Transcription
In the next few months, we're going to see the non-farm payrolls getting worse and worse. You'll see the blips up and down, and, uh, then they'll be revised and so on. And all of a sudden, you'll see the stock market will put in the top. It can be at a very high level, and you can see the euphoria develop, which is, I think, we're going to see. You think Bitcoin go to 160,000, and you'll see people be euphoric and thinking, "Okay, I'm a billionaire or a millionaire," or how much they will become. And, and everything is fine. But that's actually not fine. And it's not fine that the, the central banks are starting to ease because that they only do late phase and late cycle because they are always late, and they can't save it.
What's going on, guys? Today, we got a great episode with Henrik Zeberg. He is the head macroeconomist at Swiss Block, and this conversation is an absolute doozy. We talk about the macro outlook. We talk about the K-shaped economy, inflation, why he thinks a big tech bust could be right around the corner, why the four-year Bitcoin cycle, it ain't going anywhere, and why Henrik actually believes that people holding risk assets may not do so well in the coming months. This conversation is going to challenge a bunch of thoughts that you have about the market, about where we're going, about Bitcoin, gold, tech stocks, and much more. Make sure you watch the entire thing because he lays out a compelling argument, and I'd love to hear whether you agree with him or not. Here's my conversation with Henrik Zeberg.
All right, Henrik, I thought a great place to start this conversation. There's a lot of people who believe right now we are actually early in a macro cycle, that there's still plenty of room to run. It seems like you think that we are towards the end of a cycle and actually people should be very cautious right now. What is the difference of opinion and why do you think that maybe we are closer to the end than we are to the beginning?
Well, uh, first of all, because there's absolutely no indication that we are early. I mean, if you look at the one thing, when, when central banks are starting to ease, that they don't do in the early phase. They do that in the late phase. They do that because the economy starts to deteriorate. If you look at the job numbers, we just saw the correction also right now. Uh, you don't see that kind of deterioration into an early phase. You see that into a late phase. If you look, if you look at, if you look at the consumer confidence, you don't see these kind of levels into a, uh, into a recovery. So we are nowhere near an early phase. And, uh, again, it's the, the, the pieces of evidence are out there. And if you look at it, it's, uh, you also start to see the short-term yields declining, uh, and we have the topping at the long-term yields, which is also normally what we see into a late phase. So there's absolutely no, no indication of an of an early phase here, as I see it.
So, one of the frameworks that I use is, there's a natural market cycle and then there's an artificial market cycle. The natural market cycle is kind of what happens when you have normal interest rate levels and people are kind of, uh, participating in the way that they normally would participate if humans weren't intervening in the market. As, as you mentioned, we get to a point where the central bank is going to ease and start to manipulate or stimulate the economy. That then kicks us into the artificial market cycle because they essentially are trying to suppress interest rates. They are trying to stimulate that economic activity. Would it be fair to say that we're at the beginning of the stimulation phase, which could be prolonged? Or do you think that actually when the central bank starts cutting in the way that they're talking about, that means that the runway for the quote-unquote bull market or that this part of the cycle is still pretty short?
But you could just look into it. This is what they have done before. If you look at 2001, and you look at 2007, you saw significant stimulus as coming into the economy. You saw M2 actually moving up quite strongly, not just in 2007 and 2008 and 2009, but also into those years. So if the things were so easy that we could just stimulate the hell out of it and we'll then get an economy that kept going, you know, why would we then have had the 2001, uh, economic crisis, not, yeah, had a recession, and also the, uh, the great financial crisis of the 2007-2009? So there's, I mean, people are just not looking to what is really important here. I mean, the financial worlds, they look to the e to the, uh, to the financial, to the financial worlds, you know, the, the, the earnings of the Nvidia and so on, and they look at the liquidity also. But the real economy is about Mrs. Johnson in the US. 15.6% of the US population is not able to put food on the table. Everybody is hurt by high rates, high inflation, and we see that job numbers are actually quite poor. So when the real cycle turns, rolls over, then you can forget about liquidity. Liquidity, liquidity can stem up the, the tidal wave of the, uh, of the economy that is, uh, that is rolling over, and that is what is happening right now. That is completely different from what we saw in '22, '23, '24, '25, and also in later or earlier. I mean, in, in terms of the, uh, of any kind of stimulus that's been coming out. This is 2007, where you have a significant structural, uh, gaping hole in the, uh, in the economy. If you look to the housing market, it is at a standstill. You have home sales, existing home sales that are at lower levels than when the population were 100 million people fewer in the US. So, so this is about the real economy versus what you have with the, what I call the liquidist thinking, that is, as long as you get liquidity out there, everything will be fine. You can get your, your recap moment. And I'm also talking about that you are not at the top yet. And I see Bitcoin and I see other cryptos moving much higher here, but that's not the same as the real economy. And the real economy is rolling over at this point, and that is the problem. And I think people are not really understanding what, what this means. There's no indication of, of an early phase here, and the artificial plot can work for as long as you are in a deflationary environment. Remember, inflation has been reintroduced. We now have people expecting inflation can go up. So if you're Mrs. Johnson now, and you get a $100 saving on your mortgage loan or whatever it is because of, you know, artificial thing. Will you go spend that money immediately, or will you actually save it for a rainy day, having looked at yield in yield rise, rates, right, rate rise, and you looked at, uh, inflation and so on and so forth? I say that the time for the easy, free lunch from the Fed and whatever is coming to an end. Will they try? Yes, they will. But they are not going to do it. They cannot sustain the tidal wave of the real economy, and that's the problem.
So, what you're really describing here is kind of this K-shaped economy, right? You have people who own assets, who have been exposed to the stock market, Bitcoin, gold, etc. They've done very well. I think a lot of people think they will continue to do very well. You are talking about, uh, kind of this real economy or the lower part of that K, where, uh, there's a lot of people who, either because they don't have assets, or frankly, even if they do have assets, they still are struggling to put food on the table, afford mortgages, do, do kind of the everyday actions. Now, I think that there is an argument to be made where, uh, over the last five years in the United States economy, we have had three different bare markets. Now, that is a stock market bare market, but during that period, we basically had two pretty catastrophic, uh, external shocks to the real economy. The first was COVID, which was, you know, hey, lock everyone at home and, uh, basically put the velocity of money down, uh, significantly. The second was this whole tariff thing, where we saw companies definitely slow hiring. We saw people start to change their consumption patterns. Like, there was a, a period of time where people are very, very worried. Does it have to be something that is catastrophic that's external, in terms of like a pin popping this bubble, uh, in a way, or can it be a slow grind into a market turning over, and we end up in some sort of recessionary period, but there's no one thing to point to that really is, uh, the catalyst to get us there?
The real recession, they don't come with a catalyst like what you described just here. So, we didn't have a recession when you talked about the tariffs. There was not a recession. There was a pullback, and it was quite clear actually, because if you look at the business cycles, there were no evidence of a recession at that point, and the leading indicators, the coincident indicator was simply not, you know, weaken, a weak, uh, weak enough to, to get to that point, which I also pointed out on X at that time. If you look then to the situation around COVID, we actually had a slowdown before that. So, if you look at COVID, the recession was the, rec, recession would have come anyway. What happened actually was in '19, sorry, 2019, '19 and '18, you actually saw how yields were already declining, and we had a recession, uh, indicator signal from the leading indicators. Um, so that was a different case. But what we're looking at is exactly as you say, we don't need that kind of thing. What was the real big thing back in 2007, in October, when the market topped out? And then people say, "Oh, yeah, but that was the subprime." Guess what? You didn't have any big catalyst at that point. There wasn't anything in October of 2007. The job, the, the market just topped out because what happened is that the environment gets so toxic that the consumer starts to spend less. And if you look at it, you'll actually see how the, the, uh, the unemployment rate starts to move up, or the, not just the rate, but the number of unemployed people starts to move up. You have a lot of leading indicators there showing that things were actually, you know, unfolding in a bad, bad way. You also had the lead from the leading indicators, you had, uh, yield inversions, all over the place in 2007, uh, 2007. So these are the things that you will see before, uh, prices unfold. You did not have that one yield inversion into 2022, into ter, or into the tariff situation. So the situation is simply that, you know, we, we don't need that catalyst, as you talked about, there for having the recession. Um, it is the environment that becomes toxic, and that becomes a problem for the, uh, for the economy, and all of a sudden, the bubble bursts.
Let's talk about, uh, the investor kind of economy for a second, that, you know, really in these asset prices, whether it's stocks, Bitcoin, gold, etc. Um, I have seen you talk about this idea of like a blow-off top in risk assets. Talk through what is a blow-off top in risk assets, and do you think that's what we are kind of setting ourselves up for through the end of this year?
If you look at the, if you look at the S&P, I mean, just look at where we were in April and how far we have come since then. Look at where we were in 2022, and in October '22, we were at 3500. Look at the rate of, you know, the move we have seen since then. This is by definition the blow-off top. This is by the, if you look at how fast it's going, it is unprecedented compared to what we have seen, you know, in previous times. NASDAQ is up 21, 22 times since 2009. Just think about it. We have right now the market capitalization, which is at 216% compared to 2007, where it was at 109%. And in 2000, when we had the com, which was a crazy bubble, we were at 136%. 8, 1929, we were 89%. We are now three times on what we were in 1929. We are almost double what we had in in 2000, which was a crazy bubble. So I don't know what people want to see. We have a complete crypto market, a whole crypto market where a long range of them are jokes, but they are valued at extreme levels. So people saying, "Where is the blow-off top?" Well, you're sitting right in it. And it can go even more crazy. So I'm talking 7500 on the S&P, maybe even more crazy. Uh, but we are getting closer to it, and we're getting closer because you are seeing the real economy roll over. There's nothing, nothing remotely close to an early phase here. This is late phase, and you don't see a bubble like this. Look at Nvidia compared to what you had back in the day, Cisco. Cisco was the greatest bubble in 2000. It is dwarfed by what we see in Nvidia. So, and then people come with the AI trend and all that. This has stopped come over, over, uh, all over again. Even on the housing market, if you look at the housing market, the housing index, Schiller housing index is showing us that it shows us that we have a bigger bubble than we had in 2007. So, that people are telling that this is early. I mean, just do not look to the facts. So I can't see how this can go on for such a long time, and especially if you look at how, you know, underwater a lot of people are when it comes to the US economy. What is it really that should bring them, uh, you know, continue to consume here?
Let's talk about, um, valuations because I do think that this is pretty, uh, uh, interesting. You mentioned that, um, the stock market is three times higher in terms of the, the percentage, than it was in 1929. I would argue the companies are 100x better than the companies then, both in terms of efficiency, productivity, uh, performance, uh, growth rates, uh, all these different metrics. The companies today are much, much better, and therefore they should be valued at a higher rate. They can grow faster. They can drive more profits. You know, thinking of a Facebook, of an Amazon, the scale, the speed, uh, of these businesses. Now, I don't think this is related to the US economy. All of a sudden, what you're saying is, all of a sudden that the stock market will be three times as big because of that, we have companies that, you know, just do better. I mean, everything is relatively here. What is then the top layer? What will be the top there? I mean, historically, we haven't seen this above 75 to 85, and now we are 226. If you take the crypto market in, we are 226%. So, so the historical average is like, you know, one-third of where we where we are now, and the tops in 2000, where we also had this narrative of, "Oh, we have these fantastic companies, we are, you know, moving in on doubling of of that size." So, I just, I just don't, I just don't get the argument here, really, because it's always relative to an economy. And, uh, you know, well, I, I think that there's a couple things that are at play, right? First of all, uh, we have much more concentration because the businesses are better. Like, if you look at the top 10 companies in the US economy, they're probably the 10 best companies ever constructed in human history, right? In terms of what they're able to do with the size of the team, the productivity, the revenue, and profit. That doesn't mean we can't be in a bubble. That doesn't mean they can't go down in price. That doesn't mean that they can't be overvalued. Like, all the things you're saying, 100% could be true. But I'm just saying, objectively, if you look at what these businesses have been able to do with the technology they have, it is unlike anything that we have seen previously. Now, with that said, I think that there's also this underlying technology component, and I, I am, uh, uh, always trying to balance. I look at the data. I got a lot of smart people that work with us, they show me this data all the time, and I sit there and I say, like, I could see, hey man, you don't got to be Albert Einstein to see the chart is higher now than it was in 2001. That don't look good, right? At the same time, I can pick up my phone and I can press a button, and Jeff Bezos is going to deliver me something by tonight, or I can press a button on my phone, and a phone's going to show up in 20 minutes. Guess what? Guess what? 1920s, right? You just had the electrification. You had the car coming out. Try imagine you could just turn the switch and you could then get lights coming in your room, or you could jump into something which has four wheels on it and automatically you could start driving, running, you know, going down the road without having horses in front of it. So, imagine that actually gave you that you do were not in a bubble at that time in 1929? It did not. So the promise from a technology is not the same as you cannot have an overvaluation of things. So what you're describing there is absolutely true. But you have seen this before. You could also see it in 2000. In 2000, we saw the internet coming out. Did that not change the world? Completely. It did. We saw that all these fantastic ideas on how we could actually start to, you know, do trade. We could trade online, online. We could, you know, buy stuff online. Changed the world completely. I'm sitting from home working today because of the internet. Um, did that actually not turn into a bubble as well? It did. So the technology by itself does not promise returns. It pro, it tells you that the world is going to be changed, and it is changing, but it's not the same as saying we can now sustain artificial exuberance, high levels, and that's what you're suggesting.
No, no, I think there's two different things here. So, one is, um, the technology today, everything that you're describing, the internet, all these, uh, components, right, was basically technology that was helping from an individual, uh, perspective. And if you go back and you look, how many of the companies were actually driving, you know, like the Facebook, uh, um, latest earnings report just blew my mind. You have a company that is valued trillions of dollars and is growing 20, 30% year-over-year revenue, profit, right? I mean, not like, hey, my user base is growing, which can be gamed and and nonsense, etc. We are now seeing companies that are growing at a rate, given the scale that they have, we've just never seen before. And again, it goes back to, it doesn't mean that there can't be a bubble. It just means that it becomes very difficult. So, one input for me in this like framework of trying to figure it out is, okay, we have a scale of company that is able to grow at a rate that we just have never seen before. Is that mean that, uh, it's better, worse, overvalued? Not, not necessarily, but it's just like, that is one input. The second thing is, we now are seeing the dollar debased at an accelerated rate. So, it used to be, you know, if you go back to 1971 to today, it's about 4% debasement annually since 1971. Since 2020, we have now seen the dollar lose 29% of its purchasing power. So obviously, it is happening faster, which therefore should be pushing these valuations higher. Again, doesn't mean there can't be a bubble, but I try to think through like, okay, there's all these inputs that are different than what we.
If you said the last one, the last one, if you just and then go back to the Buffett indicator that I said, if you have that, that should influence everything in the economy, which means that it will be, it should then, you know, equal out what's happening on the, the one side. So, if you say that everything is growing by 4% because of the dollar debasement, well, the entire economy should grow by that. But because of that, but that you're actually seeing that this is happening just in a few components, and we have the concentration that we have, should start to trigger our minds and say, "Hey, maybe something is wrong here." And I don't quite follow that, you know, in terms of the, the, the productivity levels here. I can tell you the productivity levels of getting electrification back in the 1920s or the assembly lines were quite remarkable, and it's just because we now like to say, "Oh, we can see this now," and the, the, you know, the money is flowing in. What you have right now is that you have had the largest, uh, experiment in ever in terms of trying to stimulate through monetary easing. This is an experiment. Yeah, and with that, you can see obviously that can push things up further and further to, to a certain, to a breaking point, but you cannot print wealth. If it was that easy, you would simply at some point see that breakdown. But until that moment goes, you can actually see that things can just explode into, you know, you know, valuations and so on. Because what happens by the end of the day is that they have been suppressing yields. If you suppress yields, you'll then see that your cash flow looks fantastic because what you can get on the secure side in bonds and so on, you don't want to go there because who wants something that yields zero? So you go with the 1% or the 2%. Which means you have a fantastic distortion of things. And then the narrative starts, "Why, what if we have this new thing coming called crypto or called AI?" And then the whole narrative goes. We have seen it over and over and over. You saw it in the 1840s when you saw the railway coming out. I can tell you that was one thing that brought about, uh, productivity because now you could actually transport things from one area of the world to the other area of the world in the US as well, and in in the UK, but it was still a bubble, and it burst. Technology does not guarantee returns. It tells us that the world can change. But it also tells us that people will try to front-run this with all sorts of arguments saying, "This time is different because this and this and that." We've heard it over and over. It was different in the 1840s. It was different in the 1920s. It was different in 2000, and it's different again. Now, I just say it's not. And the way that we, we, we back in 2000, when we talked that this is new economy, and we, it's not about how much you actually earn, it's about how much you spend. That was one thing we also heard on promotion on market, uh, on marketing and so on. We just hear those narratives change. But the thing is, deep down, we see that the valuations are at extreme levels, and we have never seen them at these, at these extreme levels here. And this time around, you not only have it a bubble in tech stocks, you have a bubble in the housing market and tech stocks. So, this is 2000 and 2007 meeting each other on drugs.
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So, let's back up for a second. Um, I agree, you know, most dangerous words or this time it's different, but I also think that, um, there are things that are different, right? In terms of post-1971, obviously the dollar being debased, that's different. Uh, seeing the QE playbook that central banks roll out whenever there seems to be shakiness in the market or a downturn, that's different. Right? How do you, as an investor, think through, there are certain things that are different, there are certain inputs that are the exact same? You look at a valuation chart, you look at some sort of, you know, a market call. How do you sift through all this information? How do you determine when to acknowledge the things that are different versus just say, "Hey, look, historic valuation levels. This is what they've been. If we're super elevated from that, we got to be near some sort of top."
Human psychology will always be the same. Human psychology will also be the same. We will always think that this time is different. This time is, we are wiser. That's the only thing that is really, I mean, that is, that's the basis of everything. And of course, technology changes, and we will see that there will be, you know, lifts in the market because of all of that. I'm not discount, I'm not discarding that at all. I'm saying AI is going to do the biggest change to the world that we have ever seen. I mean, AI is going to be fantastic. It's going to change productivity levels and so on. But the fact is, when we look at data, when we look at things, and from the normal things that we always see the return to, I mean, people also telling us in 2007, "Oh, why, why would we have a bubble in the, in real estate? We don't see that. I mean, the real estate can't really drop on a national wide level." Actually, could in the whole world. We saw in 2000, the same thing. We saw the, the coms. Well, it's not, it's different this time. It's about the internet. You have to understand that, you know, the vast majority of these, these companies, they do not exist any longer. Webvan, Pet Shop, whatever they were called, they don't exist. They were darlings of the, the, the Wall Street back then. And, uh, and, and, and also of the, of the media. They, everybody talked about that. I think it was 16 or 18 of those the commercials that were in, in the Super Bowl in 2000. They were actually not existing, uh, a year later. So, so, you know, this is the moment where the euphoria is big. It's because we have seen all this money coming in, and then we think it can go on forever. But if we think that liquidity can drive things, why did public, Republic all of a sudden have, you know, big inflation and have you had a, uh, crush of their, uh, the stock markets? Why is Zimbabwe not a thing all of a sudden? Why are all these countries that have been so, you know, just pouring money into their economies not doing well? Because money cannot be printed. Sorry, you, wealth cannot be printed. You can print money, but you can't print wealth. And there's a difference between that. There will be an artificial period where you'll see people will think this is wealth, and it's going to be here forever, and people will flock into more and more risky assets until the bubble bursts. So, and this is what we see again.
Let's say that you are right here, right? Um, what do you think plays out over the next 12 to 24 months? What, walk me through kind of, okay, we're overvalued. We're in a bubble. The bubble will pop at some point. What happens? What, what is your kind of base case right now?
So, right now, we're seeing that the environment has been very, um, uh, toxic, I would say. Uh, and the toxic is when you look at the real economy, which is the consumer. Talking about again, as I said, 15.6% of the US population is not able to provide or to get food on the table, which is a severe problem that's bigger than going into the financial crisis, which was at 13%. When you look at the yield levels that people have, the rates that people are paying right now, if you look at the housing market, the existing homes sold, it is, as I said earlier, it is at very low levels. It's a 4 million units sold in in 2004, and at this point, you know, lower than that at, in a population that is now 100 million bigger than when we've, you know, earlier saw 4 million. So things are at a standstill. You have, you have affordability index, it's at down the gutter. It's lower than in the 1990s. It's a, it's where we need to go back to the 1980s, where it was really a bad time. Um, you know, these are the things, this is the real economy, and everybody seems to think about, well, Nvidia, and you talked about Facebook or Meta and so on. These are the things that are being driven by liquidity, and that is the big schism here. Will liquidity by the end of the day drive it, or will it be the real economy? And what I'm a proponent of is that the real economy is rolling over. There's 100%, you know, you can look at all the indicators. Look at the non-farm payrolls revision today. That is not a good thing. You have had in May, you had a standstill almost already in in the non-farm payrolls in May, June, July, the same. This is not a good thing. So the economy is, you know, and what will happen? Well, at some point, you're going to see that there will start to see that the economy is rolling back, and that will be on the labor market. You start to see negative numbers coming out, and what the Fed will do is that they will try to stimulate it. At some point, they will be late, and they will see that they cannot do it because by the end of the day, we have to understand, the only thing that will help, if, if, is if the, uh, the consumers start to spend more. Why? What, what should they spend if 15.6% can't put food on the table? And, and, and why should they, why should the companies start to, to, uh, to hire people? In they have overcapacity at this point. The capacity utilization in the US right now is at 77%, which normally when it goes below 80%, you'll see that they start to lay off people. Where should the money come from then? We say the Fed. Well, as I said, Mrs. Johnson now, she saves $100 on the on her mortgage loan. Will she go out and say, "Okay, I'm going to spend this, having seen inflation, having seen yields go up, having seen maybe her neighbor getting, uh, laid off or her husband or whatever," and then she says, "You know what? I'm not only going to spend this one, I'm going to borrow an extra $100, and then I'm going to go spend those two, putting myself into more debt," when she's already more in debt than she has ever been before. There's nothing that supports the argument that QE can actually keep supporting an economy and the economic growth, especially when you start to see it really coming into the real part of the economy, which is the consumer, and that we do now. We haven't seen that earlier. I was not one of those the guys talking about recession '22 or '23 for that matter. I said, "No, not this time because we still have the, the cycle still moving higher." But now it's rolling over, and we in the next few months, we're going to see the non-farm payrolls getting worse and worse. You'll see the blips up and down, and, uh, then they'll be revised and so on, and all of a sudden, you'll see the stock market will put in the top. It can be at a very high level, and you can see the euphoria develop, which is, I think, we're going to see. You think Bitcoin go to 160,000, and you'll see people be euphoric and thinking, "Okay, I'm a billionaire or a millionaire," or how much they will become, and, and everything is fine. But that's actually not fine. And it's not fine that the, the central banks are starting to ease because that they only do late phase and late cycle because they are always late, and they can't save it. And you saw that in 2001, you see in 2007, we've seen it every time. We had late phase, late cycle, they are late.
You mentioned Bitcoin. Um, if the four-year cycle holds, then the market top would be in Q4 of this year, right? About 18 months post-halving. Um, you have a strong Q4. We've seen this time and again. Um, there is an argument that the ETFs, the digital asset treasury companies, kind of all these market changes, the introduction of Wall Street has changed the four-year cycle, that that is no longer going to be a Bitcoin should, uh, continue to kind of grind up, so you won't get these blow-off tops, but you also won't get the 80, 85% drawdowns. What do you say to that?
"This time is different." First of all, which is not so. That I, I don't buy that. It's, it's the narrative we hear all the time. We, we hear it again and again, "This time is different." Then something comes up, and then we see it's not different. The, the, the cycle, you know, probably holds. And I think, you know, within the next 50 days, you could probably see a top in the Bitcoin, and it could be a much higher level, as I said, than where we are now. But I also see that the business cycle rolling over at this time. So that's quite different. And I think that what I see technically in Bitcoin, that this is a massive top you have here. This is not a cyclical top. This is a secular top in Bitcoin, which means that we are at, you can see it's crashing to much, much lower levels than most people can understand. So this about that this time is different with the ETFs and all that. Take the dot, you know, narratives and put it in and put the digital, you know, sprinkle on it, and you have the narratives of today. It's really about the real economy. The real economy is rolling over. And I cannot emphasize that more. When it does that, there's no going back. The risk assets, and, and Bitcoin is a risk asset, will crash. So, with you're going to see Bitcoin is going to have a, you know, a very good time for the next few weeks here until the top, and, you know, also with the cycle, and then I think it's going to be a really, really bad, you know, asset to hold for, um, for the next few years, and then we'll have to see, uh, because I can only see down the road that the Fed will come in back in again. But if you look at it, what they have done is, as I said before, they have reintroduced inflation. What, why, what do I mean by that? If you look at a chart, a 10-year yield chart over the next for the last 100 years, you can see how the cycle goes up and down and up and down in terms of yields, which follows inflation. And if you look at it, you can actually see momentum-wise that it shifts in three phases. So from the '20s until the '70s, you can actually, after the Second World War, into the '70s, you had an inflationary trend. Then Volcker came out, and you had a deflationary trend. And now we are actually at the bottoming end of this, and we see that we have a significant shift in the momentum. That's why the Jeff Gong flags and so on are telling us that they're going to short the bond market because in the long time frame here, they see that yields will go higher. If that happens, you are in a completely new setup from what we've seen over the last 10, 5 to 10 years. You are now in an inflationary environment. I mean, just think about what our grandparents would say or our parents would say back in the '70s. If you said, "You know what? Every time the economy rolls over, we'll just, just the tiniest bit, we'll just sprinkle some liquidity on it. A lot of it, actually, and more and more, and everything will be fine." You know what they will tell us? They will said to us, you know, "How can you do that? You'll get inflation. Why? Why would you do that? Then you'll get inflation. You'll crush the consumer even more." And this is what people do not understand. That is really what is different this time is that we have reintroduced inflation with the stimulating into COVID in in a crazy manner when the supply chain was actually breaking down. That was the inverted cufula moment, which reintroduces inflation on a secular basis. And in that world, you cannot sprinkle liquidity on everything and just get a better outlook. So I think you're going to see the Fed come in and excuse me, and then they will try to do the same thing again, but they're going to find out that the free lunch is over. The free lunch is over now. There's an inflation that actually will kick up. Not immediately. They may do a bounce in the market, and the euphoria may come out for some time, but in the longer time frame, I think you're gonna see something that is much, much worse. And that is an economy that is not reacting to stimulus because Mrs. Johnson there, she doesn't go, she doesn't go and borrow that $100 extra. And that means that the stimulus packages on the QE side will not help. They will not be as stimulative, and they will not really help to turn the economy. But what we'll see is that the, the money that starts to be injected will start circulating faster, and that creates inflation.
That is why you, what, what is your base case for where inflation could go right now? You know, government numbers are, um, just under 3%, 2 and a half, 3%, something like true inflation has it down, uh, around 2%. Um, we obviously were at 9% during COVID. What's kind of the thought process or trajectory for that inflation number?
Well, they, I, I mean, they are on, on a, on a decline right now. That's, that's what happens when you have the leading indicators, the coincident indicators, when the real economy rolls over, you'll see that the inflation drops as well. That's why they're going to drop, and they're going to drop a lot. Because if you look at also inflation, and you look into what we had in 2001, 2007, and also before that, when Fed was stepping back in, inflation levels were at much, much higher levels. Actually, in in 2007, we were at 2.7% in September 2007, and then it moved up, and the Fed started stimulating aggressively, and they did that in an inflationary environment. Right now, we are already seeing that the Fed has squeezed inflation from at this point on. So I think they are so late in this, what they do now, and that, uh, that you're going to see a deflationary phase, but they're going to come out with their guns blazing, and I can tell you, they're going to come out big this time because when they start to face that, what they should have seen long ago, when they were asked on a Fed presser, there was one, you know, intelligent journalist there actually saying, "So, Paul, why is it that, you know, the, the consumers are not really, you know, agreeing with you when it comes to, you know, how great the economy is?" Back in, you, six months ago, and he was saying, "Yeah, but it's because of the tariffs and so on and this, you know, kind of thing." What you really was saying is that the, that he didn't understand that the consumer is everything, and he needs to understand that when the consumer is bad, the economy is going to not feeling well, and the consumer is going to, the economy is going to turn bad. That is what we see now, the slow phases of that. So I think you'll see inflation, uh, dropping a lot this, um, you know, the next few months here. We don't have an inflationary problem that is so spoken up. We have a deflationary pressure that is, is quite significant. Look to housing and, and to, to rental and so on. These are the big stuff. And I like what inflation is what they do, and then you'll see the Fed come out, and they reintroduce because you have now a new cyclical or secular bull market in that, you've got to see inflation come back up again, and it's going to go much, much higher the next decade. So everything we know about investing that we learned over the last 10, 15 years has to be reshuffled, and we need to understand that we are now in the 19, late 1940s, and we need to see, look into a world that is going to be quite different from what we've been looking at so far.
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If you were talking to, um, I don't know, a child, and you were to explain, okay, here is the framework that you need for the next 10 years to be a good investor. What does that world view or that perspective look like? Are there like two or three key principles that you're paying attention to? You mentioned higher inflation over the next decade. You mentioned this idea of of the economy not responding to the stimulus that once it did respond to. Just, what, what are some of those things that you think are kind of critical understandings to be able to navigate what's coming for the next 10 years?
I think it's critical that we obsudy and understand what you had to where you had to invest if you were in the 1940s. First of all, we're not going to, we, we still have the big shakeout thing. So, we're not really in that, the 1950s phase, but, but coming that big shakeout that I think we're going to see in the markets and so on, you'll have to study what we did. You should have been investing in in the 1950s when the UN had an economy that is was starting to grow again. But we are not really there. And that's why I think the, the whipsaw effect of what we can see now is going to be quite difficult to navigate in. I think you're going to see now the blow-off top. Everybody will be a a genius because they are long Bitcoin or long something, some crypto, and, and then they will realize that there is a top to these things, and they can actually crash quite, quite a lot, and a lot of people will be not so happy about that. And you can see yields coming down strongly in the deflationary phase, the dollar strengthening to extreme highs. I mean, I see in that phase the dollar hitting 117 on the Dixie, 120 even. Um, so, so it can be, it'll be very a lot of headwind.
And then you'll see the Fed coming in, trying to crush the dollar, and they will be very, very, very successful. And then you'll see it will be completely different. So it depends on where you are in these phases. And the first phase, the first deflationary phase, it's not going to be, you know, years. That's what I'm talking about. I'm talking about 69 months, but it's going to be severe.
But the next phase, when they come in, they'll step in, and this stagflationary part, which is when inflation starts to move up and the stimulus is not, sorry, when inflation starts to move up and and the stimulus doesn't really work well, that is the phase which will be very difficult for a lot of people. And the only thing you can will, you know, that really will do well there is is hot assets. It's uh it's commodities, it's uh gold and silver at that point, uh, which may not do so well in the deflationary phase.
And then we need to see what happens after, because I cannot see how this ends without a monetary reset at some point, where they simply, you know, clean up this mess that we have right now in terms of, you know, money printing, crypto all over the place, and speculation about, you know, what will be the next foundation for the global finance system, financial system, and so on. You know, it will not just be left up in the air. It cannot, because by the end of the day, we need a sound monetary system to build things on.
1944 was the turning point after the Second World War. Debt was, you know, ballooning and so on. We needed a stable foundation. The US came out, said, "Hey, you know, we have half the production of the world. We have half the uh the the gold reserves. Uh, you know, you you will be able to um take our, you know, dollar bills and you can transfer them into or convert them into gold any day you want." Uh, that was a stability. That was what what the world was looking for. So we could use that to trade and to to go forward. That kind of cleanup is needed before we really see the the the things going, you know, the the world starting to grow in a real manner again. Because what we've seen over the last many years are stimulated growth. Now, let's pump money into it. Stock prices go up. What's not to like? Well, look at the consumer. They don't like it. And that's the real problem.
You mentioned a monetary reset, and I do think it's pretty interesting. You know, there's been multiple times throughout uh society, both globally and domestically. Um, there's obviously Bretton Woods, and you know, many of the things that uh, kind of the Bitcoin and gold community talk about. But there's also a time in America, well before that, where pretty much anyone running around with a money printer created their own currency. And there was, you know, local currencies, state currencies, there was um, you know, private illegal currenc. Yeah. Kind of sounds like crypto a little bit, right? Like that there's an element of like anyone can. Not a little, a lot, I think. Yes. Yeah. Like anyone can create a coin, right? And so like it, it was, you know, all this stuff going on. We eventually figured it out. And there's plenty of critiques of the system, but I do think that everyone kind of like got on the same page and was like, "All right, like the dollar is the national currency. It's illegal to create one that competes with it inside, you know, the United States. Here's how the dollar is going to interact on a global basis with these other national currencies, whatever."
What does the monetary reset that you see look like going forward? Or like, if you were in charge, what would that be? Well, first of all, we need to stabilize. We we cannot have a system where where if, you know, the the basic of all of this would be, we need trade to get uh, you know, to start working again. We need to have trade amongst, you know, trading partners of the world. We need to have a stable, functioning uh currency system that the people trust and will, you know, hold because they know it's not just going to be printed into infinity. Um, and and so there needs to be some, you know, checks and balances on that that we have completely. And I agree with you, since 1971, it just, you know, completely left that off. And I think we could maybe see even a worse uh situation if, you know, we get now a close connect between the US administration and the Fed chairman, and there's not this disconnect between it, which could be in the air coming into next year. Um, so we need to clean it up. Completely agree with that.
And the thing I I would say it would be deep down, it would be about gold. And I think that's the reason why you see the Asian economists of the world, you know, they they buy it up bigger right now. They they understand where this is heading to. They at some point will have to say, "Show me yours, and I'll show you mine." And then we'll look at, you know, whose pile is the biggest. And they will, you know, agree on some kind of system that where where gold will be kind of a backing to it, maybe in terms of how, you know, the leverage or how much the the weight of a certain country should be. Because nobody actually likes the, apart from us in the Western world, we've been thriving on the US dollar. But but the rest of the world, the British countries, and so on, they don't like it. Uh, and and it's also been misused. I could, from their point of view. I mean, we've been benefiting it from here in Denmark, so I'm not complaining. But but it's um, but but it has been misused. We have to be honest about that. And that's why I think you're going to see, if the we're going to bind up the, you know, collect or buy in the world, uh, you you will either see it reset, which um, has a digital component to it, and then gold down beneath. And then the checks and balances in terms of how we trade with each other will be the digital part. But there will be gold actually showing how much is your currency, then, you know, uh, a part of that of that scale.
And then you'll see that um, there will be a new global reserve currency that, you know, has this will be a basket of something. I think that is the that's the future. And it will have a digital component component because that will be the way where you can start working, trading with people in foreign countries without being too, you know, when it's not so difficult any longer. You just, you know, the checks and balances of who owns what and where the the dollar went and did not go will all be in the in the letter in the bit in the blockchain. And and I think that is what we need to get to. That is the that is the the real end scenario of this. That when we have that, then we can see things are starting to to to to grow again. That after the Bretton Woods, and we have a stable curren uh stable monetary system, because we definitely do not have a stable currency system at this point.
The last thing I want to talk to you about is um, either your portfolio or like a model portfolio. Um, there's a lot of volatility and uncertainty that seems to be coming. Um, it's hard to navigate because there's assets, there's timing, but there's also kind of these uh unknown potential levers that can get pulled from politicians and central bankers. And you know that they have the tool in their toolbox, but you don't know when they're going to use them or how severely they're going to use them. And so, you know, COVID was a great example, like two emergency rate cuts down to zero. Game board changed real fast, and you had to figure out, you know, what you were doing. How are you positioning or or talking to people about positioning their portfolio to be prepared to kind of navigate some of this, knowing that it will change through the the scenarios, but like what does it look like today?
So there's one thing what I do myself and know how I personally handle my own funds, and then then also how we we talk to clients and what we say. And uh, and also again, what people that has bigger fortunes, like, you know, Warren Buffett, he does it, you know, he's been pulling his money out, and he's in a record, you know, cash position, you know, compared to his uh, his assets. So I think it depends on, you know, how risk uh, adverse you are. And um, I would say that navigating, as I said, in this uh, whipsaw kind of environment where you can get first a blow-off top and deflationary bust, and the Fed comes in, and all these dlation, maybe also, you know, it'll be so difficult. So there may be some will say, well, um, you know, I want to ride it out. What should I do then? Probably, if you ask me that, which one, which, you know, I said, should I just buy now, hold on to? I will say gold, even though I think gold has big pullback in deflation, in a deflationary uh, bust, but in the five, 10 years time frame, I'm not, I wouldn't be worried. That would be gold.
Um, if I, and you could just look at the S&P version of gold, actually, it's now breaking down. We've only seen four times in history, 1929, 1971, and 2000. And now it does it again, but that's for another day. Uh, so you have these uh, so so but but you know, there would be less, um, sometimes, you know, just having cash would also be good. And just having, just having zero on your minus inflation, of course, you know, the bill will be uh, deflated away to a certain degree, but but just having cash could be a good situation for some people. So it depends on their risk, you know, risk appetite. There. Mine personally, well, I have a lot of risk assets here because I think I will still be able to pull it out in a in a good time. I don't think we have the top, no, anywhere near the top here. I've seen timewise closing in, but the final phase of it can be so steep that most uh, people will not, you know, really understand how steep it can be. Um, so I I I think I'll be selling into that. Other people may find it right to to take the chips off the table now.
Um, would I be in any kind of anything that is related to crypto? Absolutely not. Absolutely not. I mean, Bitcoin is uh, has crashed four times by more than 73%. While NASDAQ was down 18, 20, 25%, 30%. The Bitcoin was just, you know, crushed. If I see a tech bubble, and I there is a clear tech bubble here, and we're going to see the NASDAQ declining by 85% just like what we saw in 2001, and this bubble is bigger, I wouldn't I wouldn't be in that. Uh, so I I think people would would need to be careful here in terms of what they see with Bitcoin. And if you look at the long-term chart also, you can see that there's a clear divergence on the weekly, which tells us that a bigger top is coming for Bitcoin. Not here. I think it's going much higher. So it will be a difficult landscape to navigate in. Uh, one asset would be uh, gold, if you had to hold it on through it all. If not, well, some cash would be good as well. And uh, and maybe, you know, even hold the dollar. I might personally, I'll be going long the dollar as much as I can when I see I think the top is in, because I think there is a, you know, shortage of dollars the moment you start to see deflationary bust going, and the restructuring processes and so on will simply demand dollars to get settled. So that will send the dollar up strongly. And uh, and then after that, well, it'll be commodities and and gold and and silver and, you know, the likes, because it's uh, it's it will be in a time of of stagflation, where you see these hot assets will start to perform really well.
What would have to be true for you to change your mind and you say, you know what, I thought this was going to happen. I thought this, you know, kind of correction was going to happen. I don't think that anymore. Is is there anything that like one thing you could point to, or is it just like a collection of data points that would all have to improve? I have a, yeah, I have my the business target model that I have is not just based on one thing. So you can, that's that's the that's would be the weakness of anything. If it was dependent on one thing, then, you know, everything would collapse. So it's dependent on quite a set of things that we need to change, that need to change. First of all, you need to see that the that the yield levels, the rates are coming down quite strongly, uh, because people simply cannot afford the yield levels that we have right now. At the same time, we cannot see that the f that the um, that businesses start to lay off people. So if we can really get the soft landing, which we by no means have at this point, because the unemployment numbers are still rising nice and steadily. I'm not talking the ratio because the or the rate, because that is also in affected by the um, the the sorry, the uh, job market's participation. But if you're looking at a number of people unemployed, it's moving up nice and steadily. And that could stop. And we could see the yields coming down, then I would say, okay, this this may be different. Um, then I would think also, we would need a healthy pullback in the in the stock market still, because I don't think we are anywhere near, we haven't seen anything that is healthy at this point. We've seen extreme rallies. So a healthy pullback. And um, well, then maybe. But it's really about down to the real consumer, uh, to get them back in the game, to see the to see the housing market starts to actually accelerate, or just, you know, move up from the gutter, uh, affordability moving up, then things could change. But I just don't see see how that can happen without a bigger bust. And I actually think we are already, the Titanic has hit the iceberg. There's not much to be done at this.
I think that's a great place to leave it. The Titanic has already hit the iceberg. If you don't know what happens, go watch the movie. Uh, Henrik, thank you so much for uh, for your time. Where can we send people to find you and uh, find Swissblock as well? Well, go to Henrik Seabour on uh, on on X, or to swissblock.net. Uh, we can, you can also find us there. And uh, yeah, reach out if there's any suggestions. I always like a good chat or a good uh, conversation with if you have your, if there are good arguments. So, so thank you for today as well also. Absolutely. I think that you're going to be requested to come back with uh, with the uh, thoughts and insights you brought today. So, I appreciate it very much, and we'll we'll definitely do it again in the future. Thank you.