Scott (5:38)

Well, it's just strange that the stock market remains relatively elevated while gold has done what it has, which is just very disjointed. Right, because gold, as you said, everybody I think would agree that gold going up like this should be offering a stark warning. But everything keeps going up alongside it. Except of course the dollar which just put in its fifth monthly red candle in a row.

Dave (6:00)

Pretty strong.

Scott (6:01)

It was at 110the DXY five months ago. So I mean, Dave, how do we parse all this? Right? Because it really doesn't make sense when you take a look at where each asset is trading.

Dave (6:13)

Actually, I think it does make sense. That's the funny part. I mean, look, the dollar versus other fiat currencies is as a, as a unit, fiat currencies are going down because their governments are printing more of them. Every one of them, except for Germany. And Germany is not exactly as pristine as it used to be with their most recent deficit. But the Eurozone certainly as a total is not all that far off of where the US is in terms of debt to gdp. You print more of something than anything priced in that something is going to stay elevated or go higher. In the case of gold, it's pristine. There is no earnings, there's no issues with it. Whereas the corporate world is going to have earnings impacted by supply chain issues such as China threatening that we went back on our recent renegotiated pause and they're going to not participate and do things to impact our Supply chains, that's going to hurt stocks. The only place where, and in fact when you talk about ratios, you're like gold, silver, gold. Silver ratio is a pristine indicator of gold's monetary value. And I keep using that because that is what it means. You could call it anything that you want to call it, but that is what it means because silver has, is, yes, you can have silver and jewelry and you can do silver for decorative purposes, but silver is an industrial metal. There is very little gold industrial use. I mean, yeah, gold plated connectors, I guess, but it's not terribly important. But that's, that's the monetary value meanwhile in the world of crypto is not that surprising if you look at X stable coins. Bitcoin dominance is more, more or less the indicator of Bitcoin's monetary value vis a vis the value of all things that will be in the future when we have a digital economy. And so I don't find it crazy to see bitcoin dominant surging when gold's dominance is surging. Meanwhile, when you have the denominator such as the dollar and really all of fiat being debased, it's helping stocks because what are they going to need to do? They're going to. And we can talk about other stuff, I'll let James go into that. But what's going to happen? What are policymakers going to do? Policymakers are, in the words of James's partner, going to do the big print. And so, you know, if Mike is right and we see unemployment starting to pick up, I actually, you know, I actually don't know whether that is true right now. We'll see. I'm always skeptical of these measures because it doesn't look like that's what's happening. And that's what I've seen a wide range of economists talk about this, but I do think it's inevitable and I do think that weakness is going to result in, in probably in rate cuts also, but certainly in liquidity being injected into the market. That's really the question.

James (9:14)

Yeah, it's interesting. I kind of, I want to go back to what Mike was saying about the bonds though, and maybe I can share this. The, you know, we are seeing some buyers, but we're not seeing them on the long end of the curve. And that's the issue, and that's one.

Scott (9:31)

Of the articles, is that the 30 is not.

James (9:35)

Yeah, you can see this. You can. And just taking a peek here, the, the 30 year yields have, they're just not in line with the rest of the, the curve and in, in fact the 10 all the way to the third, even trading kind of like risk assets which is, which is just insane because these are the, you know, the, the, the, the global reserve asset, you know, so it is literally the benchmark bond of the world as we've talked about many times. But that is, this is something that, that, that has to be recognized and besent is realizing this too. So now you've got, you've got investors at very large shops talking about the, the question of whether they're going to end up canceling a 30 year auction or dialing them really way, way, way back. Because there's just not demand there and there won't be demand there until we get through this path of uncertainty. One of the biggest pieces of uncertainty as we all know is this tax package. How big is it going to be? How much are they going to change it? How much are they going to pile onto it? And just how much are they going to affect the deficits as well as where are they going to put that limit on the DEB? They're going to raise it 4 trillion, they're going to raise it 5 trillion or more. I mean right now it's stuck at 36.1 trillion or whatever it was right at the end of the year. Just out of, that's just the function of, of the, when they postpone the debt ceiling from a year and a half ago, they, they decided that well we're just gonna, we're not gonna have a ceiling going forward. It'll just when it expires, that, that extension expires. It'll just be where the debt is at that point which was 36.1 trillion. So are we going to be at $42 trillion limit? How much is going to be piled on there? And how much are investors worried about the long term inflation impacts of these continued fiscal deficits? And I think the answer is pretty concerned. So the question is where can this 30 year go? Where does the fit, where's the 10 year go? Does it go to 5%? Does it go to 5 and a half percent? That, that would be, I think 5 and a half percent would be pretty catastrophic. The 30 year going to, it could easily go to 5 and a half, 6%. You know, and that's, that's the question. It's already been at five and a half percent recently. So that's the, that's the question that we, that we have to answer. And, and you're going to still you're going to Watch traders and investors exactly turn their backs on the 30 year. And that's a concern. So that, you know that, that just prevents besant from, from terming out the debt, meaning moving the average maturity of our debt out from T bill to, towards the, you know, the 10 year. And he's just going to be unable to do that for a while. And, and so I think that's a, that's a big consideration. And, and something that I'm watching, you know, the question though. And, and really if you look at it and you, and you pull back up what I, I'm sharing here, Scott, Y. The, the reality is that 10 year to 30 year gap is kind of an average right now. So that should be an alarm bell for people to realize that this 30 year could really blow out a lot further, a lot further on the yields. So people need to realize that this is, this is a risk asset today. This is not something you just you, you, you put in your portfolio and it's going to be fine. This could be volatile for years.

Dave (13:12)

Question Chance.

James (13:13)

Yeah.

Dave (13:14)

Do we have any sense? We know that a lot of the banking industry in the United States is long the 10 year. We know that obviously because of the FTP. The thing that we went and talked about ad nauseam last year, the last bazooka that the Fed had to pull.

Mike (13:29)

Out.

Dave (13:32)

Did they hold any relevant amount of 30 years?

James (13:37)

I mean the 30 years held by institutions. This is, this is really a pension fund and endowment instrument, you know, across the world, not just here. So, you know, and, and it's a trade for, for hedge funds. So that's, this is, that's, that's the question is how much are they, are they requiring to be paid for their, their future obligations, especially in the pension funds?

Dave (14:02)

No, I, I understand that and I get it. I'm just wondering, my wondering is if there's, what would be the actual underlying damage other than some hedge funds floating to the top of the pool kind of looking like if the 30 year blew out to 6, 7%. Well, what would that mean? I mean from a pension fund perspective that would be catastrophic.

James (14:25)

Exactly.

Dave (14:25)

From their actuarial assumptions. And you'd see another round of pensions that are oops. And we've had a few of those starting with Orange county in my mind. But I don't think that that's really the kind of contagion. But if it's in the banking system that then it is a contagion effect. That's why I was curious.

James (14:43)

Well, the contagion effect would be Much like the UK guilt crisis, right, where you have pension funds that just all of a sudden have massive holes in their balance sheet because of this or in their investment funds because of this. So that's what you're concerned about. That would be, I mean that would have to be a very sharp and quick move. But I'm not concerned about that as much as just, I just don't think the 30 years, what you want to be holding right now. I think that the, the risk of volatility on that, on the yields to the upside is, is, is pretty high. Especially because we still, we have continued headline risk here from all of the tariff, the, the, the tariff negotiations, you know, whatever that may be. You still have those headline risks and we just don't know exactly what's going to happen in the economy. Like Mike was saying, like where, where are earnings going to go? Have they really, Goldman Sachs is saying that the earnings have, have bottomed out and we're kind of fair value for the S P, which was very interesting to read this morning. So are we going to get into a period of stagflation or not? And then you know, we have headline risk every single day. And then finally and, and on that, you know, the volatility is, is just, it's dropped. It's, it's, it's, it's completely softened out. And that's also concerning, it's always, it's always a kind of a red flag for all of us who've been sitting here investing for many years that when you see volatility fall to the floor, that's the time to, to start buying insurance and getting yourself in order. Because that means everybody is, is optimistic and invested. So it's just something, it's just another data point that you oughta, you ought to probably be looking at. But I'd like to hear what you know, Mike has to say about that.

Mike (16:30)

Great piggyback. I gotta piggyback on that because everything you described to me about the 30 year to me is a classic buy single. I, I've been wrong two years now. I think, okay, we're going to get that deflation. I'm seeing it everywhere in commodities. At Some point the 30 year is going to be the next big trade. I mean that you just take TLT vs GLD. It's never been cheaper. Okay, got that. And let's look at May 22nd. That was a key day. That's the day Bitcoin put its all time high in at 112,000. That's also the day that the 30 year reached 5.15%. That's the highest yield since 2007. Within a few basis points. They're the same trade right now, Bitcoin and 30 year. And to me, this is part of that trade now. This wealth creation speculation machine that's leading everything is telling us, is showing us by going up this much, it's showing the limits of the inflation that's created that the Fed can't ease anymore. And we're tilting towards that next big trade, which I think is going to be the third year you got to get thrown down on the mat. I've been that for a while. It took a while in gold, but to me, that's where it's all tilting. I just have to piggyback on that because I think now everything is like you said, volatility is low 19 Vix. Do you want to get overweight risk assets? I think that high in bitcoin probably proved it for a little bit. Probably not when it was at 60. Sure you do. But now we're also at that stage. Yeah, getting towards summer stock markets unchanged. I mean, fine, we're going to get 10% this year. We're great. It's a complete assumption now, which is to me the risk that we go the other way. And it's the key thing now. So I like what you said, Dave, was policymakers will do the big print. And this is also a big takeaway, I think, from Scott's interview this weekend with Jeff Booth, who wrote the Price Tomorrow. It's just everybody assumes we're gonna get more inflation. It's gonna be wrong. We've already had the inflation. We've had the biggest inflation most of our lifetimes and the biggest extraneous event in our lifetime is the biggest print. And now we're tilting towards deflation. Now you see that in gold and crude oil. Crude oil going down, gold going up. You see it in China clearly doing just what Japan did 30 years ago. And there's one key thing holding everything up and that's that U.S. stock market. To me, that's why this. To me, the next big trade is bitcoin goes down.

Dave (18:28)

Maybe it goes back.

James (18:29)

Also the US housing market and that's.

Mike (18:32)

Everything is rolling over. I mean, I just talked about long term. We will. Everything is rolling over. Just the thing I saw on LinkedIn this morning, all these for sale signs in Orlando. This is a normal cycle that always happens and it's just been delayed. The recession we did not get in 2023. It's gonna come. It's just a question of when do we have a catalyst for this? Well maybe the tariffs and austerity, sure but. But now it's all dependent. Everything is dependent and beta has to stay strong and I know Dave doesn't like when I say that so I'll just stay the s and P500.s and P500 just drops 10%. Those are the dominoes and to me that's the next big trade and right now volatility low. Why risk on the biggest risk. So I'll end with one thing. The Bloomberg Galaxy crypto index is down 10% this year and gold's up 30%. I think that's going to continue to widen.

Scott (19:20)

Well let's quick Dave, I have one more question which is Mike, you say and we've talked about this but S and P just needs to go down 10% and we'll see but we just did 20 so does that mean that the S and P needs to go down?

Mike (19:32)

Exactly. That's my point is that's from a trader standpoint who it's. It's the point where everybody just assumes it goes down. It comes right back up that's going to change. It goes down and stays down and puts in highs that lasts for for years, not just quarters. This is what we're so overdue for and that's what I'm pointing out that to me would go is gold is predicting that's what to me that long bond going about 5% that's not a good sign with crude oil collapsing. That shows deflationary forces and people pushing against the bond. So that's the point Scott is virtually every single trader who's been trading cryptos and stock market for 15 years have not seen the real world where we go down and stay down. And to me this is where it gets year get started. We've just gotten a bounce. So if we can just stay here a couple of months and keep beta and stock market keep going up that's wonderful for the end of the year up couple percent that's wonderful. But the optionality is that 100% of gains that S&P 500 total returns had since 2019 which is way historically elaboration just giving back 10 to 20% of that the dominoes tumble. To me that's what it makes sense for gold to stay at these levels and even get above 3500 an ounce.

Dave (20:38)

So I think look I know on the. Well actually I think I know James the monetarist as well but as Milton Friedman used to say inflation is always a monetary phenomena. The problem with that statement is that there's. It's not two types of inflation, but there are two types of inflation. Conceptually, it's easy to think about it. Stuff you buy and consume, that is consumer inflation and asset inflation. And the consumer inflation is impacted by several things. It's impacted by productivity, which is why technology in real terms is dramatically cheaper than it used to be. You know, I don't care whether it's a computer or a house or a car or whatever in terms of that. But of course, some of the stuff that goes into it is not impacted by productivity, whereas something like education is 100% not impacted by productivity. If anything, it's gone the opposite because of the extra administration, medical care, you know, some of the tech should probably have gone down, et cetera. I could go on a diatribe forever, but the reality is you cannot argue with the fact that we as a society are constantly printing more money. Every major current country is in deficit, and so more money is coming in. That's a denominator. That is why gold is outperforming. And gold could continue to outperform. I mean, I got a quick conversation with Josh Mann a couple weeks ago. I'm not going to mention his hyperbolic price target for gold, but he's a massive gold bull right now. Right. And as a result of that, you have to ask yourself the same question. And I'll repeat what I said in the beginning. So when you start looking at how to parse all of these things together, understand that gold is the primary beneficiary of monetary. Of basic monetary value. Why? Because central banks trust gold. Corporations in pension funds, individuals, institutions, are dipping their little pinky toe into Bitcoin. And as that little pinky toe becomes a few toes and then the foot, then Bitcoin will do what gold is doing. I have no idea. At this point, in this environment where we have such incredible uncertainty on the global trade front, I mean, we could go into a global depression. There's no two ways about that is possible. Is it likely? No. Do I think most of the stuff is just posturing? Yes. But I also wouldn't have said that Ukraine would launch a major offensive deep into the heart of Russia where the stock market is blinking, saying whatever. So they destroyed 40 nuclear bomber. Nuclear bombers. That is not a small thing. And geopolitical risk is generally something that. What's the first thing to react to? Geopolitical risk? Gold. Why is it up 2% today? Well, because Ukraine just bombed Russia and you know, that's a big deal. So we have a lot of stuff going on. There's a lot of cross currents here. As far as the Galaxy crypto index goes, look, I think that all coins are going to go the same as tech stocks. I really do. I think that that correlation is high, will stay high. I think bitcoin's correlation is more relative to what's gone in bitcoin. I mean we are literally at the same level we were at last week and the week before and the week before that where whether or not we stay in the trading range. I'm paying attention to this because I thought that it was a complete joke when I said it. You know, I said, you know, when I, when I said like three weeks ago that it's too bad you'll never get a chance to see sub $100,000 bitcoin again. Yet through all of this we still haven't seen sub $100,000 bitcoin. I said it was a 101. You know, now we're at 104, but we've been trading. Yeah, we made that quick bursty high to 112. That's nothing in percentage terms. I mean think about it. It's less than a 10% move. That is for bitcoin not even remotely close to a melt up. If there's one thing I got out of the bitcoin conference, it's consistently that there are a lot of OGs who are using their bitcoin proceeds to fund their lives. And so I talked to enough of them to know that the dynamic is bitcoin treasury companies and other investors scooping up bitcoin and a lot of the Bitcoin OGs continuing to cash out and fund their lives. That has been going on, that has been relentless. It will continue to go on. But what does that mean? That means that volatility in bitcoin, specifically bitcoin, is cushioned because they'll stop selling as it drops. And as a result, you know, because there's no catastrophic need for it. There's no tax season, there's no anything right now. So the summer is likely to be, you know, buffered. You know, that's why last year it was buffered. Unless there are some buyers that come in that lose patience or some of the sellers stop. As far as altcoins and, and risk assets go, it really is the question of the denominator, right? If all that money has to go someplace, where does it go? Mike is saying people will buy bonds I don't think anyone's going to buy bonds for 30 years. I think, you know, you may buy bills, but they're not buying bonds. They're not buying 30 year bonds. And the government's trying to convince them to put all that money that's getting printed into them. And so that's, that's the fundamental thing that's happening here. But the geopolitical side is, is not trivial and the market is almost ignoring it, which I find, I find fascinating.

Scott (26:03)

James.

James (26:04)

Well, I think also, you know, when I wrote about this weekend, look, Besant knows this and Jamie Dimon knows this. The US Government needs pockets of liquidity to park the, all these bonds. And you're right, Dave, I just don't see that demand. We saw a weak demand the last 30 year auction. We've got another auction what, June 12, is that right, Mike? Something like that. So for the 30 year and we'll see how that goes and we'll see if they, if the treasury decides to start dialing it back. This is not something stuff that happens just overnight, by the way. This is the, these are sliding scales and this all kind of glacial, but we could see the treasury start to dial back the, the, the offerings there. But one thing they could do and work with the Fed on this is to, and this is what I wrote about this weekend is to revise the supplementary leverage ratio. And that means that, you know, this is what ISDA wrote about. The, the for the listeners who didn't read the newsletter and who don't know what I'm talking about is this the International Swaps and Derivative association, they basically set the rules and the, and the framework and, and you know, the boilerplate agreement for swaps and derivatives. Swaps and derivatives are just legal contracts, okay? So for everybody to understand that these, these are contracts that typically hedge funds and, and shadow banking use to create leverage in the system. All right, so they came out with a recommendation that the, that the Fed remove the supplemental supplementary leverage ratio, inclusion of Treasuries to that, to that calculation so banks wouldn't have to include them as risk assets. Why does that matter? It matters because banks can then pile on Treasuries ad infinitum and, and not have it negatively affect their ratios for risk, which means that they can just continue to add them. Now it also begs the question though, why are they included in the first place if they're supposed to be riskless, right? Well, the obvious answer is they're not riskless. We all know that. We've seen that over the last number of years how a number of not just community banks but pension funds and endowments were upended by, by that that massive rise in, in interest rates in, in yield. So basically what's important about this is that Jamie Dimon came out and echoed the, the is the recommendation last week. He said we, we've got to do something about this and I think that the, the supplementary leverage ratio is a good starting point and the, and the whole premise is to just remove Treasuries so banks can add them to their balance sheet and hold them without, without penalty. And that is a massive, massive pocket of liquidity pool of liquidity right there. And so right there if you want to solve this, I mean Bessant and Powell ough ought to be looking at this very closely right now and figuring out how to do this in a way that doesn't trip alarm bells but adds confidence to the bond market and stability to it. My, my personal opinion but that's, that's a really a big, that's a big stepping but that could be a very large stepping stone in front of us.

Dave (29:35)

Well that would help that would be Mike's, Mike's case in terms of why the 30 year would rally is because banks would pile in. I, I, I, I, I don't want to digress Mike, if you want to talk about that I want to mention something that's a bit of a digression but it's a, it's an important topic.

James (29:51)

But I'd like to hear what Mike has.

Dave (29:53)

Yeah, I want, that's right Mike, you're muted in case you're talking so it.

Mike (29:57)

Brought back a memory. I remember being on the phones with clients in New York in 1992 and I was bullish bonds Mike, why are you bullish bonds? And I'm like because of deflation. We're going to not, we're not it was still too much inflation. We're going to do towards deflation or disinflation. The number one reason for yields to go down is disinflation or deflation bar none. Everything else who's going to buy it doesn't matter. That always comes out later. That helped me get promoted to New York in 93 because I was right and I've been wrong on this one for two years. So maybe I need to go back to trading pits which are gone. It's an example of things have changed. But that's the key point is it's the, it's the key thing. I really struck me about listening to Jeff Booth and Scott and everybody who's buying Bitcoin for the strategic petroleum or their strategic reserves. And they all point out one thing like you did, the melting dollar and inflation of what's. They're looking at past performance. It's the wrong thing to do. The time to buy Bitcoin was when it's at 10,000 in 2020 and Saylor got in it. And we're doing the massive biggest money pump in history. We've had that now we're heading towards the other way. Now it's happened to crude oil. Yes. Okay. It's not the same. Dave always points it out, but it's happening everywhere. It's a way it always works that cycle towards disinflation or deflation. And one key thing again, it's a housing market, the US stock market. All that has to do is tick down 10%. Nothing in the big picture. And, and that's the deflation that gets that bond yield from 5% to 3%. It just happens. It's probably gradually and suddenly and yes, it's been gradually for a long time. It's not happening again. S&P 5 runs up on the year. I mean there's no reason to. It's. That's my point. That's what's got to change. And if it keeps going up, we're not going to get that normal deflation from the inflation.

Scott (31:37)

Is there a world where the demand comes to the shorter durations though and never makes it back to the 30s? Sort of as James was talking about there, like bonds actually are, you know, notes do well, but it's the shorter duration because there's sort of a panic and people don't want the overexposure to.

Mike (31:52)

The long grand in the current world. Exactly. Right now when you can buy risk assets and they only go up when you can put Bitcoin in your Treasuries and US President said they're going to go up. Yes. Why would you touch a long bond? That's my point. We're at the point where there should be sign when they're yelling and when you hear about Treasuries adding systematic risk when they're supposed to be just running their business to their Treasuries via Bitcoin, that's scary. I tilt the other way and I say there should be buying long bonds partly because you always get the return back and you have a little bit of that protection when we get the normal correction in equity prices. That's my point. We're at the point not also When's the last time you turn on the tape? You didn't hear about inflation and the deficit and things. It's pretty extreme now, which is good. That's what you need to hear. That's when you're supposed to be waving them in. Yes, I've been early. But when people say it doesn't matter, it does matter. It's every single place you see now it's mentioned even best since mentioned. No, we're not going to default in US debt. Just the fact he had to say that's a problem to me. This is pretty extreme now and that's why I mentioned May 22nd. 5.5, 5.15% in that 30 year and the and Bitcoin at 112. We hope those aren't enduring peaks. I think they might be. And the number one catalyst for that is for not to be enduring peaks is US stock market has to go.

Scott (33:02)

Up to be fair. I know you keep saying that you're rather early on bonds, which is accurate, but you're correct on gold. And gold and bonds have just not had the same relationship that they tend to have had in the past.

Mike (33:14)

Exactly.

Scott (33:15)

Gold is trading in the mid-3000, so the signal is correct.

Mike (33:19)

So the ratio's done well. I mean if you're investor and you're overweight, risk off assets like gold and Treasuries. Treasuries always get your coupon back. I mean, depending on how much you leverage it. Gold you're getting, you know, it's just getting a little scary. It's overweight in some of those portfolios for people like me who are underweight risk assets and looking at just risk off assets. And again though, this is a year that gold's up 30%, the stock market's doing great. It doesn't make sense in the long term. If it does. That's wonderful. Dave points out. Yes, there's a lot of geopolitical risk. But I think in the bigger picture, if we're going to look back and say the stock market got to 2 times GDP in the most expensive versus the rest of the world and stay that way and it didn't matter, great, then that's not going to be good for gold. But I think we're going to look back at this from history and say it did matter and it did revert and that was the deflation. It's very similar inklings to the deflation we had in 1930s, the deflation we had in early 2000 in the US in the 1990s, in Japan. And that's all predicated one thing. When you get that expensive, when you get two times GDP and market cap, it's all that matters. And we saw that recently. You know, every time Trump is emboldened with tariffs, stock markets up, when he, he pulls back is when the stock market pushes, pushes him to push back a little bit. It's just, it's all that matters, unfortunately.

James (34:29)

I just want to point out something, Scott, if you can share my screen here. If you look, here's the problem, Mike, of what, what you're talking about. If you bought the long bond, you bought the 30 here, here.

Mike (34:44)

That was what you're supposed to be selling.

James (34:45)

Of course, just, just for the sake of argument, what we've seen, what every single trader, every single investor in our world who's been, everybody who's alive is basically have experienced that if you bought the 30 year, you've made a ton of money. As we went down to zero interest rate policy, man, you have made so much. Look at the, look at how those yields have contracted, right? However now if you bought the 30 year over the, anywhere in the last five years, you've lost money and you've got to hold that to maturity to get that money back. That's the problem, that is the issue because this has such, this has such high interest rate and duration risk. That's the issue that, that investors are realizing, they're recognizing. Could this go to 6%? Sure, absolutely. It could absolutely go to 6%. That would be what you call, Mike, a mean reversion. You know, if you're looking at these, if you're looking at this chart. But that's the issue with the 30 year. And that's why every, that's why traders are going to stay at the 10 year part of the belly or the shorter because they know that the, the interest rate risk is so much lower there. And as you've pointed out correctly, and I fully agree with you, they're getting paid to own those right now. And that's, and that's the issue. That's what I see.

Mike (36:02)

So here's the key thing about that chart. And this we felt, Ben, Dave's going to jump on. And one thing is people assume that rate, that, that trend in lower rates is over. Yet you look at the rest of the world, it's clearly accelerating. Looks so good. The second largest economy, this is a 30 year. In China it's 1.9%. In Japan it's less. In Germany it's less. And they're all heading lower. Why they're facing tariffs. So you're pointing out that this dicham is going to continue where the US wealth creation machine is just going to continue doing its doing as we face in this thing. That's my point is I looked at it since we since we got to 4%. That to me is when I've been saying too long now we're supposed to be buying long bonds. I've been wrong. But then again this is the key thing is that is only staying up strong and high like that because we created so much wealth and liquidity inflation by pumping the system with money we've learned that lesson of inflation. Now the Fed I don't think we.

Dave (36:53)

Have though.

Mike (36:56)

The Fed can't ease but and we pushed the President out of presidency we realized oh people who vote don't like inflation because their their money can't keep up. So that's my point is the normal cycle is for this to tilt backwards and people who are buying bitcoin expectation inflation are trading the last trade. They should trade the next trade which is what I'm pointing out. The deflation of the 30s and the 90s in Japan and the 30s in the US is what we are tilting towards. And the rest of the world's Japan. I'm sorry China's already helping heading that way. Just look at by these are cutting prices 30% now and there's massive supply of these things and this overbuilding what is it 90 I bless I heard from a friend of mine who just ex Barclays guys just came back from China. I think it's 90 million extra rental units now in China. Just that that oversupply is tilting over to the world and there's one key pillar for everything. That's my point is what you've seen there is great. It'll stay up and strong as long as you have stock market stay strong. So if you're gonna pull up that chart pull up the same for the or the the Chinese ten year of the next largest economy.

James (37:59)

How about the.

Dave (37:59)

So while you're pulling it up look.

James (38:01)

At the 10 year GG. The 10 year JGB. Just the 10 year JGB. Right. Well this is that look. I mean that's that it's Mike, the problem is that the whole world is having the same problem. That that's the issue and if the US if our yields are have blown out there it's not going to show me this on the, on this Bloomberg. You can bring it up Mike because you you know Bloomberg better than me. But look the issue Here is that this is what the world has expected. And yes, you know, this policy will return at some point here. I agree. But just like Dave is saying that and, and we were talking about, you're going to have a continued money printing phenomenon because there is no choice. It's not that they've learned their lesson. They're cornered.

Dave (39:00)

And in the middle of that chart between 1995 and 1999, look at that period. That was the last time we had a balanced budget. Now, if you overlaid debt to GDP on this chart, which I don't know, I mean, I'm talking about bonds. Maybe I should care about the amount of debt. I mean, God knows if someone was evaluating a human being's credit, they would charge them a higher interest if you know, their debt to gdp. If you overlay debt to GDP on this chart, you'd be. It would look right now a mean reversion would say would be much closer to that 19, you know, to the 1985-89 period up towards the, you know, 8%. That's what you would expect if you looked at it with debt to gdp. Right. And that doesn't even count unfunded liabilities. Because I don't think, you know, I don't think anyone believes we're going to actually pay, you know, when Social Security. I don't think anyone believes that we're not going to check the unfunded liabilities and see what's going to happen. I mean, it's going to be tough when we get to that point, but the entire world has. This is printing money. And to ignore the denominator when you look at these charts is a problem.

Mike (40:07)

So when.

Dave (40:08)

And that, that's all I'll say is the denominator matters and always will.

Mike (40:13)

And James, in that little orange sparkline, which is add data, type in recession rec. Just type in rec and okay. And click it on the bottom. It says US Recession. Go down. Click on that.

James (40:25)

Yeah, just add the recessions.

Dave (40:26)

Yeah.

Scott (40:27)

Okay.

Mike (40:28)

That's what the market's assuming. There's going to be no recession. My point is we're overdue for one of those little magenta lines and that's gonna be next big trade. Now we get through that. And this is not the time to overweight risk assets like Bitcoin, I pointed out last week was the highest ever versus beta. It's just silly to do that. That's when you're supposed to look at other things or stay away because now you're pricing for perfection. My point is we get that little recession we didn't get in 2023, which is all tilting that way based on a lot of data. The number one thing though is the US stock market going down. That's what happened in Japan, in the US in the 30s.

James (41:00)

You could argue that we did have a recession. You could, you could argue we did have a recession. They kind of ignored it and they massaged the data to hide it.

Mike (41:08)

You could sure agree with that. But the point is, my point is once you get that little red line which we're overdue for, it's. This is the we're into that gold, to me, is telling us the end game of the US wealth creation machine is over. We got so high in risk assets, 2 times GDP, it's never worked out well in history. Housing, cryptos, everything that's. I think that we all agree on is we need to lose a zero in a lot of these silly cryptos. Once we get through that wash out the system, then I think it's time to buy risk gas.

James (41:36)

We agree, however, that has nothing to do with bitcoin. That's right.

Mike (41:40)

So bitcoin is a higher correlation to cryptos than it does to anything cryptos.

Dave (41:47)

That's the point. That is the point. That the single most important point that you gloss over every time Mike, is that when bitcoin, when people make money in bitcoin, they take that money and they plow it into speculation of casino.

James (42:01)

Go to the casino, that.

Dave (42:02)

But and when they're not making money in bitcoin, they don't do it. And even when they are, there's people. You're seeing the whole risk asset versus not. I mean, bitcoin is quickly becoming. I mean if you, if you compare just, just if we were in a time machine, we go back a year and you ask yourself a question. If is Bitcoin a strategic store of value? The answer? A year ago, you know, we had ETFs. We were, you know, what were we in the 60s or 70s? You know, so, you know, 60s or 70s for Bitcoin a year you would have said, well, you know, we want to see these other things happen. And we're seeing those things happen. And it matters, right? So every time you talk about gold versus silver, I think it's bitcoin versus crypto is silver is, you know, still has some monetary use. And I don't believe Ethereum or anything else has monetary use. But the truth is that you have to think of it in the same way. But you know, when you talk about recession if we think we are going to tilt into recession, then you should be buying bitcoin with both hands. Why? Because if we go into recession, then Powell is going to do increased liquidity.

Mike (43:15)

I'll take the other side of that trade with you, Dave.

Dave (43:17)

I mean, if we get a recession.

Mike (43:18)

If we get a recession. If we get a recession and S and P, I got to show you screens too. So let me just do that. If we get a recession and as our ex, we get the s and P500 back to 4,000 just where it was a few years ago, we're going to get bitcoin back to 10,000. That's my base case. That's what I think we're going to. You got someone to blame here. Now it's good. That's best to have someone to blame. I'm willing to take that risk because to me. Let me finish. Because the risks of not saying this are so much greater. So first of all, let's talk about the same chart syndrome. This is bitcoin and Joe's coin. Thank God. Dogecoin's back below 30 billion. I think it's going to 30,000. That's the same chart gold. This is bitcoin gold cross and dogecoin. They both looks like they're rolling over from that 33 resistance, which we point out is very good resistance. Bitcoin gold, Dogecoin doing the same thing and then also the same thing. This is just a 16 correlation between Bitcoin and SB 500. It's.70. It's like very high. If the stock market goes down, you know who to blame. I think bitcoin will go down just as hard or harder like it always has. We've only had two up years, that's my point, since bitcoin was launched. And each time bitcoin went down a lot more. It's different this time is what you're telling me. I'm telling you it's probably not going to be enough honest speculation and hubris. And things I'm seeing in this space is just like I said, if they're tempting the market gods, I wish them luck.

Dave (44:37)

Correlation does not include magnitude. This, this chart is insanely wrong from a magnitude perspective. It's just, it's a question of periods of time. The one constant during this entire period of time has been more and more deficits. We are sitting here with, yes, you call it the greatest money pump and we've learned our lesson. Of all the things you've ever said, that is the single most wrong thing that you've ever said. Here we have the big beautiful bill, the Republicans coming in saying we want to cut. And even there you're talking about a larger peace time. Although whether we're going to stay in peacetime is an interesting question. But the largest peacetime budget deficit deficit in nominal terms ever, literally ever. And that's with this mountain of debt. It is something that does matter. And there's no way if we start tilting to recession and consumer inflation starts coming down and it already is, if you look at truflation that the rates are going to stay where they are and will that prop up risk assets? Maybe. I mean people, you look at Japan, people forget how that market actually rallied and what levels it was. Their debt to gdp, their market cap to GDP was beyond insane. And you can pull that one up too. But look, we have the same argument every week. You talk about correlations and betas and I just think that there is a lot here. The policymakers need strong markets. They have been trying to willfully trying to push inflation into assets and not into consumer goods because that is what they need. Whether they'll succeed or not, I don't know. But I do want to mention something that is fascinating here about the supplemental leverage ratio. And I want to go back to it because the one big political battle, the final battle really for Elizabeth Warren and the anti crypto army is against the stablecoin bill. And their arguments are, are really, really bad. Actually they convinced some idiot law professor and I mean literally, right? One of the worst papers I have ever seen. I mean I'm sure Austin Campbell has done a better job taking it apart. But you know, they're missing the fact that community banks instead of loaning to local businesses have been buying Treasuries. And they did. And that's why they had to be bought out. You get rid of the supplemental leverage ratio. That's all it's going to be. And so we have $6 trillion in deposits that are effectively paying half a percent or less. And the banking association is complaining about. The stablecoin bill will be a problem because it'll give people economic choice. It will be frozen in the system because it takes a lot. It is hard to transfer money right now. It takes three days for it to actually clear. All the digital transfers, unless you do a wire are limited.

James (47:29)

Did if they even let you do the wire. Let's make it clear.

Dave (47:32)

But why are they not let you.

James (47:34)

Wire money where you want to? It's yours. It's not yours if you give it to the bank, it's no longer yours. Like that's.

Dave (47:40)

So that is the people coins will change that and change in a very big way, all these supply demand dynamics. So why am I mentioning this? Well, they're going to change the supplemental leverage ratio. Almost certainly that, because you're getting a signal when you got, you know, both sides telling you to do it, it will be a big deal. So what happens if the stablecoin bill does finally pass? Well, it will be very interesting. It'll be, first of all, it'll be a huge boom to the US Dollar. Why? Because it will cement it as the payment vehicle. It will not be good for cryptos who claim to be a money transfer transfer mechanism. And so some of what Mike's saying will be right. It will be great for bitcoin because it will mean that the average lifestyle of the person who saves in bitcoin and spends in dollars can now be accelerated when taken all that banking risk out and you know, and et cetera. So it's going to be a very interesting set of effects. But the battle that's going on right now is showing you it's the banking system versus what has been happening. And from a market's point of view, we can't really comment on it, but it's really important to understand why does the supplemental leverage ratio matter? Why are they talking about it? Well, they're fighting the last war, right? They're saying, okay, at least in the next six months. It's true, banks will buy a lot of treasuries and that will help. But that will also give Powell cover to do what he needs to do to keep reflating the economy every time. The one thing you say, Mike, that I just absolutely can't stand is worse than the beta and the 10,000, because stuff is we've learned our lesson. We had the largest pump in history. Well, we did. We had a pandemic. And so they pumped money and they have not stopped. And that's the important point we still have. Trying to bring our federal spending in even inflation adjusted terms back to 2019 levels causes screaming. I mean, you would think, you know, it's like, you know, in the political class, it's causing screaming. Oh my God, we can't go back. Look what will happen. And the truth is that there doesn't seem to be any way to rein the deficit in without, you know, in without some bipartisan decision that we need to do that. And it doesn't seem like any of that's forthcoming now. Maybe in three and A half years. If there's a President diamond and you can rally moderate Republicans and moderate Democrats, maybe then you could get, you know, level headed people in the room, you know, that was Bill Clinton that literally, I mean, you know, a moderate Democrat, you know. But the Democratic Party is not being run by the people who would vote in the primary for Jamie Dimon. They're run by the people who vote for President AOC President. AOC means 7 to 10 million dollars Bitcoin. Just so we're clear. So as much as I think it would be terrible for the country, you.

Scott (50:37)

Know, does that imply that Biden would have been better for bitcoin?

Dave (50:42)

No.

Mike (50:45)

We'Ll just piggyback and simple lessons of these every time.

Dave (50:47)

Let me finish one point. President empowered by their party to spend. That is not a committee. That is faceless and nameless. And leaving a rudderless ship is a very different thing. Biden was tilting left. Yes. On things like immigration, et cetera, et cetera. But you know, it was still there wasn't a whole lot of direction coming from the White House. A socialist president is a totally different animal. So that's the only reason I wanted to mention that.

Mike (51:13)

So we are turning Japanese debt to gdp. China is doing that already. If you just include all the provinces, it's the same as government debt. And just a simple fact I've learned in this crypto space about been in since like 2016 is every time it goes down and I get the messages from people, oh it's going to 0mcglone right about it, then I get bullish. And every time I get the message I was going to add a zero and go to a million, I get bearish and that's where I am and I'm sticking with it. And just here's where we disagree. And I do love that if we get this recession and Bitcoin does not go down a lot more than S&P 500, that would be a shocker. And that to me would flip the whole narrative for the long term people for right now. But Treasuries are buying it when they should be buying. Treasuries are just adding the systematic risk of this asset just doing what it normally does and correct a lot.

Scott (52:03)

Dave, there was you said you had another topic you wanted to go to that I don't think we ever got there.

Dave (52:07)

The stablecoin bill is what I was just the point of understanding why the supplemental leverage ratio matters because allowing banks to park their money in Treasuries instead of loaning it out into the real economy is what's actually happening. I mean the statistic that I found the most interesting is despite all the hype about community banks, 80% of mortgages are not serviced by the banking community, it's by capital markets. Which tells you that Warren and her pets in the American bank, or actually maybe she's the pet and the American banking lobby are the masters. I don't know who's pulling the strings but that basically that what they're saying is a steaming load of self serving bullshit. And that is effectively what's happening. You guys could laugh. I mean it's true.

Scott (52:59)

There's no way we're laughing at the term use.

Dave (53:01)

There's no way any of the people who are making these arguments would ever have either Austin Campbell or myself on, or better yet the two of us on, on to discuss it with them because they would be, they would look like morons because there's no rational argument against a more efficient financial system. There is one argument, and it's been the argument as old as time against an efficient financial system. And that's because there are people who make shit tons of money by the inefficiencies of the system despite the fact that it hurts the economy and it hurts everybody else. And this has been something that I've been in automation my entire lifetime. I've seen so many stories and I told you I'm writing a book for those who care, you know, you can, it's going to be called Million Dollar Frat Boys. And look, I'll start, I'm going to start getting for a mailing list. But I can tell you that there's no difference between automation of equity trading against, you know, from NASDAQ market makers, New York Stock Exchange specialists. All I could say is in a very quick period of time when we went to automation we saw two, two things happen. We saw trading costs drop by 90%. We saw volumes 10x. If you think that having stablecoins and having a much more efficient financial system isn't going to cause the velocity money to increase, isn't going to free money inside the economy and help cement the US dollar then you're just dreaming. You don't understand what is coming. And that is a very big deal that from a macro point of view will matter. But you know they're still haven't passed it yet and we're still fighting it. The final boss is being fought right now which is a lobby that pays many many billions of dollars into the honey pot of Washington D.C. and we'll see what happens.

Mike (54:43)

Well the basis what you said Dave is it's delightful to see the Trump administration figure that out. It's helped him get elected. Things that we talked about and wrote about six years ago. The base layer for this space was our treasuries. Crypto dollars like to come they finally figured out but now it's swung so far the other way. And that's the question I want to ask you. So this tokenization process should accelerate. Just a better way to trade. So we start tokenizing treasuries, get those on chain and tokenizing equities and get those on chain. What happens to all the other BS out there that's worth $28 billion and is it's a joke. It doesn't that get arbed out?

Dave (55:19)

Yes, quite a bit of it will and quite a bit of it won't. So it's actually exactly why I said that Bitcoin dominance will continue to go up inside of what's called crypto. But understand what is the biggest two benefits of tokenization? There are two things tokenization does that everybody is ignoring. The first thing it does is it makes every asset truly multi currency natively and truly global natively. So it massively increases the demand push. That's the first thing it does. The second thing it does is it dramatically increases the velocity upon which you can move money around. The things that, you know, people were surprised by the, I'll never forget this when Silicon Valley bank happened. So I can't believe that money could flee so quickly because we had done things like Zell and banks. I mean are you kidding me? You know, it's like money will become that much more mobile. And so you will see arbitrage has happened. Yes, I agree. I think people will, you know, it's a question of what you're building. And there, there will be a lot of things that are in the crypto space that will have a real capital place in the capital structure and a lot of stuff that's just gambling. Now will gambling be impacted? Look, I'm at the World Series of Poker, people were saying oh fields are going to be down because no one's coming from Canada. What a steaming load of bullshit that is. All you had to do is a sea of people. We had 8,000 people buy into in one day to a thousand dollar buy in event and 18,000 people overall breaking records. People are making. People are gambling, baby. And that's, that's coming into Vegas. It is insane. And so it's not just meme coins. There is A lot of demand. When you create this much money. People, they're flashing it around all over the place. It's, it's, I'm telling you, it is insane. And, and I know this is the Pete, my, my version of the Peter lynch, you know, counting the, the mall, the, the, the cars in the mall, shopping lot, parking lot. But I'm telling you, the gambling economy is, I thought it would be down a little bit from last year. I'm here a week earlier than it was last year and it's more crowded. You, you, it, it's. If I had a camera and I could show pictures, you wouldn't, you wouldn't even believe the sea of humanity playing in these massive poker tournaments.

Mike (57:39)

Okay, so question for all of you. So we've gone from 112 back to 103 bitcoin right now. Are we just stopping out some of those guys who got 40x leverage long? That was silly.

Scott (57:50)

But that guy was showing his trades and within five minutes of the trade, price just goes in that direction. It's the most. And the idiot keeps adding to it. He literally had like $100 million position today in 10 minutes. I think there's. After already losing 100 million in 10 minutes. It was within, you know, 1% and he added 400k or something and it immediately went within 0.25% of his stock. It's literally free money. I don't care what market you're in, if you're publicizing billion dollar positions, somebody's going to go take that. It's like going to an ATM as well.

Mike (58:21)

That's the key question. When you get markets that are this exponential, this highly traded, so easily leveraged, is there always just one idiot? It's human nature. You always say, Scott, humans were human. To me, this is a classic case of humans humaning. And your rational person looks at it and says, yeah, okay, well it was pretty cheap a couple years ago.

Dave (58:39)

Now.

Mike (58:40)

Yeah.

Dave (58:42)

Look, we're entertaining.

James (58:43)

Hold on, hold on. We're still looking at it like a trade.

Mike (58:46)

And I look at as a commodity.

James (58:48)

I do.

Mike (58:48)

I mean, it's a commodity.

James (58:49)

Okay, well then it produces volatility.

Mike (58:52)

It's a number on the screen.

James (58:53)

Yeah, it produces volatility, but that does not, it does not change its long term trajectory.

Dave (58:59)

I mean, Mike, it's, it's not a commodity in the sense that it has a completely inelastic supply to price. That is the biggest difference in commodity. It does.

Mike (59:10)

I get that. If you don't consider the 16 million dependents wannabes what else you want to call them. But There is one another 16 million. Yeah. And now people actually adding some of these wannabes to their treasury. It's so silly. I mean I can't wait to write.

James (59:25)

We didn't even, we didn't even talk about that because having a strategic reserve of Ethereum is just to me is mind boggling.

Dave (59:32)

But you know, or, or next up your ratings to bump. You want to have a clip. So I, I asked this question from a couple people at XRP Vegas that I saw the poker tournament and I had mouths on the floor with this question. So here's the simple one. One, if Ripple is willing to. Ripple Labs which owns 40% of XRP is willing to buy Circle for 10 to 20 billion or some stupid number because they know that that's the real stablecoin business they want to own. Check who's gonna buy the, the, the $10 billion worth of XRP that they by definition would need to sell in order to do that out of their treasury. I asked that question and nail it Dave. And, and, and the, the, it was actually funny. I tried to ask Mickle that question. He walked away. I'm not saying he didn't, doesn't have an answer for it. I'd love to give him a chance to answer it when I'm back, you know, at crypto town hall maybe we can invite him on Thursday I'm going to be, you know, I'm going to go back into my poker shell and flying in an airplane in the next three days. So I won't be in any of those things. But I really want to know if Ripple Labs is considering spending a significant portion of their XRP treasury which they would have to because no one's going to give them a loan against it to buy that. What happens? And so when you start looking at altcoins you have to be aware of that. At the same token you see tokens like Solana which have demonstrated that they could become the backbone for a tokenized economy. Being mediocre, not really doing much.

Mike (61:00)

Diversify when you can because that money is going to disappear at some point.

Dave (61:04)

Well I don't know about disappear but I think that it's analysis inside the rest of the crypto space is going to start becoming rational as opposed to what it is right now is tribal. So if I had one takeaway for people as a macro long term trend is invest rationally, not tribally. Don't invest because you're part of a community, you're part of an army, you're part of this, you're part of part of that. And you know, yes, bitcoin is part of a community sort of, you know, it's, it's a very interesting, Totally different. I know I start sounding like a maxi when I start talking like this.

James (61:43)

The bitcoin community doesn't drive the price now. That's the difference.

Dave (61:47)

No, in fact, they've been the sellers. Right?

Scott (61:50)

That's probably true.

Mike (61:53)

Yeah.

Scott (61:54)

Yeah, I agree with that 100%. I think that as Dave, you've said, listen, it's just, that's the wealth effect, Mike. We talk about the wealth effect all the time. If you Bought Bitcoin at $1 or $1,000 or $100, it's sitting at 110. Feels like a pretty good price to take some off the table, regardless of what you think is going to happen. Or to just plow 25% of it into a bitcoin treasury company. Oh, James will talk about that maybe again next week. We'll see. Or an Ethereum treasury company because it's now 10:06 and Dave has poker to play it at 7am in Vegas. I wouldn't want to keep him from the tables.

Dave (62:28)

Yeah, I need it. I need all the well wishes.

Mike (62:30)

I can.

Dave (62:31)

I just. All I can tell you is I'd have a great day today if I get the exact opposite of what happened to me yesterday. I'm not even talking bad beats. It's just, it's just unbelievable, you know, bad cards and every time I had a premium hand, someone had a slightly better premium hand. We call them coolers in poker. And I was ice cold, so. But today's a new day, so we'll see what happens.

Scott (62:54)

Dave's coming in hot. All right, guys, once again, another great macro Monday. Thank you. And we will see you all next week. Have a good one. Thanks, Mike, James and Dave. And thanks to all you for watching.

Mike (63:04)

Thank you, Scott.

Dave (63:20)

That's dope.