1
00:00:00,000 --> 00:00:09,380
What happened last week was the most alarming thing I've seen in the money markets for some time.

2
00:00:09,780 --> 00:00:17,600
If those treasuries, let's call them $3 trillion, are not funded tonight, the whole system collapses, literally.

3
00:00:18,180 --> 00:00:21,460
I'm a big fan of consolidation in Bitcoin.

4
00:00:21,460 --> 00:00:26,440
Well, it's just compressing in volatility, and that's a sign of it maturing.

5
00:00:26,440 --> 00:00:32,480
and the more compressed the volatility is the less likelihood of an 80% decline.

6
00:00:32,480 --> 00:00:36,800
As more money is created into the system and flowing around the world,

7
00:00:36,960 --> 00:00:45,220
Bitcoin becomes a really valuable collateral as time continues to pass.

8
00:00:48,040 --> 00:00:51,160
Nick Bhartia, we're back, back on the show.

9
00:00:52,680 --> 00:00:54,680
Things are getting pretty wonky out there at the moment.

10
00:00:54,680 --> 00:01:01,440
You did a video last week on the repo market, and you were kind of saying this could be signaling a bit of a crisis in the market.

11
00:01:01,680 --> 00:01:03,920
So do you want to explain what's going on?

12
00:01:03,960 --> 00:01:06,560
Because this is the world that I don't follow super closely.

13
00:01:07,960 --> 00:01:08,120
Sure.

14
00:01:08,300 --> 00:01:11,720
I would love to get into what happened last week.

15
00:01:11,720 --> 00:01:23,020
But let me, before that, Danny, just tell you and your audience that I'm a rates analyst, and I used to trade rates.

16
00:01:23,020 --> 00:01:32,520
I used to trade repo. One of the things that I like to do is look for problems, but be really

17
00:01:32,520 --> 00:01:41,800
hesitant to call anything a crisis or to put up these big alarm bells on a recession is coming

18
00:01:41,800 --> 00:01:51,460
or a crash is coming or a crisis is coming. So when I do actually get cautious, it's not that

19
00:01:51,460 --> 00:01:59,620
common. And I also still want to say that I'm not calling for a crisis. So before we get into it,

20
00:02:00,200 --> 00:02:06,240
this, what happened last week, was the most alarming thing I've seen in the money markets

21
00:02:06,240 --> 00:02:11,740
for some time. So I decided to make a video that was dedicated to it. Now what happened,

22
00:02:12,160 --> 00:02:20,760
we can start directly with this chart that I sent you. This slide compares the two rates that I think

23
00:02:20,760 --> 00:02:25,720
are the most relevant to my video last week.

24
00:02:26,200 --> 00:02:28,540
You can see the spike that happened.

25
00:02:28,540 --> 00:02:34,160
Today, we are at 0.01 on this spread,

26
00:02:34,340 --> 00:02:35,780
so basically a spread of nil.

27
00:02:37,360 --> 00:02:40,380
This is recorded on Tuesday, October 21st.

28
00:02:40,440 --> 00:02:43,380
Now, on Thursday of last week,

29
00:02:43,820 --> 00:02:46,720
this spread blew out to 14 basis points.

30
00:02:46,800 --> 00:02:48,620
And when I say blow out, again,

31
00:02:48,620 --> 00:02:53,120
it's material and warranted a video.

32
00:02:54,620 --> 00:02:58,040
This spread represents the difference

33
00:02:58,040 --> 00:03:03,360
between the repo rate and the risk-free rate.

34
00:03:03,780 --> 00:03:07,480
So in this situation, the risk-free rate is the green line,

35
00:03:07,480 --> 00:03:10,260
which is interest on reserve balances.

36
00:03:11,040 --> 00:03:14,800
This is the rate that, say, J.P. Morgan has their reserves.

37
00:03:15,120 --> 00:03:17,840
This is their deposit account at the Fed.

38
00:03:18,620 --> 00:03:25,940
Fed reserves, the line item on the Fed's side of the balance sheet is $3 trillion right now.

39
00:03:26,400 --> 00:03:34,100
So on that $3 trillion, the Fed is paying all these banks 4.15% annualized interest rate.

40
00:03:34,480 --> 00:03:41,120
The orange line is the SOFR rate, which is a market-derived rate, a repo rate.

41
00:03:41,120 --> 00:03:51,840
You can think of it as the average repo rate that money market funds are making by funding dealer balance sheets and other banks with treasury collateral.

42
00:03:52,500 --> 00:04:05,400
So the spread represents the pickup, the yield pickup that a bank can get by letting go of reserves and funding a repo transaction.

43
00:04:06,400 --> 00:04:10,340
Basically, being the investor in the repo market.

44
00:04:10,340 --> 00:04:13,500
So lending the money and receiving the rate.

45
00:04:14,340 --> 00:04:22,500
So when the spread is going up, it means that banks that hold reserves, even though they

46
00:04:22,500 --> 00:04:28,440
can get a 14 basis point pickup in the repo market, they're still not lending the reserves.

47
00:04:29,600 --> 00:04:32,840
Hence, there is reserve scarcity.

48
00:04:34,300 --> 00:04:38,660
And that's, I'll pause there because that's the main takeaway from last week.

49
00:04:38,660 --> 00:04:47,140
And you can see that, yes, in Friday, I mean, sorry, in the Monday and Tuesday time series, the spread came back down.

50
00:04:48,920 --> 00:04:51,320
Okay, so I kind of want to go back a little bit here.

51
00:04:51,420 --> 00:04:56,340
So you're saying that we're at, or we were at a point here where banks were unwilling to lend out their reserves.

52
00:04:56,720 --> 00:04:59,300
But can we talk about why they do that anyway?

53
00:04:59,500 --> 00:05:03,740
Like in normal market dynamics, why are banks lending out their reserves for this overnight rate?

54
00:05:05,180 --> 00:05:06,360
It's a good question.

55
00:05:06,360 --> 00:05:09,800
It's all about yields, Danny.

56
00:05:10,140 --> 00:05:19,460
So in the end, the 4.15% IORB is meant to be a floor.

57
00:05:20,020 --> 00:05:26,900
So why don't you pull up the slide two here in this pack?

58
00:05:28,840 --> 00:05:30,460
This is the corridor.

59
00:05:30,920 --> 00:05:33,840
So the Fed controls these flat lines.

60
00:05:33,840 --> 00:05:42,740
the zigzaggy lines are repo rates that are market transaction rates but the flat lines are

61
00:05:42,740 --> 00:05:50,540
the fed's policy rate so you can see here it's the purple line the 4.15 the interest on reserve

62
00:05:50,540 --> 00:05:59,320
balances that's a rate that the fed has as a floor meaning that hey banks

63
00:05:59,320 --> 00:06:08,080
I will pay you 4.15%. So don't go lending your money to anybody at lower than 4.15.

64
00:06:09,540 --> 00:06:17,200
Don't go lending to somebody, a bank at 4.05. I'm paying you 4.15 and I'm the Fed.

65
00:06:18,180 --> 00:06:23,240
So in that way, it's a floor. So I guess there's a few things I want to know in there. So one,

66
00:06:23,240 --> 00:06:28,200
when we talk about like the Fed raising or cutting rates, which of these are we talking

67
00:06:28,200 --> 00:06:38,600
about the fed funds rate no that's the key the fed funds rate and which is the green line and the

68
00:06:38,600 --> 00:06:48,220
repo rates are what they're trying to control what they actually lower are the reverse repo rate which

69
00:06:48,220 --> 00:06:55,180
now the facility isn't being used that's a floor they lower iorb which is also a floor

70
00:06:55,840 --> 00:06:58,400
They lower the discount rate, which is a ceiling.

71
00:06:58,880 --> 00:07:01,400
They lower the rate on the standing repo facility,

72
00:07:01,600 --> 00:07:03,000
which isn't pictured in this chart,

73
00:07:03,080 --> 00:07:04,060
but it's another ceiling.

74
00:07:05,040 --> 00:07:08,660
And so they're raising ceilings and floors

75
00:07:08,660 --> 00:07:11,260
because remember, I explained the floor, right?

76
00:07:11,400 --> 00:07:12,980
The interest on reserve balances.

77
00:07:13,140 --> 00:07:13,940
What about the ceiling?

78
00:07:14,400 --> 00:07:16,680
Hey, I will, that's the red line.

79
00:07:17,680 --> 00:07:22,660
I will let you borrow from me at 4.25

80
00:07:22,660 --> 00:07:26,200
if you post good collateral to the discount window.

81
00:07:26,720 --> 00:07:30,020
So don't you dare go borrow from somebody at 4.35.

82
00:07:30,700 --> 00:07:31,720
I'm the Fed.

83
00:07:31,960 --> 00:07:33,700
I will lend to you at 4.25.

84
00:07:34,000 --> 00:07:35,120
So that's the ceiling.

85
00:07:35,840 --> 00:07:39,640
So they move the ceiling and the floor down.

86
00:07:39,640 --> 00:07:43,780
And then what they're doing is they're guiding the Fed funds rate

87
00:07:43,780 --> 00:07:45,580
and the repo rate lower.

88
00:07:46,400 --> 00:07:50,200
Now, I want to point out one thing quickly, Danny,

89
00:07:50,460 --> 00:07:52,360
before we get to the next question.

90
00:07:52,660 --> 00:07:59,420
which is that you see how the green line at the current moment is creeping up and it's not flat.

91
00:07:59,640 --> 00:07:59,880
Yeah.

92
00:07:59,880 --> 00:08:04,900
But in the previous interest rate zones, it was flat.

93
00:08:05,720 --> 00:08:05,860
Yep.

94
00:08:06,500 --> 00:08:09,400
So that's exactly the point here.

95
00:08:09,960 --> 00:08:20,500
And the 4.11% Fed funds rate, it is a rate that is based off of transactions.

96
00:08:20,500 --> 00:08:26,120
It's not the Fed's policy ceiling or floor.

97
00:08:27,020 --> 00:08:35,740
And so the Fed funds rate is calculated by what is the rate at which banks are lending to each other.

98
00:08:36,480 --> 00:08:40,360
You ask an important question, which is, is it the Fed funds rate that they're moving?

99
00:08:40,480 --> 00:08:45,480
No, they're moving the interest on reserve balances and the discount rate.

100
00:08:46,260 --> 00:08:49,780
The standing repo rate and the reverse repo rate.

101
00:08:49,780 --> 00:08:56,560
Those are the rates that they move and they guide rates down. So the observation about Fed funds

102
00:08:56,560 --> 00:09:03,200
ticking up right now means that, hey, there is some dynamic in the market now where there's a

103
00:09:03,200 --> 00:09:10,380
little bit of reserve scarcity and this rate, it is going up in the transactions, banks lending

104
00:09:10,380 --> 00:09:16,380
reserves to each other. You know, Fed cares about largely is going to be these repo rates and to

105
00:09:16,380 --> 00:09:21,360
make sure that those are also inside the corridor. They don't want them above the corridor. It means

106
00:09:21,360 --> 00:09:26,020
that their ceilings aren't working. Do you wish you could access cash without selling your Bitcoin?

107
00:09:26,540 --> 00:09:31,200
Well, Ledin makes that possible. They're the global leader in Bitcoin-backed lending, and since 2018,

108
00:09:31,420 --> 00:09:35,880
they've issued over $9 billion in loans with a perfect record of protecting client assets.

109
00:09:36,660 --> 00:09:40,500
With Ledin, you get full-custly loans with no credit checks or monthly repayments,

110
00:09:40,500 --> 00:09:46,460
just easy access to dollars without selling a single sat. As of July 1st, Ledden is Bitcoin

111
00:09:46,460 --> 00:09:51,820
only meaning they exclusively offer Bitcoin-backed loans with all collateral held by Ledden directly

112
00:09:51,820 --> 00:09:56,040
or their funding partners. Your Bitcoin is never lent out to generate interest.

113
00:09:56,780 --> 00:10:01,200
I recently took out a loan with Ledden. The whole process was super easy. The application took me

114
00:10:01,200 --> 00:10:05,760
less than 15 minutes and in a few hours I had the dollars in my account. It was really smooth.

115
00:10:05,760 --> 00:10:14,620
So if you need cash but you don't want to sell Bitcoin, head over to leaden.io forward slash WBD and you'll get 0.25% off your first loan.

116
00:10:15,120 --> 00:10:17,840
That's leaden.io forward slash WBD.

117
00:10:18,280 --> 00:10:24,840
This episode is brought to you by River and they've just launched a very cool new product where you can automatically buy every price dip.

118
00:10:25,440 --> 00:10:34,680
Their zero fee recurring buys are a proven way to build wealth with Bitcoin and you can now supercharge them and buy up to 100% more Bitcoin if the price is dipping at the time of your order.

119
00:10:34,680 --> 00:10:43,540
It's a great tool to buy more Bitcoin at lower prices and while your cash is waiting to be deployed you earn 3.75% interest on it paid in Bitcoin

120
00:10:43,540 --> 00:10:49,780
River is built to last with security at its core and is the only Bitcoin exchange in the US with proof of reserves

121
00:10:49,780 --> 00:10:56,160
To open an account go to river.com forward slash wbd and earn up to $100 in Bitcoin when you buy

122
00:10:56,160 --> 00:10:59,260
That's river.com forward slash wbd

123
00:10:59,260 --> 00:11:03,680
What if you could lower your tax bill and stack Bitcoin at the same time?

124
00:11:03,680 --> 00:11:06,800
Well, by mining Bitcoin with Blockware, you can.

125
00:11:07,360 --> 00:11:14,120
New tax guidelines from the Big Beautiful Bill allow American miners to write off 100% of the cost of their mining hardware in a single tax year.

126
00:11:14,560 --> 00:11:16,380
That's right, 100% write-off.

127
00:11:17,040 --> 00:11:23,100
So if you have $100,000 in capital gains or income, you can purchase $100,000 of miners and offset it entirely.

128
00:11:23,900 --> 00:11:28,440
Blockware's mining as a service enables you to start mining Bitcoin right now without lifting a finger.

129
00:11:28,440 --> 00:11:33,200
Blockware handles everything from securing the miners to sourcing low-cost power to configuring

130
00:11:33,200 --> 00:11:38,840
the pool, they do it all. You get to stack Bitcoin at a discount every single day while also saving

131
00:11:38,840 --> 00:11:45,620
big come tax season. Get started today by going to mining.blockwarsolutions.com forward slash WBD.

132
00:11:46,220 --> 00:11:50,240
Of course none of this is tax advice, speak to your accountant or tax advisor to understand how

133
00:11:50,240 --> 00:11:55,960
these rules apply to you and then head over to mining.blockwarsolutions.com forward slash WBD

134
00:11:55,960 --> 00:12:00,400
and you'll get one week of free hosting and electricity with each hosted miner purchased.

135
00:12:01,320 --> 00:12:06,900
Okay, so on this chart, there's a few times when it has spiked above the corridor and one that

136
00:12:06,900 --> 00:12:10,320
really stands out would be September last year where it had a huge spike above it.

137
00:12:10,620 --> 00:12:13,220
What's happening there? What's driving that above the ceiling?

138
00:12:14,020 --> 00:12:20,380
That's the answer to the question also what happened last week. In repo, it's almost always

139
00:12:20,380 --> 00:12:29,560
the same answer, which is the calendar. So the calendar means that on month end, quarter end,

140
00:12:29,760 --> 00:12:38,120
and on year end, and on tax days, big movement in reserve balances, big movement in payments,

141
00:12:38,740 --> 00:12:45,440
tax days meaning large checks are written, large bank transfers are sent from the banking system

142
00:12:45,440 --> 00:12:49,220
through the Federal Reserve into the TGA,

143
00:12:49,400 --> 00:12:51,060
which is the Treasury General account.

144
00:12:52,140 --> 00:12:55,380
And then window dressing around month end,

145
00:12:55,480 --> 00:12:58,140
which is that banks have to borrow funds

146
00:12:58,140 --> 00:13:02,380
to make sure that all of their Treasury positions

147
00:13:02,380 --> 00:13:04,320
are funded in the market.

148
00:13:05,440 --> 00:13:10,280
This is what causes the repo rate to go above the corridor.

149
00:13:10,480 --> 00:13:14,620
It's basically, it's going to be either a calendar event

150
00:13:14,620 --> 00:13:17,340
or a tax day event, which is also a calendar event?

151
00:13:18,500 --> 00:13:22,200
That is, it's almost always the answer, Danny.

152
00:13:22,320 --> 00:13:24,700
So if, you know, in my episode last week,

153
00:13:24,700 --> 00:13:28,060
I said, hey, repo desks are saying

154
00:13:28,060 --> 00:13:32,800
that this might be a mid-month roll calendar issue

155
00:13:32,800 --> 00:13:35,080
triggered by October 15th.

156
00:13:35,520 --> 00:13:38,760
I, even though rates came back down, right?

157
00:13:38,840 --> 00:13:41,080
We saw the spread is now down to one basis point

158
00:13:41,080 --> 00:13:42,540
from 14 basis points.

159
00:13:42,980 --> 00:13:44,120
Even though it came back down,

160
00:13:44,120 --> 00:13:52,300
I am not fully buying this mid-month roll explanation for the current spike.

161
00:13:53,240 --> 00:14:00,620
I think that there is some reserve scarcity that is developing in the repo market.

162
00:14:01,180 --> 00:14:07,080
Powell has actually admitted this, so I'm not necessarily speculating there.

163
00:14:07,080 --> 00:14:14,700
but the answer to your question is always going to be month end quarter end tax day

164
00:14:14,700 --> 00:14:18,060
so one of the reasons that i was really interested when i saw this video

165
00:14:18,060 --> 00:14:26,380
um is when the repo market gets dysfunctional it's sometimes um it's almost like foreseeing

166
00:14:26,380 --> 00:14:31,040
something that's about to come in the market and i remember back in 2019 the very end of 2019

167
00:14:31,040 --> 00:14:36,380
we did a show on the previous what bitcoin did with caitlin long and travis cling and they were

168
00:14:36,380 --> 00:14:41,880
basically saying something's just blown up and this can't be sustained and then i mean i'm not

169
00:14:41,880 --> 00:14:46,740
conspiracy theorist enough to say covid then happened because of that but it like almost

170
00:14:46,740 --> 00:14:52,160
called the black swan of covid and it said that something wasn't sustainable in the market and is

171
00:14:52,160 --> 00:15:01,360
that why you pay such close attention to this for reasons like that yes the the sensitivity of the

172
00:15:01,360 --> 00:15:08,540
Fed to problems in the funding market, which are treasury problems, right? The Fed always responds

173
00:15:08,540 --> 00:15:13,180
when there's a problem in the treasury market. So the repo market is the treasury market.

174
00:15:13,860 --> 00:15:20,360
That's, people need to understand that, that the repo market exists because you have this huge,

175
00:15:21,040 --> 00:15:29,220
basically multi-trillion dollar tranche of treasuries at all times that is not in the final

176
00:15:29,220 --> 00:15:36,440
investors' hands. It's this interim pool of treasuries that haven't gone to their

177
00:15:36,440 --> 00:15:44,880
ultimate investor yet. And if that number is several trillion dollars, which it is today,

178
00:15:44,880 --> 00:15:51,380
Danny, I mean, the SOFR volumes are $3 trillion. It means there's at least $3 trillion of them

179
00:15:51,380 --> 00:15:59,180
that need to be funded every night, three on 38. And I would suggest that it's closer to $5

180
00:15:59,180 --> 00:16:06,940
$7 trillion of treasuries that are always kind of at any point looking for some funding.

181
00:16:07,660 --> 00:16:13,980
There are only $7 trillion in money market funds. So it's not like there's an unlimited pool

182
00:16:13,980 --> 00:16:19,760
of capital to fund these interim treasuries. That's why the repo market is so important,

183
00:16:19,860 --> 00:16:25,420
is that if those treasuries, let's call them $3 trillion, are not funded tonight,

184
00:16:25,420 --> 00:16:28,300
the whole system collapses, literally.

185
00:16:28,920 --> 00:16:32,540
So the Fed can't afford anything like that to happen.

186
00:16:33,440 --> 00:16:35,980
And yes, you do have to go back to September 2019

187
00:16:35,980 --> 00:16:39,260
because it's an important moment in money market history

188
00:16:39,260 --> 00:16:42,860
and the standing repo facility exists today.

189
00:16:43,040 --> 00:16:45,240
The Fed realized that they didn't have a ceiling.

190
00:16:45,580 --> 00:16:48,120
They didn't have an effective ceiling.

191
00:16:48,760 --> 00:16:50,980
Now they have the standing repo facility.

192
00:16:50,980 --> 00:17:13,020
So what we've been waiting for the whole time since 2019 is the point at which we get to test the standing repo facility. And that's one of the things that alarmed me last week is that, wait a second, why are participants starting to use the standing repo facility?

193
00:17:13,020 --> 00:17:19,560
and I checked this morning, there was another $3 billion in usage. These are not massive numbers,

194
00:17:19,740 --> 00:17:25,920
but somebody is struggling at the margin. The Fed funds market, if you go to the Fed funds,

195
00:17:26,760 --> 00:17:33,800
the New York Fed website, and you look at the Fed funds webpage, what you actually see is all the

196
00:17:33,800 --> 00:17:41,280
transactions on a curve. They show you where most of them get done, and then they show you the 75th

197
00:17:41,280 --> 00:17:48,720
percentile and the 99th percentile. And you can see that 99th percentile means the edge of the

198
00:17:48,720 --> 00:17:57,840
system is paying 4.18, not 4.11, which you see on your screen there in green. It's 4.18.

199
00:17:59,360 --> 00:18:07,900
The standing repo facility, somebody said, I need 3 billion today. These are not crisis numbers,

200
00:18:07,900 --> 00:18:22,420
But they are like, it's time to pay attention more than ever to the repo market, because this is the moment we've been waiting for to test SRF, Standing Repo Facility.

201
00:18:22,560 --> 00:18:26,920
We're getting the test. It's a baby test, but it's non-zero.

202
00:18:28,300 --> 00:18:32,320
Okay, so I want to just go back a little bit because I want to understand this better.

203
00:18:32,500 --> 00:18:37,080
Because the repo market and the reverse repo market has been explained to me so many times, but I still struggle with it.

204
00:18:37,080 --> 00:18:48,740
So just help me understand, if all these banks are sat on a ton of reserves, which is their collateral, what drives them to use the repo facility overnight?

205
00:18:48,920 --> 00:18:50,420
Why don't they just sit on that collateral?

206
00:18:50,580 --> 00:19:02,651
Is it just to try and chase the tiny little bit of yield they can get on it because it such a large amount it sort of meaningful Okay you going to have to ask it one more time because I going to answer one thing that you set up for me there

207
00:19:02,991 --> 00:19:05,191
which is that reserves are not there.

208
00:19:05,371 --> 00:19:06,791
You can think of them as collateral,

209
00:19:06,931 --> 00:19:08,471
but it's the wrong way to think of them.

210
00:19:09,891 --> 00:19:11,271
Collateral is fungible

211
00:19:11,271 --> 00:19:12,911
in that you can post it elsewhere,

212
00:19:12,911 --> 00:19:15,211
like outside the system, for example,

213
00:19:15,331 --> 00:19:17,811
or to some other party.

214
00:19:18,311 --> 00:19:21,051
Reserves are not, they can't move them.

215
00:19:21,771 --> 00:19:27,111
You can convert them into assets like treasuries and things like that.

216
00:19:27,111 --> 00:19:31,971
But reserves are not collateral for the banks.

217
00:19:32,931 --> 00:19:39,511
They are a tool for interbank settlement in the onshore system.

218
00:19:39,671 --> 00:19:48,311
So they need reserves to do business, like regular business, to settle checks and wires,

219
00:19:48,311 --> 00:19:56,531
including the purchase of treasuries so sending money to the tga you have to have reserves to do

220
00:19:56,531 --> 00:20:03,391
it because it's a swap for the fed they they they debit the reserves and they credit the tga when

221
00:20:03,391 --> 00:20:10,011
you buy treasury so now i'll please ask you to ask your question again but it's an important

222
00:20:10,011 --> 00:20:16,311
uh differentiator there okay so i think possibly you've answered that question in that in that they

223
00:20:16,311 --> 00:20:19,651
can't just sit on them because they actually have to use them for the operations of the bank but

224
00:20:19,651 --> 00:20:24,491
is that the reason that they have to go to these repo facilities because they might be

225
00:20:24,491 --> 00:20:30,771
either short on on treasury oh sorry either short on reserves or they have excess reserves and can

226
00:20:30,771 --> 00:20:35,871
just make a little bit of money overnight on them no the the treasuries that they need that they rely

227
00:20:35,871 --> 00:20:45,751
on the repo market for are separate are separate from reserves so okay think of two types of

228
00:20:45,751 --> 00:20:53,471
financial institutions. You have a dealer and you have a bank. J.P. Morgan is the bank. They have a

229
00:20:53,471 --> 00:21:03,991
trillion of reserves sitting at the Fed. J.P. Morgan Chase has their dealer also. And the dealer has,

230
00:21:04,611 --> 00:21:12,731
let's say, $100 billion in treasuries on its balance sheet. So the dealer needs $100 billion

231
00:21:12,731 --> 00:21:20,471
in cash from the repo market to see the next day. As Perry Merling says, repo is how you live to

232
00:21:20,471 --> 00:21:26,531
fight another day. Well, they have $100 billion in assets. They need $100 billion in cash to fund

233
00:21:26,531 --> 00:21:32,171
that overnight. So every night they're in the repo market trying to get that $100 billion so that they

234
00:21:32,171 --> 00:21:37,911
can have the inventory of $100 billion in treasuries so they can traffic, buy and sell, and make money.

235
00:21:38,371 --> 00:21:39,151
That's the dealer.

236
00:21:40,771 --> 00:21:44,351
JPMorgan, the bank, has a trillion in reserves,

237
00:21:44,831 --> 00:21:49,671
and it has tens of millions of clients around the country.

238
00:21:50,171 --> 00:21:52,091
Those clients are sending wires to each other.

239
00:21:52,231 --> 00:21:55,591
They're sending wires to customers of Citibank.

240
00:21:56,211 --> 00:21:59,111
So JPMorgan, the bank, needs reserves

241
00:21:59,111 --> 00:22:01,811
so that when, let's say,

242
00:22:02,811 --> 00:22:04,531
NVIDIA banks at JPMorgan

243
00:22:04,531 --> 00:22:07,031
and Sam Altman banks at Citi,

244
00:22:07,031 --> 00:22:12,911
and it's time for NVIDIA to pay OpenAI for something

245
00:22:12,911 --> 00:22:15,031
and they send a hundred million

246
00:22:15,031 --> 00:22:18,351
or let's say they send a billion dollars to OpenAI,

247
00:22:18,971 --> 00:22:21,871
JP Morgan has to send a billion in reserves to Citi.

248
00:22:22,471 --> 00:22:25,731
So they need that money for their operation.

249
00:22:25,731 --> 00:22:29,691
So the bank needing reserves for its operations

250
00:22:29,691 --> 00:22:32,331
is a completely separate dynamic

251
00:22:32,331 --> 00:22:35,131
than a dealer that has treasuries

252
00:22:35,131 --> 00:22:37,371
and needs cash tonight.

253
00:22:38,711 --> 00:22:40,671
Who's the provider of the cash, Danny?

254
00:22:40,811 --> 00:22:42,031
It's the money market funds.

255
00:22:42,911 --> 00:22:44,411
My seat where I used to be,

256
00:22:44,791 --> 00:22:45,771
where I have, you know,

257
00:22:45,851 --> 00:22:49,091
I'm a fiduciary for corporations and governments

258
00:22:49,091 --> 00:22:50,291
and I have, you know,

259
00:22:50,531 --> 00:22:55,951
billions of dollars in short-term cash

260
00:22:55,951 --> 00:22:57,991
and I have to decide what to do with it.

261
00:22:59,451 --> 00:23:00,751
JP Morgan, the dealer, says,

262
00:23:00,751 --> 00:23:04,811
hey, I'll pay you 4.16% overnight.

263
00:23:05,131 --> 00:23:11,391
secured by treasury collateral. Can I borrow from you? And then the money market fund lends to the

264
00:23:11,391 --> 00:23:17,731
dealer. So they are a little bit separate issues that we're talking about. Does that help?

265
00:23:18,411 --> 00:23:23,471
Yeah, that does help. So then I want to go back to that first chart you brought up because the

266
00:23:23,471 --> 00:23:30,071
spike that you were talking about last week, I think I understand now that's the dealer going to

267
00:23:30,071 --> 00:23:34,711
the repo market and JP Morgan or whoever not being willing to part with their reserves until the price

268
00:23:34,711 --> 00:23:41,651
was higher exactly okay exactly and and so that's signaling that they they feel what a lack of

269
00:23:41,651 --> 00:23:47,111
confidence in the market that they can actually part with those reserves it's and that's the key

270
00:23:47,111 --> 00:23:55,611
it's why they're not parting with it that's the key so my theory here is that

271
00:23:55,611 --> 00:24:02,451
the percentage, the reserves as a percentage of GDP

272
00:24:02,451 --> 00:24:07,731
is falling to a more dangerous level.

273
00:24:10,991 --> 00:24:14,431
Because reserves are used for banking activity,

274
00:24:14,571 --> 00:24:18,371
as we're explaining, wires from JP Morgan to Citi and back,

275
00:24:19,531 --> 00:24:22,451
the larger the economy grows,

276
00:24:22,451 --> 00:24:28,871
the more reserves you need inside the system to allow people to send wires to each other.

277
00:24:29,451 --> 00:24:35,791
Big banking deals, bond deals, even treasury auctions are important to throw into that.

278
00:24:36,811 --> 00:24:40,951
So the larger the treasury auctions and the larger the economy, the larger the deficit,

279
00:24:41,371 --> 00:24:48,471
you just need more reserves so that Jamie can say, I'll lend you my reserves.

280
00:24:48,471 --> 00:24:53,571
or I'll pull out reserves and put them in the repo market tonight.

281
00:24:55,711 --> 00:25:00,011
So my big theory here is that we're at a point,

282
00:25:00,271 --> 00:25:02,291
yes, the Fed's balance sheet is declining

283
00:25:02,291 --> 00:25:05,311
and reserves have started to trickle down

284
00:25:05,311 --> 00:25:08,171
now that reverse repo is gone.

285
00:25:10,911 --> 00:25:18,171
As reserves decline, there's a mathematical minimum

286
00:25:18,171 --> 00:25:23,931
to a healthy amount of reserves

287
00:25:23,931 --> 00:25:25,791
to let the money market function.

288
00:25:26,351 --> 00:25:28,351
And that's where I think we are.

289
00:25:29,431 --> 00:25:30,651
So the answer to your question,

290
00:25:30,791 --> 00:25:32,011
why wouldn't they do it,

291
00:25:32,711 --> 00:25:36,391
is basically they realize we're at the point

292
00:25:36,391 --> 00:25:39,751
that they need to just hold on to it,

293
00:25:39,751 --> 00:25:43,051
even if they're being offered 14 basis points pickup.

294
00:25:43,771 --> 00:25:45,211
It's not worth it to them

295
00:25:45,211 --> 00:25:47,551
because they're risk managers first.

296
00:25:48,171 --> 00:25:55,571
They're arbitrageous second, but they have to make sure their bank wakes up the next day.

297
00:25:56,771 --> 00:26:10,271
And holding on to your reserves is sometimes better for your health as a bank than picking up that extra 14 basis points for one night.

298
00:26:10,331 --> 00:26:13,571
And remember, it's 14 basis points divided by 365.

299
00:26:14,451 --> 00:26:15,531
I mean, it's pennies, right?

300
00:26:15,691 --> 00:26:17,351
But the banks do it.

301
00:26:17,351 --> 00:26:29,771
They that's how they squeeze every penny out of, you know, in arbitrage. But at a certain point, they don't do it because health and safety, risk management and.

302
00:26:29,771 --> 00:26:46,091
And and PTSD also 2019 PTSD. And honestly, the banking system is still, you know, in a 16 year hangover from the financial crisis.

303
00:26:46,091 --> 00:26:48,231
So there's a lot of PTSD in the system.

304
00:26:49,411 --> 00:26:50,111
I don't know why.

305
00:26:50,251 --> 00:26:54,271
This is obviously really in the kind of financial plumbings of how banking works.

306
00:26:54,391 --> 00:26:59,331
But this element of macro is the bit that I find the hardest to understand.

307
00:27:00,351 --> 00:27:01,151
And I don't know why.

308
00:27:01,251 --> 00:27:03,271
It doesn't seem very intuitive to me.

309
00:27:03,511 --> 00:27:08,251
But obviously, you spent years and years and years working in this and living in this.

310
00:27:08,611 --> 00:27:11,451
So is this the most important thing to watch right now?

311
00:27:11,451 --> 00:27:17,731
And do you think it's actually showing signs that QT might be over and QE is about to start?

312
00:27:18,931 --> 00:27:26,491
So QE is going to be relative because they might call it something else.

313
00:27:27,251 --> 00:27:32,911
The point is that I do believe that reserves do need to be introduced back into the system.

314
00:27:33,091 --> 00:27:36,371
So the mechanism will be QE-like.

315
00:27:36,371 --> 00:27:42,731
I do believe that QT does have to end because of the mechanics of this that we're talking about.

316
00:27:43,151 --> 00:27:45,871
Is it the most important thing to watch in the system?

317
00:27:48,871 --> 00:27:59,731
You know, that's a lot of the answer to that is actually, do you think that the Fed is the most important actor right now in the global macro economy?

318
00:27:59,731 --> 00:28:01,931
and I would argue no

319
00:28:01,931 --> 00:28:03,691
because I don't think that the response

320
00:28:03,691 --> 00:28:06,851
is going to be more liquidity creating

321
00:28:06,851 --> 00:28:10,611
than what I do expect is going to be happening

322
00:28:10,611 --> 00:28:11,591
in the private sector.

323
00:28:12,111 --> 00:28:17,151
So there's some worrying stuff in the money market

324
00:28:17,151 --> 00:28:19,491
that's going to put the Fed back in play.

325
00:28:19,731 --> 00:28:21,711
It's going to make them have to end QT.

326
00:28:22,231 --> 00:28:24,731
It's going to make them have to increase their balance sheet.

327
00:28:25,871 --> 00:28:28,471
I've said for a while that I believe it'll be,

328
00:28:28,471 --> 00:28:32,491
they'll call it something like nominal GDP targeting

329
00:28:32,491 --> 00:28:35,971
for the balance sheet.

330
00:28:36,071 --> 00:28:39,471
Like the balance sheet will now follow GDP targeting.

331
00:28:39,931 --> 00:28:40,791
Something like that.

332
00:28:41,211 --> 00:28:42,751
Where they don't have to call it QE.

333
00:28:43,071 --> 00:28:44,431
They can call it something else.

334
00:28:44,631 --> 00:28:45,491
We'll know what it is.

335
00:28:45,611 --> 00:28:46,831
It's balance sheet expansion.

336
00:28:47,511 --> 00:28:48,911
But QE are these,

337
00:28:49,671 --> 00:28:51,431
they used to call it LSAP,

338
00:28:51,671 --> 00:28:53,491
large scale asset purchases.

339
00:28:53,491 --> 00:28:55,131
The LSAP days,

340
00:28:55,131 --> 00:29:03,051
I don't see that happening right now. We could get LSAP in the future. You get this huge

341
00:29:03,051 --> 00:29:11,191
balance sheet expansion, but that's not really what I see. I actually see balance sheet expansion

342
00:29:11,191 --> 00:29:19,811
in the private sector. I'll point people to the JP Morgan announcement of $1.5 trillion

343
00:29:19,811 --> 00:29:27,951
in funding that they are planning for 27 key American industries

344
00:29:27,951 --> 00:29:38,711
to rebuild America's competitiveness on a technology defense mining front.

345
00:29:39,551 --> 00:29:42,751
That's where I believe liquidity will be created.

346
00:29:42,971 --> 00:29:46,051
So is it the most important thing, Danny,

347
00:29:46,051 --> 00:29:48,731
that we should all be watching on the macro side?

348
00:29:49,811 --> 00:30:00,271
It's not, actually. The CapEx boom that has already started and we're witnessing is the more important macro story.

349
00:30:00,271 --> 00:30:26,051
I believe the standing repo facility plus Jerome Powell are capable of negating a repo crisis, avoiding large-scale asset purchases, and introducing liquidity in a more gentle way through the Fed that would make it not the most important thing.

350
00:30:26,051 --> 00:30:51,471
Okay, I've got like five questions in that, but I'm going to try and keep us on track here before we get onto the private sector stuff. If they do a kind of GDP denominated expansion of the balance sheet, is that sustainable? Can they do that for a long time?

351
00:30:51,471 --> 00:30:57,211
Or like just with the way the system is designed, does it need those huge expansions every now and again?

352
00:30:58,211 --> 00:30:59,351
Yeah, it's a good question.

353
00:30:59,551 --> 00:31:07,331
I think it comes down to how much the U.S. government needs to rely on the Fed.

354
00:31:07,331 --> 00:31:22,091
So at the moment, or let's say during 2020, 2021, the government was entirely reliant on the Fed to finance the CARES Act and emergency response.

355
00:31:22,631 --> 00:31:23,831
Entirely reliant.

356
00:31:23,911 --> 00:31:30,791
There was no private sector capacity to absorb that type of fiscal deficit.

357
00:31:31,651 --> 00:31:33,091
No capacity.

358
00:31:33,651 --> 00:31:36,771
So the Fed and the government teamed up.

359
00:31:37,331 --> 00:31:47,531
there's actually a way to categorize what the government did

360
00:31:47,531 --> 00:31:52,631
as pinning the Fed into the QE.

361
00:31:53,811 --> 00:31:57,491
Like, you know, we're going to spend $9 trillion

362
00:31:57,491 --> 00:32:00,291
and you guys, you can't do anything about it.

363
00:32:00,791 --> 00:32:03,771
You're just going to have to do trillions of QE.

364
00:32:04,651 --> 00:32:05,591
And they did.

365
00:32:05,591 --> 00:32:14,931
So the balance sheet expansion that they did back then was warranted by fiscal activity.

366
00:32:15,331 --> 00:32:19,691
So your question is, can they just do baby increases?

367
00:32:20,591 --> 00:32:31,271
Well, if the government is able to reduce its fiscal deficit from where it was at seven to now it's under six,

368
00:32:31,271 --> 00:32:35,531
if they're able to get it to under five, et cetera, keep going,

369
00:32:35,591 --> 00:32:44,511
then perhaps yes if there's no financial crisis that the treasury department goes and bails out

370
00:32:44,511 --> 00:32:55,091
banks like what happened in 2008 and 2009 that required lsap because you take on the the debt

371
00:32:55,091 --> 00:33:05,151
of the banks basically you inject liquidity means what the government borrows issues treasuries and

372
00:33:05,151 --> 00:33:13,031
then sends the money into the banking system and recapitalizes the banks. Well, who's going to fund

373
00:33:13,031 --> 00:33:19,571
the treasuries that they had to issue? They had to borrow the money from somewhere. You get LSAP.

374
00:33:19,571 --> 00:33:27,951
So the LSAP, the large-scale asset purchases are triggered by the government spending the money

375
00:33:27,951 --> 00:33:31,731
if we really look at the history of it.

376
00:33:32,891 --> 00:33:35,931
Now, the LSAP that happened in 2010,

377
00:33:37,491 --> 00:33:40,651
2012, which is that QE2, QE3,

378
00:33:41,251 --> 00:33:45,031
and the LSAP that happened in late 2021,

379
00:33:45,771 --> 00:33:49,391
which was not emergency, right?

380
00:33:49,391 --> 00:33:50,351
COVID was already,

381
00:33:51,671 --> 00:33:54,231
the emergency itself was already a year and a half

382
00:33:54,231 --> 00:33:56,271
in the rear view, and they kept going.

383
00:33:56,271 --> 00:34:03,871
Those are the ones where you say those were unnecessary or you didn't need to do that.

384
00:34:04,271 --> 00:34:07,551
So you will need QT eventually because you went too far.

385
00:34:09,431 --> 00:34:12,371
So I hope that answers your question.

386
00:34:12,571 --> 00:34:19,391
I don't think it needs to come with the large scale unless the government does something.

387
00:34:19,391 --> 00:34:24,631
and I'm quite bullish on the United States private sector

388
00:34:24,631 --> 00:34:27,471
over the next coming years,

389
00:34:28,471 --> 00:34:32,651
which might reduce the marginal

390
00:34:32,651 --> 00:34:37,371
or might reduce the deficit as a percentage of GDP at the margin.

391
00:34:37,671 --> 00:34:39,391
We're at 5.9% today.

392
00:34:40,171 --> 00:34:42,031
I believe that that could creep down

393
00:34:42,031 --> 00:34:47,451
and put any risk of the Fed having to come in

394
00:34:47,451 --> 00:34:51,711
and do these large-scale QEs, maybe punt it down.

395
00:34:51,891 --> 00:34:53,571
And I could be completely wrong,

396
00:34:53,771 --> 00:34:56,891
or I could be right and just not see that a crisis

397
00:34:56,891 --> 00:34:59,631
is maybe three or six months around the corner,

398
00:35:00,111 --> 00:35:02,511
and then the government comes and has to bail out

399
00:35:02,511 --> 00:35:06,491
a sector that we might not even think of right now

400
00:35:06,491 --> 00:35:10,251
and then have to borrow, and the Fed has to do QE to join in.

401
00:35:10,891 --> 00:35:13,851
What Bitcoin did is brought to you by the massive legends,

402
00:35:13,851 --> 00:35:20,051
IRON, the largest Nasdaq listed Bitcoin miner using 100% renewable energy. IRON are not just

403
00:35:20,051 --> 00:35:24,351
powering the Bitcoin network, they're also providing cutting-edge computing resources for AI

404
00:35:24,351 --> 00:35:28,871
all backed by renewable energy. We've been working with their founders Dan and Will for quite some

405
00:35:28,871 --> 00:35:32,691
time now and have been really impressed with their values, especially their commitment to local

406
00:35:32,691 --> 00:35:37,271
communities and sustainable computing power. So whether you're interested in mining Bitcoin or

407
00:35:37,271 --> 00:35:42,531
harnessing AI compute power, IRON is setting the standard. Visit iron.com to learn more, which is

408
00:35:42,531 --> 00:35:47,971
I-R-E-N.com. If you already self-custody of Bitcoin, you know the deal with hardware wallets,

409
00:35:48,231 --> 00:35:52,951
complex setups, clumsy interfaces, and a seed phrase that can be lost, stolen, or forgotten.

410
00:35:53,571 --> 00:35:58,331
Well, BitKey fixes that. BitKey is a multi-sig hardware wallet built by the team behind Square

411
00:35:58,331 --> 00:36:03,351
and Cash App. It packs a cryptographic recovery system and built-in inheritance feature into an

412
00:36:03,351 --> 00:36:09,271
intuitive, easy-to-use wallet with no seed phrase to sweat over. It's simple, secure self-custody

413
00:36:09,271 --> 00:36:16,151
without the stress and time named Bitkey one of the best inventions of 2024. Get 20% off at

414
00:36:16,151 --> 00:36:25,111
bitkey.world when you use the code WBD. That's B-I-T-K-E-Y.world and use the code WBD. This episode

415
00:36:25,111 --> 00:36:29,231
is brought to you by Anchor Watch. The thing that keeps me up at night is the idea of a critical

416
00:36:29,231 --> 00:36:34,071
error with my Bitcoin cold storage and this is where Anchor Watch comes in. With Anchor Watch,

417
00:36:34,071 --> 00:36:39,051
your Bitcoin is insured with your own A-plus rated Lloyds of London insurance policy and all

418
00:36:39,051 --> 00:36:43,331
Bitcoin is held in their time-locked multi-sig vaults. So you have the peace of mind knowing your

419
00:36:43,331 --> 00:36:47,951
Bitcoin is insured while not giving up custody. So whether you're worried about inheritance planning,

420
00:36:48,191 --> 00:36:53,071
wrench attacks, natural disasters or just your own silly mistakes, you're protected by AnchorWatch.

421
00:36:53,511 --> 00:36:58,471
Rates for fully insured custody start as low as 0.55% and are available for individual and

422
00:36:58,471 --> 00:37:03,631
commercial customers located in the US. Speak to AnchorWatch for a quote and for more details about

423
00:37:03,631 --> 00:37:09,710
your security options and coverage. Visit anchorwatch.com today. That is anchorwatch.com.

424
00:37:10,431 --> 00:37:15,451
I love Larry Lippard. He's on the show fairly regularly. His book is brilliant. And he always

425
00:37:15,451 --> 00:37:20,191
talks about this idea of like the big print coming. And he doesn't put a time frame on it. He's not

426
00:37:20,191 --> 00:37:23,571
saying that it's going to happen tomorrow, but he's saying just the way the system is set up,

427
00:37:23,571 --> 00:37:27,811
it has to happen at some point. Do you think he is missing something there?

428
00:37:27,811 --> 00:37:36,511
it's not that he's missing something it's just that i don't agree with the with the it the the

429
00:37:36,511 --> 00:37:44,871
fed print has to happen i think that the whole system is in a state of flux and it's responding

430
00:37:44,871 --> 00:38:05,341
to unsustainable paths that it might have that it made might have been on so i believe much more in the self as opposed to the big print to just inflate everything away Again it probably comes back to my bullishness on the U

431
00:38:06,061 --> 00:38:16,281
productivity and private sector in that I just don't see the big print being inevitable in the

432
00:38:16,281 --> 00:38:24,741
same way he does. Now, Larry is a brilliant historian in the way that he set up the history

433
00:38:24,741 --> 00:38:31,161
of the United States financial system and the different periods in which sound money was the

434
00:38:31,161 --> 00:38:40,301
basis of the system and the days in which the fractional system was more controlled or better

435
00:38:40,301 --> 00:38:46,541
controlled or more, perhaps the free banking system was a more free market system, but prone

436
00:38:46,541 --> 00:38:55,961
to crisis too. So, you know, one can like another's history and context, but completely disagree

437
00:38:55,961 --> 00:39:03,561
with, you know, the result. And Larry and I have had great conversations. We even were on stage

438
00:39:03,561 --> 00:39:09,761
together in Vegas and discussed some of it. But I read his book before we did the panel

439
00:39:09,761 --> 00:39:15,881
because I always like to learn about American financial history. There were some great nuggets

440
00:39:15,881 --> 00:39:22,961
that I picked up there. I think that as a trader, a former trader of U.S. treasuries,

441
00:39:23,321 --> 00:39:29,901
I can see how strong the asset class is. So this idea that the asset class itself is on weak footing

442
00:39:29,901 --> 00:39:32,541
is something that I wholly disagree with.

443
00:39:33,301 --> 00:39:34,981
And again, it's not that today

444
00:39:34,981 --> 00:39:37,141
it's just a great asset class.

445
00:39:38,221 --> 00:39:41,081
The government has to get its act together

446
00:39:41,081 --> 00:39:43,661
for it to be a great asset class

447
00:39:43,661 --> 00:39:45,881
for another 20 years, right?

448
00:39:46,281 --> 00:39:48,181
So maybe that's the disagreement

449
00:39:48,181 --> 00:39:53,781
is that my outlook is more bullish than his

450
00:39:53,781 --> 00:39:56,241
on the US government's ability

451
00:39:56,241 --> 00:39:59,001
to have a sustainable deficit,

452
00:39:59,001 --> 00:40:09,201
a sustainable debt, grow the private sector, have the right taxes and regulations to have a

453
00:40:09,201 --> 00:40:19,341
sustainable debt to GDP ratio that allows the government and the private sector to both prosper.

454
00:40:20,141 --> 00:40:27,181
So that would be my thought on the big print. Yeah, I can understand that viewpoint. And I've

455
00:40:27,181 --> 00:40:30,681
spoken to joe carlos area on this and it sounds like you probably agree with joe on a lot of

456
00:40:30,681 --> 00:40:37,661
these takes because he's also like a big believer in the productivity um and the thing that i always

457
00:40:37,661 --> 00:40:41,941
struggle with there is i can believe that the u.s becomes far more productive i think automation

458
00:40:41,941 --> 00:40:46,601
robotics like ai all this stuff is going to have a massive boon but what i don't know is what that

459
00:40:46,601 --> 00:40:51,441
does to jobs like i don't know if if ai like the number of jobs that ai will replace but i think

460
00:40:51,441 --> 00:40:52,561
it's going to be really high.

461
00:40:52,561 --> 00:40:56,181
And if the U.S. has like positive GDP growth

462
00:40:56,181 --> 00:40:57,821
while joblessness is going up,

463
00:40:58,121 --> 00:40:59,541
what happens then?

464
00:41:00,521 --> 00:41:01,741
It's a good question.

465
00:41:04,781 --> 00:41:10,461
There is a dynamic at play already, Danny,

466
00:41:10,621 --> 00:41:13,681
in which the S&P 500 is going up,

467
00:41:13,881 --> 00:41:16,121
but job openings are going down.

468
00:41:17,561 --> 00:41:20,601
So we're already living in

469
00:41:21,441 --> 00:41:31,121
this era. It's in front of us. So if we're already living through an era in which job openings are

470
00:41:31,121 --> 00:41:37,781
going down, and anecdotally, too, we hear about it being tough to get a job for entry-level people,

471
00:41:37,921 --> 00:41:44,801
for example, but the stock market is going up and GDP is doing fine. What is the sensitivity of US

472
00:41:44,801 --> 00:41:58,081
GDP to the middle, you know, the middle of jobs, the middle income area of jobs or the

473
00:41:58,081 --> 00:42:00,841
lower income area of jobs, it might be zero.

474
00:42:02,301 --> 00:42:04,081
What is the sensitivity, right?

475
00:42:04,121 --> 00:42:05,701
That's always what we're thinking about.

476
00:42:06,321 --> 00:42:08,261
Yes, the labor market might be an issue.

477
00:42:08,841 --> 00:42:11,521
Yes, AI might replace a lot of American jobs.

478
00:42:11,521 --> 00:42:38,661
But how much does aggregate consumption go down if that's the case? And aggregate consumption is 70% of US GDP, so it's the main driver. So if people are losing their jobs due to AI, but aggregate consumption goes up 3%, then there's no more sensitivity to, I shouldn't say no more, but there's no sensitivity to this particular dynamic.

479
00:42:38,661 --> 00:42:50,821
Now, what if it continues and starts to wipe out enough jobs so that it hits aggregate consumption and then hits GDP and tax revenue and all that kind of stuff?

480
00:42:51,861 --> 00:42:55,961
I mean, that's not my base case at all.

481
00:42:56,121 --> 00:43:06,121
Now, I'm looking at how is AI going to replace jobs and hit the economy and the labor force, and how does that feed back into consumption in the U.S. GDP?

482
00:43:06,121 --> 00:43:10,901
Okay, but what is GDP?

483
00:43:11,481 --> 00:43:21,481
If you go back to econ textbooks, GDP equals consumption plus government spending plus savings

484
00:43:21,481 --> 00:43:26,761
and then the export factor, the net exports.

485
00:43:26,921 --> 00:43:28,681
So throw out net exports for a second.

486
00:43:29,441 --> 00:43:31,161
So you have the consumer and the government.

487
00:43:31,161 --> 00:43:38,001
let's say the government doesn't spend more money because we don't really want it to if we're in this

488
00:43:38,001 --> 00:43:43,941
bullish american thesis where we want sustainable debt to gdp we don't want the government spending

489
00:43:43,941 --> 00:43:53,561
more and more money or increasing as a percentage of gdp we don't want that um now it now in the

490
00:43:53,561 --> 00:44:00,401
econ 101 your whole income is either consumed or spent there's nothing else to do with it

491
00:44:00,401 --> 00:44:07,461
mathematically. You only have two choices. You either spend it or you save it. Now you zoom into

492
00:44:07,461 --> 00:44:16,921
savings. Econ 101 suggests that savings equals investment. S equals I. It means that if you save

493
00:44:16,921 --> 00:44:23,781
a dollar, by default, you are investing it. Now you can invest it in a T-bill or you can build a

494
00:44:23,781 --> 00:44:33,521
factory. My bet is that all of the consumption that is not spent, basically all the money that

495
00:44:33,521 --> 00:44:44,141
is not spent in a previous regime, let's say the last 20 years, it's saved and hoarded and sent

496
00:44:44,141 --> 00:44:48,101
Treasury yields lower, but not anymore.

497
00:44:48,301 --> 00:44:52,721
We're on the upswing of yields.

498
00:44:53,361 --> 00:44:55,661
And I'm not a big believer in this big bond bear market,

499
00:44:55,821 --> 00:44:58,441
but the era of zero rates is over.

500
00:44:58,441 --> 00:45:00,221
You have healthy rates now.

501
00:45:01,061 --> 00:45:04,581
And that healthy interest rate in the market

502
00:45:04,581 --> 00:45:12,621
is not enough to say to people, hide out in T-bills.

503
00:45:14,141 --> 00:45:15,821
We're going to go build a factory.

504
00:45:16,461 --> 00:45:19,121
And that's where a lot of my bullishness comes from,

505
00:45:19,201 --> 00:45:21,521
is that it's the factory building.

506
00:45:21,661 --> 00:45:23,001
I did a video just today.

507
00:45:23,321 --> 00:45:26,741
Jensen Huang, he's talking about, the CEO of NVIDIA,

508
00:45:26,861 --> 00:45:30,881
he's talking about the United States building thousands of factories

509
00:45:30,881 --> 00:45:34,301
and using millions of skilled workers to do it.

510
00:45:34,801 --> 00:45:36,301
It's a very bullish vision.

511
00:45:36,901 --> 00:45:38,401
Where's the capital going to come from?

512
00:45:38,481 --> 00:45:41,381
Where's the labor, the skill, all of that?

513
00:45:41,821 --> 00:45:43,221
That's TBD, right?

514
00:45:44,141 --> 00:45:49,901
I don't have blinders on and, you know, just think we can build a thousand factories tomorrow.

515
00:45:50,681 --> 00:45:57,201
But they already built the fastest chip in the world, from my understanding, in the United States this year already.

516
00:45:57,461 --> 00:46:07,241
And he's on TV talking about it and attributing almost everything to President Donald Trump and his efforts and the tariffs specifically.

517
00:46:07,741 --> 00:46:08,821
That's wild.

518
00:46:08,821 --> 00:46:15,241
it's actually way more accelerated of a timeline than I expected.

519
00:46:16,001 --> 00:46:19,841
That you can go from a new president to tariff policy

520
00:46:19,841 --> 00:46:25,341
to the fastest chip ever made already in the United States done, manufactured.

521
00:46:29,701 --> 00:46:32,481
You asked me what's the most important.

522
00:46:32,621 --> 00:46:34,181
That's the most important story.

523
00:46:34,581 --> 00:46:36,421
It's these next thousand factories

524
00:46:36,421 --> 00:46:40,241
and the build-out of tens of trillions in AI infrastructure,

525
00:46:40,421 --> 00:46:44,961
which includes energy grid, electrification, and all of that.

526
00:46:45,041 --> 00:46:48,381
And by the way, is it going to be all government financed?

527
00:46:48,621 --> 00:46:49,001
No.

528
00:46:50,621 --> 00:46:56,221
Part of my bullishness is that J.P. Morgan releases $1.5 trillion

529
00:46:56,221 --> 00:46:58,721
dedicated to these 27 key industries.

530
00:46:59,561 --> 00:47:04,041
And it includes 6G mesh networks, drones, robotics,

531
00:47:04,041 --> 00:47:07,521
mining for all the material space exploration.

532
00:47:08,841 --> 00:47:16,461
So this is a wealth and credit creation and money.

533
00:47:16,861 --> 00:47:19,321
It's very fleeting.

534
00:47:19,741 --> 00:47:22,481
That's why people love Bitcoin and they love gold.

535
00:47:22,701 --> 00:47:24,061
It's more tangible.

536
00:47:24,961 --> 00:47:26,421
They can feel the numbers.

537
00:47:26,781 --> 00:47:27,741
They can feel the metal.

538
00:47:29,001 --> 00:47:31,321
Real estate also, very popular.

539
00:47:31,321 --> 00:47:56,781
But J.P. Morgan and its cohorts, Danny, could create $30 trillion in loans over the next decade, profit off of every one of them, and the United States could end up with thousands of new factories and industries that are world-leading.

540
00:47:56,781 --> 00:48:02,261
and it could lead to the importing of skilled labor

541
00:48:02,261 --> 00:48:06,761
where education is sourced

542
00:48:06,761 --> 00:48:09,421
and skills are sourced from around the world

543
00:48:09,421 --> 00:48:13,121
and you have two decades of American prosperity

544
00:48:13,121 --> 00:48:16,961
in just the building out of it

545
00:48:16,961 --> 00:48:18,701
and not even the benefits

546
00:48:18,701 --> 00:48:21,621
that could come from the build-out.

547
00:48:22,121 --> 00:48:24,741
So this is me being very patriotic,

548
00:48:24,901 --> 00:48:26,501
bullish about the future of the country

549
00:48:26,501 --> 00:48:37,681
of course, but the point here is that it's not the government itself that needs to spend the money.

550
00:48:38,721 --> 00:48:44,061
JP Morgan can create it out of thin air. Citi can create it out of thin air. They've been doing it

551
00:48:44,061 --> 00:48:52,881
for hundreds of years. And with a new regime, which if anybody is paying attention, you can

552
00:48:52,881 --> 00:48:59,461
see we're in a new global order, whether it's a global trade order, a political order, the

553
00:48:59,461 --> 00:49:04,961
death of globalism, the revitalization of nationalism, the return of the sovereign,

554
00:49:05,621 --> 00:49:14,301
the end of the UN, whatever you want to call it. This era could unleash bank credit creation

555
00:49:14,301 --> 00:49:22,281
in a way that we've never witnessed. That's the biggest story to me. It's a Bitcoin story too.

556
00:49:22,881 --> 00:49:25,161
if people know where to find it.

557
00:49:26,221 --> 00:49:27,541
So with JP Morgan,

558
00:49:28,001 --> 00:49:31,641
you're saying they want to create $1.5 trillion.

559
00:49:32,761 --> 00:49:34,781
How can they even do that?

560
00:49:36,401 --> 00:49:38,841
Like, I understand like loaning money into existence

561
00:49:38,841 --> 00:49:39,661
and like credit creation,

562
00:49:39,761 --> 00:49:40,941
but like how do they do that

563
00:49:40,941 --> 00:49:43,861
while in a sustainable way for their balance sheet?

564
00:49:45,041 --> 00:49:47,061
They make loans that they know

565
00:49:47,061 --> 00:49:48,761
that the customers can pay back.

566
00:49:49,041 --> 00:49:51,381
So that's all it comes down to.

567
00:49:51,381 --> 00:50:07,161
If they lend money for a 10-year project, the participant, the borrower, has to go out, build a factory, and sell goods, products, and services, and then pay back the loan.

568
00:50:07,621 --> 00:50:09,601
So how can they do it?

569
00:50:09,861 --> 00:50:13,441
Well, there's two answers to your question.

570
00:50:14,281 --> 00:50:22,381
Number one, the changes in regulation are key in this.

571
00:50:23,241 --> 00:50:24,161
And there's two components.

572
00:50:24,161 --> 00:50:31,541
The first regulation change they need is the elimination of this penalty for holding treasury capital.

573
00:50:31,941 --> 00:50:37,081
Basically, they should be able to hold treasuries without any capital charge on their balance sheet.

574
00:50:37,641 --> 00:50:38,401
That's one thing.

575
00:50:38,701 --> 00:50:43,061
The other thing are just the actual lending standards.

576
00:50:43,441 --> 00:50:47,841
that are being, I mean, they're overly restrictive

577
00:50:47,841 --> 00:50:52,341
and it's one of the things that Treasury Besant wants to unwind

578
00:50:52,341 --> 00:50:55,481
are some of these overly restrictive regulations on lending.

579
00:50:56,681 --> 00:50:59,801
So if you get some good banking deregulation,

580
00:51:01,921 --> 00:51:07,301
you get the treasuries off of the penalty,

581
00:51:07,741 --> 00:51:11,481
it's called the SLR, the supplemental leverage ratio.

582
00:51:11,481 --> 00:51:17,761
If you eliminate that penalty on holding treasuries, you automatically unlock lending.

583
00:51:18,001 --> 00:51:22,661
There are numbers that Goldman and Merrill did studies on this where if you eliminate

584
00:51:22,661 --> 00:51:29,021
that charge, you automatically allow within the current banking regulations a couple trillion

585
00:51:29,021 --> 00:51:29,421
in lending.

586
00:51:29,541 --> 00:51:33,641
I think it was somewhere in the $2 to $4 trillion that gets unlocked.

587
00:51:34,021 --> 00:51:37,501
I mean, overnight from one regulatory change.

588
00:51:38,301 --> 00:51:40,281
So those are the regulatory changes.

589
00:51:40,281 --> 00:51:46,461
so that's one place the capital can come from but another place the capital can come from

590
00:51:46,461 --> 00:51:56,501
is out of these instruments that these entities hold that are for safety okay enough with the

591
00:51:56,501 --> 00:52:03,361
safety it's time to invest remember s equals i so it's either s or it's i so it's turn the s into i

592
00:52:03,361 --> 00:52:11,541
go invest the capital. There is equity all around the world. And that's existing capital. It's not

593
00:52:11,541 --> 00:52:20,281
fresh credit creation. But if you get that capital out of a hoarder's mentality and you put it into

594
00:52:20,281 --> 00:52:30,281
bank equity, you can go leverage it again. So if these banks can boost their equity positions,

595
00:52:30,281 --> 00:52:37,081
it's the basis for more and more. Lending is fractional. So the answer to your question,

596
00:52:37,161 --> 00:52:43,941
actually, it's you unleash the fractional reserve. How do you do that? You have to have

597
00:52:43,941 --> 00:52:49,581
regulations go your way. And if you can get some new capital in there, you can really do it. But

598
00:52:49,581 --> 00:52:55,521
it's a behavioral thing. I think it's a behavioral thing first that they just have to get into that

599
00:52:55,521 --> 00:53:00,081
mentality that, okay, we're going to go out and make these loans. And they're hitting the tape with

600
00:53:00,081 --> 00:53:05,601
you know, 1.5 trillion. And they say, oh, yeah, you know, 10 billion in equity, too, which is good.

601
00:53:06,361 --> 00:53:10,281
You know, they're actually going to take stakes, but it's the lending that is material.

602
00:53:10,981 --> 00:53:14,981
And if all this capital does get unlocked and we have trillions of dollars from the private sector

603
00:53:14,981 --> 00:53:19,701
created for these businesses, what impact does that have on inflation when it's coming from the

604
00:53:19,701 --> 00:53:26,341
private sector rather than from the government? The same, the same. And because it's a raise,

605
00:53:26,341 --> 00:53:28,721
It's an increase in aggregate demand, right?

606
00:53:28,821 --> 00:53:46,961
Because when consumption and investment go up, or let's say investment goes up and consumption goes down, but investment is going up, that is a purchase of materials, labor, and it sends money.

607
00:53:47,361 --> 00:53:51,321
Credit creation that comes from the private sector sends money into the economy.

608
00:53:51,321 --> 00:53:57,181
So, you know, you asked the right follow-up, which is what's the take on inflation?

609
00:53:57,781 --> 00:54:01,801
The take on inflation is that it'll be sustained.

610
00:54:02,521 --> 00:54:03,861
It will be sustained.

611
00:54:04,041 --> 00:54:19,501
I'm not a big believer in this 5% to 10% inflation on the broad level, but on a more zoomed level, there will be sectors that will experience this type of inflation.

612
00:54:21,321 --> 00:54:27,881
throughout this entire capex boom if that's what we are to see and the bond market right now says

613
00:54:27,881 --> 00:54:31,561
that that number is you know in the two and two to two and a half percent range

614
00:54:33,161 --> 00:54:38,681
you know that might be a little low but i'm not i'm not into the um

615
00:54:41,081 --> 00:54:48,041
i don't believe that double digit inflation is going to be the result of the cap the capex boom

616
00:54:48,041 --> 00:54:54,221
especially with the productivity gains and maybe driving down the labor cost as well.

617
00:54:54,601 --> 00:55:03,101
The government, by the way, will need more of a social safety net if AI really does just

618
00:55:03,101 --> 00:55:06,461
shatter the labor force and replace so many jobs.

619
00:55:07,621 --> 00:55:09,541
That's where you need UBI or something similar.

620
00:55:09,981 --> 00:55:12,041
Yeah, transfer payments and all of that kind of stuff.

621
00:55:12,041 --> 00:55:17,381
It should be near people's base case for the next couple decades.

622
00:55:18,041 --> 00:55:25,721
Um, if, if we're in these new regimes expecting something like that, but it, again, it would

623
00:55:25,721 --> 00:55:31,661
have to be sustainable for my, uh, you know, stability of the treasury market thesis to

624
00:55:31,661 --> 00:55:32,041
play out.

625
00:55:32,741 --> 00:55:38,041
See, I could be being naive here, but I can't see a world where if AI does what I think

626
00:55:38,041 --> 00:55:39,761
it's going to do and what a lot of people think it's going to do.

627
00:55:40,101 --> 00:55:45,561
Um, I can't see a world where we don't have QE and that's going to be a serious increase

628
00:55:45,561 --> 00:55:47,101
in the balance sheet going forward as well.

629
00:55:48,041 --> 00:56:14,421
You know, again, QE has to be triggered by some sort of crisis. So if the crisis is 1% increase in unemployment every three to six months, is there a bailout package that needs to be sent to every citizen in the United States?

630
00:56:14,421 --> 00:56:32,001
And if that's the case, then yes, I would agree with you that it's going to come along with some balance sheet expansion. But I don't think it can be triggered without some big spending package or some big financial crisis.

631
00:56:33,661 --> 00:56:37,861
It seems like the future we're going into is just more and more wealth inequality as well.

632
00:56:37,861 --> 00:57:02,732
There no doubt about that especially with what we talking about with the stock market going up and job openings going down And even the premise that a poor labor market doesn affect aggregate consumption that screams wealth inequality it a it a little bit of a scary future but if we

633
00:57:02,732 --> 00:57:07,672
if we like to summarize your point you think sort of qt is probably coming to an end maybe ending

634
00:57:07,672 --> 00:57:15,512
um qe in some form might be coming back even if it's sort of gdp uh denominated there's going to

635
00:57:15,512 --> 00:57:26,192
be a massive private credit boom um what does all this mean for bitcoin yes bitcoin now i believe

636
00:57:26,192 --> 00:57:32,592
is the way that we've been thinking about it is is a liquidity asset so as liquidity comes into

637
00:57:32,592 --> 00:57:37,992
the system, Bitcoin is the recipient of some of that. When liquidity tightens up, we see Bitcoin's

638
00:57:37,992 --> 00:57:48,772
price suffer. So if Bitcoin is receiving a passive flow from all credit expansion dynamics,

639
00:57:50,912 --> 00:57:58,612
and it is a superior asset to other assets in terms of the relative catch-up,

640
00:57:58,612 --> 00:58:02,392
then Bitcoin should perform very well.

641
00:58:03,552 --> 00:58:06,512
Especially as more money is created into the system

642
00:58:06,512 --> 00:58:08,372
and flowing around the world,

643
00:58:08,512 --> 00:58:12,492
Bitcoin becomes a really valuable collateral

644
00:58:12,492 --> 00:58:16,772
as time continues to pass.

645
00:58:17,312 --> 00:58:20,372
So the thesis on Bitcoin is very bullish.

646
00:58:20,372 --> 00:58:23,152
If we think about what are the big risks

647
00:58:23,152 --> 00:58:24,832
for Bitcoin going forward,

648
00:58:25,772 --> 00:58:28,432
I would say credit contraction

649
00:58:28,432 --> 00:58:31,012
is probably the biggest risk.

650
00:58:31,612 --> 00:58:34,792
But we live in this world where credit creation

651
00:58:34,792 --> 00:58:38,752
is responded to by bailouts which are backed by QE.

652
00:58:39,752 --> 00:58:43,752
And that world is...

653
00:58:46,352 --> 00:58:49,952
We're going to have to see some dramatic event

654
00:58:49,952 --> 00:58:52,812
to have to change our thesis.

655
00:58:54,492 --> 00:58:55,132
Right?

656
00:58:55,132 --> 00:59:03,852
It doesn't feel like it's the right thesis to say, well, there will be, you know, I'm sure that there will be credit losses somewhere.

657
00:59:04,372 --> 00:59:07,312
And then the government is going to let all the banks fail.

658
00:59:08,752 --> 00:59:17,812
And a big contraction of the credit system that the government, you know, it won't be there and the Fed won't be there either.

659
00:59:18,852 --> 00:59:20,252
To backstop it.

660
00:59:20,812 --> 00:59:22,452
Big destruction in credit.

661
00:59:22,452 --> 00:59:38,152
big destruction in stock prices, Bitcoin, dollar soars, and that's the risk.

662
00:59:39,772 --> 00:59:44,372
There's another risk which is separate than that, which is that inflation gets out of hand

663
00:59:44,372 --> 00:59:51,952
and interest rates have to go way up or the market drives them up because the market is saying,

664
00:59:51,952 --> 00:59:54,212
hey, inflation's at 6%, 7%.

665
00:59:54,212 --> 00:59:59,932
I'm pulling my money out and putting it in fixed income,

666
01:00:00,492 --> 01:00:01,952
pulling it out of risk,

667
01:00:02,372 --> 01:00:07,472
and liquidity is affected through a big bear market in treasuries

668
01:00:07,472 --> 01:00:10,712
because of inflation getting out of hand.

669
01:00:10,972 --> 01:00:13,172
I would say that that's a risk to Bitcoin.

670
01:00:14,872 --> 01:00:18,892
Bitcoin is not, I don't believe, ready to act as an inflation hedge

671
01:00:18,892 --> 01:00:20,072
in that example.

672
01:00:20,072 --> 01:00:24,312
In a big bear market in treasuries, Bitcoin isn't going to do great.

673
01:00:24,392 --> 01:00:27,652
You can look at 2022 for a good example of that.

674
01:00:28,532 --> 01:00:31,772
And I still believe that dynamic is there.

675
01:00:32,132 --> 01:00:41,772
So in the absence of a big wave of inflation or a big contraction in credit that isn't responded to by policy bailouts,

676
01:00:41,772 --> 01:00:49,772
I think Bitcoin does very well in this middle ground of big capex, passive flows from...

677
01:00:50,072 --> 01:00:59,212
spending incomes. And even if it is only a certain portion of the economy that is earning in an AI

678
01:00:59,212 --> 01:01:05,672
world, that some of that money ends up in Bitcoin as well. Why don't you think Bitcoin's ready to

679
01:01:05,672 --> 01:01:11,792
behave as an inflation edge? Because I think we both probably agree that that kind of is what it

680
01:01:11,792 --> 01:01:15,772
is and what it will be in the future. But why do you think it's not ready now? What is it that

681
01:01:15,772 --> 01:01:22,132
makes sort of gold able to do that but not bitcoin yet i don't even think gold is the inflation hedge

682
01:01:22,132 --> 01:01:32,672
so it when it comes down to looking at the the statistics the correlations the drivers

683
01:01:32,672 --> 01:01:42,172
gold has had an incredible year with inflation being totally stable around 2.93 2.8 i mean

684
01:01:42,172 --> 01:01:47,372
trending down, trending flat, no real tariff scare. Gold is just ripping.

685
01:01:48,512 --> 01:01:55,192
So gold is not ripping as an inflation hedge this year. It's ripping. We can talk about that,

686
01:01:55,452 --> 01:02:03,492
but it's ripping for other geopolitical reasons. It's not ripping because people are dumping

687
01:02:03,492 --> 01:02:11,712
treasuries. Treasuries are trading very well this year. So I don't think gold is functioning

688
01:02:11,712 --> 01:02:18,852
as an inflation hedge. This year's price action tells me that gold is performing well in the

689
01:02:18,852 --> 01:02:25,872
absence of inflation, especially with the economy being in that kind of so-so area,

690
01:02:26,212 --> 01:02:33,672
rates trending down. Remember, rates trending down means lower inflation expectations going forward.

691
01:02:34,212 --> 01:02:39,572
So why isn't Bitcoin ready to trade as an inflation hedge? Because the market

692
01:02:39,572 --> 01:02:47,772
shows us that when volatility spikes on a pop in interest rates

693
01:02:47,772 --> 01:02:53,272
off of an inflation scare, the Bitcoin doesn't do well. It goes down.

694
01:02:54,132 --> 01:02:55,932
So the market's just still treating it like a risk asset?

695
01:02:56,272 --> 01:03:00,012
It just is. It's treating it like a liquidity asset.

696
01:03:01,272 --> 01:03:08,012
We should talk about gold because I saw in that recent video, you were kind of alarmed at gold's

697
01:03:08,012 --> 01:03:12,632
performance and you weren't really sure why it was happening. Checkmate, who good friend of mine,

698
01:03:12,692 --> 01:03:17,732
I know you know well as well. He talks about gold as it's kind of showing us the path and Bitcoin

699
01:03:17,732 --> 01:03:26,232
sort of follows. Why are you nervous about what gold is doing? So let me specify the word nervous,

700
01:03:26,232 --> 01:03:33,852
I guess, in this context. First of all, I traded gold back in the day as a hobbyist,

701
01:03:33,852 --> 01:03:39,772
not a professional, traded rates professionally and money markets professionally. So when I give

702
01:03:39,772 --> 01:03:45,552
my opinion on these markets, it comes from a former professional practitioner. So I'm not a gold

703
01:03:45,552 --> 01:03:51,412
trader in any sort of professional practitioner sort of way. I'm also not a gold researcher either.

704
01:03:52,232 --> 01:04:00,812
Now, I am very passionate about geopolitics. I was a former gold bug before finding Bitcoin,

705
01:04:00,812 --> 01:04:07,112
a big proponent of sound money before finding Bitcoin and after understanding QE.

706
01:04:07,612 --> 01:04:09,072
So that's the context for gold.

707
01:04:09,232 --> 01:04:12,692
So why am I nervous about it?

708
01:04:12,792 --> 01:04:20,852
I'm nervous because when the gold price, or let's just say the gold price going up the

709
01:04:20,852 --> 01:04:29,732
way that it has this year makes me feel like there's some very large geopolitical move being

710
01:04:29,732 --> 01:04:30,232
played.

711
01:04:30,812 --> 01:04:33,432
Is it a United States move?

712
01:04:34,432 --> 01:04:36,312
Is it a Chinese move?

713
01:04:37,512 --> 01:04:42,632
Is there some fear trade associated with a big blow-up in Europe?

714
01:04:44,192 --> 01:04:48,512
Like European QE, ECBQE?

715
01:04:51,552 --> 01:04:54,172
These are maybe three of the options.

716
01:04:55,452 --> 01:04:57,312
I don't know.

717
01:04:57,312 --> 01:05:09,572
And I, you know, reading theories, reading some street research on it, nothing is super convincing to me.

718
01:05:09,572 --> 01:05:20,712
my hunch has this like the fact that Trump and Besant are absolutely silent on this matter

719
01:05:20,712 --> 01:05:29,572
to me means that it might be something that's U.S. caused and that benefits the U.S.

720
01:05:29,572 --> 01:05:32,212
because if somebody was doing this,

721
01:05:32,292 --> 01:05:39,592
let's say this was China buying and delivering

722
01:05:39,592 --> 01:05:41,492
and driving the gold price up,

723
01:05:41,552 --> 01:05:42,852
which there's a lot of evidence

724
01:05:42,852 --> 01:05:46,252
that gold is getting delivered to the US this year,

725
01:05:46,752 --> 01:05:48,252
like US gold delivery.

726
01:05:48,652 --> 01:05:49,812
So there's a lot of evidence

727
01:05:49,812 --> 01:05:51,932
that this might be American driven,

728
01:05:52,232 --> 01:05:55,812
but let's say it was China driving the gold price up.

729
01:05:55,812 --> 01:05:58,992
And let's say that the price of gold going up

730
01:05:58,992 --> 01:06:08,072
was hurting in some way the U.S., U.S. banks, or the U.S. government in some way, or the Fed,

731
01:06:08,132 --> 01:06:16,112
or some position. You would see Trump do his thing and hit the tape and talk a bunch of smack and

732
01:06:16,112 --> 01:06:28,232
blame somebody or something, but we don't see that. And so why am I nervous? I'm nervous when

733
01:06:28,232 --> 01:06:35,452
I don't know what's happening. So, and I only have, you know, a limited amount of time,

734
01:06:35,772 --> 01:06:42,952
you know, to do research. And it also means that some of the more theoretical, you know,

735
01:06:43,672 --> 01:06:50,792
I believe this is happening, Besson is doing this, or this is some squeeze, you know, I'll shout out,

736
01:06:51,432 --> 01:06:57,092
you know, some of the street research that I've been reading, that's been excellent.

737
01:06:57,092 --> 01:07:03,192
some of it out of Merrill and, you know, mostly out of Bank of America. Merrill Lynch wrote some

738
01:07:03,192 --> 01:07:12,412
good stuff on this. Nothing has me convinced because I'm too, you know, conspiratorial

739
01:07:12,412 --> 01:07:18,492
minded in thinking about this, that who's getting squeezed and who's getting hurt

740
01:07:18,492 --> 01:07:24,812
and who's benefiting from this, that nothing I've read really fits the bill. And the stuff that

741
01:07:24,812 --> 01:07:30,292
is more conspiratorial that I maybe want to believe, I can't prove.

742
01:07:31,812 --> 01:07:41,892
And so all of the not knowing makes me nervous. And also this hunch that maybe Europe is blowing

743
01:07:41,892 --> 01:07:48,932
up and the ECB is setting up for some massive QE, or there's somebody in Europe that's being

744
01:07:48,932 --> 01:07:56,272
squeezed like out of London, maybe the bullion banks or something like that. That has me nervous

745
01:07:56,272 --> 01:08:06,412
because that can come with a big financial crisis, panic, perhaps a sharp fall in risk prices that

746
01:08:06,412 --> 01:08:14,052
scares a lot of people, forces liquidations. And the people that are over leveraged,

747
01:08:14,412 --> 01:08:18,572
God bless them, but it's the people that actually are not leveraged but still get

748
01:08:18,572 --> 01:08:23,772
shaken out of their position that I worry for them because that's happened to people, you know,

749
01:08:23,772 --> 01:08:28,592
that they get shaken out and then they don't realize that everything is going to get bailed

750
01:08:28,592 --> 01:08:35,612
out. So they miss, you know, the, the pop back. And, uh, you know, we don't know if we're still

751
01:08:35,612 --> 01:08:41,412
in a bailout culture or not. We'll never know until you get to the crisis. Uh, but I, I hope

752
01:08:41,412 --> 01:08:45,872
that answers your question as to why I feel nervous about the gold price. My money's on,

753
01:08:45,872 --> 01:08:50,472
we still are in a bailout culture. But I mean, I think it's interesting because earlier this year,

754
01:08:50,892 --> 01:08:54,992
tons and tons of gold were leaving London, coming to America. I don't really know why that was.

755
01:08:55,372 --> 01:08:59,172
I think people called it like an arbitrage trade. I don't know if I really buy that.

756
01:09:00,072 --> 01:09:05,052
China are the biggest producer of gold. I'm sure they've been stacking a ton of gold over the last

757
01:09:05,052 --> 01:09:12,132
year, probably multiple years. So is your worry here that like the US and China might be in almost

758
01:09:12,132 --> 01:09:15,612
like a silent war to stack as much gold as possible? You don't know who's going to come

759
01:09:15,612 --> 01:09:22,572
out on top at the end of that you know that that's less scary because that's just an accumulation

760
01:09:22,572 --> 01:09:29,012
um so that would be less scary to me and we do know that china's stacking gold we have we have

761
01:09:29,012 --> 01:09:36,412
you know the shanghai uh gold contract volumes are up also so we know that china's been stacking

762
01:09:36,412 --> 01:09:43,811
gold for many years and that's not a surprise the united states is not admitting to any sort

763
01:09:43,811 --> 01:09:50,432
of gold stacking it as a large gold position, but it would be the private sector banks or whoever

764
01:09:50,432 --> 01:09:55,192
that's importing that gold and taking delivery, not necessarily the US government unless they're

765
01:09:55,192 --> 01:10:04,392
doing it covertly or under the table in some way like that. So I don't think that a US-China fight

766
01:10:04,392 --> 01:10:12,372
over gold would scare me. When a market goes up this quickly and there's not a lot of explanation,

767
01:10:12,372 --> 01:10:17,252
It's like, wow, you know, there really is something going on behind the scenes.

768
01:10:17,512 --> 01:10:21,692
And as a macro analyst, it's all fascinating to me.

769
01:10:21,792 --> 01:10:23,032
And you're limited by time.

770
01:10:23,072 --> 01:10:27,512
And you're also limited by what you want to be well-versed in.

771
01:10:27,572 --> 01:10:31,832
I want to be a great rates analyst and a great Bitcoin analyst.

772
01:10:31,832 --> 01:10:36,152
But I don't feel that I can be also a great gold analyst.

773
01:10:36,352 --> 01:10:40,532
So it leaves it out of, you know, my immediate research purview.

774
01:10:40,532 --> 01:10:47,732
And then when something happens in it, I'm caught off guard by the speed at which gold has gone up.

775
01:10:48,811 --> 01:10:53,832
And, you know, not knowing is probably bothering me.

776
01:10:54,932 --> 01:10:55,652
Yeah, I get that.

777
01:10:55,712 --> 01:11:02,811
It's funny because like in previous cycles where Bitcoin has been doing well, you see a ton of retail people turn up and we've not really had that this cycle.

778
01:11:02,852 --> 01:11:04,192
I've not noticed it that much.

779
01:11:04,192 --> 01:11:10,492
I think potentially it's starting like I've seen a lot of new listeners on the podcast, but nothing like previous cycles.

780
01:11:10,532 --> 01:11:15,592
But then at the same time, I'm sure you've seen the picture of queues outside gold dealerships.

781
01:11:15,852 --> 01:11:21,732
And it seems like the retail FOMO is in gold this time, which is a really interesting dynamic.

782
01:11:22,492 --> 01:11:24,592
With everything that's happened over the last couple of weeks in Bitcoin,

783
01:11:25,792 --> 01:11:30,412
last time we spoke, you said you were sort of 60-40 on the cycles being broken.

784
01:11:31,252 --> 01:11:36,512
Has anything changed now we're seeing the sort of sharp drop in Bitcoin and it's looking a little more uneasy?

785
01:11:36,512 --> 01:11:53,872
Yeah, I would say it creeps up every day, that 60-40 number. I don't necessarily feel like I want to put a number that's higher than 60 today on the show.

786
01:11:53,872 --> 01:12:08,952
But yeah, I believe with every day that goes by that we're not really beholden to this cycle. I haven't seen any of the FOMO trade in Bitcoin this time around, like you just mentioned.

787
01:12:08,952 --> 01:12:18,612
And the cycle that we saw in 2017 and 2021,

788
01:12:19,152 --> 01:12:24,032
both had just completely different behavioral patterns.

789
01:12:24,032 --> 01:12:28,652
And now we're almost through with October here,

790
01:12:28,892 --> 01:12:32,732
and the Bitcoin price just isn't going anywhere.

791
01:12:33,272 --> 01:12:34,792
It's still consolidating.

792
01:12:35,192 --> 01:12:36,392
I think that's super healthy.

793
01:12:37,132 --> 01:12:38,692
I'm a big fan of consolidation.

794
01:12:38,952 --> 01:12:47,432
in Bitcoin because it means that Bitcoin is not in any, well, it's just compressing in volatility.

795
01:12:48,192 --> 01:12:53,772
And that's a sign of it maturing. And the more compressed the volatility is the less

796
01:12:53,772 --> 01:13:01,632
likelihood of an 80% decline. So when I see volatility start to peak up, to pop up like it

797
01:13:01,632 --> 01:13:08,892
has in the last couple of weeks, you start to wonder, oh, are we in for one of those big moves?

798
01:13:08,952 --> 01:13:16,892
but um no i still believe uh consistent with our last interview all right nick this has been

799
01:13:16,892 --> 01:13:22,252
awesome i mean the repo stuff i don't know why it just doesn't fit in my head very well but um

800
01:13:22,252 --> 01:13:27,232
this was super useful i think i learned a lot um it's gonna be an interesting time coming up we've

801
01:13:27,232 --> 01:13:32,352
got a an interesting sort of 12 months ahead of us we'll see what happens absolutely and you know

802
01:13:32,352 --> 01:13:40,952
the gold weekly candle this week is one of those candles that, you know, the chart analyst in me

803
01:13:40,952 --> 01:13:46,792
says, oh, now, you know, the gold run is over. It's going to consolidate maybe for another six

804
01:13:46,792 --> 01:13:54,112
to 12 months and all that. But I thought that a couple times over this current bull market in gold

805
01:13:54,112 --> 01:13:58,952
where I saw a candle and just, you know, a reversal and I said, oh, that's it. And then

806
01:13:58,952 --> 01:14:04,872
it keeps going. So, you know, that's one of the things that's the most fascinating thing.

807
01:14:05,332 --> 01:14:10,592
And on the repo side, it just takes so much repetition. And I remember just being on the

808
01:14:10,592 --> 01:14:15,832
desk and it just takes, you know, months and months and months of reading about it every

809
01:14:15,832 --> 01:14:21,212
single day to really understand what's going on. So I appreciate you letting me teach you and others.

810
01:14:21,972 --> 01:14:26,152
No, I appreciate it, Nick. Thank you. And tell everyone where to check out your videos and the

811
01:14:26,152 --> 01:14:29,652
newsletter, all the stuff that you do. Yeah, everything you guys can find at the

812
01:14:29,652 --> 01:14:34,972
bitcoinlayer.com. So we have a show channel. If you like to watch, listen, we have a great

813
01:14:34,972 --> 01:14:41,332
research newsletter and the links to my books as well. Everything is at the bitcoinlayer.com.

814
01:14:41,612 --> 01:14:45,972
How's the sales on the Bitcoin age gone? Oh, it's gone great. I really feel

815
01:14:45,972 --> 01:14:53,172
blessed to have so many great readers. And the fun thing about Bitcoin age is that

816
01:14:53,172 --> 01:14:57,332
people are genuinely learning things that they didn't expect to learn.

817
01:14:57,492 --> 01:15:01,712
So Bitcoiners that said, oh, I learned this particular thing.

818
01:15:01,892 --> 01:15:03,712
And that always makes me excited.

819
01:15:04,072 --> 01:15:07,892
I got to teach both of my books together as one product this summer,

820
01:15:08,052 --> 01:15:09,912
which was excellent.

821
01:15:09,912 --> 01:15:11,652
And I'm going to get to do that again next year.

822
01:15:12,652 --> 01:15:13,412
Love it.

823
01:15:13,572 --> 01:15:15,912
I've actually, I've not got it on the bookshelf yet, Nick,

824
01:15:16,012 --> 01:15:18,832
but I'm going to buy it as soon as we get off this call and put it on there.

825
01:15:18,832 --> 01:15:23,072
I was waiting for my signed copy, but I'll have to just get to Danny.

826
01:15:23,172 --> 01:15:24,612
Well, I'll send you one. Absolutely.

827
01:15:25,532 --> 01:15:27,632
All right, Nick. Thanks so much for this. It's been great.

828
01:15:28,311 --> 01:15:29,292
Thanks, man. Appreciate it.