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You've had a dynamic where money has become freer than free.

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If you talk about a Fed just gone nuts, all the central banks going nuts.

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So it's all acting like safe haven.

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I believe that in a world where central bankers are tripping over themselves to devalue their

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currency, Bitcoin wins. In the world of fiat currencies, Bitcoin is the victor.

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I mean, that's part of the bull case for Bitcoin.

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If you're not paying attention, you probably should be.

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Michael Howe, we last met in February.

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It's now the end of July.

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Happy to have you back.

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Well, Marty, it's always pleased to be here.

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Well, we were chatting a bit before we hit record.

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I think probably the best place to start is Kevin Warsh and this federal reserve rate decision.

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And he's got to make or the board has to make this week.

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As you were saying, many people are focused on bond yields right now.

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And it's actually, I didn't mention this before we have recorded, but it looks like yields want to drift higher.

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They probably have to let that happen.

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Will they is another question.

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But one thing that I've been observing as these bond yields have been drifting higher is the move index, the volatility index of the government bonds here in the U.S.

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And it looks like that's relatively controlled.

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And that's one thing I'm wondering is if they're watching the move index more than the actual yield and trying to make sure that they can just suppress volatility on the way up.

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Yeah, I think unquestionably that's what's going on.

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There seems to be deliberate manipulation of volatility in the market.

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I mean, I call that yield volatility control, not yield curve control.

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I think there is a policy to do that.

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That policy basically embraces two things.

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One is issuance at the short end, which has clearly been on a roll over the last two to three years.

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And the other factor is basically doing treasury buybacks, which always seem to pick up in response to increases in the move index.

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So when you see a jump in bond volatility, the treasury comes in, offers an auction to buy back more off-the-run bonds, and lo and behold, the move index comes down.

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So I think there's a direct response there.

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So in my view, they're doing it.

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Why are they doing that? Because essentially, they can encourage leveraged funds, i.e. hedge funds, through an arbitrage trade to borrow in the repo markets and basically buy the cash bond.

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And that depresses yields. And I think that that is a meaningful factor. It's probably at least 50 basis points, if not more, off the yield on the 10-year.

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So, I mean, this is a material effect. But I think we've got to put this into perspective.

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And the fact is that you're looking at the pace of the US economy, which I figure is at least between growing in nominal terms, at least between 6% and 7%, if not breaking through the top of that, given the AI spend, yields have got to be a lot higher.

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I mean, this gap of more than 200 basis points between nominal GDP and the 10-year bond is unsustainable compared to history.

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Yields have got to rise, and they are trying to rise.

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The administration in various forms is trying to pull them back.

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It's struggling to do that.

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As you know, U.S. is continuing to edge up.

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But the fact is that history shows that it's the long end of the market that determines the short end of the market.

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And not as textbooks tell us, the short end that drives the long end.

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Ultimately, the Fed is going to have to start hiking rates.

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Walsh could surprise us perhaps and do it today.

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I mean, the market is only discounting 30% chance of a rate hike.

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But it's going to come either this meeting or the next meeting, it might be.

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Yeah. And I've heard commentary around it.

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The dark horse bettors betting on a rate hike saying that it would be good to do it now because it would confirm this new framework that Warsh has come in with is that they don't want to do forward guidance.

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So a relatively a relative surprise with the rate hike, considering where the odds are right now, would do that.

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It will be really interesting to see if he takes the opportunity to do that.

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But as you mentioned before we hit record, does he have the gumption and the balls to do it?

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Yeah.

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The fact is, would he carry the rest of the FOMC?

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I mean, he's only one vote, but he may be persuasive enough to swing the balance.

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I mean, who knows?

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But I think it would be a decisive move.

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And as you rightly say, it would basically end the forward guidance regime, which I think has been a bad regime.

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for sure. And it would basically endorse some of his thinking, which is money supply matters.

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Money supply is on a tear at the moment. That often tells us that inflation is a problem down

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the road. So these are the questions that the FOMC have got to tackle. And I think a right

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hike now would basically draw a line in the sand and show the Fed is serious And I think the firmness of the dollar in my view is saying that the market is starting to believe that rhetoric that the Fed is in the process of tightening When you say the money supply is growing what are you looking at M2

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Well, if you look at M2, I mean, it's admittedly, you know, in the last two or three weeks, it's cooled down a bit.

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But it was a three-month annualized rate was testing 10% a little while ago.

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So, I mean, that's a pretty solid growth rate.

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What's leading to that expansion? Is the SLR ratio changes, is the commercial banking industry issuing more credit?

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Yeah, I think that's clearly having some effect. But I think at the end of the day, this is really a response or reflection of strong nominal GDP growth.

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And why is the economy growing so well? And I think whether it's a K or not, the fact is the average is growing at a high rate.

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And this must be the AI cap expense.

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It must be the large fiscal deficit.

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It must be the pickup in exports, particularly oil energy exports, following tensions in the Gulf.

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All these factors make a big difference.

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And the economy looks, looking at NGDP numbers, nominal GDP, it looks pretty solid.

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It looks solid.

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A lot of people are worried about this AI cap expense.

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Specifically, there's a lot of bears out there.

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We're saying that we're in a bubble.

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Yeah, well, I think, I mean, in many ways it is.

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I mean, that's how capitalism works.

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We've seen it time and time again.

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It's those investment opportunities.

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You are compelled as a company to invest.

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You don't really know what your competitors are doing, but they're copying.

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And so you get this massive overcapacity.

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We saw that with fiber optic.

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And you think back to Global Crossing at the end of the 90s.

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Global Crossing was one of the big IPOs that came in the late 90s.

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Within five years, Global Crossing was in Chapter 11 because the prices of fiber optic

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had dropped by 80%, 90%.

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And it could easily happen again, deja vu.

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Yeah, that's the thing. Well, is it day job? Is it like, is this time different? It's like famous last words.

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that's like uh i've been really trying to wrap my head around this because

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as somebody like we were just uh discussing too we've been using you were using the tool i was

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mentioning uh the newsletter that you released uh today about bitcoin and cryptocurrencies and

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where they may be in their cycle but you were mentioning that you you ran an analysis using

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these ai tools i've been using ai near tftc pretty pretty vigorously my my usage is going up

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considerably as i as i find more things that i can do with it and that's um a lot of people

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usually tying it to the dot-com bubbles like is it really and then you look at like the pe

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forward pe ratios of the memory stock specifically um out of south korea and they're only training

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at like a four if you look at the the revenue and profitability and margins they're going up

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considerably and so how what i agree with you this is how markets work and capitalism works i

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guess the better question is like what stage of the bubble are we in even though we've had

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incredible um runs in the stock market for individual stocks obviously korean stock market's

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getting hammered this week but before then like is this just the correction um in a longer term

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bull market. Yeah. I mean, I think it's still above its 200-day moving average. It still looks

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as if it's potentially in a bull market despite the spike in the index. But I think you've got

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to separate out earnings and you've got to separate that from valuations. And we're probably

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jointly in a valuation bubble and an earnings bubble. The earnings bubble may go on, as you

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correctly say, for some time because the momentum is there, people are spending. AI is a reality.

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I'm using it, you're using it, a lot of people are using it.

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It's going to be a must-have and a must-use in the future.

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Will it have big productivity benefits?

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I'm not sure about that.

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I mean, probably the answer is yes.

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I'm not fully qualified to answer the question.

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But the fact is that it's inflationary in the near term because of the scale of the capital spending.

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And we know that capital spending booms are always inflationary.

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And yet we've got another one here, which is basically pushing up NGDP and ultimately inflation.

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So I think those are the factors to watch.

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And then if you look at valuation bubbles, I mean, those are always ended by central bank tightening.

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So we revert to what Kevin Walsh is likely to do.

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But I think his hands are largely tied by the bond markets.

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And the bond markets, in my view, drive what happens on the policy end.

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And the bond markets are telling us that you're going to be seeing monetary tightening.

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has this capex this ai capex boom is have you noticed it affecting the global liquidity index

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or trends in it yeah i mean there's there there's no mistake that it has i mean uh you know i can

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revert to um uh let me put a slide up and try and um and try and show uh that if we can see

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Hopefully, you can see the deck.

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What this shows is the global liquidity cycle.

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This is a measure of momentum of money flow through the world economy It not M2 or any of these what I would call retail or real economy measures of money This is money going through financial markets And what you can see is an

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inflection that occurred around the end of Q3 of last year. Bear in mind, this is a growth rate,

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not a level, but the growth rate has clearly slowed down a lot. And that slowing was not

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because central banks were tightening, because they hadn't really started to tighten yet,

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as we know, just on that point, it's really turning down because all money that's anywhere

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must be somewhere. So if it's in the real economy and it's fueling strong economic growth,

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it's not there for asset price appreciation in financial markets. And that's really the reality.

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And so what you're seeing is a downswing of the cycle, as you would expect at a time when the

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real economy is picking up and things like commodity markets, hard commodities have got

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momentum. And that's a very normal cycle. And what you'd expect to see through this phase on top

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is flattening yield curves, which is exactly what we're beginning to see.

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So everything, sort of the dots join up. And you could always argue on top of that,

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that you get bubbles around the peak and maybe the semis or whatever bubble,

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or even the Mag7 bubble a bit earlier, are symptomatic of that excess liquidity.

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Yeah. I mean, in February, you said it looks like we're going to trough in mid-2027. It looks like

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we're right on trend. Yeah, it's looking that way. I mean, I think there's another chart I can show

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you, which is actually a lot. I'm going to come back to these other ones, which I just wanted

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just to touch on, which I think is an important one a little bit further up. So this is two-year

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yields and SOFA rates. So what this is basically telling us is that the orange line is what the

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Treasury market, the two-year note is signaling in terms of yields. And that pretty much embeds

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expectations for Fed policy rates over the next two-year period, by definition. The black line

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is looking at overnight SOFA rates, which is effectively the rates in the repo markets.

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Now, that difference is an interesting difference to note, because the orange line tends to be a

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lead indicator of movements in sofa rates, overnight rates. You can read the overnight

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rate as equivalent to Fed funds. So that's pretty much what the Fed is seeking to guide.

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And if that's the proxy for Fed funds, the orange line is a proxy for what the market is expecting

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the direction to be. Now, I actually ran this data talking about AI systems. I ran this through

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an AI system. And I said, if you look historically, how many times has that orange line on the upside

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or the downside when it breaks through the black proved a false flag? And the answer was, it

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basically is a false flag only 10% to 15% of the time. Now, that's kind of interesting. So in other

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words, 80% to 85%, sorry, 85% of the time, let's say, to 90% of the time is correct. And that's an

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interesting point when you look at this chart. And this is looking at the history of what happened

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in 2021-22. The black line is the same difference between the SOFA and the two-year yield. So in

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other words, if you subtract on that earlier chart, the one I just put up, sorry, if you

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subtract the black line from the orange line, you get this one, which hopefully you can see now.

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Right. So now this says so for less two year yield. So this is just subtracting one from the other. And the orange line is the current period, the 2426 cycle. And the black line is what happened in 2020 to 23. And you can see the path of what happened in 2021, 22, where the black line starts to create a lower.

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And that is basically saying that the two-year note is flagging correctly increases in interest rates as the Federal Reserve tightens policy.

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So you can read anything below that dotted line as being a monetary tightening and anything above that dotted line as being a monetary easing.

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Now, if you look at the path that we're on, we're pretty much tracking what happened in late 21, early 22, where you start to see an acceleration now in monetary tightening.

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And I think that is more or less what the Federal Reserve is suggesting from what we know, the non-forward guidance, forward guidance.

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And if that's the case, just recall what happened.

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The S&P was down 25% through that period in 21-22.

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And things like crypto were down 75%.

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Now, crypto is already down heavily.

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It could fall further.

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But I think we're getting nearer the lows on those assets.

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But generally speaking, this is not going to be good for other risk assets like stocks

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that certainly haven't discounted this move yet.

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Yeah, it's interesting.

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You seeing the spreads here between SOFR and the two blowout And then if you look at just the corporate debt CDS it looks like rate spreads are exploding there as well particularly in some parts of the AI sector on the infrastructure side

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So it looks like what we're seeing at the Federal Reserve is happening in the private market as well.

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So what that's basically showing is nominal GDP growth in the US.

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Let's just run through this.

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I think this is sort of critically important to understand.

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So what you've got is a very long-term history here of US 10-year interest rates.

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So this is a 10-year Treasury note, basically shown here as the orange line.

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It says risk adjusted.

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So what I've done here is I've taken out term premium because this gives you a clearer idea

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of what the underlying interest rate expectations are.

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And the black line is looking at nominal GDP growth, so NGDP.

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I've used here a four-year moving average.

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So in other words, what that's showing is the trend in the economy.

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Now, the point about the chart is that you can see that long-term history from 1955 onwards.

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And that was pretty much the period just after the Treasury Fed Accord, when the Federal

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Reserve had a lot more independence in terms of monetary policy.

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And you start to see the US long bonds starting to catch up, the yields starting to catch up with the underlying growth in the economy, normal growth in the economy.

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And then you see the overshoot back around in 1980 when Volcker, 79, 80, when Volcker came in.

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And then you see a long period of decline in both yields and nominal GDP.

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But yields basically are running above normal GDP.

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and you get to the current situation where there probably was an inflection in that curve again

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around the GFC, where you start to see the black line, which is driving the whole system,

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which is nominal GDP, starting to move up strongly. And what I've done here is I've

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added the latest data to the nominal GDP and extrapolated it using consensus projections.

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So what we're looking at is probably an average rate of growth somewhere around 6% to 7%,

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or let's say, to be generous, between 6% and 8%.

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And you can see where the long bond is currently trading.

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And the dotted line indicates the direction of travel.

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It looks as if you're going to have to see higher yields.

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And if you don't see higher yields, you're going to see much slower end GDP growth.

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But it seems to me, given the fact that the fiscal taps are open, that there's a big amount of AI spend still to go.

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And the economy looks pretty robust, in my view.

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NGDP or underlying economic growth is not going to fade at all.

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So we're looking at upward pressure on the bond market.

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And if that's the case, the Fed is going to have to struggle hard to basically keep yields down.

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and that will require a lot of yield suppression at the long end if they manage it.

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And it will require keeping the front end very liquid

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and pushing a lot of borrowing into the front end.

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But that's going to put a lot of pressure on front end rates like repo rates.

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And that's going to be incompatible with a Fed fund's target of where it is now.

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So it looks as if, by my reckoning,

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the strong economy is going to be driving the Fed towards higher rates.

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and we can already see that trend

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towards monetization in the M2 data.

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Or as I said, the M2,

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whatever it was a month or six weeks ago,

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was on a roll, was on a tear

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at nearly 10% three-month annualized growth.

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That's telling you a lot about

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the state of the economy, inflation pressures.

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And if Walsh pays attention to money,

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which he says he does,

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he thinks money has a role in monetary policy,

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then the FOMC have got to take this and board.

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Yeah. Well, that begs the question, what is the fiscal side? What does the Treasury think of all this? Because they have to manage the interest expense on the debt. Obviously, we're approaching $40 trillion and have a ton of debt to roll over.

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And so it's like this weird situation where the economy is hot.

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We've got to invest.

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I mean, it seems that the administration here in the U.S. and over across the Pacific and China view this AI race as existential.

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So it seems like they're going to throw everything they have at winning the race towards AGI, if that ever manifests.

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At least that's the narrative right now.

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And so it seems like you have a situation where you have to put your pedal to the metal to keep this build out going in this infrastructure and reindustrialization effort going.

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But you also have the looming debt situation, which you can see spiraling out of control and the interest expense going up pretty rapidly and hitting levels that were unfathomable a decade ago.

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Yeah, I think absolutely, I agree 100%, Marty.

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I think that we're in a regime change,

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and I think that regime change is probably

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colored by the whole notion of either you call it trade wars or more accurately capital wars.

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And the whole point here is that under a capital war regime where there was competition between

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capitals, you are likely to see much, much higher end GDP growth. In other words, the underlying

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economy in normal terms is expanding at a rate probably at least 200 basis points,

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two percentage points higher than where it's been in the past. And governments are deliberately

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pushing this because they want AI, they want competitiveness. They're going to restrict

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whatever exports they can to rival capitals, which is clearly in train. They're going to try and

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preserve what access they can to energy, which is clearly a vital resource. I think we're seeing

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that play out. And what that means is there's got to be a lot more capex spend, generally,

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whether it be on aggressive moves like AI or defensive moves like securing resources,

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is holding higher inventory, warehousing more, whatever it may be, onshoring.

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And that is going to mean faster end GDP growth,

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and it's going to mean higher bond yields.

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And that's the problem you've got in the system right now.

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And the reality is that if you've got strong economies, red-hot economies,

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or probably I exaggerate by red-hot, you've got strong economies.

259
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The fact is that going back to the adage, all money that's anywhere must be somewhere.

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If it's in the real economy driving growth, it certainly is not in the financial economy driving assets. So we've got to be very conscious that it may be an airport getting risk asset prices.

261
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Yeah.

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The.

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What are your thoughts on the quasi?

264
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I mean, it's a wartime footing here in the United States.

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The Trump administration is taking equity stakes and a lot of these companies.

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And that signals to me that like this is very much existential, like the government's getting

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to build on that last comment you make the air pocket in risk assets and equities, particularly

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It's just, again, regime change, inflection point, fourth turning, put whatever label you want on it.

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It's just trying to wrap my head around how much liquidity they can bring to the market.

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Because you can see a situation where they need to facilitate the CapEx boom and the expansion of NGDP.

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but at the same time you have the government sort of like backing dell intel um rare earth metal

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companies and i'm sure the uh list of companies that they've they've got direct equity stakes in

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is is going to grow at some point in the future and so it looks like they're trying to backstop

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the companies that are critical to this build out as well and i'm just trying to figure out if

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the government doesn't care really what what the stock's trading at but they want to signal to the

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market like, hey, we're going to be backing up these companies, doing whatever it takes.

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Yeah. And China is doing the same and Japan is doing the same. I think, you know, more,

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I mean, these are really the leaders. I mean, Europe has got to wake up to this.

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It hasn't really, you know, Europe hasn't embraced this model yet, but they're going to have to at

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some stage. But this is it. You're building national champions and you're building security.

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And I think the US being, you know, first and foremost in that race, or actually maybe arguably

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Maybe China was first and the U.S. is copying, but the U.S. has got a lead at the moment in many areas.

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But, you know, clearly it's a competition.

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So with that competition in mind, comparatively with the three players that you mentioned, Japan, China and the U.S.,

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how would you rate the success of the strategy of each individual country?

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Well, I think it's a difficult question to evaluate how this is going to fall into line.

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But, you know, the U.S. has clearly got at the moment an advantage in AI and in energy, you know, generally technology and energy.

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China is catching up on the technology area fast.

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It's going to be hard push to secure energy, but then it does have, you know, another advantage with rare earth minerals.

290
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So that's a factor.

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And we know that China's got this huge, I'd say, dormant labor force that it's still engaged.

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and basically mass-produced manufacturing at low cost.

293
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And that's clearly a threat.

294
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What does Europe have?

295
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The answer is Europe has pretty much nothing.

296
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It has history, and that's it.

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Japan basically has the ability, I think, after some restructuring,

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to be a bulwark against China in the region.

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But at the end of the day, we've got to accept the fact Japan probably is too small

300
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to make that much difference.

301
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But it's clearly there and it's having an effect on the Japanese economy, is being restructured.

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But you can see the impact that having already on the Japanese bond market where yields have jumped at the 10 level by over 200 basis points in the last couple of years I mean from half a percent to 50 basis points to two and a half I mean that a big move in the bond market And that clearly going to have an effect because you know

303
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when I was at Salar Brothers, the adage was always, you know,

304
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in financial markets, there's no unrelated event.

305
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If you've got rising yields in Japan, that's going to be a magnet for capital

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to pull that up elsewhere, pull that out of other places.

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and the public pension fund

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was already being directed

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to invest more in Japanese bonds.

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That could have a material effect globally.

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unchained.com. Well, it's been interesting to observe too, particularly as Japanese yields

342
00:28:20,448 --> 00:28:27,628
have screamed higher. Obviously, the whole basis trade scare that popped up last year and in

343
00:28:27,628 --> 00:28:33,548
previous years, it hasn't seemed to manifested this time around. So I wonder if the cent and

344
00:28:33,548 --> 00:28:39,928
the Treasury have been working behind the scenes, knowing that eventually the Japanese yields were

345
00:28:39,928 --> 00:28:46,128
going to have to rise significantly. We're rejiggering things to make sure that the basis

346
00:28:46,128 --> 00:28:53,708
trade didn't blow out and didn't have a massive effect on US hedge funds or players in the

347
00:28:53,708 --> 00:28:54,308
Western world.

348
00:28:55,108 --> 00:28:56,868
Yeah, I think that could be the case.

349
00:28:56,988 --> 00:29:01,108
I mean, I'd say that I think the whole idea of the yen carry trade was always exaggerated.

350
00:29:01,348 --> 00:29:04,328
I mean, it was big a couple of decades ago.

351
00:29:04,488 --> 00:29:07,748
I mean, I think it's, in my view, it's a lot smaller than this now.

352
00:29:07,828 --> 00:29:09,868
It's not really the force it was.

353
00:29:10,468 --> 00:29:14,348
That's not to say that the Japanese are not big investors internationally, they clearly

354
00:29:14,348 --> 00:29:14,728
are.

355
00:29:15,108 --> 00:29:17,728
But they have a big impact on European markets.

356
00:29:17,848 --> 00:29:20,248
They are, I think, the biggest foreign investors in France.

357
00:29:20,768 --> 00:29:23,848
And if you look at the oat market, which is the French government bond market,

358
00:29:24,868 --> 00:29:28,348
the oats are trading at increasing premiums to German bunds.

359
00:29:28,648 --> 00:29:31,888
And that may tell us something about the risks of Japanese investors pulling out.

360
00:29:31,888 --> 00:29:35,128
So there are no unrelated events in financial markets,

361
00:29:35,168 --> 00:29:36,848
and there are even fewer in the bond markets.

362
00:29:37,368 --> 00:29:39,828
These markets are joined at the hip.

363
00:29:40,588 --> 00:29:44,028
And therefore, if yields start to expand, they're going to have a knock-on effect.

364
00:29:44,728 --> 00:29:46,168
And that's what I think we're seeing.

365
00:29:46,748 --> 00:29:50,968
So you can't take the US or Japan or whatever as isolated examples.

366
00:29:51,468 --> 00:29:56,108
Bond yields generally are rising everywhere, with the one notable exception being China,

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where China is basically where yields are still depressed.

368
00:30:00,028 --> 00:30:02,868
But that really reflects the fact that the Chinese economy is on its back.

369
00:30:03,528 --> 00:30:05,688
And it's struggling to survive.

370
00:30:05,688 --> 00:30:10,088
I say it's struggling to survive, I was overreacting it, but it's struggling to grow at a decent pace.

371
00:30:10,548 --> 00:30:12,828
And it's wholly dependent on export growth.

372
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So you think Trump's tariffs and export controls are having an effect there?

373
00:30:19,608 --> 00:30:22,048
Or is it a number of things?

374
00:30:22,588 --> 00:30:23,868
Yeah, I think that's right.

375
00:30:23,868 --> 00:30:27,788
I mean, it's, you know, they clearly are having an effect.

376
00:30:28,728 --> 00:30:33,668
And, yeah, and what's happening is that China is being forced to go elsewhere,

377
00:30:34,308 --> 00:30:39,368
into Europe or into Central Asia or whatever it's so called,

378
00:30:39,428 --> 00:30:42,428
or Latin America, Africa as well.

379
00:30:42,428 --> 00:30:49,128
But these are increasing tension points, and Europe is facing the full thrust of Chinese competition.

380
00:30:49,848 --> 00:30:52,968
And that's not going to be a happy place in the next two or three years.

381
00:30:53,628 --> 00:30:57,988
You're already seeing a lot of instances of big German companies, Volkswagen being the latest,

382
00:30:58,448 --> 00:31:01,428
to announce large labor layoffs, and this just can't go on.

383
00:31:02,748 --> 00:31:06,988
I mean, if you think of the buying capacity of those other countries that China's going to have to go to,

384
00:31:07,048 --> 00:31:22,884
it nowhere near the U consumer buying capacity Yeah correct Yeah I mean yeah it makes sense that it would be on its back and so what are your thoughts on europe has europe woken up to um the fact that it has been woefully behind

385
00:31:22,884 --> 00:31:31,764
and severely under-invested in critical industries and um is very much over-regulated uh preventing

386
00:31:31,764 --> 00:31:38,024
european entrepreneurs from competing well i think tick all those boxes and it's over-tanked as well

387
00:31:38,024 --> 00:31:40,744
and it's got an overly generous welfare state system.

388
00:31:41,524 --> 00:31:43,744
And at the end of the year, this is incompatible.

389
00:31:43,904 --> 00:31:45,344
I mean, you simply can't do it.

390
00:31:45,344 --> 00:31:46,964
It ticks all those bad boxes.

391
00:31:47,404 --> 00:31:48,304
I think that's for sure.

392
00:31:48,704 --> 00:31:52,284
But I mean, we're at a stage where the whole welfare system of the West

393
00:31:52,284 --> 00:31:53,864
has got to be radically rethought.

394
00:31:54,524 --> 00:32:01,364
And we've inherited a system whereby it's the aged who get income support

395
00:32:01,364 --> 00:32:03,844
where it actually should be the young who get income support

396
00:32:03,844 --> 00:32:08,784
because you go back 50 years when the Social Security net was first put in place.

397
00:32:09,364 --> 00:32:12,704
If someone retired at age 60, 65, they're probably, what,

398
00:32:13,424 --> 00:32:16,304
maybe a handful of years to live with no income at all.

399
00:32:16,704 --> 00:32:19,344
And so the whole notion of pensions made tremendous sense.

400
00:32:19,864 --> 00:32:22,284
Now they've got large pension pods.

401
00:32:22,764 --> 00:32:24,424
They're very generously catered for.

402
00:32:24,504 --> 00:32:26,144
They're among the wealthiest in society.

403
00:32:26,924 --> 00:32:30,964
Paying them additional pensions seems to be not the right thing to do,

404
00:32:30,964 --> 00:32:37,724
Whereas younger people, new interests in the labor market, graduates, et cetera, are finding very difficult to make ends meet.

405
00:32:37,804 --> 00:32:40,664
They can't get jobs. They're being forced out by AI.

406
00:32:41,064 --> 00:32:42,704
They're the ones that should be getting income support.

407
00:32:42,824 --> 00:32:44,164
So we've got to rethink that.

408
00:32:44,504 --> 00:32:48,984
But the whole issue is that nobody in the political sphere is keen to do that.

409
00:32:49,344 --> 00:32:52,344
The simple reason that there's an awful lot of gray votes out there.

410
00:32:53,564 --> 00:32:53,744
Yeah.

411
00:32:53,744 --> 00:32:53,804
Yeah.

412
00:32:53,804 --> 00:33:03,124
yeah as a millennial i mean i feel fortunate to be in the position that i am and i think

413
00:33:03,124 --> 00:33:09,484
millennials are better off than gen z and it's uh something i've been observing for for years

414
00:33:09,484 --> 00:33:14,084
and it's been bubbling up here in the united states obviously in europe as well but you have

415
00:33:14,084 --> 00:33:19,984
this this disenchanted generation of young people who i mean millennials were already

416
00:33:19,984 --> 00:33:27,764
the first generation who will, I mean, as of right now, end up worse off than their parents.

417
00:33:27,924 --> 00:33:35,284
And it seems like Gen Z is going to be even worse in that regards. And just trying to think of the,

418
00:33:35,284 --> 00:33:39,284
I mean, taking all the numbers out of it and just thinking of the social side,

419
00:33:39,344 --> 00:33:46,084
the psychological side, it's one thing I worry about is this rising populism of the younger

420
00:33:46,084 --> 00:33:51,764
generations. And I think we're seeing a big bifurcation of the flavor of populism, where you

421
00:33:51,764 --> 00:33:57,404
either have hardcore nationalism, send them all back. We have hardcore democratic socialism,

422
00:33:57,404 --> 00:34:01,204
which is confiscate all the wealth and redistribute it.

423
00:34:02,744 --> 00:34:08,324
Yeah. And in Europe, we're caught between both stalls, because there are big constituencies for

424
00:34:08,324 --> 00:34:14,424
both of those ideas. And I'm not too sure which way it's going to lean. But this polarization of

425
00:34:14,424 --> 00:34:19,884
politics is what we've seen many times before. You go back to the 1930s, and if you think about

426
00:34:19,884 --> 00:34:24,844
the fascist regimes, were they right-wing or were they left-wing? I mean, there's some of each,

427
00:34:25,424 --> 00:34:29,444
but you go to extreme politics in that environment. And that's the sort of,

428
00:34:29,744 --> 00:34:33,504
this is the economy that we're currently building, certainly in Europe, I think.

429
00:34:34,064 --> 00:34:40,064
The US may be in a different shape, but I mean, I think the whole K economy speaks to this problem

430
00:34:40,064 --> 00:34:46,544
as well. Yeah. And then it doesn't help that you have the leaders of the AI, the leading AI

431
00:34:46,544 --> 00:34:51,844
companies saying, yes, not only is this going to take all your jobs, but this technology is

432
00:34:51,844 --> 00:34:56,784
extremely dangerous. And we need to make sure that we get regulatory moats. So only we can

433
00:34:56,784 --> 00:35:04,084
build it and distribute it and have these vertically integrated surveillance tools to

434
00:35:04,084 --> 00:35:06,364
to bring in your AI overlord.

435
00:35:06,464 --> 00:35:10,404
So the narrative from the leading frontier labs

436
00:35:10,404 --> 00:35:12,844
is very perplexing.

437
00:35:12,984 --> 00:35:16,284
And I don't think it's good for their brands

438
00:35:16,284 --> 00:35:20,684
and obviously not good for affinity

439
00:35:20,684 --> 00:35:22,804
if you're trying to build affinity

440
00:35:22,804 --> 00:35:24,424
with younger generations specifically.

441
00:35:25,284 --> 00:35:27,784
Yeah, but I think what this then comes back to

442
00:35:27,784 --> 00:35:30,384
is a sort of $64,000 question about what next.

443
00:35:31,004 --> 00:35:33,444
And you basically find that

444
00:35:34,084 --> 00:35:41,264
If governments are unable to cut back on the state, which, you know, Turkey is no vote for Christmas, of course, so they don't want to do that.

445
00:35:42,244 --> 00:35:47,984
They're reluctant to reform Social Security or welfare payments because there are too many votes behind it.

446
00:35:48,724 --> 00:35:52,824
The bond markets are pretty much saying that they're fed up with issuance.

447
00:35:53,024 --> 00:36:01,144
They're not going to support any great increase in bond issuance going forward.

448
00:36:01,144 --> 00:36:03,864
or there are limits or there's a price for everything,

449
00:36:03,964 --> 00:36:04,944
but there are limits clearly.

450
00:36:05,964 --> 00:36:10,464
And taxation are way too high, tax rates are way too high.

451
00:36:10,864 --> 00:36:13,304
Then the path of least resistance is basically printing money.

452
00:36:14,024 --> 00:36:16,444
Now, this is what we're seeing more and more evidence of.

453
00:36:16,464 --> 00:36:17,864
It's coming in a very subtle form.

454
00:36:18,284 --> 00:36:21,804
It's coming in a form which is wonkish in the sense that

455
00:36:21,804 --> 00:36:32,780
you got to be caught in the weeds to kind of understand what going on But broadly speaking what you seeing is more and more evidence I mean this is led by this was originally the policy of Janet Yellen

456
00:36:33,160 --> 00:36:38,180
was to do so much funding at the short end of the market. And so what the US Treasury has been

457
00:36:38,180 --> 00:36:43,540
doing has been basically funding the deficit, the growing deficit, of course, with more and more

458
00:36:43,540 --> 00:36:50,820
bills. So you've got 80% of US gross issuance now, which is under two years, which is an eye

459
00:36:50,820 --> 00:36:56,460
watering a large figure, but it means that every week, the US government has to auction something

460
00:36:56,460 --> 00:37:04,480
like half a trillion dollars plus of debt, bills and coupons. And that is a big ask for the

461
00:37:04,480 --> 00:37:09,240
financial markets. Now, that's only going to get bigger. But the point is the question,

462
00:37:09,400 --> 00:37:13,320
the key question to ask is who buys that? And the answer is it's largely the banks,

463
00:37:13,800 --> 00:37:20,800
because banks love short-dated government paper because it matches the liability duration of their

464
00:37:20,800 --> 00:37:27,160
balance sheets almost perfectly. So if you're running a big fiscal deficit, which everybody is,

465
00:37:27,580 --> 00:37:33,280
okay, bank accounts are being swollen because the government's issuing checks. So the banks have got

466
00:37:33,280 --> 00:37:38,180
to find some asset to offset that. And what better than a short-dated government paper?

467
00:37:38,640 --> 00:37:44,760
And that's what they're buying. So bank balance sheets are expanding alongside fiscal policy

468
00:37:44,760 --> 00:37:49,940
expansion. And if the bank balance sheets are expanding, that is called monetization of debt.

469
00:37:49,940 --> 00:37:52,360
and that is exactly what's going on.

470
00:37:52,420 --> 00:37:53,180
That's pretty money.

471
00:37:53,520 --> 00:37:56,440
It's just a rather more prosaic version

472
00:37:56,440 --> 00:37:58,940
of the pretty press's worry,

473
00:37:59,100 --> 00:37:59,940
but it's the same thing.

474
00:38:00,500 --> 00:38:03,420
And that's why you've got strong monetary growth figuring

475
00:38:03,420 --> 00:38:06,400
and that's going to be a feature of the landscape

476
00:38:06,400 --> 00:38:07,280
in the next few years.

477
00:38:07,740 --> 00:38:09,100
Now, the question is,

478
00:38:09,100 --> 00:38:11,800
and this is the point that you mentioned

479
00:38:11,800 --> 00:38:14,120
in a sub-state we wrote today,

480
00:38:14,640 --> 00:38:17,300
is to say, well, okay, if you're an investor,

481
00:38:17,300 --> 00:38:20,760
how do you protect yourself against this future monetary inflation?

482
00:38:21,380 --> 00:38:26,100
And monetary inflation, just read that as devaluation of paper money, destruction of

483
00:38:26,100 --> 00:38:27,460
paper money, which is going on.

484
00:38:27,860 --> 00:38:31,540
And as I say, this is not just hitting the US because everyone's on the same game.

485
00:38:31,920 --> 00:38:34,840
The US tends to be leading, as I say, it's 80% of gross issuance.

486
00:38:35,300 --> 00:38:37,780
In Germany, in France, it's 45% to 50%.

487
00:38:37,780 --> 00:38:40,380
In Britain and Japan, it's about 25%.

488
00:38:40,380 --> 00:38:46,540
But that 25% number is going to be a lot higher in two or three years' time in both

489
00:38:46,540 --> 00:38:46,960
economies.

490
00:38:47,300 --> 00:38:51,100
So we're moving in the same direction towards more and more bill issuance, front-end issuance.

491
00:38:51,580 --> 00:38:54,680
Printing money, monetary inflation is a big problem.

492
00:38:55,320 --> 00:38:57,360
That's how your wealth is destroyed ultimately.

493
00:38:57,960 --> 00:38:58,840
So you need protection.

494
00:38:59,400 --> 00:39:09,620
And the best protection happened to be cryptocurrencies, because they tend to have the greatest sensitivity of any asset, even more than precious metals, to money printing.

495
00:39:10,220 --> 00:39:13,600
And that's what they've demonstrated in the last 15 years.

496
00:39:14,140 --> 00:39:14,600
All right, freaks.

497
00:39:14,800 --> 00:39:15,280
You know me.

498
00:39:15,280 --> 00:39:18,260
You know I don't take sponsor money from products I wouldn't use myself.

499
00:39:18,680 --> 00:39:19,260
So listen up.

500
00:39:19,560 --> 00:39:24,560
The AVEN Bitcoin Visa card is one of the most interesting things I've seen in the Bitcoin lending space in a long time.

501
00:39:24,720 --> 00:39:25,220
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502
00:39:25,500 --> 00:39:30,360
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503
00:39:30,580 --> 00:39:39,100
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504
00:39:39,560 --> 00:39:40,500
AVEN never lends it out.

505
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506
00:39:42,200 --> 00:39:43,100
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507
00:39:43,480 --> 00:39:43,980
And guess what?

508
00:39:43,980 --> 00:39:46,580
You can lock in a fixed rate for up to 10 years.

509
00:39:47,000 --> 00:39:49,180
That's 10 times longer than most lenders out there

510
00:39:49,180 --> 00:39:51,560
or go interest only for up to five years.

511
00:39:52,000 --> 00:39:54,560
Rates start at 7.99% APR.

512
00:39:54,900 --> 00:39:56,420
For a product that lets you keep your stack

513
00:39:56,420 --> 00:39:58,660
and still access liquidity, it's hard to beat.

514
00:39:58,960 --> 00:40:00,860
I mean, the duration in the rates

515
00:40:00,860 --> 00:40:03,240
is the best I've seen in the market to date.

516
00:40:03,660 --> 00:40:05,780
You also get 2% unlimited cash back

517
00:40:05,780 --> 00:40:08,080
every time you use the card, spend fiat,

518
00:40:08,360 --> 00:40:10,060
keep your Bitcoin, the whole game.

519
00:40:10,480 --> 00:40:11,760
If you've been stacking for years

520
00:40:11,760 --> 00:40:13,240
and you need liquidity without triggering

521
00:40:13,240 --> 00:40:20,980
a taxable event, this is worth a serious look. Go to aven.com slash Bitcoin. That's A-V-E-N.com

522
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slash Bitcoin. Check it out. Freaks, look at me. I'm glowing. I've got like an angel's halo

523
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going around me. You know why that is? I feel good. I feel taken care of. I feel blessed,

524
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healthy, happy. And that is because I'm a CrowdHealth member. My family and I have been

525
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CrowdHealth members for five years now, literally this month. Five years ago, we joined CrowdHealth.

526
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527
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insurance. CrowdHealth is crowdfunded healthcare. So you sign up for CrowdHealth, you pay a monthly

528
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fee, you help out with other people's bills. And it's significantly cheaper than health insurance.

529
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We were on COBRA as a family of three when I left my last job before I went full-time to CFTC,

530
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went on the CrowdHealth. Now as a family of five, we pay, I believe, $700 a month. It's significantly

531
00:41:06,640 --> 00:41:11,580
cheaper. They're going to negotiate prices lower for you. They've consistently negotiated healthcare

532
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as much as 50, 60, 80% in many cases.

533
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They help out with babies.

534
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If you have a pregnancy, you pay the first $3,000

535
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536
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537
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538
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539
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540
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541
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542
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543
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544
00:41:39,997 --> 00:41:45,277
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545
00:41:45,917 --> 00:41:51,837
yeah and i have uh today's sub stack up right now i just want to make sure that i get the uh

546
00:41:52,637 --> 00:41:59,917
the framing of this right but um using these like the the fed liquidity plus nine weeks

547
00:41:59,917 --> 00:42:05,437
um in the basket of cryptocurrencies bitcoin ethereum and solana six week changes that chart

548
00:42:05,437 --> 00:42:10,057
in the scatter plot that you have there too.

549
00:42:10,157 --> 00:42:14,077
I think walking through the relationship of Bitcoin price

550
00:42:14,077 --> 00:42:16,917
and the liquidity cycles and Fed policy

551
00:42:16,917 --> 00:42:19,837
would be a good refresher for the audience.

552
00:42:20,097 --> 00:42:21,057
How are these two things?

553
00:42:21,057 --> 00:42:23,117
Let me just try and do that.

554
00:42:24,117 --> 00:42:25,077
That should be there.

555
00:42:25,757 --> 00:42:26,057
Yes.

556
00:42:26,797 --> 00:42:30,137
So what that is, is this is looking at weekly changes.

557
00:42:30,277 --> 00:42:31,537
It looks a very busy chart,

558
00:42:31,637 --> 00:42:34,117
but this looks at weekly changes,

559
00:42:34,657 --> 00:42:40,257
six-week changes, in fact, in global liquidity, which is the GLI dollar side,

560
00:42:40,977 --> 00:42:47,197
and BES, which is Bitcoin, Ethereum, Solana, in a 60%, 30%, 10% weighting.

561
00:42:47,197 --> 00:42:53,537
So that gives some broad measure, imperfect but broad measure, approximately right measure

562
00:42:53,537 --> 00:42:55,517
of the crypto universe.

563
00:42:56,237 --> 00:42:59,197
And what that's showing is the six-week changes compared.

564
00:42:59,197 --> 00:43:09,237
And what I've done is to advance the global liquidity line, the black line, forward by 13 weeks, only three months to show that it's a predictive indicator.

565
00:43:09,837 --> 00:43:14,097
And what that shows is that the tracking is remarkably good.

566
00:43:14,477 --> 00:43:19,177
It's good until it isn't, of course, but it's been not a bad steer so far.

567
00:43:19,397 --> 00:43:24,177
And what that indicates is that the two assets have moved very closely together.

568
00:43:24,177 --> 00:43:40,097
Now, if you look at the sensitivity of that basket, the BES basket to liquidity, in comparison, the sensitivity of gold would be about two times, gold and silver, let's say, on average, about two times.

569
00:43:40,217 --> 00:43:47,197
In other words, every 10% increase in liquidity means something like a 20% increase in precious metal prices.

570
00:43:47,197 --> 00:43:51,097
In the case of these assets, crypto, it's about eight times.

571
00:43:51,757 --> 00:43:58,557
So what you find is that for every 10% move in liquidity, you get 80% move in cryptocurrencies.

572
00:43:59,377 --> 00:44:00,677
And that's what the history has shown.

573
00:44:00,877 --> 00:44:02,577
That's been remarkably stable.

574
00:44:02,777 --> 00:44:06,397
So it isn't just a sort of sudden experience.

575
00:44:06,397 --> 00:44:09,957
It's been remarkably stable over time, as we show in that report.

576
00:44:10,777 --> 00:44:16,737
And the key thing is, if that is sustained, assuming it is, you need very little crypto

577
00:44:16,737 --> 00:44:22,997
in a portfolio to give you pretty comprehensive coverage or protection against monetary inflation.

578
00:44:24,317 --> 00:44:31,217
Only maybe at most 5% of a portfolio in crypto, I think it gives you a pretty good insurance policy.

579
00:44:31,977 --> 00:44:35,257
And 5% is probably something that people are prepared to risk anyway.

580
00:44:35,797 --> 00:44:38,797
But there could be quite a lot of upside if you get a monetary inflation boom,

581
00:44:39,137 --> 00:44:44,117
which I think is inevitable given the fact that governments have basically run out of money.

582
00:44:44,117 --> 00:44:48,477
or they can only print it and they can print money.

583
00:44:48,937 --> 00:44:53,857
If you're comparing dollars with yen or dollars with Swiss francs

584
00:44:53,857 --> 00:44:57,777
or dollars with pound sterling, you don't want to see that move particularly.

585
00:44:58,197 --> 00:45:01,957
But if you start looking at the dollars against things like gold

586
00:45:01,957 --> 00:45:04,917
or commodities or hard assets, you'll see it immediately.

587
00:45:05,437 --> 00:45:07,757
But the best hedge is going to be, from experience,

588
00:45:07,937 --> 00:45:08,717
is going to be cryptocurrencies.

589
00:45:09,397 --> 00:45:10,677
That's what the data says.

590
00:45:12,357 --> 00:45:13,477
Can you walk me through this?

591
00:45:13,477 --> 00:45:18,057
wrote today, the R-squared exceeds 32%, implying that almost one-third of the variation in the

592
00:45:18,057 --> 00:45:21,297
crypto basket can be linked directly to changes of global liquidity. And so...

593
00:45:21,297 --> 00:45:27,857
Yeah, so that's what this data is showing. And what it says is, I mean, in statistics,

594
00:45:28,497 --> 00:45:35,477
you can clearly never, you can never prove causation. You prove correlation, or you can

595
00:45:35,477 --> 00:45:42,677
establish correlation. We've tried to do proof causation through another mechanism called, which

596
00:45:42,677 --> 00:45:47,797
is a wonkish idea, but it's called Granger causality testing, which is showing whether

597
00:45:47,797 --> 00:45:52,897
you get consistent leads in the data from a shock to liquidity, whether it comes through,

598
00:45:53,017 --> 00:45:56,577
it passes through into crypto, and the answer is it does.

599
00:45:56,977 --> 00:46:01,217
But the R squared is more a test of correlation or association.

600
00:46:01,637 --> 00:46:06,297
And the way to read an R squared figure, and that's just the R correlation coefficient

601
00:46:06,297 --> 00:46:12,197
squared, is to say that gives you an idea of the extent of the variation in the data

602
00:46:12,197 --> 00:46:15,437
that is explained by the other variable.

603
00:46:15,997 --> 00:46:19,897
So if you've got an R squared of 50%,

604
00:46:19,897 --> 00:46:23,317
50% of the variation would be joint variation

605
00:46:23,317 --> 00:46:24,757
between those two factors.

606
00:46:24,857 --> 00:46:26,997
So you've got commonality, if you like.

607
00:46:27,257 --> 00:46:30,177
And what this is saying is a 30% or so R squared

608
00:46:30,177 --> 00:46:31,937
is saying there's a common factor

609
00:46:31,937 --> 00:46:33,277
which you can associate,

610
00:46:33,437 --> 00:46:34,817
which is driving those two factors,

611
00:46:35,217 --> 00:46:36,197
those two variables.

612
00:46:36,777 --> 00:46:38,297
And so it looks as if global liquidity

613
00:46:38,297 --> 00:46:41,377
is a key driver, consistently key driver

614
00:46:41,377 --> 00:47:00,993
crypto Now although people may pick me up and say well of course 30 is not 100 and I fully take that anything that in financial markets anything beyond about 5 to 10 is considered to be extremely extremely powerful You can make money out of that consistently

615
00:47:02,033 --> 00:47:06,493
That's good. Do you have any inclination of what the other drivers are?

616
00:47:06,493 --> 00:47:07,873
That's just natural adoption?

617
00:47:08,333 --> 00:47:13,073
Yeah, we did an analysis some time ago of actually looking at what goes on.

618
00:47:13,073 --> 00:47:24,853
And broadly speaking, the other factors, the other important factors, if you broke down the degree of variation in these things, the other factors were risk appetite.

619
00:47:25,433 --> 00:47:38,293
And we proxied that by looking at something like NASDAQ to say that if there's a euphoria towards tech or whatever it may be, you can find that will influence crypto.

620
00:47:38,293 --> 00:47:45,313
and the other factor, or the other two factors, in fact, were both associated with gold and

621
00:47:45,313 --> 00:47:51,653
precious metals. And what they basically said was that if you get, and this is a sort of

622
00:47:51,653 --> 00:47:56,313
mathematical result, but he said there's like an error feedback system with gold.

623
00:47:56,473 --> 00:48:02,913
And what it basically means that is in the long term, gold and Bitcoin and other crypto

624
00:48:02,913 --> 00:48:07,873
are correlated very strongly. So in other words, they're both trend together.

625
00:48:08,293 --> 00:48:13,653
But in the short term, they're negatively correlated. So it means that they trend together,

626
00:48:13,653 --> 00:48:17,833
but they cycle apart. So those are the other factors that come into it. So you've got, if you

627
00:48:17,833 --> 00:48:23,233
like, four factors in that cocktail, you've got global liquidity, which is the dominant part,

628
00:48:23,233 --> 00:48:30,993
that accounts for about 45% or thereabouts of that total variation, or that pie chart,

629
00:48:31,053 --> 00:48:37,133
if you like, of the variation. Then you've got gold in the short term, the anticyclical effect.

630
00:48:37,493 --> 00:48:39,033
Then you've got gold in the long term.

631
00:48:39,493 --> 00:48:41,073
And then you've got risk appetite effects.

632
00:48:41,513 --> 00:48:45,933
So those are the four factors that we found were dominant in the case of crypto.

633
00:48:46,493 --> 00:48:52,513
And we saw confirmation of one of those factors in February, March of this year when gold was screaming.

634
00:48:53,373 --> 00:48:53,533
Yeah.

635
00:48:53,673 --> 00:48:55,253
About $5,300 and Bitcoin was crashing.

636
00:48:55,813 --> 00:48:56,033
Yeah.

637
00:48:56,193 --> 00:48:56,853
And that's right.

638
00:48:56,913 --> 00:48:59,653
So what happens is that there seems to be an arbitrage between the two.

639
00:49:00,573 --> 00:49:07,733
Now, the way that I would read that or the way that I would say all that is that maybe I can demonstrate.

640
00:49:08,433 --> 00:49:17,793
What that chart should be looking at is two lines, an orange line, which is the gold price in US dollar terms.

641
00:49:17,793 --> 00:49:21,733
I mean, that's now a little bit out of date, but it's not bad, actually.

642
00:49:21,833 --> 00:49:26,233
It's measured on the right-hand scale, but it's measured in RMB.

643
00:49:26,233 --> 00:49:33,373
and the black line is looking at PBOC liquidity. So that's the People's Bank of China's liquidity

644
00:49:33,373 --> 00:49:41,113
injections. Now, basically what that is trying to demonstrate is that the two are very closely

645
00:49:41,113 --> 00:49:48,913
linked. And what it says is that as you get an increase in Chinese liquidity, Chinese liquidity

646
00:49:48,913 --> 00:49:55,573
is the key driver by far of the gold price. So a lot of the debate that one was hearing in the

647
00:49:55,573 --> 00:50:01,073
markets earlier on this year was to say that the gold price was being driven up by the great

648
00:50:01,073 --> 00:50:05,573
debasement trade. And everyone was jumping on this bandwagon to say it's because governments

649
00:50:05,573 --> 00:50:09,573
in the West are printing money that the gold price is soaring. And that's just simply not true.

650
00:50:10,933 --> 00:50:14,753
Because in actual fact, governments weren't really printing money to an equal extent.

651
00:50:15,293 --> 00:50:19,873
And what money that was out there was being increasingly siphoned away into a stronger

652
00:50:19,873 --> 00:50:26,413
re-economy, which was exactly what Bitcoin was telling us. Now, what was driving the gold market

653
00:50:26,413 --> 00:50:32,113
was China. And China was basically pumping in lots of liquidity, as you can see here by the black

654
00:50:32,113 --> 00:50:37,293
line. And that was driving the gold price up. Now, why are the Chinese doing that? The Chinese

655
00:50:37,293 --> 00:50:43,433
are doing that for two reasons. Number one is that they need to devalue the yuan currency,

656
00:50:43,673 --> 00:50:49,813
their R&B currency, the yuan, internally because of their huge debt problems. So what they need

657
00:50:49,813 --> 00:50:56,233
to do is to get the price level on the way to level up to basically devalue debt. And that debt

658
00:50:56,233 --> 00:51:00,573
is a millstone around the Chinese economy's neck. And that's one of the reasons that the Chinese

659
00:51:00,573 --> 00:51:06,953
economy is so sluggish right now. The other thing that they're doing is they're trying to rival the

660
00:51:06,953 --> 00:51:12,313
US dollar externally. So you've got to think of China as having two almost independent exchange

661
00:51:12,313 --> 00:51:17,413
rates, an internal exchange rate and an external exchange rate. And that external exchange rate is

662
00:51:17,413 --> 00:51:22,493
protected by capital controls, protected by the big forex reserves that China has,

663
00:51:22,833 --> 00:51:25,993
and protected by compliant state banks who do a lot of the intervention.

664
00:51:26,733 --> 00:51:30,373
And what that means is that they can have their cake and eat it, in other words.

665
00:51:30,973 --> 00:51:34,933
Now, the reality is that they can therefore print money domestically,

666
00:51:34,933 --> 00:51:37,453
which is reflected in a rising gold price.

667
00:51:37,853 --> 00:51:40,453
Recall that Chinese are not allowed to buy crypto.

668
00:51:40,633 --> 00:51:42,633
That's illegal and has been made illegal.

669
00:51:43,093 --> 00:51:45,053
And the Chinese have doubled down on that this year.

670
00:51:45,053 --> 00:51:49,613
And that means that money finds it very difficult to seep out of China.

671
00:51:49,613 --> 00:51:52,793
So the vent is clearly the gold price.

672
00:51:52,793 --> 00:51:59,213
So China is driving the gold price, but the US and other countries through global liquidity

673
00:51:59,213 --> 00:52:14,349
are driving crypto And because liquidity globally is going down that why you got that picture Now I going to show you one more chart if I can which is basically looking at what has

674
00:52:14,349 --> 00:52:20,409
happened. Hopefully, you can see this chart, which is looking at what the People's Bank of China

675
00:52:20,409 --> 00:52:28,469
has been doing on a granular daily basis. Now, if you like conspiracy theories, Marty,

676
00:52:28,469 --> 00:52:29,789
This one's right up there.

677
00:52:30,369 --> 00:52:36,629
And what it says is that if you look at the size, the daily size of the Chinese people's

678
00:52:36,629 --> 00:52:41,829
bank's balance sheet, which is measured here as this solid line, the dotted line is simply

679
00:52:41,829 --> 00:52:44,569
a moving average, a 50-day moving average to show the trend.

680
00:52:44,989 --> 00:52:50,949
That shows you what is happening to their balance sheet every day, basically since late

681
00:52:50,949 --> 00:52:51,529
last year.

682
00:52:51,529 --> 00:53:02,589
So it peaked essentially two days after the tensions in Iran began, right?

683
00:53:03,989 --> 00:53:11,629
It then dropped to a low point, which was more or less on cue with the signing of the MOU,

684
00:53:12,569 --> 00:53:16,949
whether the MOU still exists or how fragile it is a moot point.

685
00:53:17,309 --> 00:53:19,149
But that's when they started to change direction.

686
00:53:19,149 --> 00:53:25,809
So it looks as if for that virtual three-month period, they deliberately cooled their economy.

687
00:53:26,309 --> 00:53:31,449
Now, the Chinese have formed here because they did exactly the same thing in 2008 ahead

688
00:53:31,449 --> 00:53:32,549
of the Beijing Olympics.

689
00:53:33,109 --> 00:53:39,689
Well, they wanted to cool the economy to slow pollution, which was likely to spoil the showcase

690
00:53:39,689 --> 00:53:40,069
event.

691
00:53:40,609 --> 00:53:42,349
So they slowed the economy deliberately.

692
00:53:42,909 --> 00:53:47,129
And they're doing it again now, or they have been doing it again, presumably to preserve

693
00:53:47,129 --> 00:53:54,609
oil and to reduce their oil import bill by cooling the economy down. And that seems to be what they've

694
00:53:54,609 --> 00:53:58,889
done. And if you look through that period, what have you seen? You've seen very weak Chinese

695
00:53:58,889 --> 00:54:03,909
financial markets. You've seen bond yields crater. You've seen the stock markets sell off.

696
00:54:04,389 --> 00:54:08,829
You've seen economic data come in weaker. And it looks as if they're now starting to

697
00:54:08,829 --> 00:54:14,109
goose the economy once again by printing more money. And that may have been a short-term

698
00:54:14,109 --> 00:54:18,389
into regnum that was agreed with the Trump administration that China would do this? I

699
00:54:18,389 --> 00:54:23,689
simply don't know. But it looks as if that's what they've been doing. And therefore, if this is

700
00:54:23,689 --> 00:54:29,989
correct, what you should start to see now is evidence that the gold price, it should be

701
00:54:29,989 --> 00:54:35,129
beginning to form a bottom. Now, proof of the pudding will be the eating, but let's see.

702
00:54:36,469 --> 00:54:40,349
Yeah. Talking about seeing, you just pull it up now because I was looking at it while you're

703
00:54:40,349 --> 00:54:45,569
doing that. It looks like, I mean, we're here hovering around 4,000. It looks like 4,000 is

704
00:54:45,569 --> 00:54:51,649
good support for it right now since going back to late June. So July, it's been relatively flat.

705
00:54:51,909 --> 00:54:57,629
It's interesting. Yeah. So that pretty much accords with that signing of the MOU. And

706
00:54:57,629 --> 00:55:04,069
what I would say is that let's not be too hasty, but at the end of the day, you want these monetary

707
00:55:04,069 --> 00:55:09,909
inflation hedges and gold may be the leader because China is injecting liquidity right now.

708
00:55:10,349 --> 00:55:11,889
and trying to support that.

709
00:55:12,209 --> 00:55:14,609
If you look at the announcements that the BBOC is making,

710
00:55:15,289 --> 00:55:19,109
it seems to be deliberately trying to get more liquidity into their money markets.

711
00:55:19,869 --> 00:55:22,469
They make announcement after announcement each day,

712
00:55:22,849 --> 00:55:24,189
so they're adding more funds.

713
00:55:24,789 --> 00:55:27,349
So I think there's a clear remit there to do something.

714
00:55:27,789 --> 00:55:30,929
So I'd be watching the gold price because I think that's a pretty good barometer of that.

715
00:55:32,069 --> 00:55:32,769
And you alluded to it.

716
00:55:33,429 --> 00:55:36,629
I like to dabble in conspiracy theories from time to time, Michael.

717
00:55:37,349 --> 00:55:37,709
We all do.

718
00:55:37,709 --> 00:55:53,109
I think if you view everything going on in the world right now, whether it's AI, Iran, as a proxy between the U.S. and China, that is an interesting lens I like to put on just to think about what may actually be happening.

719
00:55:53,109 --> 00:56:03,709
And if you consider the flip-flopping on the MOU specifically, maybe it's Trump trying to just throw a wrench in the Chinese, trying to turn their economy up and play that game.

720
00:56:04,169 --> 00:56:07,069
And that's the question, who's reacting to who?

721
00:56:07,129 --> 00:56:08,309
Is China reacting to the U.S.?

722
00:56:08,309 --> 00:56:09,509
Is the U.S. reacting to China?

723
00:56:10,129 --> 00:56:14,729
I think based off of that chart, it would be clear to me that China is reacting to what the U.S. is doing.

724
00:56:14,989 --> 00:56:21,649
And if Trump knows that, is he using this war as a way to push China around to an extent?

725
00:56:23,109 --> 00:56:32,429
could they yeah yeah um bringing back to bitcoin you think i think you wrote in today's newsletter

726
00:56:32,429 --> 00:56:39,469
uh may have a couple to a few more months to find a bottom but then all these monetary factors that

727
00:56:39,469 --> 00:56:45,989
we've been discussing for for the better part of an hour now um should um should be expressed

728
00:56:45,989 --> 00:56:51,689
should express a higher bitcoin price after that yeah i mean my view is look there's there's no

729
00:56:51,689 --> 00:56:57,249
alternative of monetary inflation. And at the end of the day, I mean, one can be cynical and say,

730
00:56:57,349 --> 00:57:04,509
look, if you're a politician, would you accept a regime, a future regime where you've got,

731
00:57:04,929 --> 00:57:11,709
let's say, one to 200 percentage points faster main street inflation? You probably would.

732
00:57:12,149 --> 00:57:23,546
You could disguise that in various ways or you could dumb it down in terms of your rhetoric and try and pretend you know extend and pretend and whatever and say it around two to three or whatever they come out with

733
00:57:23,626 --> 00:57:25,186
But in reality, it's a tad more.

734
00:57:25,186 --> 00:57:32,486
And I think that's the reality we've all experienced over the last five years, that inflation simply ain't the 2% that the Fed has been targeting.

735
00:57:32,966 --> 00:57:33,986
It's higher than that.

736
00:57:34,066 --> 00:57:35,326
It's probably appreciably higher.

737
00:57:35,806 --> 00:57:40,086
But what that means is that if Main Street inflation is running at, let's say, 4 to 5,

738
00:57:40,446 --> 00:57:47,346
monetary inflation or asset price inflation is running at a figure which is another 200 to 300 basis points higher,

739
00:57:47,746 --> 00:57:49,926
maybe 7% to 8% per annum.

740
00:57:49,926 --> 00:57:55,426
But after all, that's the likely growth rate path of U.S. federal debt.

741
00:57:55,906 --> 00:58:01,946
Now, U.S. federal debt has been a great proxy for the gold price over the last 25 years.

742
00:58:02,426 --> 00:58:11,506
So if you look to what the debt load has done, I mean, the debt load is up, you know, whatever it may be, 12 times over that period of the last 25 years.

743
00:58:11,846 --> 00:58:15,106
The gold price is up a similar amount, if not a tad more.

744
00:58:15,866 --> 00:58:18,126
And Bitcoin is up considerably more.

745
00:58:18,586 --> 00:58:24,166
Now, what I'm trying to say here is that the trend, you know, you've always got to pay attention to cycles in markets for sure.

746
00:58:24,286 --> 00:58:29,766
But you've also got to think about the long term trend, particularly if you're a younger generation, you've got to think about this.

747
00:58:30,126 --> 00:58:31,766
And you need ways of protecting your wealth.

748
00:58:31,946 --> 00:58:41,806
Now, monetary inflation hedges in a world where we're likely to get monetary inflation, a lot more of it for the reasons I've already suggested, has clearly got to be part of your investment outlook.

749
00:58:42,406 --> 00:58:46,006
And you don't need to have 100 percent in gold.

750
00:58:46,466 --> 00:58:49,746
You need to have 100 percent in Bitcoin, but you need to have both those assets.

751
00:58:50,306 --> 00:58:57,506
And you probably need to have a decent amount in crypto because that is the best monetary inflation hedge, according to recent history.

752
00:58:58,166 --> 00:59:01,666
It's four times better than gold or silver.

753
00:59:01,946 --> 00:59:14,566
So that's what I would be thinking about. And by the weakness, you don't, no one's ever going to get the bottom. Clearly it's dangerous as they always say to catch a falling knife. But once you start to see some stabilization, it's worth going back in.

754
00:59:14,566 --> 00:59:39,686
Yeah, and it's funny how emotional people get. I've been in Bitcoin for 13 years now. I've been through many of these cycles. It is funny how people will just discard it and throw it away once the price falls a little bit. We're down like 40%, 45% from the top of last October, November. And it's not even been that long. I mean, a year in markets is not that long.

755
00:59:39,686 --> 00:59:45,106
And it's funny that people will give up on something after a bit of a correction.

756
00:59:46,066 --> 00:59:48,786
We're actually looking at this bear cycle on Bitcoin.

757
00:59:49,806 --> 00:59:51,106
It's shallower.

758
00:59:51,366 --> 00:59:57,806
And if we are forming a bottom here, going to begin climbing higher this fall, in winter

759
00:59:57,806 --> 01:00:01,386
would be probably one of the shortest bear markets in history, too.

760
01:00:01,486 --> 01:00:02,406
That does manifest.

761
01:00:03,206 --> 01:00:03,346
Yeah.

762
01:00:04,626 --> 01:00:05,566
Last question.

763
01:00:05,566 --> 01:00:17,446
Do you think there's a when we hit 40 trillion in national debt here in the United States, you think that level has a psychological trigger that sends people or do you think it's just another number that we hit?

764
01:00:17,806 --> 01:00:19,466
I think it's another number.

765
01:00:19,586 --> 01:00:24,906
And what it means is we're going to get to 50 trillion in a shorter space of time.

766
01:00:25,286 --> 01:00:26,966
I mean, that that's the reality.

767
01:00:27,686 --> 01:00:32,966
The fact is that there's no way to curtail debt unless there is a radical overhaul of government.

768
01:00:33,526 --> 01:00:35,346
And that's simply not going to happen.

769
01:00:35,566 --> 01:00:42,326
Because we're in an era where we need big states for the reasons that I've said capital wars are there.

770
01:00:42,686 --> 01:00:43,746
I need an active state.

771
01:00:44,366 --> 01:00:48,066
China has an active state, and others are copying that same model in many ways.

772
01:00:48,546 --> 01:00:51,346
Call that sort of a state-led capitalist system.

773
01:00:51,346 --> 01:00:54,006
I don't know whatever you label it, but it's a reality.

774
01:00:54,226 --> 01:00:56,426
It means the state's got to be bigger and more active.

775
01:00:56,886 --> 01:00:58,686
It's got to take bigger stakes in industries.

776
01:00:58,926 --> 01:01:01,066
It's got to have its fingers in many more pies.

777
01:01:01,166 --> 01:01:02,066
It's got to direct trade.

778
01:01:02,366 --> 01:01:04,426
It's got to encourage investment, et cetera, et cetera.

779
01:01:04,426 --> 01:01:09,206
And at the same time, it's going to pay the welfare bills and the interest bills and the defense bills.

780
01:01:09,346 --> 01:01:17,026
And that's going to take either more taxation, more debt issuance or more money printing than you choose.

781
01:01:17,326 --> 01:01:21,266
My view is that the path of least resistance to our politicians is pretty more money.

782
01:01:21,646 --> 01:01:24,186
And they can do that either directly or they can do it subtly.

783
01:01:24,346 --> 01:01:29,166
And they don't settle it subtly by issuing lots of short dated bills, lots of treasure bills.

784
01:01:29,206 --> 01:01:30,306
And that's exactly what they're doing.

785
01:01:30,886 --> 01:01:37,346
So bear in mind that 80% of US gross issuance now is under two years duration, maturity.

786
01:01:38,026 --> 01:01:45,686
And it was, I think, three to four years ago that Stanley Druckenmiller in one of his speeches said,

787
01:01:46,006 --> 01:01:46,926
this is crazy.

788
01:01:47,546 --> 01:01:51,146
These are the numbers that you would apply normally to a Latin American economy.

789
01:01:51,466 --> 01:01:52,486
And here they are in the US.

790
01:01:52,886 --> 01:01:55,366
Well, that was four years ago, four or five years ago.

791
01:01:55,706 --> 01:01:57,686
We're now even more so.

792
01:01:57,686 --> 01:02:01,686
and in actual fact the paradox is that some of the latin american economies have actually cleaned

793
01:02:01,686 --> 01:02:07,626
their act up so the u.s is going out alone but the u.s is dragging everyone else with it so japan is

794
01:02:07,626 --> 01:02:11,886
doing the same germany is doing the same france is doing the same britain's doing the same um

795
01:02:11,886 --> 01:02:17,746
that's just a step behind but that's this is the new reality yeah and i think the basement again

796
01:02:17,746 --> 01:02:22,726
the the stat that i mentioned before we hit record out of the uk which is they've lost

797
01:02:22,726 --> 01:02:26,606
something like 600,000 millionaires since 2021,

798
01:02:26,606 --> 01:02:29,946
falling from above a million to below 500,000.

799
01:02:29,982 --> 01:02:31,982
in a five-year period is insane.

800
01:02:32,182 --> 01:02:35,302
So to the three levers that you pull there,

801
01:02:35,342 --> 01:02:36,462
if you pull the taxation lever,

802
01:02:36,562 --> 01:02:38,662
you're just going to have an exodus of talent.

803
01:02:39,182 --> 01:02:40,502
That's exactly what the UK has found.

804
01:02:40,642 --> 01:02:41,202
Yeah, exactly.

805
01:02:41,722 --> 01:02:43,342
Yeah, so debasement is the way.

806
01:02:44,242 --> 01:02:45,002
Better have hard assets.

807
01:02:47,362 --> 01:02:48,742
Michael, it is always a pleasure.

808
01:02:48,922 --> 01:02:51,022
Thank you for doing what you do.

809
01:02:51,282 --> 01:02:52,682
I mean, I say it every time you come on,

810
01:02:52,722 --> 01:02:55,242
but I will not relent in saying it.

811
01:02:55,242 --> 01:02:57,182
I love your newsletter, your sub stack.

812
01:02:57,382 --> 01:02:59,502
Capital Wars is a must read.

813
01:02:59,502 --> 01:03:03,342
I read it every time it drops and it is a very calming,

814
01:03:03,542 --> 01:03:07,602
a calming force in my life just to zoom out and look at the,

815
01:03:07,602 --> 01:03:08,962
the overall trend and the cycle.

816
01:03:09,102 --> 01:03:11,042
So thank you for writing it and thank you for coming on.

817
01:03:11,362 --> 01:03:11,462
Well,

818
01:03:11,482 --> 01:03:11,982
it's nice to know.

819
01:03:12,242 --> 01:03:12,682
Thanks Marty.

820
01:03:12,782 --> 01:03:13,122
Enjoyed it.

821
01:03:13,182 --> 01:03:13,422
And honestly,

822
01:03:13,502 --> 01:03:13,862
thank you.

823
01:03:14,462 --> 01:03:15,082
Peace and love freaks.

824
01:03:15,342 --> 01:03:18,102
Thank you for listening to this episode of TFTC.

825
01:03:18,622 --> 01:03:19,842
If you've made it this far,

826
01:03:19,982 --> 01:03:22,142
I imagine you got some value out of the episode.

827
01:03:22,602 --> 01:03:23,182
If so,

828
01:03:23,302 --> 01:03:26,522
please share it far and wide with your friends and family.

829
01:03:26,582 --> 01:03:27,962
We're looking to get the word out there.

830
01:03:27,962 --> 01:03:34,982
also wherever you're listening whether that's youtube apple spotify make sure you like and

831
01:03:34,982 --> 01:03:40,382
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832
01:03:40,382 --> 01:03:46,502
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833
01:03:46,502 --> 01:03:53,302
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834
01:03:53,302 --> 01:03:59,222
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835
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