← The Wolf Of All Streets
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- [00:01]
Mike
That's dope.
- [00:19]
Noelle Acheson
Hello everyone and welcome to the Wolf of Wall Streets Macro Monday Show. I'm Noelle Acheson, author of the Crypto Is Macro now newsletter. Filling in for Scott today. Very big shoes to fill, but it is great to be with the gang and with all of you. There is so much to talk about. But before we dive in, do please hit the subscribe button so it'll be easier for you to find new shows. And if you've already done that, right next to it is the like button. If you like this show, do please give that a click as well. We'd really appreciate it. Hi everyone. Good to be here. How are you all doing?
- [00:52]
Mike
Hello.
- [00:53]
Dave
Doing great.
- [00:54]
James
Wish there was something going on for us to talk about.
- [00:56]
Noelle Acheson
Exactly what, however, will we fill the next hour? Mike, could you kick us off please with what Bloomberg Economics is thinking?
- [01:04]
Mike
Yeah, I was kind of surprised this morning. A theme from two of our strategists, most notably Anna Wong and our fixed income stretches, Audrey Child Freeman was deflation. Now Anna's pointed out she expects the CPI numbers to be she's on the lower end estimates, expects them to be lower than expected, expects a headline to be 0.1% and core to be 0.17 which is a little bit less than expectations. And she's pointed out a key theme that she's seen for softer CPI despite the pass through tariffs is increasing deflationary forces in China. Seeing airfares and recreational prices dropping negative 4% in airfares, pretty significant drops in hotel bookings. A lot of that's related to Doge and her model. The model they put together shows a downside risk for cpi. Now let's just skip over to fx. Audrey Chill Freeman point out she sees deflationary risks brewing in Switzerland. Again, these aren't my views, these are their views and I'm just piggybacking them. Gina Martin Adams pointing out she expects The S&P 500 is still somewhat vulnerable. 52 stocks are vast majority of all the returns, the most concentrated since the nifty 50s. So I really enjoy when she does that. And so still somewhat bearish and not most of the factor models are still quite negative. But that's very high risk for only 52 stocks mattering for the total S&P 500. Ira Jersey pointed out still range bound for interest rates in less inflation expectations, your job market tilts lower and key theme from him was that you know we have 30 year block auction this week. I know James is going to be all over that if I see you nodding James? I bet you can't wait to bid on those. And so you can write them back up to 6% rather down to 4%. I'm kidding. But to rope you in. But the key thing he pointed out is a thing that I've been enjoying is the sensationalism and headlines about how the long is just going to go higher. So I piggybacked on that and gave my view that these deflationary forces are certainly not the case in crude oil, which makes sense now. Crude oil right now is bumping up at $65 barrel last year's low. So it's a bear market bounce. How much higher can go? And I just published today I just piggybacked and published the difference between that 5% level resistance in the 30 year yield copper about 5 bucks. Corn about 5 bucks. If we continue above those levels, that's not consistent with Fed easings, Fed tightening. So it's like the demarcation line has declined. And then I ended with one thing I theme I started in January pointing out that I still view this hundred thousand dollar threshold in bitcoin as a key risk asset threshold that's favorable for gold. So we'll just. I'll end with this. I pointed out the facts of since bitcoin search first reached 100,000 on December 6, it's up 7% or so. I mean by end of the day, by 4pm close and gold's up almost 30%. To me that was the trigger for gold and I still stick with that bias.
- [04:06]
Noelle Acheson
Back to you before we so many threads to pull on their mic. But before we do, a question for you. Are you or the team focusing on Japan at all? Are you worried about Japan?
- [04:15]
Mike
There was no mention this morning in the meeting. I don't. My colleague Damian Sasser speaks a lot about the JGBs. But my key theme this morning was 1.69% on that Chinese tenure note which is quite low and that's showing the deflationary forces out of China much more significant than Japan. So really no mention of Japan this morning. Oh dollar yen range for Audrey is 145 to 140 is what she's expecting.
- [04:44]
Noelle Acheson
Cool. Anyone to pull on any of those?
- [04:47]
James
Oh, there's so many. There's lots to talk about. But yeah, the 30 year bond auction, I mean that's squarely in focus for most investors this week. People are trying to figure out just how much that long into the curve is going to, you know, continue to decouple from from Fed policy and that's that's the big, that's the big question mark. So how, how much are investors really concerned about long term fiscal issues and, and is there going to be a buyer strike on, on these, on these 30 years? I mean look, I'm not expecting in any way shape or form for there to be like a failed auction or something like that. I just want to make sure that people understand that. We're just looking to see how bad the bid to cover is just how much foreign demand there is outside of just hedge funds who are trading around this stuff. And you know, one of the, one of the questions is are you going to see international investors back off of bond purchases because of the possible extra tariff that's on international investors who are in jurisdictions that are, are deemed to be, have, have tariffs that, that are too high for us? You know, so if, if they are then, then you could have, you could have some foreign investors who are backing off the purchases of, of these, of these Treasuries because they're worried about the taxes that are going to be on, on their interest. So, or the tariffs will be on their interest. So it is a question and we're watching closely. We also have the 10 year treasury auction on Wednesday which is a 39 billion dollar auction. And you know, we've seen term premiums creep up towards 80 or 90 basis points at some, at one point, right Michael, it was like 80, 90, 92, just a couple, just a few weeks ago. And so they've come back down the term premiums on the 10 year, which is just under 70 basis points now. But that's something else we're watching to see if the 10 year, before the 30 year, if there's any disruption, you know, kind of not disruption but jitters before the 30 year bond auction. So that's, that's, that's a big deal. And then of course you get the CPI this week too. So there's a lot going on. There's plenty to impact markets broadly.
- [07:18]
Noelle Acheson
There is. And not just US markets today. Before I throw it over to you, I actually was writing about this in the newsletter this morning. The third year auction is on Thursday and I shared a chart which I can't share my screen unfortunately, but there's a chart. All 30 year yields in not just the US but UK, France, Japan, they're all at close to, not record highs except for Japan obviously, but multi year highs which is a sign of a withdrawal from that end of the market around the world. And what does that do to government deficits everywhere? Going forward, Dave?
- [07:53]
Dave
Well, I mean the Japan threat is, is, is one that's interesting on the, the high end. But look, there's inflation in my mind goes back to Milton Friedman and anytime I hear the word deflation, I immediately start thinking Keynesian versus Monetarist debating. And you get into this, the entire notion that in a world where every government is running deficits and they're constantly plowing money in, that there could be deflation is foolish. Now is there deflation in certain goods? Of course there is. We have massive deflationary consumer good things going on, mostly from technology. If it's energy, it has to do with fracking. If it's, you know, production these days, it's. Now AI. And AI may be one of the greatest deflationary consumer forces ever, but that doesn't change the fact that there is massive monetary inflation. And so financial assets continue to go up and are the biggest beneficiaries of that. And when you analyze these markets and treat every commodity and every asset the same as if it is, if they their exposure to deflationary technological forces and productivity forces are the same, you're going to make mistakes. And so to me, that's the problem lens with where Mike started. It's certain things, obviously energy, obviously things that we manufacture now these days, things where you can replace people with AI are all going to go down in price because guess what, there's less demand and there's higher supply because of those technological forces. But to use the word deflation in a world where you're flooding the market with liquidity, that that liquidity is going to go someplace. And where it's going to go is into financial assets. Now typically we look at financial assets through valuation lens. So we look at stocks based on earnings and book value and stuff like that. We look at gold as basically has been the major beneficiary of monetary premia throughout the world over the last whatever, you know, 5,000 years. I mean, I don't know what the number is, but certainly it's a long time. And recently gold has not just gotten the majority, but up until, but given where it is vis a vis silver. And silver is definitely worth talking about. It has definitely gotten the most of it. And in the, the, the, in the, this vast history of gold monetary premia introduces this new thing called bitcoin. Now Bitcoin, we, those of us, you know, people like James who run the Bitcoin Opportunity Fund and myself eat into and eventually replace gold and monetary premium. But this doesn't happen overnight. This happens As a process. And what we've been seeing play out in the markets is we're in one of those times when you actually are seeing it play out in the markets. Right. There have been every reason for bitcoin as a risk asset to fail at the hundred thousand level because it got ahead of itself. It did this, it did that. We've heard all the arguments yet it's been in the tightest trading range that it's had in percentage terms ever, literally ever. Now over the last month or so we had, we thought was the biggest, tightest trading range. Last year we went eight months where it traded in a 30 range. We're, we're in a month where it's traded in a, a 3 or 4% range. You know, it's, it's been between 102 and 107. I mean maybe. Is it breaking out now? I don't know. But I mean, you know, come on. I mean, you know, it, we're splitting hairs. And the, the truth is that there's a supply demand dynamic that's going on with Bitcoin. It's not leverage per se, although a lot of people like to say that it is. I mean, leverage rates inside the bitcoin speculative market are still crazily low, well below long term. If there was such a thing as a bitcoin vix, it would be at a low. This is a very important point and someone's going to come up with that metric so that James and I can parrot it every week. I mean, hell if they don't, I'll start calculating it because it's important to know if you're in a bitcoin low. And Bitcoin's volatility is from a ratio of the Bitcoin VIX to the S and P VIX would show the S and P VIX much higher. And that's important because we're in this supply demand dynamic. So when I look at, and I hear things like deflationary forces out of China, my brain, what is the first thing I hear? I hear, oh, the Federal Reserve is going to be able to inject more liquidity and push more into financial assets because consumer inflation is going to go down. There's only one problem with that. Big story in the Journal this morning is that imports from China are at an all time low. Well, if you factor out the first bit of the pandemic anyway, going back to the 1950s, we haven't seen imports drop this much and yet we're not seeing those stresses in the economy. Yet. So I'm wondering if the doomers who think that the next shoe is going to drop are looking at this now. Could it be that our supply chains are being eroded behind the scenes and we haven't seen it show up in the real economy yet? But maybe that's the kind of thing I'd love Bloomberg's team to look at because frankly, I don't have the capacity to know what's going on in the supply chains. But if in fact Chinese imports can drop by 34% and the economy doesn't really react to that, that's incredibly bullish news for those people who care about the economy. So it's not bullish news in my mind yet because we don't know what the stresses underneath the covers are. But those sorts of things matter, right? You know, it's, I don't want to, you know, be a cheerleader for the administration by any stretch of the imagination on tariffs. We all know that I what I think there. But if in fact the economy is adapting quicker than we thought, that would be pretty important as well.
- [13:46]
Noelle Acheson
So one thing, one thing to add quickly before we move on there, there is a bitcoin vix. It's the bviv. I follow it on trading view and you're right Dave, it's low. It strangely it's the lowest since early 24 which you would expect would be high because of the ETF run up but it is not at its historical lows but pretty darn close. Bviv. There's also an Ethereum one if anyone's interested.
- [14:09]
Mike
Well, I really appreciate the mention from you and Dave. The 60 day volatility on Bitcoin at 27 is the lowest ever versus S P500. It's the difference right now is 0.85 means Bitcoin volatility is actually 15% below beta or S P500 most. It's never been that way and our data goes back to 2010.
- [14:33]
Noelle Acheson
Isn'T it when you think about it.
- [14:34]
Dave
But it's not insane and, and, and it's very important. So one of the things when you're trading and Mike, you say this all the time and it's one of the points that I agree with constantly. One of the things about trading is, is to understand what volatility, what the VIX is, what these things mean and just to, to peel back the onion, what does it mean? We call it the, the, the, the, the reporters like to call it the fear gauge. Now the fear gauge is because of a simple relationship with Risk assets, in the case of risk assets, generally speaking, options premium blowout when markets are dropping and when they rise, they tend to rise steady. So in a bull market, simple terms.
- [15:17]
James
The reason for this is because investors are scrambling for insurance, right?
- [15:21]
Dave
And the thing that's important about options for anybody who doesn't understand it's that options, when you have options, so if you have a put option the price goes higher. That immediately translates to the call even if there is no scramble to buy call options. Why? Because you can combine options in when you're trading them. So if, let's say you, you think that call options are cheap and put options are expensive, well you can buy them but somebody else on the other side is going to be able to buy a call from you. If you're selling that call because you think it's expensive, they're going to buy that call and sell the underlying and boom, they have a put. And so it's the way financial instruments get combined mean that you have this thing called put call parity. And yes, I'm oversimplifying it for the purposes of we don't have time for an options class in the middle of macro Monday. But the reason this matters is because bitcoin has asymmetric volatility that's different than the S and P. In fact in bitcoin's case its rallies can be just as explosive as its falls far more often than than stocks are. I mean yes, some individual stocks can have that, that certainly biotech stocks when they get FDA approval, that kind of thing but bitcoin its up candles can be as large as its down candles consistently. And so therefore options markets don't necessarily tell you everything but it does tell you something. When it's in a very tight trading range in the vixes like this, it's telling you the market is in more or closer to a short term. I hate to geek out but equilibrium. And so when the markets are in a short term equilibrium the longer that happens, the more a large move is is capable and the less options traders will cushion that move because frankly they'll scramble and get the hell out of the way. Now when I can still remember since it's not that long ago when the S P volatility during one of these periods got in 2006 and seven down to what did it get down to? Single digits, Mike. Or just very very low double digits depending on how you measure before this thing that we call the great financial crisis. And it's important to understand why the two are related. Well One of the reasons that the moves in the GFC were so big was because volatility was so low in the period that ran up to it. And so it creates that. Now that volatility in Bitcoin is, it could be either sided. I'm not calling for a crash by any stretch of the imagination, actually quite the opposite. But it is important to understand what happens when you get in these low volume environments.
- [17:57]
Mike
I would structure it exactly. I look at as a strategist, strategist trader. This is a signal to buy call spreads and, or calls on Bitcoin.
- [18:09]
Dave
I mean, calls or puts. I mean if the basically buying volatility on Bitcoin right now doesn't seem like not a bad for a trade.
- [18:18]
Mike
It looks like a positive delta, positive gamma trade on bitcoin.
- [18:23]
Dave
Yeah, no, that is basically my conclusion as well, which is I think people are gonna all fall off their chairs that we're sort of agreeing on this. But that, that's the point. And, and the thing that's also really interesting is risk assets in general have low volatility. And why in an environment where if you objectively look at it, I mean we have, look at the news that's happened over the last week, right. You know, you got, we have, you know, geopolitical news all over the place. I mean we had an attack from Ukraine a week and a half ago on Russia's nuclear arsenal. Markets yawned. You know, we have riots going on in LA and National Guard going into. People talking about California seceding. Yawn. You know, you have, I mean you can just go up and down the list. I mean this, this is, this is a really. If you objectively looked at this, you would say, well, I don't understand why markets are so boring when, when the rest of the world is, is so insane.
- [19:21]
Noelle Acheson
Great points. And speaking of geopolitical risk, what's the general take on the bromance breakup from last week relevant or just.
- [19:29]
Dave
Oh, did that happen? Oh yeah. Oh God.
- [19:33]
Noelle Acheson
James. James, you run this.
- [19:34]
Dave
Someone else should talk about this because I, I don't want to go off on us.
- [19:38]
James
I, I have, I have no idea. Except it seems so rapid and escalated so quickly that it's almost as if it was staged. It was just insane. But who knows? I mean you've got two very large personalities who have, have the biggest platforms on the, in the world to, to talk about these things. So it's.
- [20:03]
Noelle Acheson
Yeah.
- [20:03]
James
And everybody grab your popcorn and watch. It's not over.
- [20:06]
Noelle Acheson
And this was a surprise to absolutely no one who's been following the internal politics in D.C. but for the world, it surely it must have been some kind of reminder that there is no way to bring the deficit down. It's just not going to happen.
- [20:20]
Dave
As I titled my restream of this Nothing Stops this Train. Right, Lyn. I'll steal from Lyn Alden, who did a brilliant speech on this. The interesting part about this, the most interesting to me, and I was live with John Deaton and Tillman and Andrew from Arch Public on when this was happening. And so it was playing out and we're watching the tweets go by and we're commenting on them live. It was rather amusing. But the, the thing that's important is Elon Musk has the patience. He makes me seem patient. And boy, does that is that a very hard thing to do. I mean, really, really hard. The, the way the sausage is made in D.C. is, is depressing to say the least. And so this whole nonsense of what they can put into a reconciliation because the Democrats vote is a block against everything the Republicans do. And I say it that way, there's reasons to blame both parties in a lot of stuff. But the Republicans don't vote as a block generally. They have to be beaten into line. And you know, the Democrats laugh at the Democrats vote as a block. So when you're voting for any Democrat these days, I mean, I'm sitting in New Jersey, although I vote in Florida, and Josh Kotheimer is arguing. And I've met Josh and Josh is actually a good man, but Josh votes the same as Ilhan, Omar and aoc. So you have to understand it's creating tribalism. And so the fact that you have to do put things in a reconciliation bill means there are certain things you can put certain things you can't. And Elon wants, all the stuff that he wants are. Most of it is in the can't part. And so this was a situation where I am generally on Team Elon. And pretty much everything he wants to accomplish, I believe he sacrificed for, to, to go in and try to help. But most of what he wants can't be put into this bill. And so I think this is amounted to a temper tantrum because of that fact and because Congress has been unbelievably slow to codify things that they should do, such as giving Doge the authority, such as chomping down on the NGOs. It's going to be, it's going to bother people to hear this. But, you know, there are pallets of bricks that were left for the Los Angeles rioters funded by federal Money through, through NGOs, you know, we have enough. That, that's probably almost certainly true at this point. The investigative reporting has kind of shown that. So, you know, that's the kind of thing that's going to be another big flash point that's going to trigger stuff. But this whole bromance breakup is more about. Elon wants to see the deficit cut and there's just limits to what they can do without changing the underlying appropriations laws. And that's, that's a problem.
- [22:52]
James
Yeah. And not just that, but, you know, you were talking about. You've got Trump out there hammering Congress saying we, we just, we need to remove the debt limit altogether. Just which is. Okay, let's, let's be real, let's be honest here. There is no real debt limit. There's just like stop signs that we blow through. But it's still symbolic. And to have just remove it all together is like, then there's just absolutely no check and balance. There won't be any discussions about everything that Dave is talking about right now and there won't be any negotiations. It'll just be spend ad nauseam. And so that's why you're seeing, you know, why that's exactly why you're seeing yields tick up, Noel, across the world is because people are realizing that, that these are just some kind of symbolic stop signs and we. Everybody blows through them. Meaning every country blows through them. Every country that has debt that's issued in their own currency is just, they're just raising these limits, you know, endlessly. And the US has kind of become the leader here of this where we're at 36 trillion now. It's going to be 41, 42 trillion in a blink of an eye here. As soon as we get this, this budget pass is going to be. That's what we're looking at. And you know, and that's, that's thinking positively.
- [24:19]
Noelle Acheson
Yeah, that's a great.
- [24:20]
James
That we, that we remove and remove the limit altogether. I think it's a low probability. But just speaking about it, it's just like that gives investors no confidence in the long end of the curve. And that's the big deal here. And that's, that's where Mike. I wouldn't want to be on that end, that end of the curve and in that trade, so.
- [24:37]
Noelle Acheson
Exactly. And that, that's a great segue though, into the outlook for gold as well as bit coin. And Mike and everyone get your take on this. We saw last week from the World Gold Council that central banks are still buying gold hand over fist, led by Poland for some reason in the first quarter. But whatever, they're buying gold. And this blows my mind. We have the custodians of fiat currency diversifying into gold. I mean that is quite the signal. But we've seen gold outperformed, as Mike mentioned, since the beginning of the year, a lot like double the performance of bitcoin. But over the past week, over the past month, bitcoin is notably outperforming. Like double the performance of gold might. You think this is just a temporary catch up on bitcoin? Do you think it's still going to be gold going forward given what James has set out for us?
- [25:18]
Mike
I'm clearly gold going forward. Some of the blame I still, I just had a. It'll be publishing tomorrow. I sent it to editors. Just rehashing something I wrote six months ago. That that 100,000 threshold in Bitcoin was the key trigger I think to buy gold and not buy bitcoin. Yet the masses are buying bitcoin. That's just when as a strategy you look okay, when everybody's doing one thing, you want to look at the other thing. And that's the key thing I want to point out is when we talk about deflation and Dave talks deflation, there's one key force for the normal deflation. It follows inflation. And that's the most expensive US stock market about 100 years versus GDP and versus rest of the world. There's only two examples in history, 1929 and 1989. So I look at treasury bonds right now and even gold is a bit of a put on the stock market. US stock market for everything you've said for bitcoin to go up, cryptos to go up for more inflation, stock market has to go up. Yet I look at the biggest theme here is potential 10% decline. It's just how expensive we are. There's only no, no parent in our lives. So I even pointed out recently how if you just look at stock market versus debt, it's just starting to roll over. I mean it's almost two times and 60 a little bit less. $62 trillion or your stock market cap in the US there's a debt running 30 and change that to me is the key theme. And it's also when you see everybody pricing and trading and bitcoin's already priced for this, I mean I just point out it went from 100, from 10, 19 and 2200,000. That's to me is a decent plateau. You don't want to be overweight long. This asset now it got too expensive versus stock market. It's stuck versus gold for almost a year. Four years now. And I'm still just pointing out this. If you're bullish bitcoin or cryptos now, you better be bullish beta, because beta rolls over, the whole thing tumbles. And that to me is part of what you're seeing in China at 1.69%. Tandy notes that the 30 year bumping up against 5%. That's why I published today that 5% threshold. If that 30 year stays above 5%, copper above 5%, that's a Fed tightening environment. That's demand pull, that's inflation. And that's not good for all risk assets. And we all know cryptos hardly ever do well when the Fed's tightening. We've only had one example, 2022 is when Bitcoin dropped like three, four times the S&P 500. To me, that's why I'm pointing out and just pointing out with what's happening. And now we're at that very low volatility time in bitcoin where people should be looking. And I suspect traders have been looking to buy Gamma and Delta and in Vega and usually they get melted a little bit and finally goes the right way. So to me, that's the key theme. It's all the number one factor. There's a 10. And all this is US stock market, everything else. And the stuff you're hearing about the unstoppable US deficit, that's usually when it finds a problem and it stops. It's just so much in the headlines. Every single screen I look at now, it's all we're talking about and it's priced in. And you supposed to buy bitcoin like, okay, good luck, I'll stick with gold.
- [28:05]
Noelle Acheson
And it's absolutely astonishing that the, The S&P 500 is back where it was in February when we were still high on the excitement of the inauguration of Trump 2.0 and the deregulation and the investment in infrastructure, et cetera, to be at those levels. I mean, arguably the economic outlook today is not what it was back in February.
- [28:24]
Mike
There's only one thing that stops it. You have to have people get out and get out. That sentiment's never going to change. Like it didn't change in 1999 until it went down. It didn't change in, in 1989 Japan until it went down. Didn't change in 1920. Nine went down. It doesn't go stop. Humans are be human as Scott always says. And that's where I don't know what's going to take it to stop. But I'll stick with the value and I think the value still in gold.
- [28:44]
Noelle Acheson
So all of those things.
- [28:45]
Dave
No, no, I need to make. I need to make. I mean I figured that fire up Dave a little. Well no, because there's two points. Look, I'll, I'll make it clear in 20 years we'll look back and we'll think a hundred thousand is no more important than 10,000. I think it's a bullshit kind of the notion that it's a plateau is insane because bitcoin's steady state, it's the entropy of bitcoin. The gravity of where it goes to is where gold's market cap is. And frankly I think that bitcoin crosses gold's market cap where gold is probably 50% higher than it is today. Maybe 100% higher than it is today. So I'm actually bullish gold for all this reason.
- [29:26]
James
And we won't be at 1,000,000,000,000 assets, investable assets in the world. We'll be at like 1.5 or 2. So.
- [29:33]
Dave
Right. So it's, it's important to understand that this is a fake. There's no magic behind a hundred thousand. It's just, it just, it's a round number where we're finding you know, this, the, the demand, supply and demand have, have created equilibrium over the last month. Because look there are a lot of people who may, who bought bitcoin below a hundred dollars. I mean 100 was a really big, was a really big deal then 10,000 was a big deal. A hundred thousand is a big deal and a million will be a big deal. Sure. You know all these round numbers always are big deals in the short term but in historically it's none. So I just want to make that very, very clear. And when you look at financial markets when you're truck when something gets revalued, I mean all you have to do is look at the market cap. I still remember when becoming a trillion dollar company was people were like oh no. No company's can ever become a trillion dollar company. Oh my God, when's this going to happen? I mean this is such a big deal. It'll never happen. There, there are lots of them and we don't care. Why? Because there's a lot more dollars. You know, it's, it's simple. The denominator is dollars. So that is that is a critical point. Now to get back to what you're saying in the stock market, I want to be really clear because I've made this parallel. This market feels a lot like 2000 in that regard. I'm not saying it's going to play out the same way, but in 2000 people forget there was this pricking of the Internet bubble in the, in the March, April time frame where it collapsed and then there was a slow steady rally back up to a new high, but it was a lower breadth high. The, the, the. And I haven't looked at the internals of the stock market but, but everything that I have seen tells me that's probably sort of happening again. The real trick for the stock market will be the fall to see what happens with the mega caps and whether or not, you know, we get through a policy outcome that is conducive or not and that matters. But understand the stock market, when it drops, if it does, during that period of time that it's dropping, Bitcoin will languish. It will certainly go down. Now there's no. In 2022 there were structural reasons there was this enormous trade relative to the market cap of Bitcoin called the grayscale trade, which effectively bankrupted and caused four sellings of double digit percentages of holders. Right. One of the reasons bitcoin is holding in at these levels is people are, have just gotten the first wave of distributions from FTX and a lot of that money is getting cycled back into bitcoin. That's just fact. And it's just when you see waves of forced selling, starting with Luna, following through the summer with Voyager and well Celsius and then ultimately ftx, there was waves of forced selling. So yes, rising rate environment is an odd, not good for bitcoin, no question about that. But understand that the reason it was three times the S and P was because there were waves of forced selling that were very unique and specific to it as an asset class. And so you have to contextualize these stories. But that's one thing that Mike's saying is absolutely true. If we see a major stock market correction, yes, I think even gold will drop just like it did in the great financial crisis, although three months later gold had rallied back and nothing else had. And I strongly suspect you'll see something similar in bitcoin. But if that happens, I actually don't think it's going to happen, to be honest. I think that we are in this situation where the Fed and the central banks of the world have successfully navigated back to where they were pre pandemic of pushing inflation into assets as opposed to into consumer goods. But we'll see. I mean, look, how is it the other thing that just like the S and P is the most expensive, housing affordability is the least. Which is an expression. In the same way the housing markets globally and certainly in the United States are at all time highs also versus affordability. This is not a good thing for all sorts of reasons, but it speaks to this financialization that continues to accelerate. And I think bitcoin's the off ramp from that, to be honest.
- [33:33]
Noelle Acheson
Speaking of financialization, though, Dave, what's your take on the wave of bitcoin treasuries that we're seeing? Do you think they add strength or risk?
- [33:39]
Dave
Risk, I think it. Well, look, it's, it's obviously the answer to that is. Is sadly obvious today. It adds strength. In the long run, there's some risk. Now what are the risks and what. And where are they coming from? The strength is obviously just supply and demand. It just creates demand. Now note Sailor's first conference, the very first one he held at 2400 companies. And what are we at? Are we up to 200 yet? Have we even gotten the 10? I. I think no. So we are. We're in the beginning of that thing. You don't short a train rolling down the track. The train at least stops or slows or has to go around a turn. We've gotten to none of that yet. So in the short run, it's clearly bullish because of a very simple supply demand dynamics. Right. In the long run, someone said it. I don't remember who I'm paraphrasing, and whoever. Someone in the audience might point it out, but they made the point that this isn't about microstrategy or Saylor, who has architected himself extremely carefully. But at a certain point, the people coming into this market to do so will get irresponsible. Possible. There will be companies that take cash that they, that their, their CFO says we're going to need it, but for now, let's park it in bitcoin. It won't go down, will it? And, and at that point, you'll have leverage in the system. We don't have that leverage.
- [34:55]
Mike
Not at all.
- [34:55]
James
No.
- [34:56]
Dave
But yeah, there will be.
- [35:00]
Mike
On the way down to 103. Come on, Dave, you gotta know, there's tons of that in this market.
- [35:04]
Dave
There's. It, it's silly.
- [35:06]
James
Yeah, but there's. There's a difference between hold on. There's a difference between having claims on a company because your debt is in, you know, you, you have debt that you have to service and you're not able to remain solvent. There's a difference between that and you know, shares going down because Bitcoin goes down and so your market cap gets reduced and the ownership, you know, of that M nav goes down. That's, that's, people will lose money and they'll lose money on these companies that are way, way, way overvalued at some point.
- [35:44]
Dave
Right.
- [35:45]
James
But it doesn't mean that the company becomes insolvent. I mean the company could borrow. If you've got companies out there borrowing, you know, at zero interest, you know, 0% yields, that's a different, that's, that's a completely different animal. But if you have a company out there that is issuing debt that has to service that debt and can't remain insolvent and has Bitcoin in their balance sheet and might need that to remain and remain solvent, that's a completely different equation. And you know, I know we've talked about this before, Mike, but MicroStrategy is nowhere near that problem. I mean it's got such an, they have created such an intelligent ladder of maturities and prices that it's just, you know, you've got years and years before anything could possibly crop up and you'd have to have bitcoin down like 80, 90% over a very long, prolonged, prolonged period for it to even impact MicroStrategy. And that's like the poster child of, of borrowing to add balance, add, add Bitcoin to your balance sheet. So it's a completely, that argument. I, it just, it doesn't hold water right now. Right.
- [37:03]
Dave
And, and the hyper liquid thing, I want to make a point about that because the hyper liquid thing actually proves the point. It proves the opposite of what you think. So we got some lunatic on a dex that the entire world can see his positions and shoot against him and he consistently gets shot against. Meanwhile, the vast majority of, of leverage in the system is on Binance and Bybit and OKX and Darabit and the open ended fund. The, right now at this instant, the open interest weighted funding rate for Bitcoin is 0.0000. Think about what that means. It is dramatically easier and dramatically less leverage in Bitcoin throughout the system. You know, it's balance between buys and sells obviously, but it is, it is perfectly balanced right now. And at a zero interest rate, rate at the top just to Put this in perspective. At the top, in, in, in. You mentioned 2022. The. Right, when it was at the top, the interest, the open interest rated funding rate annualized to over a hundred percent. It was 0.1. You know, we have been, we've been. Well right now we're infinitely below that. But the point is we've been tracking somewhere in the neighborhood of a hundred percent below that. I mean, you know, two orders of magnitude lower. And yes, there's the occasional hyper liquid idiotic. Entire world looks at and laughs and goes, hey, look at that idiot. But we don't, look, we don't do things here on anecdotes. We do things based on overall data. And the overall leverage in the system is really, really low. And you would expect it to be. It makes sense that it's low because we talked about the vix, right, we talked about the volatility being low, but it is low. And yes, there's of course morons that do weird things and people get to make stories about it. It, you know, it's, it is, it is what it is. Right? That is the system. And you know, we all get, get stories like, you know, Josh Mann's 84 and the 444 stuff and his calls on Gold now, which are equally kind of out there. And he may very well end up being right on some of these things. But the truth is, and, and look, you know, Josh, I didn't know him when we were both at Solomon Brothers. I mean, but you know, he's, you know, he's trading and I strongly suspect he's a, a fairly profitable trader, greater long term. But he's fired people's imaginations, people like sound bites. But we can't look at sound bites. We got to look at what's going on. And what's going on is right now there's not that much leverage in the system.
- [39:31]
Noelle Acheson
Yeah, for now and definitely according to all of the market data. But I'm going to throw out a hypothetical out there. You know, James is right. MicroStrategy is, well, it's a public company and it's fairly, fairly highly scrutinized, but there are increasing number of players that aren't. And we are seeing institutional crypto lending come back into the market for the first time since 21, pretty much. We'll certainly say since 22. And is there a danger of seeing a repeat of the GBTC trade where you go and take public debt to buy Bitcoin and then you use that Bitcoin as collateral for a Loan to buy more Bitcoin and so on, rinse and repeat. That's a kind of fragility of leverage that we haven't seen for quite a while and would be pretty opaque when it does come.
- [40:14]
Dave
Can I just make a point about the GBTC trade that people always ignore, ignore when they make this comparison? The GBCTC trade happened because of a structural stupidity in the United States regulatory environment. So for those who don't know this and, and, and, and, and look, you'll hear me yelling about this for, you know, in this administration, if, if Paul Atkins does one thing, the one thing I want to see him do is get rid of this structural stupidity. It's called the accredited investor rule. So I, I, I was introduced to this by a wealthy friend who was an attorney and he said, oh, you should do this gbtc. I never did it by the way. Probably to my chagrin he said, listen, you can buy Bitcoin for spot, hand it to grayscale and they'll give you GBTC shares and six months later they become freely floating because of the way it's something called seasoning in the rules. So what, what it meant is you could buy Bitcoin at, at whatever Bitcoin was trading at, you know, say $5,000. This is a math matter. GBTC at that time was trading at the moral equivalent of $6,000. And so you could buy Bitcoin, you know, transfer it over to gbtc. You could hedge yourself, right? So if Bitcoin went to, you know, whatever went down to 4,000, you didn't care because GBDC was trading at 5. And this thing went on for years where you could make this huge premium. Now why did the premium exist? Premium existed because retail was, wasn't allowed to buy, buy Bitcoin. They were only allowed to buy gbtc. It was the only thing they can buy. And so this huge premium came in because of a natural supply demand. Now we've seen this before in financial markets. You see it generally in emerging markets when there are foreigners restrictions and they have this thing called the quibs, you know, qualified investments, you know, investors in, I've seen it in Korea, I've seen it in China, I've seen it lots of places over my career. I hate to go back to bad examples which will show how old I am, but it's whenever you have a constrained ability to buy an asset, it at the same time as a regulatory regime which gives loopholes for others, you end up with these sorts of things. That's what happened in the GBDC that is not at play today. No individual has any problem buying it. And so there's no natural supply constrained premia in the market to come out when that those natural supporters come out. Which is exactly what happened.
- [42:30]
Noelle Acheson
True. And that's part of what happened. Also what happened, you had a lot of people buying GDC to, in order to buy more gbdc. And so there's, there was just a lot of layering going on there which rapidly unwound when it was discovered how shaky this collateral was. It comes down to collateral. But you're right Dave, there's hopefully almost certainly going to be more oversight this time. My concern is along with private credit it's a fairly opaque corner of the market. But all of, all of what we've been discussing here we have leads to the elephant in the room which is the outlet look for the dollar.
- [43:05]
James
First of all, they go back to your, your, the opaqueness of, of you know, of these holdings. And you know one of the things that we're seeing now, and this is, we've been talking about this, Dave and I talked about this, I think two years ago we were talking about just the private equity markets and how opaque they are. And now you see endowments, universities trying to peel off some of their exposure there. So, and this goes, this goes all around all those, you know, credit investor rules, qualified purchaser rules. And so now you've got the opaque, the opaqueness of that market which is really just a kind of a, a sleepy quiet credit market. You know. And so those are, those are forces that, that are, it's, it, it just produces that illiquidity and opaqueness produces opportunities for large investors. It's just that it's classic, it's been happening for you know, centuries. And so it, that's, that's really the big problem we're talking about. And I don't see that in Bitcoin. I just don't see. There's just way too there you could see through all the way through to every single trade. And so I think there's, there's just way too much information around the, those. It's, it's the truly opaque markets that are having a problem. And when you've got private equity that's marked at certain values that are, it's only because you've had add on investments. You see it in venture capital all the time. You see smaller venture capital firms leading, you know, doing whatever they can to lead small rounds in order to push up values on a mark to market basis. And you know that it's happening in, in the university markets now because you've got private equity firms who have marked up their values of their holdings, which are just air. It's because you had a series A followed by a series B followed by a series C that are marked at higher valuations that who made the investments, the same exact investors who are marking it up. So that's, that's where these problems come in. And in my experience in the opaque market markets, and we're going to start seeing, you know, the chickens come home to roost on that.
- [45:20]
Noelle Acheson
I've been following this also. And now we're seeing the retail market being used as exit liquidity via the ETFs, packaging, private credit. This is. And the regulators are okay with this. And yet crypto is supposed to be an opaque market. But I do, before we wrap up, I do want to get to the dollar because that is arguably the underpinning of everything that we've been talking about. Mike, what's your take on where the dollar goes from here?
- [45:44]
Mike
I really appreciate you calling it the elephant in the room because if you compare the S&P 500 divided by the rest of the world stock market, the MSI X US Index, a lesson I learned from my colleague Gina Martin Adams, it's the same trade as the dollar since the bottom in 2009. So the elephant room for the dollar is US stock market. But the fact that US stock market has been almost stabilized here is great. But you look at The MSCI X US index there, it's up almost 12 or 17%. Yet the dollar trade weighted broad dollar is down about 7 or 8%. That's a wonderful environment for gold, less so for very highly volatile cryptocurrency like Bitcoin. And that's my key theme is if this continues, if we just get that out of consensus, maybe just, oh my gosh, 10% decline, the S&P 500 this year, which is only giving back of the 100% gain since 2019. That's a massive, a pretty deflationary force for the dollar. And I have to say deflation, because that's what we're going to get. All the lessons of history point to that. When you get risk assets too high and they go down. It's just what happens in commodities, but it's what's happened historically. So to me, that's what the dollar is reflecting, is the rest of the world's like, get me out of the US and that's why I also have to tilt over to key thing to always remember about the dollar and some most significant technology in this space is crypto dollars. We saw Circle go public last week. I mean there, let's see that USD coin is about 60 billion do dollars. Next on the list of all the cryptos is Dogecoin 27 billion. And then you go down of course USD. So I think the key thing is always kept me really bullish this space is this technology and how it's really allowing the transacting of dollars instantly. But the key thing to remember, I like to point out is elephant in the room is US Stock market. The dollar is related. It's already kind of leaning downward like gold's leaning upward. It's telling you by then this year SB 500 is down 10%. That's all going to make sense. But I'll end with this. The key theme I like to point out with all this talk of cryptos and everything. On a one year basis the Bloomberg Galaxy crypto index is down about 12. I'm sorry one year basis down about 3%. Gold's up about 40, 40% one year basis this year alone Bloomberg Galaxy crypto index is down about 11, gold's up about 30. I stick with gold.
- [47:56]
Dave
Yeah, so, so look, the dollar is the, is the, the best of a bunch of currencies that we're unraveling. Go back to the beginning of the show we talked about when James talked about the debt limit. The truth is we have this theater that goes on but they're saying the quiet part out loud now Noel. Now when we talk about the dollar in financial analysts we are looking at all the stuff that is above the seas. So with an iceberg you have the tip of the iceberg, you see it. But 90 plus percent of the weight of the iceberg is below and you can't see it. What's going on, what's going on in the fiat fiat system is we are now starting to reach the point of escalation in terms of deficits. But you won't see that in the FX markets because every other FX is also having the same issue. So it's not the same thing. So when we look at the DXY it's like, well what is the dxy? It's the dollar against. I mean every currency other than the Swiss franc is in significant fiscal deficit.
- [48:59]
Noelle Acheson
It.
- [48:59]
Dave
Right. You know, and that is, that is important. So you know, it is the elephant in the room in the sense of that's going to matter. But to Bitcoin and to gold both, it's really the stuff that's going underneath the curve, underneath the surface. It's not the which currency is the one that's performing or underperforming. It's the entire notion of all of them. And we are, look, I do not believe we are close to, although God knows it's certainly more possible today than it was at any other point in history to some sort of massive revolution where the fee fiat system gets overthrown. I'm not like that. But the, the that that is a, a very big deal. So when you, when you look at this, the question is, is is there an opt out? Are there things which will, which you do smart? I mean the reason stock markets are elevated are because you know it. Unless you're not paying attention, you don't you. There's a simple point where all the authorities want financial assets to go higher, right relative to everything else. They literally, that's what they're engineering it for. Their nirvana is suppress consumer inflation and, and heightened asset inflation. That's what they want. And so people invest because in a way, you know, they don't fight the Fed, don't fight the entirety of the monetary system. And so that's what you see going on. And so you have to contextualize it all that way. You know, as far as as cryptos are going, you know, Mike always makes, makes the point and you know, about the volatility and about you know, memes and this, you know, I, I think that there, there's two stories that, that we talked about a little bit last week but are worth repeating. One, that the market for gambling is beyond alive and well. The meme coin market is, is a completely anecdotal thing. Right, but it's the same as what I saw out in Las Vegas at the World Series of Poker after I went let, went there for the bitcoin conference. Everybody the first day I was there was saying, oh, fields are going to be down this year because Canadians aren't coming to the US and all this, the stuff that you read about in the news, except for the news, is completely wrong. What a surprise. The mainstream media lied. Okay, well that's nothing new there. You know, it's like the old expression, how can you tell a politician is lying? Their lips are moving. Well, how can you tell the mainstream media is lying? Well, they're broadcasting. The fact is gambling and money that are being put out there by people. The World Series of Poker is at an all time high high and that's not remotely surprising when you see what's going on in Whether it's Dogecoin, Pepe or my personal and I call it favorite fart coin, which is back up over a dollar. Again, this is just an expression of gambling and you know what the rich have in disposal income. But there was a story we didn't talk about that's a big macro story that came out last week that I did want to get in here before we end, which is JP Morgan. So forget what Jamie Dimon says and just look at what the bank is doing. Doing. The fact that JP Morgan was reported to be getting ready to offer Bitcoin, you know, services is a very big deal because think of what this will allow. I mean, circle Mike, glance over. That's another huge story. Circle trading at 125 means that it's trading at a market cap of five times where it was reported that someone in this case Ripple Labs was looking to buy them before they IPO code. So I'm going to repeat that number because that matters. So here we have the second largest crypto company on the planet that people could buy crypto equities and it's trading in a market cap of 25 billion when the thought was that 5 billion was a fair offer for them less than six months ago. Have they grown in the last six months? Nope, absolutely not. But what is it to an industry? So what that story matters.
- [52:38]
James
Yeah. What's why it matters so much is I, I don't look at that, you know, usdc, Mike, as a crypto like this is, this is literally just a vehicle for, for dispensing treasuries across the world. That's all it is. And that company makes money hand over fist and it is in line to benefit the most from a stablecoin bill because they're, they're literally the gold standard for, for auditing what is actually the underlying ownership of that coin. And so you know that they're, they're the ones who are poised to benefit from that. And you know, for people who are not paying attention, as Dave likes to say, the treasury needs stable coins. And they know this because of everything we talked about at the beginning of the show. If there being no real debt limit, there being no checks and balances on spending, and they're going to keep spending, they just need, they need to find where places to tuck all this debt into and the stable coins are how they're going to do it. And they know that. And so USDC is a massive beneficiary of this. I mean, I wish we had gotten some on the, on the ipo of course only the largest hedge funds in the world and, and pension and endowments got this thing. But you know the massive institutions got it. But that you're seeing retail rush in behind it because of this. And it's not, it's not surprising. The valuation is surprising Dave. It's a, it's rich right now. But you know the reality is it's not that it's. It's the, it's the crypto with that is that is growing in value and it's now above dogecoin that's, that's missing the point completely. The point is that these stable coins are here to stay. The US treasury understands that and they want to be leaders in, in building some structure around it because they want to benefit the most from it. That's the point.
- [54:36]
Noelle Acheson
So let me ask you. It's a corollary also on demand for the dollar which ties into what you're talking about before. Go ahead.
- [54:42]
Mike
It's accessibility via the technology. It's what I learned in trading futures and ETFs just a better way to mitigate risk or get access access to that asset. That's what a question I want to ask you. So what I see is happening with USDC going with tether proliferating since 2018 is this process of tokenization is. Tokenization is awesome to be able to track assets next to treasuries, next equities on chain and once you do that why would you not look at things like other these 17 million other cryptos alone most of them are just BS things like Dogecoin and fart coin as short made. That's my point is this whole space is going to get armed out and maybe bitcoin will survive a little bit. We all know and everything else goes down Bitcoin don't goes down with it. That's my point. As we get more towards tokenization of real assets on chain and you can buy, sell and short things equally like short some Dogecoin and use 100 leverage long to get long. Maybe some of these crypto dollars that can give you some sort of interest what stops that. That's just the way it usually works in futures. And what happened in futures? Futures?
- [55:52]
Dave
Can I answer that? So look you have two markets. The one, the people who are playing in the gambling markets, the Dogecoins, the Pepes, the fart coins, etc. Etc. Etc. Are have more than an easy access outside the United States. It is trivial. I mean really trivial in a far better way than any gambling Futures markets that you ever grew up with. Futures are massively old, archaic, crunky, socialized losses, very expensive markets. Crypto derivatives and the way that the perpetual swaps have grown up are an order of magnitude or two more efficient. And the reason why you don't have options markets in crypto anywhere near the size of the options market in the United States is because an options suck for getting leverage. They're very expensive. 80% of option premium is lost. Right. You know people the options market makers make compared to the other ones yet the S P single day options are the most powerful or the most profitable new product of last year. Well in crypto you don't have that problem. So everything you're saying that could happen is or already exists. What will happen though is JP Morgan and why I mentioned that in at the same thing as Circle. Think about what you're going to have right now. The ACH and Swift system is unbelievably slow. It takes three days to move money money and so you have restrictions and counterparty risk and all sorts of things baked into the cake. If you combine tokenizations with stablecoin rails underneath the banking system, all of a sudden your bank can offer a product that says you want to save in Bitcoin. Cool. Here's you know, we will convert it to dollars when you need it, we will move it via stable coins to wherever you want to send it. And we can take very little risk out of it. And all of a sudden tokenization allows you to to save in Bitcoin and spend in dollars and that is going to accelerate. And that's not just going to be Bitcoin, that's going to be stocks as well by the way at some point. So yes, you're right about that. Is is both a technology for monetizing an asset as well as the assets themselves. And so you are right, there are many of those 17,000 assets that are and then there are others which are are gambling vehicles and there's still others which are going to have real value and so we could dive into that. But this is a macro show but the understanding that the speeding up of the financial rails Noel is a very big deal and and there are many, many macro effects of that.
- [58:22]
Noelle Acheson
Yeah and that's one of the reasons given for Circle's current valuation. It's not just a bet on stable coins, it's a bet on tokenization. And with that and I mean it's astonishing actually when you look back since the beginning of the year just how far this industry has come not just in terms of understanding the macro narratives, but in terms of the infrastructure, the institutional development that we've talked about today. With that, we do have to wrap up. I could have gone on talking a lot longer and I am going to spend the rest of the day enjoying an image Dave has planted in my head, which is that of pitchforks in front of Central Bank. Thanks. Thanks everyone for joining us. Thanks guys for being here. And don't forget to tune in next week.