C (2:18)

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A (2:21)

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B (2:43)

All right, guys, let's get into this one. I mean, we talked a lot about tariffs last time. This is a macro and crypto podcast and tariffs are still the number one thing on the macro stage. I don't think anything else is remotely comes close to it. There was talk this weekend of an exemption on electronics, but I don't know, there's like conflicting news coming out of the White House here on this. There seems to be a lot of division within the White House itself. You know, Lutnick is saying different things than, other than what other people are signaling to different reporters. There's a lot of, you know, seems to be a little bit of splintering in, in the White House, but let's dive in here. I guess I'll turn it over to you first. Rom. Like what, what are you seeing? And we, we talked, we were talking about the beforehand, the all in podcast debate. Why don't, why don't you get into what you, you thought there and we can debate, we can debate that debate, I guess, if you will.

D (3:33)

Yeah, well, there's definitely a lot of conflicts and David Sacks acknowledged as much when he called it a coalition, and that's why they're different kind of viewpoints there. But I imagine that the ratings on the Olin show have diminished with David Sacks probably not appearing as much. So they brought him back, they invited Larry Summers and they had a pretty vigorous debate. I'll share kind of my take on it. And David, by his own admission, his lens is primarily geopolitical. So he made three points. His first point is that China enriched itself via most favor, nation status, permanent normalized trading relations, and the wto. In other words, the US Bringing China into the trading regime enriched China. The term he used is a baby dragon became a drogon. That was one point. The second point he made is that there was an expectation that China would behave better as it relates to Taiwan human rights in terms of meeting international standards, and then that wasn't met. The third point he made is that China never actually opened up its export market. There were trade restrictions. If you want to operate in China, you got to have a local JV and give someone 51% control and so on and so forth. Those are the points he made. I think he's right actually, on those points. At all those points, then Larry Summers, he. I don't think it was his best day or his best showing, but, you know, his point was that, you know, this was an attempt to engage with China, that the alternative courses of history you really can't test and assess. It's kind of like, you know, quarterbacking, you know, the day after. I don't know. In my view, I don't think he made the most compliant arguments. And I think he should have focused on talking about Mexico as an alternative to China. It's a near shore, it's in our backyard. He could have characterized the current approach as like 52 card pickup. There's no clarity. It's back and forth. People are getting whipsawed with policy volatility. So in some sense they were talking past each other. David was critiquing the past and Larry was defending the past. Larry was a part of the creation of these international structures and he really missed the opportunity to critique the present. Noah, what's your take?

E (6:03)

I'm going to take a different tack from you. Totally agree. It was a fascinating debate. In fact, I actually listened to it twice. I enjoyed it so much. And I agree that Larry perhaps wasn't at his best debating level. And I got distracted by the historical approach he was taking and the fairly narrow view that Sachs was taking. I say this as a big fan of David Sachs, huge respect for what he's done. And I agree the podcast is not as interesting when he's not on it as often. But what I got frustrated with was David Sachs claiming that he's focused on the geopolitics, whereas what he's really doing is just focusing on China. And geopolitics is so much more than China. I think Larry made the same mistake of focusing on China, and it's not about that. If it were about China, there are many, many other things they could have done and take a sledgehammer to global trade than past tariffs that are going to increase inflation for the American workers and are going to bankrupt many, many businesses. There are many more subtle ways to do so. You're right to point out that it's a coalition. There's no clear message as to what these tariffs are actually even supposed to achieve. And that was my biggest complaint about this debate, the biggest lack. There was a question being asked repeatedly in the debate. How will we know we're on the right track? What Metrics are we looking for? The discussion was largely backwards looking, but the question forward looking and that I liked. How will we know that this is working? And nobody even tried to give an answer. David was focusing on we got to reshore emergency supply chains. I don't think anyone argues about that. But what has that got to do with throwing huge tariffs on coffee, on avocados and on cheap T shirts?

D (7:43)

I love it. Agreed.

B (7:46)

Jo. Joe, did you watch the podcast? Do you have any thoughts? Because I have some thoughts I can chime in before if we want to just, if you, if you want to just talk generally about the tariffs.

C (7:54)

Yeah, I, you know, it's interesting that one of the, my employees at Ace Metric, one of our analysts, actually suggested this podcast for the same reasons that Rahman Noel did. And I have not had a chance. I will absolutely listen to it now, certainly since you two have recommended it. I just think that this, I think the whipsaw nature of the messaging, you know, I was thinking that's the hardest part for me anyway, the debate around balance trade versus free trade etc, like there's great points on both sides. As like a trader and investor, I'm trying to navigate what it is they're they're saying versus what they're doing versus what they're not doing versus what they're saying and they're not saying. And this past week was, I mean it was all over the place, right? And then we saw what happened over weekends, over the weekend, Saturday we got this news and then it got kind of reversed. I was thinking about this this morning on a walk. I was like, maybe this whole time they actually have it under control and there is a strategy and we are just on the opposite receiving end of this and we just don't get insight into what it is the actual strategy is because one of the things that struck me, what is that now 130 countries are negotiating with the United States, at least that's the last, the latest metric that I've read out of the White House. Has there ever been a time in history where you've been able to have pretty much every meaningful country on the planet at the table at the exact same time to cut a deal?

D (9:31)

World Trade Organization, Joe.

C (9:32)

Right, correct. The World Trade Organization, which was right, the beginning of almost the beginning. But let's just say that the momentum for globalization kicked off with the wto, which ironically had a set of, you know, the protests in Seattle, which at the time were left link anarchists that didn't want this type of thing to happen for all the reasons why populists don't want it to or want to reverse it. And so to me, the fact that something like someone like Vietnam immediately dropped to zero is telling. Now they're just, via you say it's just Vietnam. Well, there's also, you know, they're close, they're Southeast Asia, close to China, etc, that them dropping to zero that quickly as well as other countries coming to the table so quickly. Even the EU announced today that they're looking to cut a deal. Vietnam needs the United States as a customer. And again, like the approach that the Trump administration has taken has whipsawed us as market participants. But maybe there actually is a longer term strategy here that will start to unfold with getting all of these people around the table, especially with so many of them conceding so quickly because of the reliance on the United States and also frankly, like our, our the US dollar, etc. So I haven't seen the podcast, but that just kind of struck me today that there's the, the, the craziness since April 2, certainly in the markets as well as the messaging. As crazy as it may sound to me, there may be an actual meaningful strategy here that they're actually employing that is just now starting to bear some fruit. We'll see of course, how this plays out over the next few weeks.

D (11:13)

That's what Besson said, that, hey, this is part of the grandmaster plan, but I don't think it's an organized strategy. Seems like if a mouse bounces into a wall enough times, eventually it finds its way out of the maze and, and finds the cheese. And by the way, although I agree with David's points, he made a very narrowly architected argument. It's true we enrich China, but the United States and Americans are enriched even more. China's stock market has gone nowhere in 10 years. Americans financialized, created wealth, imported disinflation, improved real incomes, upgraded our economy from manufacturing to a services economy, exported jobs that no one wants. So there's a whole conversation that unfortunately never really happened there.

B (11:55)

Yeah, I would say like one of the things that was supposed to happen that David kind of did a decent job talking about was like, it was consensus. Like I remember even when I was in a college, like in high school, like the talk was like, you know, we're gonna capitalism pill China, we're gonna democracy pill China by opening markets. And like that basically never happened. And like David didn't kind of admit, like, even, even like Republicans back everyone, the Democrats, everyone kind of thought that was the plan. It wasn't like, it wasn't like it was a huge coalition of people that didn't want to open this up to China. It kind of felt like, from what I read, everyone kind of thought that that was going to be the case. But I think, like, what you just talked about, like, the messaging and the rollout has been awful. Like, there's an argument to be had that we should be on shoring chips, we should be on shoring, you know, pharmaceuticals and things like that. And then, like, we might be letting, like, getting rid of tariffs on the same things that you can make the argument that we should be answering that. They made that argument in that actual podcast episode. And then Trump this weekend said they're going to, like, allow chips and other things to be made still outside and not tariff those. I mean, you have like, Beth and a bunch of other people saying they want. They want tariffs. And tariffs will largely be offset by a stronger dollar. Opposite happened. Tariffs will cause lower rates for, you know, for the treasury to refinance. I mean, we did get below 4, but then on the 10 year, we went to 4 and a half. We're sitting around 4, 4 now the 30 year, we went to 5%. I mean, so, like, the dollar actually weakened, rates went up. Like, all these things are happening. And like, there's so much mixed messaging from. And it kind of went back to, like, David going back. This is a coalition of people wanting different things and different outcomes. And it just seems like that, that, that, that example you gave Rahm of a mouse, like, bumping his head into a wall enough times, it'll find its way. Like, that's what it just feels like. The rollout was just so bad. And like you today, New York Times did a podcast with like a. There's a lot of businesses that are just literally going to go out of business that are dependent on manufacturing over in China. That just cannot be done. Even if the government does institute a bunch of. All right, the tariffs are the stick. And then they do some carrots where we'll offset the tariffs, you'll get it back in rates in some way, and we'll incentivize manufacturing here. That's still going to take years to build out that type of manufacturing. It just seems like this was like, bludgeoning the global trade and, like, seeing what happens. And I don't know, it just. I don't know.

C (14:17)

But isn't that. I mean, isn't that partially the point?

B (14:21)

Right.

E (14:22)

But it would take. It would take years. But with this kind of Flip flopping. Who would invest the money and the regulatory manpower in getting permits to build a factory in the United States when two years from now Congress could have walked all of this back and they won't have been necessary.

C (14:39)

Yep.

D (14:40)

I don't know if it's the point. Is it the point? I mean, on the one hand you could say yes. Like the point is chaos agent bring markets down and hopefully bring the tenure down. Obviously it didn't happen to James point, you know, quite the opposite. But I don't know, it looks to me like 52 car pickup looks to me like the criticism you see of McKinsey when they create a PowerPoint slide and they kind of rearrange a global trade order overnight and they say go implement without understanding the realities of life and business and contracts and supplier negotiations and supply chains and how long it takes to move something in a container and then put it in inventory and then fulfill for a customer and building businesses around this and know how and training. So it's kind of amazing because what you saw here is actually something that a far left group would do. And the coalition argument David made is a good rhetorical argument. But come on, Trump, you have to exercise leadership. You know, once you're in power, you have to lead. The coalition got you elected, but then you have to lead. And Trump is not a guy that takes the average of all opinions, consensus.

E (15:47)

How to spell it. And we talked, we talked last week about the hit to markets from the lack of trust that there is a goal. Which is why I was so interested in the debate that we're mentioning earlier. As in what is the goal? Give us metrics that we can swim towards and there aren't any. And the lack of trust, arguably. Since we talked about this last week, as if nothing gotten worse.

C (16:07)

The thing I wanted to mention about, you know, Rom, when I was saying, isn't that the point? Like I recommend everyone watch the Bill Maher episode on HBO Max or whatever it's called nowadays from this past Friday.

B (16:21)

I know exactly what you're talking about.

C (16:23)

Yeah, like Steve Bannon was a guest on Bill Maher, which is saying something for, for where? For how, you know, Bill Maher is arguably a liberal Democrat and, and, but I don't think he's a dummy. He's dumb about crypto. Some of the stuff he said about it is completely asinine. But that's besides the point. There's a, there's an aspect, you know, look, Steve Bannon, big advisor to Trump and influential person, friend of his, etcetera this concept of flooding the zone is what he calls it, is exactly what they're doing. And that's why I'm saying, isn't that the point, like part of their strategy is just flooding the zone with so much at the. At the same time that it's going to be chaotic. But also Trump, you know, he kind of a B tests stuff in production, so to speak. He'll just put stuff out there and see how people react to it. I remember when he was running for president, he intentionally put out there. I'm thinking about Jamie Dimon for the treasury secretary. No, he wasn't. He was seeing how the public would react to that.

B (17:29)

Right.

C (17:29)

And is it good to do that with global trade policy? Probably not. But at the end of the day, the American people overwhelmingly voted for Donald Trump. And if that is his instinct is to go that route, coupled with folks like Steve Bannon, who have been an advisor to him for a long time that are telling him about this flood the zone strategy, it doesn't strike me as odd that they're taking this approach as opposed to having a little more tack and nuance with the way that they're rolling these things out.

D (17:59)

A couple observations. One is, look, Trump is all about velocity, and he's the first founder, startup president in terms of speed and velocity. And I think if you had a reelection a week after Inauguration Day, he would have won by even greater margins. So to your point, on the other hand, this reordering of global trade, it's going to hurt a lot of small businesses, it's going to hurt profit margins. And Trump at that point became a bull in a China shop. Where it went from, hey, you're execution oriented. You're trying to get stuff done, cut cost and make an impact before the quicksand, as Besson called it, of Washington, D.C. gets to you. He became a bull in a China shop there. And again last week, he talked about the trade deficit as a profit and loss statement, which is the exact wrong way to understand it. It's really the financing and the capital that the world's providing to you. And the higher it is, the better we know it. Contracts in recession. And look, I don't think there is consistency in chaos. I do agree. I think he's reasoning in real time. He's reasoning in real time. Trump with feedback from the market and from his constituents. But there's no principled approach. It's a battle of personality between, you know, Bessant and Lutnick and maybe who I'm the last person to talk to Trump is so it's, you know, so it's unsettling.

B (19:22)

So question for you guys. Like, I think the general consensus is that Trump walked into the 90 day pause. I think that was always on the table to do at some point if they needed it. And it looks like the bond markets, the treasury markets is what caused him to do that though he's like, they're like walking back. That was the case. So I guess I'll go over to you for this, Joe. Like one, the first question is, do you think was the treasury market spiking to 5% in the 30 year, four and a half on the 10 year and just the general massive volume we saw in Treasuries, do you think one, that was the cause of him doing the 90 day pause and two, that spike. There's a whole bunch, there was a whole bunch of debate last week. General consensus is there's a huge unwinding of the basis trade. Right. That's taking leverage out of the system in the basis trade. Which one, can you just talk about what that is? There's also like these theories out there that it was China dumping, foreign national dumping, just dumping of dollar assets. Do you think that's true? So I just want to you as somebody who's traded a lot of these markets and knows this very well, the hedge fund side of things, like one, what is the basis trade? Explain why that happened and then do you like all those questions I asked? Yeah, I'll stop rambling, but I'm just curious to hear your thoughts.

C (20:28)

So what is a basis trade? At a high level you have the exact same asset where you take a future derivatives contract and short that and then you're long the same asset, but kind of I call the spot asset or the actual asset. So you can do this with Bitcoin, you can short the CME future and long the underlying asset holding spot Bitcoin. And the, and the reason it's called a basis trade is that over time that futures contract will settle to the price of the spot token. And so a futures contract in most cases, in general, general cases, it's because it's in the future will be worth more than what the underlying asset is. That is not always the case. But for simple understanding of a basis trade, and this is applied to basically any asset that has a derivative or a futures contract or even options to some extent. And the treasury market is no different. The difference with the treasury market is that because the, the basis, the delta between the underlying treasury and the futures tend to be very small. Hedge funds lever up these trades massively. And why wouldn't they? It's the US treasury market, right? Like what's going to happen to the Treasuries?

B (21:44)

What would cause Vol there?

C (21:45)

Yeah, so the problem with highly levered basis trades is the highly levered part because what when, when a basis trade blows out or goes in the wrong direction or you do have just forced liquidations for other reasons. In a portfolio where people are like, I mean at one point last week gold was just selling off dramatically, right? There was a risk off event where people were just liquidating everything they had because they had to raise cash to be margin calls or their risk management frameworks, et cetera. That was it basically that the rumor is the same thing that happened with folks in the treasury markets last week, which I tend to believe to be true as well because I know Rob and I were chatting about this previously like the liquidity available in the futures treasury, the Treasury's futures markets is becoming much more thin. So for example, I forget the notional dollar amount but it's something like 2020 contracts of, of the of US treasury like say the 10 year decent size notional value there. It's usually about 1.6 basis points to buy or sell that in a market in the order books and that was about 5 to 6 basis points last week. That's a huge jump for what is supposed to be a massively liquid market. And you saw the exact same thing happen in the E Mini contracts which is the S&P 500 futures which is a massively liquid market. In fact last week at one point we got to six figure top of order book liquidity which has never happened before. I mean these, this is extremely thin markets which again if you look at something like a basis trade unwinding or let's assume could be China, could be any other foreign entity is choosing to sell US Treasuries. When the liquidity dries up, the moves are extremely violent. But then it becomes a self fulfilling prophecy because if you're a market maker you don't want to be making markets when it's so volatile. So you pull your inventory and the liquidity gets even less and less and less and less. Which is by the way when you saw the move last week, you know, when Nasdaq was up 10 or whatever in a single session. A lot of that was just driven by the lack of liquidity, the lack of positioning or the, or the net positioning was you had a lot of people short. But when the E Mini contracts are at about a million dollars at the top of the order book, which is a very liquid futures contract. On the bid and the offer, the individual stock names are even less. So you have, even though you know Tesla and Apple and these stocks are super liquid, they're not as liquid when the liquidity dries up in things like the E Mini contracts because the lack of arbitrage amongst the S&P 500 and their constituents goes away. So these types of moves are not slowing down is my point. And it's kind of working its way through. Whether it's the, it's the equities markets, the bond market, it's the forex markets, it's the credit markets, whatever. Each one of these markets is starting to feel this bit of stress and it doesn't appear to be slowing down anytime soon. Which is why I think it's important for the messaging from the Trump administration to stabilize or frankly be consistent. Because right now these markets are reacting to headlines in both directions with minimal liquidity. That's having a massive impact on the volatility of these markets.

D (25:16)

Yeah, I'm nodding my head there. Yeah, exactly right. The thinness and liquidity is present in equity markets as well. Easy way to test that yourself by the way, is get a real time quote and look at the bid ask and look at the quantity offered. I have not seen it this thin in a long time and a lot of prime brokerage data and studies showing this. And the other point you were raising there, Joe, is the reflexivity of markets. I kind of liken it to a hockey puck on ice where if you sneeze you can just keep going in that direction because markets aren't pricing on valuations and fundamentals right now. Right. You've got like Costco at 50 times earnings. You got Nvidia 86 two days ago now to 110. So yeah, if they inject psychology and confidence, markets will recover. Actually this is a confidence shock to markets. People have PTSD and the lever they have is their control and like you said Joe, they're just pulling back. I do think liquidity is actually coming back into markets. I think we saw the worst of it last Friday. That's a one to two day observation. That might change if they continue to shock markets. But we saw the safety trades blow up last Friday. We saw panic buying. The GDX miners etf. I think that got panic bought. I think that's rolling over. I think gold is getting soft right now. So I think these panic trades got bought. I actually Bought bonds this morning. Someone I might have to visit a psychiatrist or something. I bought bonds this morning. I feel like I need to make a confession. Four and a half percent yield. Well, they were a four and a half percent yield this morning. I was like, gee, I'm supposed to go buy bonds. Given the lack of confidence and trust, the attractiveness of that yield, others are going to do that real quick. Just doubling back to the previous point. The political angle on this, what's encouraging is that the consensus on Twitter and the real economy is that tariffs are bad. This is a big win. This is a big win for the United States and the world because populism usually works. It's like clickbait or red meat, right? China bad, Tariffs good. That's not happening. That's not happening. Which is great. And unlike the Q4 2018 period, Trump is flooding the zone with his own brand and his own voice and the constant tv. So he is linked directly to tariffs and therefore stock markets. And therefore if there's a recession, then that also this is very different than Q4 18.

B (28:05)

Right.

D (28:05)

So in 2018 it was a financial markets conversation. It was not a Main street voter conversation. Now it is. So if you get a bad NFP print, I believe he will have to pivot to preserve the political fortunes of his party in the midterm. So that's a constraint and that creates a Trump put. The question is, what's the exercise price? Is it a negative NFP print? Is it 5000s and P last Wednesday? It's harder suss that out.

E (28:39)

I said before that what would move him are one, the bond market. We've seen that. And two, Republican Party polls, approval in the polls. And Reuters published a poll this morning that the results came out on April 8, I believe. So this is post Liberation Day. We showed that 24% of Republicans disapprove of the tariff strategy. 20, almost a quarter disapprove. And that's just of the Republicans. Of the independents who arguably got Trump into the White House, the disapproval is up to around 70%. And the midterms are coming and they're Democrats. If they were a number more than 100%. Actually, no. So there's a small halfway in like 5% or something. Democrats approve of this, but that there's no, no surprise, no surprise there. The thing is the midterms and as you said on this is going to put the. Put in there especially because everyone knows that should the Democrats regain control of the House and the Senate, they're going to start impeachment proceedings almost right away. So this is something that everyone obviously is interested in avoiding. And because they don't even want to get up to anything close to that, we could see some pivot even sooner. And I think we mentioned this even last week. There's now seven Republican senators that have co signed a bill to unwind Trump's actions here. Seven's not going to get anything through. And of course we all know that Trump would veto even if anything did get through. But it's a sign that there isn't party consensus on this. And given the scale, given the audacity of what he's trying to do, that could also be where the Trump put.

B (30:16)

Comes in, I would add. So Rob was talking about stress in the markets and Joe said there's no sign that the stress is gone. Yes, it's lowered. And we have a few metrics. I talked about this last time we recorded. I like to look one of the things that's really indicative, actually surprisingly so, is the percentage of US exchange volume that's made up of ETFs. And when that number is like 35% or higher, that means there's a lot of people moving things around. It's like I like it better than looking at the VIX actually, or even the MOVE index which is the volatility of the fixed income markets. And so we went over 40% last week. Things got crazy on April 9, which was the day that Trump basically announced the pause when there was so much short covering into the close. But even today, volume is through the floor compared to what we saw last week. But that percentage number I was just talking about is still right around 35% which is very elevated. So there's still a lot of uncertainty. And ROM was somewhat like it's not trading in fundamentals. And the problem is people are trying to figure out are we just going to have a 10% across the board tariff or are we going to actually have a 50 plus percent tariff on China? Because the difference between those things is a massive delta on what is going to happen to the stock market. That's the way I'm thinking about it. I'm just looking at this stuff. And if you look at what happened April 9, you mentioned the thin futures liquidity, the market on close auction, which we don't need to get into specifics on this. But SPY is the most liquid security in the US and they have a closing auction and it's the S&P 500. It closed at a 0.9% premium, almost a 1% premium to what the underlying stocks were held which like does not happen in a security like that just shows like there's all these things out of whack in the market. I won't say it's broken, but that auction in that market, unclosed, was broken because it traded almost one full percent higher than the underlying value. And that goes back to what Joe was saying about like there's so much thin liquidity out there. Like there's a lot of these cracks showing up, nothing's like actually snapping yet as far as like I'm concerned and what I'm looking for. But there's a lot of things I'm looking out there where like the foundation is like a little weak right now. There's a lot of people concerned about stuff.

D (32:18)

Here's another fun fact for you. When you see moves like a 7% rally last Wednesday, you look at historical time periods when they happen in 1929, 1933, 2008 come up. By the way, I'm not saying it's those time periods. It's not you know, those bankruptcies unmasked, those obviously that smooth Holly tariffs back then. But this is still an iteration mode. You don't have a great financial crisis and they can change the policy and it all goes away. So it's not that. But yeah, this is where an actor can move markets. Right. Another interesting tactic by the way, if you've got a watch list every morning before the market opens, look at the pre market. You may find your assets that's on sale down 3 or 4% and you can scoop it up simply and it's taking advantage of these, the lack of liquidity in the market.

C (33:07)

Yeah, last week I, I tweeted about this or maybe is my telegram or something but the notional volume traded for SPY was the highest ever last week. It wasn't even close like the previous, I forget the previous all time high of notional volume and spy, but it just blew it away. And I mean you just look at the volume. It's crazy but this is like I guess to the point that you were making James, or I'm, or I'm drafting off it a bit. Is that a lot of the fast money traders, AKA hedge funds are trading macro products as opposed to individual names because of the lack of liquidity. So like if you're running, you know, a beta pod or a momentum pod and these individual names are too volatile or too wide in terms of the spread between them when you're trying to buy or sell them, you have to put that money into a macro product. And so macro products were massively bid last week. I should say massively traded relative to stocks. To your point, James, when it starts to get 35% or above, there's a thing there. And furthermore, if you look at the net exposure of these hedge funds, it would make sense that they are utilizing highly liquid products because they've all gotten very, very short. So there's a difference between your kind of gross exposure or gross leverage and net leverage or net exposure. Net takes into account how short you are. And there's a really fascinating chart that I think ROM shared previously, or I had it in one of my chats where the drop in that positioning is so super aggressive, which implies and, and the kind of gross leverage is relatively the same. What does that imply? These funds are getting massively short, but they're not able to do it as well through the individual names. Yeah, there's the chart. They're not able to do it as well through the individual names. So that they're, they're doing it with these macro related products, which is mostly your ETFs, like the IWMS, the SMH, the QQQ, the SPY, et cetera.

D (35:16)

One last point on that chart by the way, is what you're seeing here is that the hedge fund net exposure levels are at the 0th percentile looking out over the last five years. So net exposure is around 40% by the way. So if you own the S&P 500 index as an ETF, your net exposure is 100%. Your beta is one with the market. So their net exposure is 40%. They are in a crouch position right now. And that's why to Joe's point, they're using liquid ETF products because they can be dynamic and change based on the news flow. But that's also creating the knock on effect to individual securities in the market are getting kicked around because there's lack of liquidity. So it's not a bad time to go research and find opportunities that might create as a result of that.

B (36:05)

Yeah, real quick, I was writing research almost 10 years ago talking about how ETFs are used as liquidity valves for the exact reason you're talking about. Everyone kind of coalesces and liquidity aggregates in places. And it's funny, 10 years ago what you guys are saying right now, everyone knows it in the markets, but 10 years ago there were a lot of people, old school traders who thought they were weapons of mass destruction and were going to destroy the market. So we would write these notes about them being used as liquidity valves and all these things. And we got ripped apart by a bunch of really big name hedge fund managers saying that the, the ETF industry holding high yield bonds and these different things were going to cause like the next 1929 type crash, 1987 type crash. And just want to point out as an ETF analyst, these things have held up tremendously. Well, obviously I said there was a few cracks, but yeah, things, if you're using these things, they're doing what they're supposed to do. All right, before we dive in, we're going to get into a little more crypto stuff, but we got to hear a little bit more from our sponsors.

C (37:04)

Hey everyone. Matt Hogan, CIO of Bitwise. Are you watching these tariffs roll in and out of the market and wondering what the long term impact is on crypto? Well, in this week's CIO memo I look at how bitcoin's recent performance suggests that the crypto market has strong underpinnings and is positioned to recover sharply once the broader equity markets stabilize. You can find out more by reading reading my memo@bitwiseinvestments.com CIO memo carefully consider.

D (37:35)

The extreme risks associated with crypto before investing.

B (37:39)

I'll go to you Noel. I mean do you have anything to add and what we were just talking about and if not like what does all this mean as far as you're concerned? You write, you know, crypto is macro. Now is the name of your newsletter. What does this mean for bitcoin? What does it mean for crypto more broadly? And then I want to get into a little bit about stablecoins because they're still the hot topic of the day.

E (37:56)

This is the realignment I've been writing about for two years. It started two years ago when I left Genesis. I wanted to focus on the impact that crypto could have on the macro economy writ large. And I'm not necessarily talking about fund allocations, although obviously a lot of that as well. I'm more interested in the de dollarization but I do not mean moving away from the dollar. I do not think bitcoin's ever going to replace it. What I was talking about is the alternatives that countries bullied by the United States and I use bullied in air quotes because there's often very good reasons such as sanctions for invad believed by the United States are going to be looking for an alternative. That's also why I focus on CBDC development. That's also why I focus on the search for alternative whales and the use around the world of stablecoins. And it is just weird, James, to see what I've been writing about one day might start to happen actually, or cascading through right now. And this is something that I'm not alone in focusing on this. I mean, the Moran paper that outlined a hypothetical strategy for the Trump administration in using tariffs to bring everyone to the table to solve the issues with China as well as the security umbrella. He did mention that there would be a lot of volatility and which assets would do well. He said probably gold and cryptocurrencies. Why? Because when you have such fractures, such breakdowns in the established order, new ideas do need to come to the service. And when you do have a need to move away from the established dollar denominated system for survival, if just for flexibility, then again, there are new types of assets in the toolbox. For our first time in our history, there are. There's a new asset in the toolbox. It matters to me also if I can just one more parenthesis, not just for the geopolitical toolbox here, not just for nation states to be able to pay each other for the trade in whatever currency they want that cannot be controlled or sanctioned by the United States government, but also for individuals. When there's huge change, we know that does lead to clampdowns, we know that does lead to greater repression. And for the first time in our history, individuals have a new tool in their box for greater resilience.

D (40:05)

Just one quick side note, detour, if I may. We'll come back to the kind of crypto in a moment. I would say one narrative we keep hearing is to quote, bring people to the table. That's all nonsense. It's very easy to bring people to the table. You deny them access to US Intelligence, for example, which you'll have everyone respond immediately to the table. Right. The United States created and led World bank and IMF and the WTO and their headquarter in Washington D.C. so the U.S. can summit anyone to the table at any time. Of course they're responsive. If not the US then who?

E (40:41)

Yeah. And going back to the debate that you mentioned earlier, I mean, David Sack was saying, you know, we got 130 nations beating their way to the door. And I think it was Larry Summers who said, you really think they wouldn't come if they were asked? And why did nobody ask them before.

D (40:57)

You make a phone call? That's it. It's not about coming to the table.

E (41:00)

Yeah, it's not that they couldn't bring them to the table, it's that no one actually thought of it.

C (41:04)

But, but let's take one other maybe viewpoint here, which I'm just somewhat playing the devil's advocate here. Trump ran on a very populist centric platform. And when he was out there during Liberation Day, did he have a bunch of suits from Wall street there? Nope. He had a bunch of Teamsters and folks from the auto industry, blue collar Americans working. This is really good tv. And Trump is, whether you like him or not, really gets how to do things for tv. And that has been part and parcel to, I think, the rollout of a lot of this. You're right. We could absolutely just cut off U.S. intelligence or simply ask. That's not good TV. Right. And I know this might sound a bit ridiculous, that like Joe, it's the President of the United States. The President of the United States has been in the spotlight, the limelight and TV pretty much his whole life. So that's not going to change. And so by showcasing, I think, or at least trying to think about it, not so much like, which sounds ridiculous, intelligently like he could have just picked up the phone or cut off the intelligence, which is true. Think about it, from the populist platform.

D (42:25)

That he's been running, I think you're right on. Look, I mean, Trump said when he ejected Zelensky from the office, he said this will, quote, make for great television and this is how he disintermediates the media. So I think you're 100% on the mark. That's exactly what it's about. I do think they miscalculated the fallout and impact to markets and the impact to jobs and the identification of him to the policy and to these consequences. So this is called blowback. I think that most of the first X days of his presidency, he executed very well by any independent measure and standard. This time he poked people on the eye, people in his base, small businesses that vote Republican. You guys see this meme? I got to share this meme with you. So tariff exemptions, there you go. You got Apple, Nvidia, Dell, Big Tech, the CEOs of whom and their employees generally vote Democratic. Or maybe they were influencing free speech in a way that didn't advantage Trump. Right. It's not Trump's based. Then you have the automakers here and then you got mom and pop businesses there on the bottom. Those mom and pop businesses are disproportionately Republican. So the outcome, the impact relative to the base is different now, he had to address this one because this would hurt the stock market. Right. He was getting the phone calls from people in the stock market. And if Apple Nvidia have a 25% tariff and that impacts earnings, then you're in a sustained bear market. But, yeah, it's just a lack of coherency in objectives and approach. And it's the process of Trump doing discovery in real time on TV with the global economy.

E (44:18)

Yeah, I like Joe's take, which is this is a lot of chaos, which is distressing and it's exhausting. I imagine everyone's as exhausted as I am. But a year from now, will we look back at this as having marked this shift, or will there actually be a change for us to be talking about? In other words, this feels like it's systemic, it feels very noisy, but maybe it is just a pebble in the road.

C (44:44)

Yeah, great question. If anybody knows the answer, that would be great to share with us. I think there's a couple other aspects that clearly get lost in the shuffle with respect to the populist platform and the way that Trump, you know, kind of plays the media and does it really well. There's an entire set of deregulation that, you know, I think gets lost in shuffle. That's going to be coming. You have some details of the tax cut and extension of tax cuts that are coming. I also think that, that there was some, yeah, little. I'll give this a smaller weighting, but some speculation that some of the moves in the bond market last week were trying to front run the slr, you know, reduction. I don't know if that's gonna happen or not. Maybe it still will. I guess my point is that while the media and certainly Trump and, and you see with Lutnick and, and even Besson, other members of his team are out there banging the drum on tariffs, saying one thing, saying the opposite thing, saying another thing, saying the opposite thing. Again, there's all of this, these other kind of like levers that they're going to have to pull later this year. And so if you're going to really take a huge swing, you probably should do it right at the beginning of your presidency such that you can backtrack, slash, make it up, make up for it before you get to midterms. Because we all know that if midterms were tomorrow, Republicans are toast.

B (46:16)

Right.

C (46:17)

I think that's part of the reason why there's taking such a big swing now is you're going to see tax, tax cut, you're going to see debt regulation, you're going to see, I think likely see the gutting of Dodd Frank to some extent or serious changes to it. And that's in theory going to release a credit boom and cycle throughout the economy to hopefully to make your, to your point rom make up for all those small businesses that are struggling because there's going to be, call it infinite capital flooding the markets at that point.

D (46:45)

By the way, I think you're right on the mark. Look, if they had the deregulatory agenda and tax cuts up front, you would have stoked inflation. So they had to start this way. So I agree with all that. I think they just miscalculated the impact from this. And here's the other risk. The economy is at a close to a stall speed right now. You got 1% real income growth on the consumer. We're seeing weakening all the soft survey data, does the hard data roll next? Capex is pulling back. By the way, speaking of deregulation, these tariffs are the opposite of that. People are trying to calculate how much aluminum's in a car coming into port right now. It's like the worst form of re regulation and there's no rules for but they need to have it regulated. So they're trying to do stuff on the fly and they're impeding business getting to work too. So it's having an opposite effect now. But I agree they'll look your broader point stands. But if they don't intervene quickly, economies have their own momentum to them. President can lead, he can inspire psychology, lead with confidence, create clarity, unlock capex, unlock consumer spending, reduce anxiety, levitate asset prices or at least lift them. If they don't and you get a recession and then deficits go up, tax revenues drop, then I think they're going to be hurt in the midterms because they can't control the economy. Their levers on the economy right now are significant because there is no recession yet or if there is, they can mitigate quickly versus the cost of mitigation six months from now. It's hard, it's very difficult because economies have their own natural momentum. So I, I think they, they, I don't know if they recognize that yet.

E (48:36)

It will be interesting to see if they, they can't control the economy, sure, but can they control the narrative? And you know, as Joe was pointing out, he's very good at that. Trump is very good at that. But can he control the narrative this time? Do you guys think, I have a question. Do you guys think the passage of any crypto bills in the next few months will start to reignite interest in crypto again because it feels like it's, it's been marginalized with all of the noise and all of the attention even from, you know, crypto diehards like us. Crypto feels like it's being left behind. Thoughts on that?

C (49:09)

I'm really glad you brought this up because Tim Scott just, I think yesterday on Sunday mentioned that he expects the, there to be clarity and frankly regulation passed by August of this year, which is pretty impressive.

E (49:25)

Like tomorrow.

C (49:26)

Yeah, exactly. Now, now the, I do think, and I mean this is just my personal opinion, of course. I do think that the, the level of effort involved thus far, yes, tariff and trade policy has been the dominant theme for, for weeks now. There's a lot of stuff that, that has come to fruition under Trump thus far. Right. Whether it's, you know, the freeing of Ross Ulbricht or various other aspects. The SEC is kind of obviously changing their tune a bit, et cetera, et cetera. I think it's fair to assume that there's a good chance this regulation gets passed by, by August in some capacity. Will that reignite interest? I don't know because I certainly didn't box in 20 plus percent on average tariffs from Trump and the way that it was messaged and rolled out at the beginning of the year because my anticipation was there was going to be something that'd be probably like walking back, working back and forth and then the Kirkland stuff will be happening in parallel and people will care about that for all the reasons that we love. That's just not the case anymore. And in fact, it doesn't actually benefit the argument to be like, yeah, the United States is a great place to launch your crypto company and be involved in crypto though, when it feels like the trade policy can be interpreted as, as isolationist or frankly aggressive towards these other countries that we want to be doing business with. So will it ignite? Hopefully. Volumes are pretty bad. Markets are pretty sideways. I mean, I'm seeing stuff like in my, my telegram news feeds now, like whale deposits $5 million into hyper liquid and goes 5x long on Ethereum. I'm like, like this is news now. Like what? How is this news crazy? That's where we're at. And so I really hope something ignites it. If not the policy, it'd be something else. Yeah.

B (51:31)

I want to say two things. One part of the reason, like it goes back to something we keep talking about and the fact that crypto, like there are Idiosyncrasies, obviously. But like even bitcoin, it's a risk asset, right. And like I look at it just, it just gets clobbered when risk assets get clobbered. And part of what happened, we were talking this like the economy was slowing a bit. The Trump election was almost like Rom called it like a cut, like a dovish cut when Trump getting elected. But like no matter how you look at things were like turning over a little bit. We had really high multiples. I mean the S&P 500 shooting 22 times forward earnings and then those earnings as well, like the E on that PE multiple, those earnings were really high. So like you, those earnings, there's no way we're going to hit the earnings that people were expecting like just two months ago, three months ago based on what's happening here. So like we were kind of at a point where like what Trump did like could really, like it really hit things pretty hard. The problem is going back to what Ron was saying, like the, and, and Noel, like the messaging is hard because like yeah, it's kind of hard. Like once an economy's taking off or going down, it's really hard. It's like a oil tanker. It's really hard to like stop it from turning over. You got and same thing with inflation expectations, all these things, it tends to move in that direction. So at some point they got to do something, pull the nose of the plane up here. But I think a lot of it just goes back to one, is bitcoin a risk asset? Obviously right now it is. And the rest of crypto is trading that way too. So it goes back to people just don't care. I have had a few people asking me questions. They're like, I'll be honest, I haven't looked at a single thing crypto related aside from a little bit of flows and a little bit of like looking at what's going on the bitcoin and other coin prices. Like I've been focused on completely other things. I'm sure you guys are mostly in the same camp here. Yep.

D (53:19)

Yeah, I concur. This is a chart showing the Fed Home Loan Officer survey or Fed Loan Officer survey. It's a, it's a metric to get a sense of bank lending. So like a dot does not a trend make, but the dot's going in the wrong direction. Right. So this measures tightening of lending standards. Think when mortgage rates are higher, 10 years higher, banks are tightening on the margin. Does that continue?

E (53:43)

That's defaults, Defaults, bankruptcies, are ticking up so banks have to be more careful about lending.

D (53:50)

The big irony is this, and I pointed this out when Trump got elected, even before he got elected, I said Trump's election alone is like a stimulus package, the real economy, because of what it means for a real world, real economy. Animal spirits, people that run small businesses. And you saw the NFIB survey hit multi year highs, consumer confidence, multi year highs. I remember the day after the election I walked into like a local auto body shop. I had to replace a fuse in my car or something like that. And the store owner, obviously small business owner guy walked out. I don't really know any of them from the hole in the wall, they smile at each other, they high five and they say, Trump's going to fix everything again. Now that interaction took place around the United States and families, small business and household times a million times over. And that is what confidence that animal spirits is viscerally on the ground. People making a decision to hire. We saw an NFP print that came out with 200,000 jobs created, but that was based on decision making done a few months ago before the soft survey data hit us. That's the issue. So when Trump got elected, it was like passing a stimulus package without spending money. Kind of amazing, actually. Kind of amazing, right. But now is he unwinding that? That's a concern that I would have. If you have cattle ranchers that are saying, gee, like I can't get farm hands now. Right. So that, you know, you've seen latent bank lending standards starting to tighten and you're seeing capital markets that are effectively frozen. So it's hard to create financing for the economy, less IPOs, et cetera. So that's the concern. Like he, I mean he, he, he was like the golden goose, like latest animal spirits package on the economy. They took it away with this tariff stuff.

C (55:43)

Yeah. And I think one of the things you mentioned earlier was that they used the phrase ptsd. There is in my opinion real psychological damage to the markets, let alone animal spirits, where we can easily, you know, trade back up to S p, s P500 to 6,000. And it just, everybody sees as an opportunity to sell again because they don't have confidence anymore. Given the psychological damage from, I mean myself, a number of folks I know in the markets were, you know, we knew that there was like going to be some stuff with Trump, but like come on, it's Trump, the guy loves the stock market. He talked about it non stop in his last term as well as this pro business agenda putting all these people around him. I think having that kind of, to your point, those guys high fiving each other in the hardware store to where we are today has psychologically broken a lot of people that are involved in the markets. And that it, it's, it takes a long time. Well, it can take a long time to get that back.

B (56:54)

Right.

C (56:55)

And, or there can be things that can immediately stimulate or, or kind of reignite the animal spirits. And we saw this during COVID with you know, interest rates going to zero and, and helicopter money being flown out to everybody. Right. The recovery now was aggressive. Obviously we were dealing with a lot of the results of that now. But my point is you can actually get, you can get an accelerated version of the animal spirits coming back. But that does require, you know, full blown confidence building from either folks like Scott Bessant, Jerome Powell, if, let alone the President of the United States, 100%.

D (57:38)

I thought it was a great point you raised there, Joe, around the behaviors that people are trained on now. So this chart is, excuse me, the s and P500. And you can see the different exponential moving averages, the 20 day, 10 day, 50 day. And what's happening now is people are being trained to sell these indices when they hit those moving averages. I myself bought SQQ today around noon.

B (58:08)

Just for those listening. That's triple leverage short the NASDAQ 100.

D (58:12)

Just to bring my net exposure down, by the way. Like I'm a long only kind of have to be given what we're doing here, but just to risk manage because when it hits that level, it gets sold off. So bear market psychology is like a real thing. And you have these two to three day ripping rallies and then you have these leakages. And so it's kind of like a funk that you have to get out of and you need some electric shock therapy to do it. So I don't know. So I think, Jody, your point, that's where I spend my time thinking about actually is I don't think the market even knows right now. I think the market is a highly reflexive state, as you said, driven by news flow. And it's asking itself to the day, are you in a bear market or not? Because if you're in a bear market, I'm supposed to sell it right here. Or can we ride higher on good earnings with limited guidance? Given the fact that you have conditions for a rally, the net exposure positioning is very, very low. People are extremely short. So any positive news flow is like a match on a tinder that'll light up and Cause a big rally. So that's there too.

E (59:29)

And that's even pre stimulus announcements. I mean, not necessarily talking about stimulus in the U.S. although that's certainly not out of the question. We've already heard many governments come out and say we're working on stimulus to support businesses through the tariff turmoil. And we can be pretty sure China's, you know, loading up the bazooka. So stimulus around and again, going back to crypto or gold. They are global assets. They will benefit from this kind of thing much more than say U.S. equities would. But stimulus is going to be an animal spirits feature and it obviously has to come if indeed the economies continue to slow.

D (60:05)

Have you ever seen an environment where there's this much thickness of tension right between the short term and the long term? I mean it's, it's incredibly thick, right, with the high vix, the technicals versus the fundamentals that, I mean it is, it is a, it's really a highly unique time in markets right now. So if you're, if you're paying attention every day at what's happening and studying markets, it's an incredible learning opportunity at the very least. But I don't, you know, I go to you, Joe, it's like, how do you think about the repairing of psychology? I do think that's the fundamental thing, but you need consistency across those voices. Not just inspiring psychology, but you need Besant and Lutnick and Trump to be consistent. I'm not seeing that right now.

C (60:56)

That's the part that's missing. That's the flooding the zone. That's the we don't have our shit together. We're saying various things that are counteracting each other. We're not all on message. That is the easiest way to I think reignite animal spirits. And I think there is something to underscore to your point around. There's a lot of fuel on the short side with a lack of liquidity that could really ignite the moves that you could see a face ripping rally. And the way that I look at it is I go as a trader from basically when Trump got inaugurated until last week, they've all been pretty much like talking the markets down, saying things that are not favorable to the market. That kind of changed last Wednesday. And yes, even though we had some contradictory statements over the weekend, the question is like if we were trending down, meaning that they were talking the markets down or the rhetoric seemed to be very bearish. Are we just was his thing last week with the 90 day pause was that just a blip and we're going to keep having more bearish commentary come out of them. Or do we think that Trump's probably bottomed on the bearish conversation? Because let's be clear, fundamentals don't matter. Technicals kind of matter. The only thing that matters right now are headlines. I would not want to be short a tale to Trump because, like, there's great. People are massively short right now. Hopefully it fuels a short squeeze rally. But Trump can literally say one thing and just blow you up. Right. Like blow you up figuratively in the markets. Right. Probably the same in military as well. But that's just besides the point that I would not want to be. I would not want to be short Trump headlines like, oh, he's going to keep talking down the markets after he talked down the markets for the past two months. Let me press my shorts here. Like, it just feels like to me, the probabilities likely favor positive commentary coming out of Trump and the broader Trump administration, even if it's not consistent, versus more and more and more like bearish pain heading into liberation.

D (63:15)

Yeah, we'll see. Deals. Deals will be bullish. And the other positive news flow will be Ukraine. He is pushing for a peace deal with Ukraine. That's on the bearish side of the ledger. If he pushes for Fed independence and tries to replace Jerome Powell, whom he nominated, of course, few years ago, I think that's bearish for markets. You know, he, he floated this concept, I guess, at the Supreme Court around his ability to replace top agency officials. Powell was indirectly implicated in that.

E (63:45)

Yeah, but I think he'd get market pushback on that, which would encourage him to just wait a year. Powell's changing. I mean, he's at his term ends next year anyways, so. Yeah, that. I, you're right, it's a risk. I've heard people. I've heard people express concern about that risk. But I think the bond market would send a very loud message before then.

D (64:03)

Meaning markets were tanked. That's what market pushback.

B (64:05)

Yeah.

D (64:06)

Right.

E (64:06)

Yeah.

B (64:07)

I also, I would add to Rob, when you were talking about how thick markets are, I think a lot of it has to do with the fact, with what Joe was saying, with that no one explicitly said it. But like, so much of this is like, dependent on what one person is thinking and saying and doing. Like, it's literally one person at this point that could like, completely decide to fate, like a whole. I mean, maybe it's happened, obviously it has happened before, but this is like unique in My lifetime where it's like, this guy could blow things up or not. And, like, it's just up to the whim of what?

D (64:33)

He's in Uganda and Zimbabwe and, like, Costa Rica, I think, like. So the S and P has got a like, 19/2pmultiple on it right now. Okay. Is it priced for that uncertainty? It's a price for that uncertainty to earnings and capex and growth.

E (64:52)

No. Interesting to see what the earnings calls are like over the next few weeks.

C (64:55)

Well, like. But wait, wait, wait. Okay, I gotta push back. Why are we even debating PE at this point? And I mean this genuinely, because we are. We are saying it's 19 and a half, probably above the average, like, call over the past 20, 30 years, whatever it is. But, like, literally tomorrow, Trump could just completely 180 everything. And then what we're trying to forecast from a fundamental standpoint is kind of irrelevant. And so the only reason I'm pushing back ROM is that, to me, it's a flow story and news story. And until there's any form of, like, consensus from what the White House and the Trump administration broadly are going to do around these policies, we're kind of like. Like, these metrics are useful to probabilistically weigh certain outcomes. But the S and P at 19 and a half PE is irrelevant if Trump tomorrow is like, I'm firing Jerome Powell and putting in my own guy to cut rates to zero. You know what I mean? It just seems kind of crazy.

D (65:48)

I think the news flow is the primary thing, but the multiple reflects the psychology. And either the psychology is expansive and optimistic and looking out into the distance, and at 22 times during where we were before, we were forecasting Elon Musk putting people on Mars, that's how in the distance we were looking and building semiconductors in Arizona. Now, people are tactical and solving for tomorrow's bread, that's a little bit extreme, but you get it. We've gone in the other direction. So let's say we get clarity. I do think we'll get deals faster than people think. People are like, oh, there's 87. Who cares? You got to prioritize. Mexico, Canada, Eurozone, China, okay? Focus on those four. You'll get clarity on those. Japan, and you'll get faster velocity because Trump can choose to get a deal. He's the price. He's the term setter. If he wants a deal, you can get a deal. So I think I'm actually more bullish on that part of it. However, when psychology takes a gut punch like that, I Don't think it gets up off the mat that easily. And then people start saying, Gee, Costco 52 times earnings, Walmart at 32 times earnings, weaker consumer retail spend going to pull back an elevated inflation. I think it might have taken the market focus on the optimism to the concern side of the ledger. That's it. Meaning like that multiple is like a pendulum. I don't think you're going back to 22. I don't think back to 20. Can it stay even at 19? I'm not so sure of that either. I do think, just to be clear, it's a very nuanced kind of thing happening here. I do think you're an intermediate term rally probably through June or July that I have pretty good conviction on. At that point though, I'm going to reassess, see what the hard data says. I might have to look for an exit, I don't know.

B (67:50)

Related to that time range. If we look at the Fed, basically we had speeches this weekend or interviews, wherever you want to say that took off. May cuts, which some people were starting to price in. We're basically completely token up the idea that the Fed is going to cut in May. It looks like people still think we could cut in June or at least July. That's where the market is pricing. They're pricing for two cuts by September, which would be pretty aggressive. So that's one of those easing things that we were talking about. The other thing, I have a colleague in Hong Kong and she wrote a note this week that it's called the national team in China. It's almost like they do a bunch of things to prop markets up. They think the China's national team could end up buying $100 billion of ETFs in China to kind of buoy things. We've been talking about this since July of last year. I feel like Joe was the expert at the time. China's gonna shoot a bazooka at some point and maybe Trump forced them to produce one of these, you know, quantitative easing type bazookas into the market, which is something that could be very good for risk assets, particularly like the crypto markets. I don't know thoughts there on like the potential for like this qe, maybe even fiscal policy type stuff that could, could really send easing things, not just Trump's headlines.

C (69:04)

Yeah, I mean the, the, the foreign exchange market is what I'm primarily focusing on right now with respect to China because they allow their currency to devalue last week. They historically have pegged the dollar or pegged Their current the yuan to the dollar at a fixing rate. And there's kind of this $7.20 line in the sand that has been breached, allowing them to devalue it. Well, part of the reason that they can do that is it makes their exports cheaper, thus potentially offsetting tariffs. That's generally how you can interpret that. There's obviously nuance there. However, when there is a devaluation of the yuan from pboc, there's typically a narrative around capital flight that picks up. And what is capital flight? Well, there's roughly $60 trillion worth of deposits in China right now. If the value of that starts to go down, people will look to get their money out of China. And we've seen. We saw this in 2014 and 2015. There's been cases of this in. I'm specifically talking about bitcoin benefiting from this. I believe it was 2018, don't quote me on it. But there has been precedents in the past where the narrative of capital flight out of China for justifiable logical or macroeconomic reasons causes or can correlate to a rise in the price of bitcoin. And so back last summer when we were talking, James, the thing I was looking at out of China is, yes, a massive stimulus package in some capacity as well as M1, not M2, money supply expansion. We saw that, believe it or not, in January, but it was actually the way that they were recalculating the formula, so it didn't count. Now we're starting to see this devaluation of the yuan, which can then affect, clearly, things like capital flight out of China, which, again, historically, that narrative is super bullish Bitcoin. So how do you track the narrative coming up? It's kind of challenging, but if you see what's happening with the price of the yuan, if they. If they can bring it back below that 720 mark, I think that should be somewhat interpreted as China is looking to get a deal done with Trump. If they continue to let it devalue. I see that almost in the opposite direction. It's not a perfect proxy. So in the case that they continue to devalue, that likely benefits bitcoin and they're going to have to do monster stimulus if the currency continues kind of strengthens back to where it was. I kind of interpret that as the possibility of they get a deal done.

B (71:47)

Fascinating. I haven't heard anyone say that before. I haven't even thought about it in that way before. So that was interesting. No, you were nodding your head.

C (71:54)

I am by no means a Chinese expert either. Just trying to read the tea leaves.

E (71:59)

No, I totally agree with what Joe said. This is something that I have been keeping eye on for quite a while. And I'm on the record as saying that I think we're going to start to see something that looks like crypto legislation come out of China probably soon. And with all this, probably sooner. It's a very similar situation to what we've seen in Nigeria, In India, they don't like the idea of crypto being used for capital flight, but they know it happens, so they might as well just bring it, make it, bring it into the legal territory and keep an eye on it. We're going to see licensing rules for crypto exchanges. And again, even if the individual savers put a teensy weensy, weensy, tiny part of their savings in something that does not represent anything tied to monetary policy, that's still a huge amount. And you got to also look at the. It's likely that China would be quite happy with its citizens putting part of their savings into something that has nothing to do with the United States policy. Bitcoin is a global asset here.

D (73:00)

Do we know what percentage or quantity of Chinese nationals leave the country and they're using crypto as a vehicle or bitcoin as a vehicle? I, I would want to understand that because clearly they have, they have controls. I think it's like $75,000 per year, 50,000 per year. It's de minimis.

E (73:20)

They do. But apparently it is not too difficult if you have a certain level of wealth and we're not even talking huge amounts, they're sort of middle class and up to have accounts in Hong Kong that will help you do that. And again, there's a big difference also between using bitcoin and using crypto. Most of them prefer stablecoins for some reason.

D (73:41)

It's hard for me to imagine that the Chinese Communist Party would get behind a decentralized currency that can be anonymous, that's not subject to their control and oversight.

E (73:53)

Yeah, they don't love it. And they're on record as saying we don't love it, but we know that trading in this happens and so we might as well monitor it.

D (74:01)

Monitor? Yes, monitor and control to the best ability. I'm not saying that's the. If I were the United States, I would encourage China to adopt Bitcoin and I would do the exact opposite. I would say, yeah, you've got to adopt digital currencies. Stablecoin backed by US Dollars, Bitcoin because it's not in China's interest. You need. The two things that hurt China are capital mobility and people mobility. I'll tell you interesting story. I spoke with this entrepreneur from China, now lives in the United States, pays American taxes. He has manufacturing of components for H vac builders in the US From China. So he's impacted by tariffs. I said, what are you going to do? He says, oh, I'm just going to relocate manufacturing to the us he's actually taking the Luton decline. He actually can use robotics and his very narrow use case, which doesn't apply to Nike sneakers, just to be clear. Okay, but the funny thing about it, like this policy is impacting him. He's not even in China. He's changing his production. So when we talk about tariffing China and who's paying what costs, like it's, it's actually individuals like him that are making decisions and the guy's already American and paying taxes, by the way. I thought it was a, I thought it was funny. But the main point I'm making here, that if you want to weaken China, you do three things. You encourage crypto adoption in China and stablecoin. The golden passports, I think are brilliant. You get as many wealthy Chinese nationals to pay for that and move to the United States with their wealth assets. Know how China doesn't actually make things. It's entrepreneurs in China that make things. When China entrepreneurs move, the Chinese government loses productive capacity. That's the know how. And the other thing is, yeah, free speech. Enable satellites above, like from Elon Musk to drop access to Twitter. That's how you do. And the fourth thing is you make open game for cyber attacks on China ip, including their battery technology at byd, where they're ahead, they're, they're cyber attacking the United States. Just make it fair game and make it open source. Open IP for the world. Make it a gift for the world. Give China back what they're delivering to the us Those four things you will. And you don't need a trade war for any of this stuff.

B (76:15)

That's Rom's playbook. If he ever becomes Trump's position. All right, we went way over here, so I'm just gonna shout out a couple things that are happening this week and we can talk about them next time. We wanted to get in stable coins, which would have been a great transition there, but we didn't have time. But the Trump meme coin is set to unlock this week. April 18th. They're releasing 40 million tokens, currently worth like 330 million like 20% of the circulating supply. So that'll be fascinating to see how that goes. I wonder how that's going to go. I don't know if anyone has any thoughts there, but the other thing I wanted to say is one we're get we're getting postponed on e staking and a bunch of staking things here in the US for ETF side of things. But one thing I did want to point out is this week we have four I think four Solana ETFs launching in Canada. All of them will do staking different levels of sharing of that yield. Canada is always first. My expectation is this will happen later on this year but we're going to see 4 salon ETF list in Canada this this week and they will all have staking so that'll be very interesting to watch. I don't know if anyone has final thoughts before I wrap up. Noel, you look like you kind of wanted to say something, but if not I can just wrap.

E (77:21)

No, it's been a great discussion and again so much more we could have got to I will address I've seen somebody put in a comment how did I manage to move my furniture around since I another podcast I did earlier today. I didn't. I really, you know, wish I had time to didn't move my furniture around. I felt that I felt that needed to be addressed.

B (77:40)

Okay, I All right, we'll we'll start with stablecoins next week. Actually I won't be here next week, but stable coins will have to be the topic of the suggestion there. Everyone's bullish. We were just talking about what it means for us dollar and things like that, so. All right everyone, thanks for joining us on the live stream. For those listening to the recording, thanks for joining us for the this episode of Bits and Bips. We'll be back in one week to discuss more about how the world crypto and macro are colliding. Until then, everyone.