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BTC229: Trump Tariffs, Market Chaos, Bitcoin Impact w/ James Lavish
01:01:32
Preston and James dive deep into the shifting tides of global trade, monetary imbalances, and political infighting. From tariffs to treasuries, what's really driving the disruption?
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- [00:01]
Preston Pysh
You're listening to tip.
- [00:03]
James Lavish
Hey, everyone. Welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. On today's show, I bring on Wall street veteran and macro expert James Lavish. During the show, we have a candid back and forth about the Trump tariffs and what the impact in game theory looks like moving forward. We talk about how it's impacting fixed income equities and bitcoin. We also get into how the US Might navigate things from here and what's expected ahead. This is a discussion you will not want to miss. So with that, let's jump right into it.
- [00:35]
Preston Pysh
Celebrating 10 years, you are listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pysch.
- [00:53]
James Lavish
Hey, everyone.
- [00:54]
Welcome back to the show. I'm here with the one and only good friend, James Lavish. Welcome back to the show, James.
- [01:00]
Thank you for having me, Preston. Good to be here as always.
- [01:03]
Dude, we gotta talk this tariff stuff. So. My gosh, this is wild. I think everybody was expecting Trump to have, like, this cat and mouse. It just can kind of like, continue on a lot of talk. Maybe he puts something on one country and then he haggles over that for a bit. And the market was pricing this. And you'd see a bunch of volatility in the market, but just somewhat normal. And then last week, it was like, it almost came out of nowhere, or at least that's what it felt like to me. It was like, no, every single country on the planet, this is your new tariff rate. And go. And I think the market was just, like, completely off guard.
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Blindside. But not just that, Preston, he held up that chart and it showed. Yeah, wasn't showing the reciprocal tariffs. It was showing the net export import of each country. And he's like, well, we're your biggest customer. Yeah, we're such a great customer. You're gouging us. And so it took the. Yeah, it took the market by surprise. And as you and I talked about many, many times before, markets don't like surprises. They don't like uncertainty. And it's interesting when you hear Scott Bessant talk about the treasury and. And the challenges they have and the dollar and the need for US Treasuries to come down in the curve and the long end of the curve. And this is all kind of. You would expect that this is some sort of big game of 3D or 4D chess that they're doing, but it almost seems like off the cuff, like you just said. It's just like we're going to kind of come out with a big sword, then we're going to start swinging.
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Yeah.
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And if you're in the way, you're going to get hit. And the market acted violently and obviously. And so for good reason. And this is not like a one time event where you have lockdowns and then you come out of lockdowns and things are transitory. Just put money printing aside, just pretend and then. Or if you have some sort of event that is kind of catastrophic to the market, like a long term capital manager or something, if you have things like that, they're one time things and they get cleaned up and you move on. But this is a changing of financial global order and that's what's giving investors pause. And they're, they're worried. There's so much uncertainty about just how the tariffs are going to be levied, who they're going to be levied on, what goods are going to be on the size of the tariffs, what kind of retaliatory tariffs are going to come our way. Like there's just so much uncertainty from it. It's incredible in the market. It's taken on the chin for it. Yeah.
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So I was just like doing a little bit of research there to see what portion of the US population doesn't own any part of the stock market. And it's saying about 39% of US adults do not own any stocks. And this is a 2023 figure out of Gallup that it gave me the source. And I'm not trying to substantiate any of this. I'm just trying to like wrap my head around the incentives that's driving some of the rationale for what they doing. And this Scott Bessett quote just keeps coming back to me the day after this was announced, which was this isn't a mag7 issue messing up the quote. This is a mag7 issue. This is not a maga issue. Was the quote from the Treasury Secretary the day after. And I don't know, I think that's a really powerful quote. And he's basically saying like, hey, this is if you own a lot of assets in the US and you're a high net worth person, you're heavily exposed to the stock market. It seems like it's a you problem, but for our voter base it's not.
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Yeah. They're basically saying that clearly they're enacting policy that they feel is going to be good for Main street and they're not worried about Wall Street. They keep saying that over and over again. And that's the issue and has gotten investors absolutely freaked out. And that's what the market is trying to gauge. Okay, how much of this is gamesmanship? How much of it is they're talking down? That's the question, basically. Yeah. And how much pain are they willing to take in the interim? And the question is on that is, look, Besson keeps talking about he needs the 10 year treasury yields down. He needs along the curve to come down. Well, that means that he needs rates lower. Why does he need rates lower? He needs rates lower to finance and refinance the debt. You've got $9 trillion of debt that's coming due this year and over 10 trillion in a year. He's got a lot of debt that he's got to deal with. And the problem is that as Luke Grumman keeps talking about, the debt to GDP is just, it's through the roof. And so how do you manage this? Well, you've got the Doge Commission out there trying to cut costs, but how much can they really cut? Can they cut $500 billion out of the expenses? Maybe a trillion? I don't think so. I mean, that's a massive amount of fraud. I mean, what are you going to cut out? You basically have to cut all of the discretionary expenses to get to a trillion dollars. I mean, I just don't see how they're going to be able to do that. Or you cut back some of the entitlements. That would be kind of political suicide. Forget the midterms there. Right. So that's not going to happen. Or you could expand the tax base. Well, he's not going to raise taxes. He needs nominal GDP to go up to do that basically.
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Right.
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Because he's talking about lowering taxes. Or he can create a consumption tax through tariffs. That's what we're talking about here. Right. So that's another way to do it. It's a lot of consumption tax. The problem is that we are so financialized that you and I have discussed this before. We are so financialized that it would be wreckage in the markets and it would spill over to the economy. Because you've got so much of the economy is tied into the financial markets now. Okay, so but how much pain are they willing to take if they are driving the market down, Force the Fed's hands to lower rates and come in and maybe with QE or whatever to flood the market with liquidity to drive up that nominal gdp, how much pain are they willing to take on the asset deflation side in Order to bring down mainstream prices, bring manufacturing back into the United States. And that takes a long time. The thought of the regulations you have to go through, sourcing the land or the spot you're going to build a factory, hiring workers, building out the fact, I mean, like, there's just so much, so much. It's not going to happen. Yeah, not going to happen before midterms. Okay? So the question here is I think Trump and dissent, and I think they, these guys, they have their eye on the big prize. He wants to be on Mount Rushmore. He wants to be the president who changed the world order, got the United States back into a surplus, solved a debt issue, maybe put us on a bitcoin reserve that is tied to bonds. We've saved the whole United States. We're the leader in the crypto. We're leader in AI. We have manufacturing facilities here. We've solved the problem, bringing all of those workers and getting workers jobs here and solving that. The GDP is a lot of, it's driven by export import. We're net importers solving that problem because we export so much. I mean, we import so much. So how much pain are they willing to take? And here's a story. So I was telling you this morning, but there's a legend that goes around Fort Worth that there was a conversation that Sid Bass had with Richard Rainwater, the biggest hedge fund manager out here. He used to be one of the head investment managers for the Bass family. Their assets. Right. Their money. Well, anyways, they're buying up land and buying up buildings in downtown Fort Worth, apparently. And they were kind of letting them just go into disrepair. This is decades and decades and decades ago. Right. And they're just kind of like just the year after year, not putting any money into them. And Richard looked at, I believe it was Sid, he goes, you're just, you're ruining your, your investments here. Like, what are you doing? Like, you're just buying these things and just letting them sit there and letting them rot. He's like, Richard, you know what your problem is? Your problem is you don't know how to be really rich. And so for the people on the, that are listening, the Vast family is the, the wealthiest family in all, or they're worth tens of billions of dollars. And basically his plan was to let all of those values, the building values, the land values around downtown Fort Worth just dropped. And then they bought it all up and they did. And so they created something called Sundance Square. It's, it's a beautiful area. It's downtown Fort Worth, and it's all owned by the Bass family. They have their own police force there. And so this Trump does dissent deluding. Do these guys have that kind of patience? And I just don't know that they have that timeline to do that politically. Exactly what we talked about. I mean, politically, you don't have that time to do that stuff.
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Yeah.
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So you're talking about here trying to flip a switch and change the world order and on a dime. And they just don't see that happening. Which gets us to now, what's the negotiation tactic here? What are they doing? Because that's what it has to be. Right. It has to be a negotiation tactic.
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It's almost like they're taking a playbook that works at the small town or even New York City level real estate or something that happens at like a private business kind of standpoint. And they think they can just like.
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Plug that into like applying that same mentality to this. Yeah. So how is that going to work here? In 17 months, we're going to have. We're going to be embroiled in midterms. Right.
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So to this point. So to really kind of look at first principles, how did we get here? Right. I just look at since early 80s and you look at, well, why do we have such a massive trade deficit with every single country on the planet? And like, when you go far enough upstream to that question, what you realize is dollar dominance and the rest of the world arbitraging the dollar's value with their own local currency. Like, how this played out was the gutting of making anything and everything inside of the US and having everybody else in the world make these physical things that are then imported into our country. And what do we do as a country for decades is we stuffed paper promises down their throat for these physical things that were delivered to us, literally exporting inflation. Yes. So when you look at how long this persisted and how it incentivized this dollar network effect, which was our. Luke says this all the time. Our number one export was U.S. treasuries. Right. And that gets to this idea that we were shoving these paper promises down the throats of everybody in the world in exchange for all their physical things. But if we think we're going to, in, like you said, 17 months, turn the tide of this water wheel that's been spinning at a breakneck pace for 40 years, I think we're kidding ourselves. I think they're in this weird spot where they thought they could really kind of. All those promises that you said that I think Trump sees himself on the Mount Rushmore and like all the ego that goes with basically wanting to be that historical figure was completely, like out of touch with reality and how quickly something like this could take place in a single administration.
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And that right there is. Okay, so now are they really out of touch, though? He is not a dumb man.
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Now a lot of people out there.
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Who think that Trump is just, he's just wild and crazy and he's just a big risk taker. I've heard over and over again that he does his research. He does not just throw these things out offhand or half heartedly. He does float things to see what the reaction is, I'm sure. And he does do that sometimes just to get a certain reaction. Well, this may be that exactly that kind of tactic where he turns around, he's floating this idea, and it's not really an idea. So now he's like, the hammer's come on down. Everybody's going to get a 10% tax across the board. That should bring a lot of countries to the table to negotiate. And if it doesn't, then this tactic has failed. But I think that it brings countries to the table to negotiate. And they know that they're not going to be able to negotiate these things in nine days, eight days, seven days, like this is going to take time. And so one thing that I was reading this weekend too is Bill Ackman said, oh, it makes sense for them to just postpone the deadline and saying that. Are you bringing up that tweet right now?
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No, no, no, no, go ahead, keep going. I'm laughing about something else. I'll say what it is after you're done.
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Okay, so, but what I was going to say is that it would make sense that they would save face and say, hey, we got 50 countries that want to come to the table. We're going to give them a chance to negotiate and we're going to get something out of it. The reality is that what they want to do is they want to win. They want to put the United States in a better position than we are now on these tariffs and our trade imbalances. How do you do that? Well, you got to bring manufacturing home and you can drive that with incentives to companies to do that. You can also force it with tariffs and you can do it with a little bit of both, though. It's going to be interesting to see who comes to the table. How quickly. I think I saw earlier that Europe is already saying, hey, look, we'll have a net, net zero tariff policy with you. Let's figure it out. So I would expect more of that rather than all of these countries waging tariff war on. Well, we're the ones who are waging it, but pushing reciprocal tariffs for their interests and potentially losing. So. And of course the biggest stealth in the room is China.
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Yeah, right.
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That's the one that really matters.
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Yeah, that's the prize, right?
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That's the golden prize right there. Let's take a quick break and hear from today's sponsors.
- [14:57]
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- [18:37]
James Lavish
All right, back to the show.
- [18:39]
Hey, just for the numbers sake, so people understand, I just had AI kind of run the numbers on a 10% flat tax on any import coming into the US that's physical in nature, not service based. This would produce about $230 billion in additional revenue for tax purposes, which in the grand scheme of things really isn't a whole lot relative to the amount that's currently being collected through the existing internal sources. The reason I was laughing when you brought up Bill Ackman, I just. There was a tweet that somebody had put out there that the market's not going to recover until Bill Ackman goes on CNBC and starts crying. And I just.
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Well, it might be true. He's already out there.
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He is.
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Yeah.
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But I. Yeah, I mean, I think he's speaking the Wall street narrative of like, hey, somebody's gotta plug that. Like somebody's got to step in right now or and this is something Luke had said to me. He's like, it's 7 to 9 trillion right now that they got to refinance in the coming year. But if they let this thing continue to sell off, it might be more like 11 to 13 trillion that they've got to finance in the coming year because you're going to have issues with tax receipts and whatnot because of the recession that's going to be underway.
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So, yeah, it's the 2025 tax receipts, the ones they receive in 2026. Yeah, they're going to be lower as of now. But he's got a long time to recover here. He did this in the beginning of the year, so he's got a long time to recover. This. Yeah.
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Wild times. So Ray Dalio just published a article that was actually pretty good. This was called don't make the mistake of thinking that what's happening is mostly about tariffs. And the core thesis of the article is tariffs are a symptom, not the cause. And what his basically what he's saying is globalism is over. And because it's over and because everybody is taking on the stance of our country first and everybody else second, that the tariffs are a shadow or a reflection of these new policies, that globalism is over. I'm curious what your thoughts are on that idea.
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That's interesting. Yeah. I mean, and that's the point is that changing the world order, meaning that the globalism. Trump wants to separate the United States from all of the European issues and how their energy issues, their issues with NATO and all that. Like, he just wants to separate from all of that. And he's made that abundantly clear. And the United States has. And this, I think it all just goes back to China. And it's where I think Ray is. He's not wrong, but maybe he's understating that imbalance with China. And you can bring it up and see what that number is. It is so large and China's manipulating the wand for so long that that's what Trump wants to fix. Because in reality, that's a two horse race here. Who else is going to be out there? It's not going to be Japan. They have their own demographic and financial issues that you and I actually talked about two years ago ad nauseam that have only gotten worse. And who else is out there that's going to be a threat to the United States being the largest financial and the largest consumer in the world? Like, who's going to be a threat to that?
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This is if I was going to describe it really simply for anybody hearing about, and I agree with you, I think China is the big bogey for him to really kind of pin down. But if I was going to really oversimplify this, let's just imagine that I'm producing food and I'm delivering it to your house, and you're the US and you're paying me in monopoly money in exchange for this food that I bring over to your house every single day. We have this agreement, we keep doing this for, call it 40 years, where I make the food, I come over to your house, I drop it off, you consume it, and you give me the paper promises. This relationship works as long as that money that you're giving me I can go out and spend at what I think it was worth as I'm receiving it. In fact, if it's getting more valuable, which would be the sovereign bonds over this 40 years, which is what was happening, it was getting more valuable in the overall market of all these other people, I could go spend it. But then all of a sudden, if I'm bringing this food to your house and what you're paying me is getting wrecked relative to other physical things that I want to go buy with these paper promises you're giving me, all of a sudden, who holds this is the core question is who holds the power in this negotiation when I'm the one that's been producing all this food and I have cattle and I have the fields and I have all this stuff and you just have a keyboard to clack on the keys and give me some more paper promises. Like, I don't think that you hold in this relationship. I think I hold all the cards. Right. And I think that's the problem for the US Is like, if I was going to argue we outsource all of.
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Our everything, all of. But so much of our manufacturing production.
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On a net basis, it's crazy. Like some of these trade deficits with these countries are like 90 to 10. It's crazy, right?
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It's insane. Yeah. And so in that, yeah, that's the challenge.
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But if I was going to argue with myself, I think maybe he does have some leverage if he goes in like onesie and twosie with these different countries, but doesn't try to do it all at once. Because I think when he tries to do it all at once, like they just did, the rest of the world can kind of collectively get together and be like, well, what are they going to do? Like, what are they going to do if we don't comply? But if you do it to one of the countries and you kind of like pin down China, right?
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Are they going to our iPhone suddenly going to be $5,000.
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Yeah.
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So it's almost because of the components.
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It just seems like maybe the better approach would have been to just like really go after one country specifically and like get the terms and conditions like lined up and then go to the next one and then go to the next one. But by doing it, take the scenario with like the food and the paper promises between us and let's say that it was like five other people on the one side. You're just basically printing a bunch of paper and you're consuming from everybody else. If you go to everybody and start hitting them on the head and saying, no, I want this adjustment, like everybody else is going to look at each other and say they have nothing.
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Right. You haven't even gotten to the other side of it yet. I'm sure you're going there. But the other problem is we need them to need dollars desperately.
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Yeah, right.
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We need them to need dollars desperately because we have a fiscal issue. Our deficits are large enough, meaning that we overspend every year so much that we need other countries to buy our paper. We need them to buy our treasuries and to keep the whole thing going.
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And we need them to trust us.
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And so we need them to trust us. We can't go and willy nilly turn off the swift, like access and seize treasuries from a country just because we don't like what they're doing. We still need those countries to buy our treasuries. And so it's almost like. And Luke, I think has been. Luke has been talking about this. You have to solve that debt to GDP problem first. Yeah, Ray Dalio has been talking about it. I'm not prominent like Ray talking on all the shows and everything, but you and I have been talking about it. A lot of bitcoiners talk about it because they understand the problems of sound money. Man, the dollar is not sound. And here's the crazy thing. I caught just pieces, bits and pieces of the best interview with Tucker and he was talking about gold and he was like, did you hear all this?
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I know that, yeah, I saw some clips, but I didn't watch the full interview.
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Yeah, he's talking about gold and he's talking about how, look, people want gold because it's sound money. It's sound. They can't be printed like the dollar. Dude, is that a warning shot? Is that a warning shot to Congress to get their act together? I mean, he's for the listeners. Besant's job is to make sure. That he's to enable Congress. He's to spend. Right. His job is to manage that spending as the banker to the country. That's the treasury. The treasury is the banker to the country. Then if we have to borrow to do that, then we'll borrow to do that. He's kind of like that manager who's saying, you remember what was that show on hbo? Entourage. Yeah. Where the main character, what's his name?
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Adrian something or other. Yeah, I think that's the actor.
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The actor.
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Oh, I don't know. The act. I think that's. Isn't that his.
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Well, no.
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Anyway, what was it?
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That's right. The main guy. He's like spending. He's buying a house, he's buying cars. His agent's like, dude, you've got to stop spending.
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Yeah.
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You don't have a movie in production. Like you got to, you are in serious deficit and you got to stop spending. That's literally what Bessem is to Congress. And he's got Doge going and he's, he's not telling Elon and Trump they got to stop spending. He's. He knows that we have an issue and he's got to re up all this debt. And then they're trying as hard as they can to get that deficit down. But again, that goes back to. Well, I don't see that happening this year. I don't know if you see it happening in this first term of getting to surplus. That's a long putt. I just don't see us getting the surplus without some sort of product giving miracle that is not so deflationary that we don't have the tax base anymore. But something that is. That brings up gdp, nominal GDP to a high enough level that we don't have to raise taxes around it. But this is. It's still. We're $2 trillion deficit. Doge has cut out $250 billion. We're not there. No, we're not going to get there with Doge. So I love it. I'm happy that we're cutting out fraud and waste.
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But even by doing that, they still have to add more monetary units into the system. That's just how this works. That's how.
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Yeah, we're on a debt based system. And so the problem is you've got to get that down before you. How do you. And I think they don't see the 10% number you quoted to get a half a billion dollars. Trillion dollars, I think in a half a trillion dollars of external revenue service to Add to the Internal Revenue Service.
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It still doesn't get us there, not even close.
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So maybe something that we don't see.
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The numbers that were on the chart from last week, like if they follow through with those numbers, obviously we'll have more than a quarter trillion, but we'll also have prices on goods and services here. I can't even imagine, because you made this comment that we exported inflation for those 40 years by slapping these tariffs on the products that are still coming in that we're still consuming like crazy. I think what it does is it brings back all that exported inflation for decades, like very.
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And it's a consumption tax. Yeah, it's a consumption tax for us.
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Yeah. Because they're just going to tackle.
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Right. And I think that's the ultimate argument is that, hey, if you said we're going to, going to raise taxes on income for America, I think Americans would be pretty upset. But if you said we're just going to have a consumption tax, if you consume more, you're going to be taxed more. You're a billionaire and you're spending $100 million in a year. Well, you're going to be taxed on that. $100 million. Yeah, that's going to be spending 100. You're going to be spending $150 million instead of 100. Yeah. And I think that general America, we'd be fine with that. They'd be like, fine, that's, I'm okay with that. Yeah, it's a consumption tax. But I know people who, in the Las Vegas area who are struggling. They're struggling in this economy. They cannot keep up with the inflation. I know that people are open. Inflation's come down. The goods prices have not come down and their wages have not kept up. There's still high prices.
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They're looking at oil sticker shock on everything. Yeah. I think you might see the price of oil come down. That's the thing that everybody's going around talking about. But the price of everything else, even though that's a, the, like the number one input to the production of anything is energy. I don't see the prices of all this finished goods.
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They're not coming back.
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Coming back. Like that's crazy talk.
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It's over. That's where they are now. They, they've reached a new level. And so if you go out to a nice steak restaurant Instead of being $42 for the filet, it's $78 or in Vegas it's $112. It's mind blowing.
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Yeah.
- [30:53]
And of course you don't need that. But talk about things you do need. You do need certain goods and services. You do need to pay for insurance for your car. Insurance rates are absolutely gone up astronomically. You do need food and you're replacing it. If you're a lower income consumer, you're replacing your food with cheaper food. And so you're just doing the best you can. Or what we're now seeing is that you're seeing people charge things. The consumer credit is going through the roof and the savings, the levels of savings are super low. People, they spent all their, the checks, they got the stimulus checks long, long, long ago. And they're not putting away money because the lower income demographic has been hit harder by inflation. This is what angers me. When you hear economists get on these shows, they're like, ah, but you know, inflation hurts everybody. No. How do you not understand that? Of course they do understand it. If you own assets, if you own stocks and bonds and up the last couple days and you own gold, you own Bitcoin and you own a house or you own houses and your assets have risen in value, number one. That's just number one. The other thing is if you're a higher demographic, your income so far out surpasses your needs. That. Yeah. So eggs are six bucks instead of three bucks. What do you care? You don't care if you spend $300 on groceries or $400 on groceries instead of 150, you don't even notice it.
- [32:27]
Yeah.
- [32:28]
Whereas if you're a lower income demographic, that 150 goes to $300. Well now you actually can't even make your rent and do that and pay for gas in your car. Do you need the gas to come down? You need the rent to come down. And those will come down. And they know this inherently. Those will come down with the price of oil come down, gas will come down, interest rates come down, rents come down. That's just reality. And they know this. And so that's what the prize is. Win it for Main Street. But it's going to be painful. And then the ultimate prize is to get those manufacturing jobs back into America, get these facilities up and running, give incentives to these companies to start building in America. That's the ultimate prize, I think. But how do they get there without the pain? I don't see that path. I do not see that path. Let's take a quick break and hear from today's sponsors.
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- [36:07]
James Lavish
All right, back to the show.
- [36:09]
I mean, if I was in the seat and I'M trying to conjure up something to give relief to people. I don't know that there's an easy solution here outside of our bitcoin maxi like talking points, which I'm not even going to go down because everybody that listens to the show knows what they are. We're talking about bit bonds and all these types of things that I think is really. And I don't know that that's going to give you interim or short term relief, even going down some of these paths. I think that when you delay pain for this long and you kick the can for this many decades and you're saying, well, how do we not pay the bill for this? I think is a fool's errand type question.
- [36:53]
Yeah. The cure might kill the patient.
- [36:56]
Yeah. Right.
- [36:57]
And that's the situation we're in because we're in. We have so much debt.
- [37:01]
Yeah.
- [37:02]
We are so overwhelmed with it.
- [37:04]
Debt to GDP 120%. This was also mentioned in Ray's article and one of the core reasons why he's saying that the tariffs are a symptom and not the cause is because he's saying we're just too indebted as a nation and we consume everything outside of our country. I wanted to talk this, this is really interesting that this happened this morning. This was posted like 4 hours ago. Trump. If China does not withdraw its 34 increase above their already long term trading abuses by tomorrow, April 8, 2025, the United States will impose additional tariffs on China of 50% effective April 9th. An hour later, Zero Hedge posts this 10 year treasury yield chart that shows that the yields are back up to where they were at when the tariffs were originally announced with the headline this is Zero Hedges Take. They said China responds by selling 50 billion in treasuries. Oh, by the way, the yields on the 10 year are now almost unchanged from Liberation Day. So.
- [38:07]
And there's, and that's the problem.
- [38:09]
That's the problem is their response isn't words, it's actions of hey, all these paper promises you've been shoving down our throat, we're just going to sell those and we're going to.
- [38:18]
Basically we don't want them anyways.
- [38:20]
We don't.
- [38:20]
We know that they're a real negative yield. We know that because you guys print so much money.
- [38:25]
Yeah.
- [38:25]
Crazy.
- [38:26]
This is wild. Is this like a 1987 like kind of moment in markets in your opinion? Well, and I don't mean that from like a percent sell off. I mean it more from like a, a shift in global Policy standpoint or like something that people will continue to talk about decades from now.
- [38:45]
Yeah. I think it's different than a market shock of just. You walk in one day and the market's down 9%, 10%. But the difference here is impressive. We have these circuit breakers, so we don't know where the market would have gone.
- [38:59]
Yeah.
- [38:59]
Without circuit breakers, they can pretty quickly. And not only did we hit the circuit breakers this morning, they're close.
- [39:07]
I know that they, they hit them in Japan at the Open last night. I don't remember. And maybe there was some in Europe, but here in the US I didn't.
- [39:15]
I didn't see them here today. But the Volat is what's so crazy.
- [39:18]
Oh, yeah.
- [39:19]
And what's so different this time around, Preston, is that the back in the day, if Trump said something, it would take hours and sometimes days to filter through to everybody. Now if he says something, it's on a tweet and it's retweeted and it's spread around the world like that. You see the markets react like what just happened. And then this morning was, you see that the market started rallying, like violent rally. Violent cover. Right.
- [39:47]
Yeah.
- [39:48]
And meaning it was, man, it was coming back and it rallied to positive from being down almost 5%. And it was like in mere minutes, it was like, what is going on? And then you saw that headline, which was, white House officials says that they're going to put a pause on the terrorists for 90 days or something like that to give countries a chance to negotiate, which is what I think they're ultimately going to do. But I don't know if 90 days. But then the market just took that headline and rallied. And then you've got the White House issue statement that that's nonsense, there's no such thing coming. We didn't say any such thing. And the market just dumps again. So you can see the S and P just, by the way, wild swing.
- [40:31]
From a liquidity standpoint, these violent moves up, down, back and forth just. Is like a sponge, just literally sucking liquidity straight out of the market.
- [40:43]
Yes.
- [40:44]
To the point where now it's just getting harder tomorrow for everybody else to manage expectations.
- [40:49]
Let's talk about that for the listeners so they understand that liquidity is. What you're talking about is in the equity markets, liquidity is taken out because of the margin calls. So why did bitcoin sell off so heavily on Sunday before Monday? Well, you've got hedge fund who probably were unwinding and covering bitcoin. On Friday, which kept it up. Right. That might have helped that decoupling. So unwinding trades where they were short bitcoin and bitcoin ETFs. And then on Saturday, Sunday, you start getting this chatter and you've got Besson on that podcast. You just like, people start worrying about a Black Monday. They're like, well, if I'm going to get a margin call, I get to get my book in order so I don't have to sell positions that I don't want to sell. I'm going to sell what I can today. And what can you. Today? It's Sunday after Sunday morning, Sunday afternoon. You can sell Bitcoin. Yeah, you can sell Bitcoin. So that I think that was like hedge funds getting ahead of the drop in the market and making sure they didn't get margin calls or maybe helping their liquidity of their book. Okay, so that's one thing. Margin call that takes out liquidity. The second thing is when you have volatility in these markets like this, what happens is that margin that is required on your investments goes up, which means that you can't use that for people trying to, like, envision this. If you have $100 of stock and it's Apple and your prime broker is giving you margin on that, it's not like Greg T. You're not getting 50, 50 margin like you do in your brokerage account. Like, you could get 90, 95% margin on these names because they're blue chip names. But when the market is violent like this, which we saw in 2020, this is called portfolio margining. And what happens is you'll start getting calls from your prime broker saying, hey, your haircut's going to go up to 15%, 20%, 30% on names that you had 5% hair fit on. What does that mean? That means that you were able to borrow 95% against your A hundred dollars, and now you're only allowed to borrow 60 or 70%. That's liquidity coming out. You got to sell positions to bring that cash back in.
- [43:07]
Yeah.
- [43:08]
And so exactly what you're saying, that's one side of it. The second side of it is the collateral on the bonds. And when you have bond volatility, where you can margin these things to the hilt, normally they're US Treasuries, but when you have volatility like we're seeing here, I mean, this is just. I'm looking at the ten year. The ten year here. This is Preston. It's up four and a half the Yields are up four and a half percent. That is mental.
- [43:34]
Yeah.
- [43:34]
For these things to be whipping around like this, this is not normal. This is a very abnormal period.
- [43:39]
So what happens 4 1/2% change on the day. I think it's important for people on the day of the yield of a day of the. On the yield. We're not saying the yield is obviously for people that are listening.
- [43:52]
Yes. Yeah, exactly. That the ten year yield has moved four and a half percent today. That is a violent move in the Treasury. Violence. The 10 year. This is the benchmark treasury of the world and it is doing this today. That is just, it's mind blowing. What does that mean for margin though? It means that it is not as strong collateral and for barring against volatility is up. That means that you have to leave more of your cash in against that on a repo or whatever you're using it for. And that means that there's less liquidity out there. So that's when you're the listener when Preston's talking about this. Volatility is taking the liquidity out of the markets. It's just draining it. It's like a sponge is soaking it back in. That's what you're talking about.
- [44:43]
James, to close this out, I want to pull up a chart. We'll do. We'll have a little fun here with this chart. Let me get this. So when I got here is. Oh yeah, all the global stock indices over the last decade and a half and what I find so fascinating about this chart and people might not know the tickers here but I'll call them out. So if you're looking at the chart, the top one there is, I think this is the Russell. So this is the US Stock market at the top and you can see it's up 350% since what is this? The end October of 2009. It's up 350%. What I find fascinating is look at the HSI, the GXC and the KOSPI, which is the Cosby is the Korean market and the other two are China and Hong Kong. Look how flat and down. Hong Kong is down 10% since 2009. China's up 3 mind blowing 3% since 2009. This is crazy. So like when we look around the world and I'll just, I'll just call out a couple others here. Japan is up 87 and India is up 153 since 2009 on this chart. I think this is kind of mind blowing when you just kind of look at it now of course, since we have a lot of bitcoiners that listen to the show, I'm going to put the bitcoin chart and of course it's crazy. Let's zoom in here and, and let's look at since COVID since 2020. Let's look at what happened and what I'm going to do is go to the bottom in the market before they flooded the the global economy with all this printing. This is what the story that's being told. So we're at the bottom in 2020 March. We still have China down almost 14%, negative 14%. Same thing with Hong Kong. Korea up 26%. Japan up 41% since that bottom in 20. Canada up 94%. US up 102% and India up 145% since the bottom of COVID Okay.
- [46:52]
The reason that, the reason that you're using the Russell 3000 is to encompass more of the, the companies, not just the, the mag seven of the S P. Correct.
- [47:01]
I'm trying to get a better sight picture of just business at large. It was why I was using some of these indices. I'm going to put bitcoin in here. This is again the bottom of the COVID sell off and Bitcoin is up 669% against all those other percentages that.
- [47:18]
I just told you.
- [47:19]
Now this is the thing I find really fascinating. James. Let's take the previous high in bitcoin. Okay.
- [47:26]
Yeah.
- [47:26]
From the last cycle that peaked in November of 2021. So when we come here and we reset that as the new benchmark against all these other indices, Bitcoin is still in front of everything else. Bitcoin at 19% performance since the top of the 2021 cycle. The next highest is India again at 10%. The US is at 2.5%. Europe at negative 7. Canada at negative 7. Japan at negative 19. We have Hong Kong at negative 21%. China at negative 36%. Since the bottom of COVID it's down negative 36. And Korea down negative 37 since the bottom of COVID This is wild, huh?
- [48:12]
That's wild. And what is it from the bottom of Bitcoin in 23.
- [48:17]
Okay, here we'll go there. So right around here is the bottom of the market. Yeah, right.
- [48:23]
If you can, you can grab a bottom tick in bitcoin on these cycles. So those troughs.
- [48:30]
Well, it's not just the bottom of bitcoin. It was the bottom of the equity markets too. Like they both bought it at the same time.
- [48:35]
So if it let it down. It did. But.
- [48:39]
Right, so here, let me, let me zoom out here. So if we were going to take the bottom of equities, I would say we're like right around in this. Mark, you're right, it led it by a couple months. But let's take the bottom of equities right there. Yeah, right in here. And just, I'm going to quickly go through this. So people have Mark. So if you go to the bottom of the equity market in 23, Bitcoin is up 248%. India is up 28%. The US is up 23%. Canada up 5%. Europe up 5%. Japan 2%. Hong Kong negative 2. China negative 12. Korea negative 15. Really fascinating.
- [49:17]
Right, Fascinating.
- [49:19]
So at the end of the day, the volatility in the short term, in the short term the volatility is brutal as a bitcoiner when it's going down. But the performance, if you can get any type of sight picture beyond a year or two, the performance against pretty much everything else you can own is spectacular.
- [49:37]
And that's the thing is that trying to pick tops and bottoms in bitcoin, which is why I was laughing about that, it's so difficult. But you do know, you do feel when there's, when there's market capitulation, this is the asset you want to be owning for sure. Well, and if you're the easiest thing, the easiest thing to do is just to hold on to it through the cycles.
- [49:57]
This is something that I've thought a lot about more recently is the volatility. If your dollar cost averaging through this volatility, it is massive. Like we're just showing if you were like plucking the tops of like some of the worst moments in time or the best moments in time, this is what the performance is. But if you could dollar cost average and then show the performance against these other assets, I think it would melt your brain as to how much the outperformance is. Because think of it like this. Let's say bitcoin was at a thousand, it went down to 200 and it went back to a TH000 and you were dollar cost averaging all of that. Your performance isn't flat, it's not zero. Your performance is actually really, really good because there was so much volatility and it got back to its starting point. And that goes for any asset.
- [50:44]
You, I mean your, your average should be somewhere around 600.
- [50:48]
That's right.
- [50:48]
Although your dollar yet. So your average should be somewhere around 600. And so you've got probably a 66% return performance.
- [50:58]
Even though.
- [50:58]
Instead of. Instead of flat.
- [51:00]
That's right. And so I. I don't know. I think it's. I think the more I'm watching this violence unfold of bitcoin, relative. And this is important. It's relative to anything else you could possibly own. Right. And so, like, the. What has been the best performing stuff in the last decade? It's been equities. If you're not looking at bitcoin. Right. It's equities.
- [51:20]
Yeah.
- [51:20]
So when I'm looking at bitcoin's performance and I guess what took me down this path, I'm a little frustrated because I'm used to the 2017 Bull Run or like, I'm looking at bitcoin's past performance, and I'm saying this current bull run is somewhat disappointing from a percentage performance return to what I've seen in other bull cycles. But then I'm saying, okay, Preston, relative to what, relative to bitcoin's previous performance or relative to what else you could own? And when I look at. When I look at what else I could. When I look at what else I could own over this past or since the bottom of 23, which was what we just showed, the results are, like, astounding how much better bitcoin's performance is versus these other assets.
- [52:07]
I just made this. So let me see if I can share this because I did this just the other day at Bitblock. Boom. Here. Yeah, go ahead. This is what you're talking about here, Preston.
- [52:18]
And for people listening, this is bitcoin over US Treasuries. Instead of just over the dollar, he's putting it over the US Treasuries. Let's then account for the performance of that of us.
- [52:27]
So it's gone from being valued at just a fraction of it to 25 times. Same thing with Bitcoin versus gold. Fraction of an ounce of gold to 27 times. You do the math. Today, just divide 78 divided by the 3000 that gold is trading at what it's trading at 2974. So you can do the math, but that's what you're looking at. There is bitcoin versus the S and P. Here's what you're talking about. That's the Mag 7. It's still outperforming the Mag 7. Still outperforming the Mag 7 the last 10 years. I mean, that's what we're talking about, though. And so this Is what's so mind blowing to people and institutional investors to what you're saying is that. Wait, what is that? Right? But it's been so volatile, I thought it was at a all time high. It's just now getting back there. Right?
- [53:19]
Yeah.
- [53:20]
And that doesn't include the dollar cost averaging you're talking about, which you would have been done monumentally better.
- [53:27]
That's the performance difference that I would love to see. Hey, if you dollar cost averaged into the S&P 500 every day for the last four years, what is your performance profile versus Bitcoin? Because just taking that snapshot in time does not do it any kind of justice, I suspect. Right?
- [53:44]
No, it doesn't. And here's the other thing. And so this is the other thing. I want to point out that listening to these guys talk, Trump, we want the United States to be the crypto capital of the world. And we know that his family is mostly focused on bitcoin. Lutnick, he understands bitcoin and these guys get it. And best Besant, he understands bitcoin. He said it to Tucker, he said, I think that money is going to flow into gold and bitcoin because those are, that's hard money. I mean it blows my mind that he even said it. That's like when the treasury put that chart out that said unsustainable fiscal path and like a shot over the bow to Congress kind of doing the same thing. But he did mention bitcoin. Like, they know that this is decentralized asset, that it cannot be diluted, it can't be debased. And they understand that. And so that's the interesting part that they get it. And so all of these tailwinds and now you're talking about a structural change. It may be painful, but over the long haul, what do you want to own? Oh yeah, what do you want to own?
- [54:50]
Nothing's changed with respect to that thesis at all. Or the bitcoin thesis.
- [54:55]
Right, like the bitcoin thesis.
- [54:57]
That's right.
- [54:58]
I'm not one of those guys who wants to see the world implode. No, but I'm one of those guys and I don't, I don't want the world to implode and bitcoin to soar to incredible values at the expense of everything else. That's not what I want. But I want to protect my own hard earned money. And that's why I do exactly what you're saying.
- [55:19]
I don't think it's just that. I think it's you also want to usher in a world that is fair. Yes. With respect to the energy exchange between all participants, all governments, everybody, that if you want to go to war, well, you need to pay for it today. You need to suffer through the consequences of what that means for re election. If you're making that decision now, like all of these things, I don't know, I think it just rewires the natural incentives that are so perverted with fiat. So yeah, I don't know, man. I this is from a financial media standpoint, this is like a dang feeding frenzy of interesting things to talk about. That's for sure.
- [56:00]
That's the awesome. Yeah.
- [56:02]
Yeah, dude. Thank you so much for making time. This was an awesome conversation. I learned so much from you every time we chat and just consider you a good friend and just really appreciate you making time.
- [56:13]
James likewise, my friend. Will we'll do it again soon.
- [56:16]
Give people a handoff where they can find or anything else that you highlight.
- [56:19]
Yeah, of course. I'm at James Lavish on Twitter. I have a substack called the Informationist. It's a newsletter that I put out weekly that just simplifies some of these topics for you every single week. And there's a free version too, that's again a free one every month. And then the co managing partner of the Bitcoin Opportunity Fund and so and we are actually raising our second fund right now. It's just like the first fund. If it sounds of interest to you, you can just go to Bitcoin Opportunity Fund, give us your info and we can we can send you some information and get in touch with you.
- [56:52]
Amazing. We'll have links to all of that in the show notes. James thank you sir.
- [56:56]
Thank you.
- [56:57]
Preston Pysh
Thank you for listening to tip. Make sure to follow Bitcoin Fundamentals on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses go to theinvestorspodcast.com this show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.