. And so that can actually impede their ability to work. And so there's a desire to put money into that, to basically expand childcare, make it more affordable for people. But that doesn't fall into the traditional idea of infrastructure. And so basically the way the politics are working in the United States right now is, is that they're able to pass things. They have a tightly divided Senate, So there are 50 people at the caucus with Republicans, 50 of the caucus with Democrats. And then when that's the case, which is very rare actually, historically, we have that perfect 50, 50 split. The vice president is the tie breaking vote. So that's obviously the Democrat, Kamala Harris. And so the thing there is that there are, you need every single Democratic vote in order to do that. So if even one is not on board, that person has a lot of power. And so there have been especially one kind of centrist Democrat that has kind of put the brakes on some of these programs. And then there are a couple other that are also, you know, certainly if you were to get into things like raising long term capital gains taxes from 20 to 40%, there'd be a handful of Democrats that would not support that. And so overall, you know, the big question later this year is, and kind of all the way through the midterms is to what extent will they be able to pass an infrastructure bill? And so the Republicans are proposing kind of a more strictly infrastructure bill that's several hundred billion dollars. And then there's Biden's bigger plan, which broadens the definition of what infrastructure is. But that has some challenges getting through the Senate.
- [37:33]
Can we talk about some of these tax proposals as well? So the US corporate tax rate from 21% to 28%, am I right? I read this in your report, but I haven't actually researched the number. Is this taking it back to before Donald Trump, Didn't Donald Trump reduce the corporation tax level?
- [37:51]
Yeah, it brings it to the halfway point. And so the headline tax yeah, the headline tax rate was 35%. Under Trump, it went down to 21%. And so this would bring it up to 28%, which is the midway point between those two numbers. And go ahead.
- [38:06]
Did you see any. Sorry, I was just going to ask, was there any. When Donald Trump reduced the corporation tax, is this what is defined a trickle down policy, that if they're paying lower tax rates, they've got more money to invest more money to grow the economy? Was there any impact on that scene from Donald Trump reducing those rates?
- [38:25]
So that's the idea of that kind of policy, that ideally they would invest more. One thing I read on my newsletter back then, it was years ago, I was like, basically most of that is going to go to share buybacks and dividends.
- [38:37]
I don't buy Trend.
- [38:38]
Yeah, because we actually had previous examples where there's a say. Under Bush, for example, there was a tax holiday that let corporations make money back and that flew into share purchases and dividends. Because in many cases, corporations are already investing the amount that they think is appropriate. Basically, they have a reasonable confidence that they can build a new factory and that they will be able to have demand for those products and services and that they're not kind of, you know, not investing for lack of more capital. And so when, when, when they have extra capital, they put it into dividends and share buybacks, which is very good for, say, me as a shareholder. And so, you know, Google, for example, just had an earnings report and they announced that they're going to do a $50 billion share buyback. And that was great for the stock price. And so that tends to not be an area that has a lot of economic impact, at least long term. You get that kind of growth spurt for a year when everyone's excited. But that's not super persistent. And it's one of those challenging things. In general, I'm in favor of low corporate tax rates, but that's not the same thing as saying that if you lower it, we're going to get a ton of new jobs. Right now. I just think different places have to be competitive to make sure that corporations want to be in their jurisdiction and kind of allow them to function. That's just how it works out where some types of tax cuts have bigger impacts than other ones. And so, for example, if you cut payroll taxes, we've had this thing over the past couple decades. Part of the reason that the big fang technology stocks have done so well is that they're not very labor intensive, except for Amazon. And so we have a general, if you look at a long term trend, corporate tax rates keep going down, right? So it's not even just the headline number, the actual effective corporate tax rate after the headline number and various loopholes and deductions and things like that, that keeps going down and down and down. Whereas payroll taxes have gone up and up and up and then have gone sideways. And then also the cost that they have to pay for their employees, health care keeps getting more expensive. And so we have a general trend where it's actually it's very costly for either a corporation or a small business to hire someone because we have high payroll taxes on them and their cost of supplying healthcare is extremely high. Whereas on the other hand, the actual bottom line is taxed very lightly. And so if you happen to be not a labor intensive business, let's say you're Apple and so a rather small portion of your expenses go to labor, then that's basically a very good situation for you. You can do very, very well in that environment. Same thing for, say, Netflix. So Netflix is most of this digital company. They have very few employees per revenue that they get and so that benefits those types of companies. On the other hand, if you're a labor intensive company, then actually your tax rate is kind of high and when you include those payroll taxes and other sort of burdens. And so that's why it's been in an environment that's actually been challenging to hire people or for people to keep a big percentage of their paycheck.
- [41:47]
Peter McCormack
Next up, I talked to Lin more about inflation. But before that, I do have a message from my amazing show sponsors. Okay, we're going to kick off with Ledger, the world's most popular hardware wallet. Now, with a hardware wallet, you get to take custody of your Bitcoin. And I've personally been a Ledger customer since early 2017 and I'm still using the Nano S I bought back then. Ledger makes it easy for you to safely manage your Bitcoin using their Ledger Live software which interfaces with your device. And you can also connect your nano s to your Android phone to manage your Bitcoin on the go. Now, if you want to find out more, please do head over to ledger.com which is L E D G-E-R.com and next up we have Gemini, who are my exchange sponsor, who I'm now using for buying and selling Bitcoin exclusively. And I've bought a shitload of Bitcoin with them and haven't sold anything.
- [42:35]
Lynn Alden
Right.
- [42:35]
Peter McCormack
We're in a bull market. Who the hell is selling their bitcoin? Come on. If you're selling your bitcoin, okay, take a walk over to the mirror and have a word with yourself. We're in a bull market. Get your shit together. Now. I've been using the Gemini app for buying the dips, but I've also set up my DCA with twice monthly buys of bitcoin and I'm yet to see a better or easier to use interface of buying bitcoin than the Gemini app. Also, as I've said before, a massive shout out to Cameron and Tyler. A total open book to me. I could approach them with anything about bitcoin and they're listening, which is super cool. I am loving the Gemini product and I'm loving working with the Gemini team. If you want to find out more, please do head over to gemini.com which is G E M I N I.com and then next up we have Blockfi, the future of bitcoin and financial services, offering a number of products for bitcoiners. Now, with a Blockfi interest account you can earn yield on your bitcoin. And I have been a customer using their interest accounts for nearly two years now, letting my bitcoin work for me. But also with BlockFi you can get a bitcoin backed loan, you can borrow against your bitcoin without selling. And if you register for the BlockFi credit card which launches imminently, you will be able to get 1.5% rewards back on all card purchases in bitcoin. Really fucking cool. If you're interested in checking Blockfi out, I recommend that you do your own research and then head over to blockfi.com, which is b, l o c k f I dot com.
- [43:56]
Lynn Alden
So the next thing is the long term capital gains tax rising to around 40%. I know this isn't particularly popular, you don't think it will pass through, but do you get some indication here about the direction that the administration's taking rather than whether this policy itself will get through? Or do you think there'll be a compromise and what's really going on here? Because it's this continual gradual increase in taxes across the board. But a tax is really going to solve the economic problems that the US government has right now.
- [44:30]
So in general that's a very big jump that they're proposing, which is why I think it's unlikely because if you go back to that 5050 split, there'd be a bunch of senators that do not support that large of an increase. My base case assumption would be that they'll probably get a small increase through. They might get a 25% headline corporate tax rate. They might get a bump up to 25, maybe even 30% long term capital gains taxes. I doubt they're going to get that 40% number especially because when you factor on state taxes, you know, there are some states that'd be over 50% for those and those include some of the, some of the blue, the blue states. And so it's going to be tricky to get some of their senators on board or even some of their representatives on board for that type of increase. And so the general trend we're seeing, you know, with this administration is they want to say tax the 1% at a higher rate and then they want to provide more support for those other programs we talked about, like infrastructure or child care services like that. And obviously when you have that kind of dynamic, you're going to have that controversy between people of different political parties and kind of, you know, getting something like that through the Senate. So that's one of those challenging political things.
- [45:49]
Yeah. And it also feels like there's a very kind of interesting social, let's not say experiment, but there's this interesting kind of migrationary test going on in the US Right now where people are realizing, hey, I can just move probably a bit more than they realized. Pre pandemic where most people were fixed due to where they were. We've had this move to people work well, certain companies being able to offer homeworking a lot more, but also people just a little bit fed up of some of the major cities. And we're seeing people moving to the likes of Florida and Wyoming and Texas. Are you seeing an impact of this? Is this something you're measuring or looking at at all?
- [46:32]
Yeah, there has been a migration towards some of these more suburban or some of these, you know, sunnier or lower tax state that's certainly been happening. Another thing that's the kind of opposite anecdote to that. Economists have generally been surprised because in economic models you kind of always assume perfect rationality, like everyone's a robot and just kind of optimizes what makes sense. And economists have always, there's been this trend where people move for jobs less than you'd think. And so if your local factory shuts down, you think, okay, people will move to where the jobs are. But actually a pretty small percentage of them move. And that's because in practice it's kind of that network effect where you know, you're say, you say you have a spouse, right and so they still have a job and you say you lost your job or you, you know, say you work mobile and you can go somewhere else. Well, unless both of you can move that, that's a challenge. And then of course, if you have parents in the area, so say you have a kid and the grandparents help take care of that kid sometimes, are you going to have them move too? Same thing with friend networks. And so obviously over time, as we get more digitized, it's easier to move, it's easier to keep in touch with people, it's easier to work from different locations. But it's not as easy as, you know, a lot of people that are able to move are people that are, you know, that have the means to do so, that they have the, they basically have the money to move. They have the money to, they have the option to work from home. They have that kind of more mobile choice. Whereas a lot of people are actually, it's sticky and it's actually challenging to move because it's like you can't get everybody kind of separate from their jobs at the same time. Go find new jobs. And it's actually a pretty big challenge.
- [48:14]
That's fair. Okay, I'm going to do a bigger bit of a switch now because there's a whole another topic I want to ask you about and this was somebody more asking me to ask you about this. But we often hear that the gold market is manipulated by paper gold. And I've seen some commentary regarding there isn't enough gold to support all the paper gold claims. I mean, I don't know about this myself. I'm sure something you've looked at.
- [48:40]
I.
- [48:41]
Think something we would possibly therefore care about is paper bitcoin and claims to paper bitcoin. And is there a chance that bitcoin could be manipulated in the same way? So that's, I'm not sure if this is something you've looked at at all. Is it something we should be concerned about?
- [48:55]
I think it's something to watch. And so, yeah, basically when it relates to, when it relates to gold, the paper market is quite large relative to the physical market. And so one thing, for example, that you see during these big price movements is that often, let's say in March 2020, right, so we had a big sell off across the board, gold fell, the paper gold price fell. But if you actually were buying gold coins, they either stayed the same or got more expensive and were actually hard to find. And so if you wanted to get gold in your hand in a week, that price didn't go down. Whereas if you want to buy a gold ETF or buy gold futures where you cannot redeem it, or at least it's. And it's very challenging, they basically purposely make it hard to redeem it. So some ETFs, you can't redeem it at all. Futures you can, but it's kind of like the exception to the rule, right? So it's like this long process to actually go through and do it. And so those paper markets are meant to make it more efficient, but they also means that more people can have exposure to gold or think they have exposure to gold than they actually do. So it's one of those things where, like musical chairs, where if everybody demanded physical gold at the same time, there's not enough gold for that all to happen at the same time. And so that has expanded. Basically you have that flexible supply to meet that perceived demand. And then most people are satisfied that they think they hold gold. And it's one of those things where most decades that works. But there have been periods in history where a gold pool can fail because everybody kind of demands it at the same time. Now, with Bitcoin, it's easier to settle, right? So you don't have the transportation cost, you don't have the auditing uncertainties of proving a bar is real. And so because bitcoin has that technology allows it to transmit more, there's less of a reason to have it to be so centralized, and there's less friction that kind of dissuades people from being able to do that approach. And so as it relates now, the, the, the paper market is a smaller percentage of Bitcoin's market capitalization than is the case for gold. And so that's, that's something to monitor, to kind of see that that continues to play out or if, if it becomes more and more paperized, for lack of a better word.
- [51:10]
Okay, let's talk a little bit about bitcoin and then I'll let you go. I'm going to quote you here. Just took something from your report. Interestingly, bitcoin both broke out and broke down since then, which was somewhat expected. You set two different price ranges. So I guess, I guess because we're in a bull market, your expectations that we would break out, but if we didn't break out, then perhaps support would fall. But we've been through both. My view is a little bit slightly different. I've been watching these liquidation events with interest because I follow one of the BOT alerts that alerts you at the point where there's a liquidation event, some points my Twitter feed is completely overtaken by these alerts. It's incredible the amount of liquidations happening. And I'm just wondering, is there potentially too much leverage? Are there too many people trading with too much leverage and too much risk in the system and that's making it easy pickings for those who can move against them or counter trade them?
- [52:13]
Yeah. And so going back to that, that point about the breakout or breakdown. Yeah, my basically, basically we were watching this kind of bitcoin consolidation play out. And so if you start making lower lows, that's not good for kind of the technical signal, you obviously want to start making higher highs. And so there are certain kind of points I was watching and I was like, okay, if it breaks below this level, that's a little bit concerning. If it breaks above this level, that's great. My base case is it would break out. And then the funny thing that happened was it broke out and then it, then it broke, then it went below the range and then it. So I was like, you know, this is actually a mixed signal here. We have to keep watching this. And so that one of the risks to watch out for is that, you know, during the 2013, that, that kind of previous bull market, the one, you know, two bull markets ago, you had that kind of double, double cycle. Anyone who looks at that long term log chart, you had a big blow off top, then you had a really deep and long correction, then you had another one. And so the question of this cycle, is it going to look like 2017 where it kind of just keeps going up with 30% corrections or is it going to have a much weirder kind of pattern where it goes up and then it has a six month or longer kind of big correction. And just because we have investors that are price sensitive and they don't want to have a big drawdown, it's just kind of useful to watch that and see what's happening. And obviously different, different people have different characteristics for how they want to trade it or hodl it. And so you can have like a strategic holding, but then also you want to focus on what the tactical price is likely to do over say a six to 12 month period. And so I just track that for readers to basically see how does this asset class compare to what other asset classes are, what are the risks, you know, how bullish are. We would say a six month view compared to the long term view. And so generally what we saw with this latest liquidation was mostly Good news in the sense that we cleared out some of the leverage and it bounced off of kind of those areas we'd want to see it bounce. Like where there's those metrics that determine the sopr, that ratio where it kind of measures profit ratio.
- [54:16]
Do you want to explain what that is?
- [54:18]
It's that measure that shows basically if that starts going below one, it, it means that a decent amount of people are now selling at a loss, so they're selling below their cost basis. And generally if you look at Bitcoin's history, that only happens in bear markets. Usually in bull markets when you go down and touch around one or slightly below one, that tends to be a bottom of a correction. And you start, you know, because very few people are willing to sell at a loss in a bull market. And so if that were to start breaking down, you say okay, actually now we might be in one of those, those, those bear markets where you're kind of, you know, not having that, that very strong uptrend. But this latest correction did you know, kind of bounce off that, that range once, once that ratio got slightly below one, which was good to see. And so you know, I, I still remain bullish on bitcoin in a tactical sense, let alone that, that longer term sense. But you know, there are certain levels to watch to make sure that that thesis kind of stays intact. And I think, you know, these, these inflationary base effects and things like that over the, over this next quarter are, are likely to be beneficial for the protocol and for prices in general. But I think as you get later this year, there are some challenges related to potentially broad sell offs that could occur in asset classes. Just because so many asset classes have been bid up to high levels. There's so much speculation and things like we saw the NFT craze, we saw the dogecoin craze in traditional markets you see just tons of securities that are trading at extremely high valuations. And so if we start to get some degree of tapering or some degree of, let's say there's gridlock and there's no fiscal spending coming. And so suddenly some of the justifications for the market to just keep going up and up and up, start to not be there anymore, then you could get kind of a broad sell off in asset classes which could circle back and touch Bitcoin as well.
- [56:08]
This is why I think the part sale of Bitcoin by Tesla is super interesting. I think it triggered some bitcoiners and thinking I thought elon you, I thought.
- [56:18]
Peter McCormack
You were A Hodler, you know, you're.
- [56:19]
Lynn Alden
Meant to hodl forever like the rest of us. And also Elon claiming this was a test of liquidity, which I know well, you laugh at it and I part by it. And I was discussing this with Dan Herald yesterday. I've got a slightly different theory around it in that I don't think Elon Musk cares about bitcoin the way some bitcoiners do. I think he cares about money, he cares about the impact of a crappy dollar or inflation, his ability to run his business. I think, I think that's an important point. I can see why he has the incentive to buy bitcoin because of that. But I also think his primary concern is Tesla, SpaceX, his various companies and ultimately whatever the value of the bitcoin he bought is now. I mean he bought 1.5 billion, say it went up to 3 billion, I don't know, whatever. But I can imagine he hasn't just sat there like some docile Hodler waiting for a 10 year thesis to play up to sell it. I think him and his team are very much probably analyzing, looking at previous cycles and saying, well look, this bitcoin we're holding, it could be flat now, it could go up to 100,000. We should start planning to exit part of our position because we need these funds to run our business. I don't think that is, I don't think it's beyond the realm of possibility that he's looking at purely as a trade. And how do they maximize this trade over a year versus him being a philosophical long term Hodler?
- [57:48]
Yeah, I think, I don't really buy the idea that it was a liquidity test because he tested liquidity when he bought it. That was a big test. And you could do metrics to analyze what liquidity should be. I think it goes back to know. It's actually hard to say because the funny thing was he only sold part of the position and bitcoin was only part of their cash balance to begin with. And so there's actually, you can phrase it in such a way that it's a big position or a small position for them. And what I mean by that is, you know, the funny kind of meme out there is that Tesla made more money by buying bitcoin once than they made in their entire history of net income of selling cars. Because they've always been operating at a loss or very recently. They're kind of in that break even mode where if you include the tax, basically the credits they get for renewables, they're kind of at that break even point and they're starting to report an actual profit mainly from those credits. But they basically made more money from Bitcoin, from this whole business selling cars for this whole time. And so it's kind of a funny metric in that sense. On the other hand, they weren't like MicroStrategy, where MicroStrategy put virtually their entire treasury into Bitcoin, whereas Tesla only put a fraction of their cash balance in any way. And so I'm kind of surprised that they were willing to sell it so quickly because you'd think that bitcoin is their hedge, that they're just kind of going to let it run. And I figured maybe if it goes up 5x or something like that, they might be willing to sell it. But it's kind of funny that they trimmed it after kind of a 2x or whatever the number was. I don't even think it went up that far since their buying period. But I could be wrong. I think it's somewhere in that, that 2x area. And so, yeah, we'll see how it plays out. I mean, Elon claimed that he didn't sell his personal holdings. He claimed that Tesla was testing liquidity. You know, we'll see, we'll see how that plays out. We had another announcement of a company that added Bitcoin to their balance sheet as well.
- [59:39]
2% though, right?
- [59:40]
Yeah, and I think that's, that's going to be the norm. I mean that's what square did. You know, the, the number of companies that want to be like MicroStrategy I think are very few and far between. Whereas a lot of those companies we talked about before, if CPI is, let's say even 2% and they're getting near 0% on their cash or T bills, which is where they hold their corporate Treasuries. They basically have a melting ice cube. And then there's always the risk that inflation goes up to 8% one year, you know what I mean? Basically there are tail risks to their big cash positions. And so if they put a, a small percentage into Bitcoin and that goes parabolic, well, that kind of defends the rest of their cash position. And yet if Bitcoin goes to zero, then it doesn't really care because they put 2% in. And so that's the risk reward that a lot of those corporations are kind of attracted to. And so I think that's what you're generally going to see for corporate treasuries because most of which won't be hardcore philosophical hodlers like. Like Sailor.
- [60:45]
Yeah, I mean I think Sailor is, I think in, you know, I don't really like answering for somebody because really only he knows, but just, just thinking it through. I think originally it was an idea and he's become quite a vocal supporter of bitcoin and I think he's become more philosophically driven over time. But, but he also, there is a game theoretic incentive for him to promote bitcoin as well. So I'm not always sure with him but I mean, I wonder if he's kind of like, I wonder how much time he's spending on Bitcoin versus MicroStrategy these days. Is there the incentive for him to work on microstrategy much anymore? He's probably way more incentivized to work on bitcoin and promote bitcoin in some ways. I don't know. It's all super interesting. Okay, final question. GBDC premium is down to minus 19% which seems a lot and quite scary for some people. And some of those have been critics of people who've been trading the GBTC premium. But you're saying that makes it look attractive because. Help me understand this, Lyn. So I'm pretty sure that grayscale holds the bitcoin in reserve that support the price. If there is a, if it's such a negative, that seems like, it seems like a good buy because you're, I know you don't own the bitcoin as such, but you're, you're essentially buying something that is not. Is being massively undervalued essentially.
- [62:20]
Yeah, you're buying something, you know, 80 cents that it costs a dollar.
- [62:24]
Yeah.
- [62:24]
Now so, but it depends on what your purpose is. So for example, I like self custodying bitcoin, for example. That's one of the pros of it. But for example, there are people say you have a Roth ira that's an American Retirement Account, for example. We have it at the brokerage. You can stick GBTC in your Roth IRA as a percentage of your assets and that gives you bitcoin exposure. That's tax free. So GBTC used to be a very unattractive vehicle for that because you basically would be paying like a 30% premium over Bitcoin to have the privilege of having bitcoin in your Roth ira. Now you can buy it at a discount. And it's not the same thing as self custodying bitcoin because you do have counterparty risk. You have to assume that there's not like some catastrophic theft of GBTC's Bitcoin, which is unlikely, but it's not out of the realm of possibility. On the other hand, for people that have been, you know, investing in closed end funds for a while, these discounts are not unusual. And you know, people are kind of used to arbitraging them. And so that, that's, I'm kind of approaching it like that where I look at that and say, you know, there are ways that you know, GBTC can do to, to eliminate that, that almost 20% discount. It doesn't mean it can't go lower. I'd be surprised if it went below 20% for a long period of time. But you know, we never really had this situation with bitcoin before so it's know it's possible. My overall case is that I think that's the market sending a signal that GBTC's fees are too high because you know, back when GBTC was like the only game in town. They could get away with charging pretty high fees and having a premium and people would still, you know, pay for that. But now that you have a bunch of new funds, you have a Canadian etf, you have a bunch of other ways that people can access bitcoin in addition. I mean the exchanges and these other platforms like Swan and there's all, there's basically the ease of buying bitcoin has gotten better and so the kind of selling point for GBTC to exist and the charge as much has gone down. And so if they were to reduce their fees as possible that would reduce the discount that people are paying. And then in addition, the long term thing is that if they do get permission at some point to convert to an etf, that would eliminate the, the discount. And so you'd have practically overnight if you go, you'd have that big gain there. And so it's kind of an arbitrage on basically the probability of ETF conversion or a fee reduction. There's also things they can do like they could sell Bitcoin and then buy back GBTC shares. That's what some closed end funds do. Say they hold a basket of stocks and for whatever reason that whole basket of stocks is trading at a discount to nav. That's but it's pretty deep. They can sell some of their shares and then buy back units of their own company and that's actually accretive to people that own it. And so there's kind of those wonkish things that they can do there. If the discount gets Deeper and deeper to the point where it gets silly. And so it's kind of something to watch for people that care about. Kind of arbitrages over time.
- [65:30]
Awesome. Brilliant, amazing update, Lyn, as ever. I always learned so much for you. Okay, cool. Well, listen, I'm going to let you go. I once I had something else to tell you. What was I gonna tell you? Oh, you're not gonna be in Miami, are you? That's right.
- [65:45]
Not this time.
- [65:46]
No, not this time. Not this time. Well, look, hopefully we'll see at some point in the US this year. I found a way to get in. So I'm gonna be in the US In a couple of weeks. Very excited about that. So nice.
- [65:57]
Congratulations.
- [65:58]
Thank you. Thank you. Well, listen, have a great month and I will see you. I'll see you in May.
- [66:03]
Yep, sounds good. Bye.
- [66:06]
Peter McCormack
All right. How interesting was that one? Lyn has become one of my absolute favorite people to speak to. The knowledge she drops in these monthly episodes is ridiculous. I've learned more from her than almost anyone else. So, inflation, I think it's a really interesting topic. And we as bitcoiners kind of have an incentive for higher levels of inflation, as it just pushes more people to bitcoin. But it isn't always great, right? We don't always want to see this. It affects people, it affects their real lives. And also, I think it's clearly a tricky thing to measure. I do think we are starting to see in everyday life that. I mean, you can only have to go on Twitter and see the examples of shrinkflation that's happening or inflation on certain pricing of certain things. I mean, lumber's been the big one, but me and Lyn covered that. I know, for example, here in the uk, the housing market's going nuts. The price inflation there is kind of crazy. So this is definitely something I will be keeping tabs on and discussing with Lyn from time to time. But I hope you enjoyed this one. If you do want to get in touch, you can jump into our telegram group or you can hit me up on my email. Hello@bitcoindid.com I do reply to everyone. Don't send me any weird shit. Honestly, you should see some of the weird stuff I get. Don't send me that. Outside of that, if you enjoy the show, I know you enjoy the show, but if you do enjoy the show and you listen every week and you've never left me a review on Apple Podcasts, please go and do it. Look, even if you think, look, Pete, your show's shit. Go. Leave me one star. I don't care. Well, actually don't do that. Maybe two. But if you love the show, if you listen every week, just head over to Apple podcast. It takes about two minutes and leave me a review. It really helps with the rankings. Outside of that, I'm going back to bed. It's weird. It's late. I'm so tired. I'm so jet lagged. It's been really interesting getting to travel again. Hard work. I'll tell you what, going through the airports with this Covid is hard work. But anyway, it's good to be traveling again. Good to be back on the road. Okay, I will see you later in the week. Love you all. Will speak to you soon.