Transcription
Bitcoin is holding strong, even as global energy markets go up and down like illiquid altcoins in 2021. We saw oil go all the way up to $119 a barrel before dumping immediately back down to around $101. Since I am definitely not an expert on oil markets and the effects of war, luckily we have Mike, Dave, and James here to unpack it all right now. This should be a good one. Let's go. That's dope.
Good morning, everybody, and welcome to Macro Monday. Before we get started, please like and subscribe and do all the things that YouTubers are contractually obligated to do. I'm going to go ahead and bring on the team right now. We've got Dave, Mike, and James. Good morning, gentlemen.
Mike, if you did a shot every single time they said "oil" in the morning meeting, how drunk would you be today?
I wouldn't be sleeping because she can't handle my liquor. Little wine with alcohol. I'd be sleeping. My wife's good at that stuff. But, um, you want to, you want to start there because they asked me to start the meeting.
The meeting. And, yeah, my assumption is that oil is the hot topic. I mean, what a day.
Yeah. Well, first, um, um, they asked me to start, but let's go to, um, first, our economist views. Anna had some key points. Her key point was inflation. If this keeps up with the oil spike like this, we fully expect the inflation numbers to kick in. Um, her quote was, "Are we at June 2022?" And that, um, in June '22, CPI peaked at 9.1%. And, you know, that was because of the war with Ukraine. Their quote is, "Are we there?" Her point is, US gasoline prices have bumped up to near $3.50 a gallon. That was $3 before. That's going to be a factor in CPI. She thinks it's going to add four to five tenths to CPI in March, which she, she would could see CPI 6 to 8 tenths, which would be the highest in years. Um, overall CPI this year, um, thinks might be by, by March would be 3.1 to 3.2% on a year-over-year basis. Um, she pointed out for, um, the CPIs coming out this week, we've seen a new shock in metals prices, most notably, um, aluminum jumping up a little bit higher. So, I think that's a January, February shock, and the ISM metal prices have jumped. So, this is all bad from a consumer price index standpoint.
Chris Kaine, our econ, economic strategist, I'm sorry, our, uh, stock market strategist, pointed out that signals are clearer, um, in the oil level. When it gets above $100, that's usually a problem. Typically just going up or down. He doesn't find a lot of correlation. But when WTI is above $100, it's usually your problem for margins, profits, and stocks.
Um, um, and I pointed out the key thing for oil is, as you mentioned, the high overnight in Brent and WTI. Those front contracts were $119.50. Now, that's kind of a shocker because I watched it trade a little bit last night. When WTI trades above Brent, it's classic short cover. We know we're cleansing the market to shorts. How much we do it is, it's going to matter. But I pointed out that's the front contract. It's the December that matters. December crude oil right now is running $71 a barrel. That, it's near the high of its range. It's been trading almost 10 years for this contract. But it's, its significance is it will be the front contract in October, right before the elections. And you have to ask yourself, we all know what happens. If it's higher, certainly if it's near the front contract around $100, that's just toast for Republicans and maybe for Mr. Trump's legacy. I fully expect it to be lower. And the key thing I published on today is this pretty significant super abundance of food and energy in this country. This is how things have changed from the past. And if you look at yourself from a producer standpoint, yes, we, I know it's horrible, the war and everything. We have to be cognizant of the, the death and destruction. But if you're a producer and you got a chance to hedge at higher prices, you're doing that. You clearly see that backwardation. You've seen that in corn. Corn got near $5 last night. I just hear producers just saying, "Thank you. Now I can bring on a crop at a profit." And same thing for all the US producers with the net exporter, uh, surplus in the US and Canada of around 8 million barrels a day. To put that in context, when crude oil peaked at $145 in 2008, we were importing 12 million barrels a day. That's US and Canada. So that was my outlook from commodities. But it's not just crude oils. The same problem in grains. Grains are looking at this is, "Thank you, I got a chance to sell." And the key thing I want to end with that I think is significant is the term I heard this morning. First thing I turned on the news, and there was an analyst on Bloomberg who said, "Gold and de-risking" in the same sentence. And that's the problem I have with most other markets have gone up a lot. Gold is now a risk asset just based on its volatility. 180-day volat. Gold is 2.4, four times S&P 500. That's the highest in 20 years. And I think this is events a trigger to sell you if you weren't long it before the event. Buy the rumor, sell the fact is part of the problem. I pass back to you, and I'm sorry, I do have to hop off for a bit and I can come back.
Yeah, I guess, uh, for you, since you have to hop off, or anybody else mentioned 2022 in Ukraine. Uh, Dave or James, you can take this one. I've heard a lot of people making that comparison to the price of oil, but at that time, it was sort of this existential threat of what might happen to oil. And it feels like this time, with the Straits of Hormuz actually closed and, you know, the biggest producers of oil in the world actually shutting down, that this is a very different situation.
Mike, you want to handle that, or you do you have to hop?
Um, it's, it's a short-term shutdown. Now, for an event that is, um, unprecedented, and that makes sense. Now, this is one thing I completely got wrong. I fully expect when US military went in, they would say the first focus, okay, let's make sure the straits aren't closed. Well, it's closed. Um, how long that lasts, I don't know. But the bottom line in the macro is we've seen these things before. The pump with Ukraine included grains and everything, but remember that high got to $130, and then what happened? It shifted the world order. Now, that's fully what I had expected. It shifted world order towards EVs and less demand for crude oil and more supply from the places that were already creating excess supply. Here we are now. When that happened, US and Canada were exporting maybe 3 million barrels a day. Now it's 8 million barrels a day. So, this is a rest of the world problem right now. If the straits stay closed, that's a problem. But right now, you have to admit this is an oversupplied market that just got a great incentive to bring on more supply from the part of the world where the bulk of that oversupply is coming from, the Western Hemisphere, led by the US. It's just how it cycle works. It's the auto-correlation factor. So, be careful about the short-term shutdowns. And I'll give you one example. 2019, and Iran proxy hit Saudi oil supplies, really hit them hard. Crude oil pumped up for a week, and then went back to that downward trend.
All right, Mike, I know you got to jump. So, uh, we can go, and you'll be back in a few minutes. Guys, Mike will be back. Um, just want to, I maybe as he leaves, we can put in context of just how crazy this oil market is right now. The energy crisis, crude oil up 30%, Brent up 26%, heating oil 22%. You can read through those at your leisure. Uh, world's largest oil company, Saudi Aramco, cuts production at two oil fields. Uh, we obviously know that Qatar had done the same, uh, last week. We, we talked about it. If you're wondering about that price action, we literally, uh, have had US oil futures on track to rise 60% this month. G7, if you're wondering why we saw up to $120 and down, because the G7 said that they're basically going to go deep into the reserves and release as much as 400 million barrels of their 1.2 billion total. I mean, it's just insane. The most severe energy crisis since the 1970s, according to the Wall Street Journal. I mean, guys, what's going on?
And it's, and oil's round-tripped it too, if, if you haven't paid attention to that.
Get back to $100 now. Right. Right.
We see it every time there's a, and it's, and it's funny. So, when there's a hurricane in the Gulf, you see these spikes, you know, because there's worries that refining capacity is going to get destroyed. You see, you know, you're seeing it here. The math is, is ludicrously different than what people think. So, if you're in the United States, understand that that we import somewhere in the neighborhood of 400, like, less than half a million barrels a day from the Middle East. Uh, we're self, basically could be self-sufficient. We aren't for a variety of reasons. The Saudi crude is lighter, etc. There, there's, we don't have the, we don't have the refiners, refiners to, uh, to, to refine our own oil. That's the, that's the craziest part of all of it. We could be independent, but, you know, there's a lot of factors around that, and a lot of it has to do with, you know, environmental stuff, and it's just, it's insane that we don't.
Call, call it what it is. It's the, it's the green news scam. It's the one of the only things that I agree with Trump completely on. Uh, but that one, it's just, it's insane. And, you know, I'm sorry. I don't want to hear. I, I would love the global warming Nazis to try to argue with me, but, you know, I'm sorry, guys. Uh, the US could literally go to zero and it wouldn't make a damn bit of difference, uh, given what's going on out of India and China. And it's been, it's been, and, and look, Germany committed effectively national suicide for, and you've seen it in terms of their electricity prices, etc. That's the reason, but it doesn't matter. Let's, let's get off of that. As much as I like, uh, you know, pro, you know.
But what's, what's important is for people to understand that, but it's just important for people to understand because you always hear that.
We've, we, you know, we're, um, one of the largest oil producers in the world, and we are still importing oil. They don't understand why. That's why, because we, we can't, our own oil. I wanted to get to James.
We even with the S, the Strategic Petroleum Reserve having been drained by Biden to try to help out with the election, uh, even with that, and even with Trump having failed and kind of been asleep at the switch and not refilling it when it got into the 50s, you know, when it was below $55, we have two years of being able to replace 100% of all our imported oil sitting in the Strategic Petroleum Reserve. Two years. And so, you know, that is, that tells you from the US perspective what's going on. So, why did West Texas jump above Brent? Brent usually trades at a significant premium to West Texas. Why? Because people need to be able to get at oil. And even if you have to go the long way, you know, you can't get the oil out of the Persian Gulf because the Hormuz Straits are closed. So, you get it from wherever direction you're going to get it. And that's why, and so when you see these sorts of things, unless you think that somehow, unless you think that Iran is going to mine the straits, uh, and cut it off for a year or two, which would be incredibly devastating to their benefactors in China, uh, you have to believe that it's short-term, which is why, by the way, the markets in December are very different than the markets now. In fact, the markets, I think, read this morning are effectively pricing the conflict to be over one way or another in May. That's what the oil markets are pricing. So, now ask yourself the question, if you're valuing the long-term cash flows of any asset or the long-term value of any asset, something that is expected to be over with in May, what does that mean? And the answer is not a whole lot. Uh, which is probably why, you know, Bitcoin, for example, is at $68,500 or damn close to it right now, which is, by the for, for people who are keeping score at home, the exact same price it was at, uh, three weeks ago, two weeks ago, one week ago, and now today.
And we're getting this trend, by the way, that we get a quote unquote dump on the weekend as some sort of news happens, and nothing else is trading, and by Monday morning, it's a non-event.
That's right. So, you know, when we start going into, because our audience wants to care about how macro impacts Bitcoin, the answer is not a whole lot. Bitcoin is going to eventually delink and trade on its own things, and we can talk about why and how it's trading. When you look at stocks, we're still way closer to all-time highs than anything else. Yes, there have been a few sectors, the software sector, that's been pummeled for a variety of reasons, most notably.
Rotation. Yeah.
Yeah. Most notably AI, uh, which is a macro factor on its own and definitely deserves some conversation, but we can table that for now. But the real question that people have is what's going to happen with global liquidity? And this is why this is where I absolutely am dumbfounded at the stupidity of so many analysts. So, oil prices spike, it will hit CPI, unless you think that the people running our, our government are stupid and self, and, and want to self-immolate. Ask yourself, what else is happening? Well, we're spending boatloads of money building bombs, building missiles, building munitions. We are going to spend boatloads of money to reconstruct both Lebanon and Iran when this is done. I mean, I, I read, I read somewhere that, um, and I don't have this, uh, verified, so maybe one of you guys can verify it. It was something I saw over the weekend that Trump wants to spend as much as $1.5 trillion dollars on milit, on defense this year, or the Department of War. So, that's, that's a 50% that's a 50%, uh, you know, raise from the $900 billion that we're currently spending. Is that, has that been confirmed? I, I don't, I saw.
I have seen the exact same figure, but I don't he can't do that unilaterally, James. I mean, you know.
Also, isn't this affect, I mean, the amount of spending that's happening, won't that naturally happen if the war continues to go on?
A day at war and war continues on for 365 more days, around the divided by seven.
So, where, where's the money going to come from?
Right. You know, we all seen the memes. We know what's going to happen. And, you know, it, you can look at it and say, well, okay, but then, you know, that'll be inflationary. They're going to print more money. Well, no. I mean, yes and no. Uh, they're going to push it into assets. That's what they always do. They're going to, they're going to enact policies so as to divert it, you know, take advantage of, you know, I saw Jeff Booth did a, a tweet storm over the weekend and the, the most important TLDDR. I have no idea. I, I didn't have a chance to read it in depth, but the headline was that natural deflation would be down 5%, and the target of 2% inflation means that you're going to have monetary inflation of at least 7%. And of course, they'll overcorrect. Now, monetary inflation of 7% basically, in my, my little pea brain, thinks, okay, well, that means they want assets to be up across the board by 7% just to stay even. And because they want, you know, obviously it's, it's the policies to channel into assets. And so within that backdrop, you're selling assets because we have these words, the word that I think has become, you know, I, I think the meme from, from, uh, The Princess Bride, the word "risk asset" now is, is, you know, that famous meme. I do not think that word means what you think it means. I mean, risk asset used to mean, used to mean that you didn't know whether the company was going to be successful, whether their competitors were going to be able to win, whether the product would have market fit, you know, whether their business plan or infrastructure turnaround. Now, a risk asset is anything that moves with volatility in a world where, which is basically the markets are turned into a giant casino flooded with excess fiat cash, which means, drum roll please, everything is a risk asset by that definition. And when you do that, what does that mean? Well, it means that you've lost the meaning of the word risk asset, and that's the world that we live in. So, when gold is a risk asset, as, as Mike said, and, and by the way, I don't argue with him, the way the markets perceive.
It is absolutely traded like a risk asset. This, it's what is h it's.
I'm not, this is not me taking a potshot of him. I would, I will only do that to his face. I'm not going to do that behind his back. Uh, as much as people in the audience might want me to. Screw that. Mike's a good man, and he's not wrong. But when the markets are treating non-risk as risk, what you're really seeing is it's the prediction market, you know, phenomena. Bet on everything, right, Scott?
Yeah.
Bet on the weather. Why not bet on where oil is going to go? Last night, I'm sitting at the World Baseball Classic watching Israel, uh, win a game against Nicaragua, which was, which was.
I didn't even know they played baseball.
It is. Well, I mean, it's like all these countries, it's all, it's, you know, they all have people with some, you know, some, whatever to it. Most of them don't live like the, the, the Netherlands is a good team because they have a lot of people from Curacao, you know, and, and, you know, Dutch Virgin Islands or Dutch Islands or whatever. But anyway, it doesn't matter. It was a lot of fun, you know, great atmosphere, etc. But I'm sitting here on my phone, and weirdly, the Wi-Fi worked, which is because a lot, so many people were watching baseball, and I'm watching oil, and I'm thinking, man, there's a short, there are people, there's gonna be some bodies floating in the top of the pool tomorrow. I mean, and, and it looks exact, oil traded like, like not even Bitcoin, more like Solana.
Yeah.
Dogecoin.
Yeah. James, you actually kind of wrote, not specifically about the risk side, you know, that everything's a risk asset, but you wrote this amazing newsletter, uh, yesterday, and this is the tweet that was the inspiration for it, but that a record 95% of asset classes are trading above their long-term trend. And you said, "When there's no safe haven." Kind of the flip side of the same idea.
Exactly. Well, yeah. And, you know, people think gold, gold's a safe haven. And, um, well, okay. So, getting to what, um, you know, um, what Dave is saying here is that, look, gold trading like that, like a risk asset, everything's a risk asset. Stocks are risk asset. Real estate, you know, credit, private credit, anything that's not just a T-bill is trading like a risk asset right now. And, you know, even the long bonds, they're all over the map. Everything is trading wildly with volatility. So, where do you hide? You know, and the typical answer is, you, it would be gold. That's the typical safe haven asset. That's the longstanding safe haven asset. The interesting part about it, though, is that, you know, we've seen the last number of corrections, and that's, that's what I wrote about in here, is that the last number of corrections, gold, it, it, you know, either held in there or it recovered the fastest of everything. But then on the other side of that, when Bitcoin became part of the picture, and that was after the 2008, um, crisis. So, once we hit 2020, 2022, then, you know, the Bitcoin, it took a little bit longer, but it way outpaced gold after the recovery. And why is that? It's because of the money printer. It's exactly what we, what Dave just said. You know, that they're going to print money, and it, it, it's going to be on the backside of inflation and the deflationary effects of, uh, of AI. You know, we're getting into a period here which is extremely, uh, it, it is unsettling to say the least. And why is it unsettling? Because we're seeing people being laid off all over the nation in, you know, typical white-collar jobs. You're talking about middle-class people that are being laid off with decades of experience because they're just being replaced with AI. You know, you're going to see all these industries, um, have a, there's going to be a massive consolidation. We saw, we talked about it, um, I think a week ago about Block and, and Jack Dorsey just laying off like 4,000 employees in one fell swoop. You're seeing it at Microsoft. You're seeing at Amazon. You're seeing it.
You see what Amazon did?
What's their latest?
This was the story yesterday. It's absolutely pretty insane when you dig into it, just really quickly, because it's worth mentioning.
Yes. Yeah.
Yeah. They, they, they made their engineers basically spent eight months documenting exactly what they were doing, 2,847 of them. And then they programmed the AI based on what those agents, what those people did to do those jobs and fired the people. So, those basic, those people basically programmed the AI to replace themselves. I don't remember what the number is, but I think I read that they're down to like 12 guys in Bangalore that are doing this job. I don't even think that's an exaggeration.
That wouldn't, it wouldn't surprise me in the least. And here's the crazy part about it. So, well, oil going up is going to hit, it's going to hit prices. Just like Dave, you're, you're delusional if you don't think that it's going, it's, it is the largest by far factor in price of everything. You know, you get, you get the, what we're not going to get into the activism stuff, but so that's, that's, that is, you know, so, and the other side of it, you've got this deflationary effect of things that, you know, that, um, that would normally, that that would be going up in price because of the AI inputs. Okay. So, what is that going to cause? It's going to cause stagflation, right? I mean, you've got people being laid off. You've got, um, the, the economy getting arguably worse in, in large swaths of the se, of, of large sectors of the economy. At the same time, the prices are going up. But then on the flip side of, you're going to have this really hard downturn in everything and pricing of everything because of deflation of the deflationary effects of AI, but it's not going to hit everything, right? It's gonna, the.
It's not going to hit everything. And so, that's, it is an, an extraordinarily difficult market to make sense of right now. And that's part of the reason you're seeing, you're seeing rotation out of Mag 7 stocks into, um, you know, defensive sectors. You're seeing, um, gold has has kind of topped out and has come down here. Same thing with silver. Uh, you know, you're watching the long bond. The 10-year Treasury now is back over 4% on on yield. It's 4.16% now. I mean, just a week and a half ago, it was under 4%. So, and then you've got the dollar movement, and you, and, and then you look at Bitcoin, and Bitcoin seems to be just doing what it wants to do without any relation to anything. So, Bitcoin's up 4% today. This is not against Friday. So, all the other prices you're seeing are against Friday's close, but gold, but Bitcoin is against yesterday's close, but it's up 4%. So, you know, it, what is it going to do? Who, it's going to do what it wants to do, like it always does. And so, there is, but going back to your point, Scott, and, and what I wrote about is that there's, there just is no place safe to hide right now. There, there's no place to go except cash. And, you know, and cash is going to melt if you sit in it for a long period of time, but this is a short period of time, and it's okay to have cash short period, in short periods of time while you're trying to make sense of things and make sure that you're being careful. Because if you need capital, and this is the whole point of what a risk asset is, if you need access to capital for short-term needs, then you can't be 100, 100% exposed to risk assets. And those are assets that will be volatile because you're going to have to liquidate them at a point that they, you may not want to. And that's where, that's where the whole point of the correlation of one trade comes into play, is when some sort of event occurs that pushes people and investors to the point where they have no choice but to liquidate assets that they don't want to, and that's why everything correlates to one and everything sells off. But the, the, you know, the interesting part about it that we have seen a lot, many, many times over, is that gold recovers first, and then we would expect that if and when the money printer comes out, because there is no choice but to keep this engine going, and by engine, I mean this inflationary run, it hot economy engine, because you need high GDP in order to keep taxing in order to keep running these deficits that we're running. And if you're going to spend another $500 billion on defense, where is it going to come from? It's going to come from deficits. And those deficits are going to be funded by what? Money printing. That's right. And so, that is what, that, that is what you need to understand. And that, that's why gold will recover first, in my opinion, and Bitcoin will slingshot past it and slingshot hard, especially if they, if they print the amount of money that we expect them to. It's just a question of what happens when, if you do have a black swan or not, or if we kind of just tiptoe through this on on this razor wire, um, between, you know, the twin towers, if you've ever saw that documentary, that guy walking across that razor wire, it, you know, that's what we're doing right now. Is it possible that we thread that needle? Sure. Of course, it is. But, you know, um, it's just, it, it, we're in a period that has been extremely difficult to, uh, you know, to navigate. And, um, and I'm sure that that Mike, you guys are hearing it on the desk when you're talking about this, and you're talking to the economists. This is a really difficult situation to to handicap. And, uh, it, you know, it's not like you saw this train coming and finally Lehman and, and Bear Stearns went bankrupt. You finally happened. So many of us were talking about on the street for weeks and months, but this one is just like, I don't know which way this turns. It's so political. You've got war involved. You've got, you know, oil involved. You've got AI involved, which is a new factor that we've never seen before. This is a difficult one. And so, you know, to, to, to air on the side of caution is is probably not a bad thing. Can you miss out another huge run in all the stocks? Of course, you could. But could you miss out on a, then could you protect yourself from a sharp downturn because of some event that we're not seeing that has nothing to do with this, the, the Middle East, but something else entirely? Yeah, that's out there. That's.
No safe haven. I'm not, and I want to make it clear, I'm not doomsdaying. I'm just saying that everything seems to be priced to perfection, and that's the problem, except for Bitcoin.
I ask guests all the time. I'm like, you know, someone gives you $5 million bucks right now, what do you buy? You know, and everybody kind of scratches their head. Mike, I know you say TLT. Um, and well, and I want to go because there's this interesting, this is extremely hyperbolic, but Japan's about to blow up the US financial system and nobody's paying attention. Okay, there's a lot of, a little bit hyperbolic. I just want to talk about the idea because Japan is the largest foreign holder of US government debt on Earth and are apparently about to sell a lot of that.
Right. They sell. They hold a third of it. So, you know, how's TLT?
This is why we have.
This is why we have swap lines. That's it. That, that, that's that's why the Fed has a swap line with with Japan. It's to avoid a, a cascading effect that would, you know, that would take down financial markets. But look, we had the Japanese carry trade unwind in a violent, well swoop that August of '24. Look, I don't expect that to happen again. It's not like you're going to have all these hedge funds caught offside because they weren't expecting, you know, um, the yen to go to 160. And I think that that's the, the price that the Japanese finance minister had, um, quoted as kind of the, the stopping point. You know, that's, that's their, their stop-loss point. But, you know, um, there's still that it has been the, the access to cheap capital for the world for a long time. And so that's, that's kind of over. And that's the, that's the, the death knell there. Where is it going to come from next? It's not going to, it's, this is the point that people, I think, are missing, is that it's not that the, the, the liquidity is going to stop. It's just a question of where it's going to come from next. They, it can't stop. The whole world is so indebted, it can't stop. It, it would, it would be, it would be financially, you know, catastrophic to to stop liquidity. And so.
That's why you go to war.
That's why you go to war.
Like you were here. We teed you up. When you were gone, I made a point that that the word "risk asset" no longer means risk in terms of business implementation. Risk in terms of whether what the future would hold for its idiosyncratic stuff. Risk now basically means if it's been volatile, and volatility is being driven by macro, which basically means everything is a risk asset, except for. That's where we got.
Except for it, which is, I'm, I knew you would agree. I wasn't taking a shot at you, but it is amazing how that changes people's way of trading. You point out all the time how risk models govern a lot of asset allocation, and now they're all fooled.
Right. I mean, exactly. I just find it amusing because it doesn't mean what it used to mean.
Well, we need to tee each other off partly because I enjoy when big brother Dave teaches me stuff, and once in a while, I learn little lessons. Once a while, we learn shudder lessons. The key thing is I was get back to back to the macro, and James, I caught enough of it to point out my main macro thesis for this year remains the same, that stock market volatility, still 180-day volatility, near a 10-year low, will go up. Okay, simple fact. What's it going to take to do that? Now, this war has started also with stock market cap to GDP near a 100-year high. Yes, we can push back on that, but we also seen, um, what's been the precursor for this, you know, Bitcoin grab beta in '23 and '24. We loved it. It was great. That's when we had the biggest money pump in history starting in '21. Gold grabbed beta last year, 64%, and this year, I fully expect T-bonds to grab beta. Now, we're getting a good reason for that. But it's one key thing to make this happen. It's just stock market volt. And I'm using 180-day because I started using 60-day back, I think in August, and now we're out to 180-day. But I put key levels on that, and I'll stick with it. So, initially, you know, it looked like we're sell the opening in Bitcoin on the year, that was $94,000. I've moved that level down to $74,000. If it can stay above that, prove me wrong. This is the kind of environment. I look at this. This is the beginning of a severe normal deflationary trajectory, which is not going to be short-term. It might last for a long time. Yeah, they'll be pumping. There's pumping of liquidity in China, and their 10-year yields 1.8%, which is why I expect to go. So, I'll put a lid on that. So, key levels to prove me wrong. Bitcoin, stay above $70,000, $74,000. Silver, stay above $100 an ounce. Copper, stay above $6, um, a pound. They're all ticking lower. Yet this S&P 500's still down, uh, what are we on the year? 2.3%. That's nothing. Give us 10%. No, there's a trade. And I think that's what's going to happen. It's going to kick in. But also, you look forward, this, this decision that Mr. Trump made for this invasion. I got to think he's going to make it happen the way he wants, which means more and more lethal offensive weapons until he gets what he wants, which is very scary. I'm afraid. But by the time we get to those midterms, he's going to have a decent story to tell, I think, which is part of what I see in the forward curve in crude oil. I even see it in in grains. So, like I say, for me to be wrong, prove me wrong, stay above these key resistance levels in these what are now risk assets.
So, the, the interesting question here is, and, and I pointed out the Jeff Booth point, which is that natural deflation versus monetary inflation, but whatever you want to look at it, I think that one of the, and I, I tweeted it out this weekend. One of the things that I find disturbing is how people continually to use charts in a world where there is significant monetary inflation going on. So, like, and, and the reason it made me think about this is I was thinking about some of these countries back in the old days where, you know, they would price stuff, you know, like the Turkish stock market when Turkey was going through, you know, very low, you know, basically 10% inflation per month to, you know, 100% plus annualized over over years, and of course, the stock market kept going up, right? You know, so if you used a nominal chart, you, you'd be wrong. You just literally couldn't, you had to, you know, you have to do that. Now, are we at that point where the amount of monetary printing throughout the entirety of the West is significant enough? Well, depends on how long of a chart you're using. I mean, if you're using daily charts, probably not. But if you're going back years, probably so. And so, you know, it very much, it is very interesting. So, when, when we talk about like, when you talk about at oil, the most important point about oil is what's the cost of production and where we are, and, and, and the cost of production because of technology in oil has not, in fact, it's, it's gone down relative, so it's not like there's any inflation. So, using a nominal chart in oil makes, makes it works perfectly well, right? I mean, oil companies are like licking their chops. You're going to hear, if, in fact, it goes the way that that prognosticators in the, the betting market say, and we have the midterms go that way, you're going to hear from all the de Democratic Congress about windfall profits from the oil companies. You could take that to the bank. We saw it in the in the '70s. It's absolutely certain you're going to, oh my god, look at these oil companies. Look how much money they make. Well, you know why they're making money? They produce between $40 and $50, and they're getting to sell at, at, you know, depending on where they are, probably average price of selling now is somewhere between $70 and $80. Well, guess what? If you have a 100% profit margin, the politicians are going to scream about it. And, and, and, but, but the reason I make the point is if you're valuing the oil companies, if you're not taking into, you have to take that risk into account, but if not, then if you think that they're going to be able to keep these profit margins for a long time, then you should be investing and they should be exploding. I mean, they're doing well, but they're not exploding because people realize that these things are going to come back down to normal. Now, the flip side of that are all the companies that are going to use AI to keep pushing their corporate profit margins up. I mean, horrible for the humans, really good for the companies. I mean, these days, the biggest days for a tech stock is when they announce layoffs, not when they build something new, and everyone met that, and it was like meta department because we don't believe in the metaverse anymore, and they're massively.
Well, so here, here's one fact that I find incredibly interesting, should be a difference maker, and they have to figure out how to make it investing. So, Tesla has literally shut down. They're no longer going to produce the Roadster, the S Roadster, their their top, you know, top-end sports car, and their X. They're, they're they've come up with new Y versions. But why? They are literally devoting a huge percentage of manufacturing to producing Optimus robots. Ask me how long the jobs in Amazon distribution centers are going to be safe against Optimus robots. I mean, I, I took a friend back, right? We went to the World Baseball Classic, and I dropped him off at his hotel last night, and I let, let my, my car, my Tesla Y, which is one of the most popular cars in, in the world now, do full self-driving. And he couldn't believe how good it was. And I'm telling you, it's better than humans.
The only time I've ever self-driven in a Y was with James in Vegas. And the thing literally like got us to a restaurant around an obstacle at a blockade. It's insane.
It's, it's, it's, and, and the thing is, the reason I, I use it, I'll be blunt, is because you're driving on many streets where the biggest fear is that some idiot will open a car door, jump out in between two cars, and the car will see it faster than me.
And I know that's true. So, I, I use it a lot. Now, why am I mentioning, I'm mentioning it because what happens when Optimus robots can do all the factory jobs?
All right. So, just stop there for a second. So, some people don't know how Amazon, how Amazon distribution facilities work. I was in, if you've never been in one, it's insane. First of all, they already have robots everywhere, but they're not, they don't look like humanoids, you know? They're just, they, they just move boxes from, from on a massive grid footprint that moves goods from one side of, of the, uh, the warehouse to another side, and then they, it ends up, it, it ends up putting them in these buckets that then humans who are in a cage. So, the humans are in a cage to protect themselves. Now, this is years ago, so the, they, they're probably even way more developed than, than when I saw this pre-2020, but then the, then humans will take them out of these, uh, out of these bins and then put them on a conveyor belt to go off somewhere to be to the next production line where they're, they're wrapped or put in boxes or whatever they are. So, those are the jobs that are are in danger of the, of the humanoid robots. Now, that's, that's the point is that they, the, there are already robots everywhere in, in manufacturing and distribution facilities. Just a question of, can you eliminate all the jobs? And the answer with, you know, Optimus is, yeah, you'll be able to. That's the, that is a scary part. So, I want to pivot slightly because it's worth talking about since we're actually here as the market opens and it's live, and I know it's just one data point, but just to take a quick look. I mean, Bitcoin is up, right? Uh, once again, it dipped on the weekend, but it's almost trading at $69,000. Uh, you take a look though at the, the news here, and the Dow pretty much got smashed at the open, tumbled 400 last night. Japanese stocks obliterated. South Korea share market fell by 8%. Trading halted again. And you take a look at the Bitcoin chart. This is a rounding error. It's sideways, but still, IBIT, IBIT is up a percent. IBIT is up a percent, which is, which is fair for Friday to Friday, you know, or Friday to Monday. That's the, the comparison.
Yeah.
I'm just saying like, listen, I, I know it's not going mad or anything, but, uh, it continues to look like it's not that correlated. And, you know, you would used to, if you used to have the stock market open on Monday morning at 9:30 and everything dumped pretty significantly, you would think that Bitcoin would be dumping with it. It's going up.
Yeah.
Well, I mean, there, there's reasons here. I mean, first of all, it's, it's more the expectation there. At a point last night, the NASDAQ futures were down eight or 900, right? You know, what are we down now? Uh, it's now down 285. So, it's, it's, it's literally regained overnight two-thirds of its loss. So, you could make an argument that regaining two-thirds of that loss is Bitcoin's higher beta. Now, personally, do I think that that's true? I mean, it mathematically what I just said is true for a day, but that's such a crappy data point, but it always goes on trend. I mean, look, the selling in Bitcoin, the sellers are freaking exhausted, Scott. All the crypto players who look at this [ __ ] and sell, they don't have anything left to sell. And shorts get, get, you know, are not as stupid as longs. Let's just, let's just be blunt here. I mean, there is someone, I can't remember who it was, it might have been Luke Goman, it was someone smart, kind of made a much nicer way of expressing it, but understand that highly levered short sellers are smarter than highly levered long buyers. Full stop. They do what Mike says. So, Mike's in bing because he knows. He says they set a stop loss and they don't get themselves carried out, and they don't overlever, and they, they size their positions right. But on the long side, people are like, "Let's just YOLO and and go for it. I'm going to make myself rich. Oh, well, I lost. I guess I'll try again, you know, when I, when I earn the money to try again." You know, it's, it's, it's crazy. And, but it's, we've seen this forever. So, this is, this is what's what is happening is there isn't a lot of people to sell, and there's still buyers. The people who have been buying are people who believe. And, and I pointed out, I, I used, you could yell at them and talk about, you know, uh, you can look at power law charts until you're blue in the face. But when you look at power law charts, what you end up with is you look at the power law of Bitcoin, and it says you get into what's the purple band is the high band. And, you know, every other cycle, it got there. It hasn't gotten there. It's right now, if it gets in the purple band and does what a normal rally would be in Bitcoin, you would be somewhere between $500,000 and $600,000, right? It's happened every other time. And so, you get a lot of long-term investors who are saying, you know what, this is a reasonable bet. It's literally pricing its probability of that happening at at just 90% against. So, it's like, you know, if I saw this other thing on on prediction markets where someone asked Claude, what's the best way to make money? And the answer is, you find a lot of these prediction markets that are just underpricing the risk of it actually happening and bet on a lot of them. And there's definitely that money going into.
Bitcoin. There's no doubt about it. And so, yeah, I mean, you can look at all of this stuff, but you have to take into account the dynamics of supply and demand. Unless some new OGs say, "Yeah, this is the time to sell." And that will be self-destructive. This, this, you know, the bottom that happened at 60 seems pretty damn strong unless there's a massive black swan that, you know, whatever, a nuclear bomb goes off, cascades everything, it takes everything down with it. Yeah.
And and and that's the thing you saw last night when Bitcoin fell. I think did what was the candle last night? What was the, the, it hit? We were down to about 66, 655. So, again, drop below 66. So, you see that because what James and I and Mike tell everybody here, and you have to always remember this, when markets, when people are panicking, they sell what they can, not what they want to. And it doesn't matter. This is true. This is true with everything. It doesn't matter whether we're talking gold, silver, oil, tech stocks, this, that, whatever, you know, my mom's silver set. You sell what you have to. You sell what you can sell. And you see it all the time. And if you don't understand that those are the market dynamics, then I, I don't know. I don't know how to help you.
Okay, Mike. Certainly, you've been teed up enough. Oh, Dave, we tee each other up. Well, I, I, I would love to get bullish Bitcoin. And one thing, it's wonderful to see some of these signs of divergent strength, but Bitcoin led the way. And this is my macro theme. Is if you're buying any risk assets, number one, you have to hope NASDAQ 180-day volatility stays near a 10-year low. So, you're shorting volatility at that level. Yeah, you're going to get bounces. You have to hope that stock market cap to GDP stays near a 100-year high. This is the shorter-term stuff. And I just pointed out levels are trickling that way. So, I'd love to see signs of strength. But then I like to bring out the macro. For me, for Bitcoin was we've had the biggest pump in history that happened. And the Bitcoin to, um, stock market ratio right now is around 10. If you take, um, Bitcoin divided by the S&P 500, it's about 10. That's the same for 5 years now. So, this asset that has two to three times the volatility of the S&P 500 and still trading flatlined is not that. That doesn't include total return. So, total return mean, does it actually still have? Is that, I, I'm actually asking genuinely, does it still have two to three times the volatility of?
Here's the Bitcoin data I just ran it. So, the 30-day realized volatility of Bitcoin is running at 40%. The 60-day is running at 43%. Right? Whereas the implied options volatility of Bitcoin, 30-day is 60% and 60-day is actually, they're both around 60%. So, you know, that's what that's what's actually happening in Bitcoin right now, which is a little, you know, realized is always underneath. And that's why people who sell options generally make money. People who buy options generally lose money, except for the outliers. Uh, and that is true. Uh, what's the S&P running at? You know, probably running at at 15 to 20, right, Mike?
180-day is 11%. It's been stuck there forever. It's picking up now.
The 30 and the 60-day is is what I was.
Yeah, they're picking up. They're picking up. I, I'm looking at right now.
It's about half. But a lot of that has to do with the fact that there's daily volatility. But here's the thing, and I could ask it, and we can do this. If you take weekends out of it, I suspect that it's that the difference is is really becoming close to negligible because most of the volatility is on the.
So much volatility on weekends. We see it every week.
That's right.
So, so, well, here's my key point. I just updated. If 180-day volatility on Bitcoin is right now 3.9 times greater than S&P 500, why? Okay. So, Bitcoin volatility is high at the moment. S&P 500 is very low. That's my point. That's going to narrow. S&P 500, stock market volatility has to pick up the volatility in every single little market around. And then let's rinse and repeat and look at buying risk assets at discounts. I just, that's why I love Bitcoin in the beginning because it led the way up. And now it's leading the way down. And I think you should be very careful with false hope in bare markets. And that's what we are. And again, prove me wrong. Show me at least one sign of staying above 74. Now, that's much lower than 94, which we we looked at, you know, 3 months ago. But you see the trend there. It's just this is a bounce, I think. And Dave, you nailed it. It was a little bit of derisking. People have been way short Bitcoin. And I think this is the holistic picture I get here more that is I hear from a lot of people, Bloomberg people I speak to is, yes, we love this. We loved it before, but we look at it on a risk-adjusted basis. We can get much better return in stocks. And I just pointed out the volatility is high, the performance is poor for five years now. How long is that going to last? You keep, people tell me, people keep telling me it's going to get better. I say it will, once we purge the excesses of supply in cryptos, not Bitcoin. We still all agree on there's just, give me, let's get big Dogecoin and Shiba Inu, flush those things out. And then we might have a great chance to buy Bitcoin.
Yeah, here's a couple of data points here. Um, first of all, Bitcoin is already down. It's already touched down 50%. So, it led the way. How much more it can go, it really depends on how big a, you know, event we have. And I'm not calling for an event. I'm saying that there's always one out there. I mean, shit, I've been, I've been in Wall Street for 30 years. I've had about 10, 100-year events in my career. So, everybody knows. I mean, everybody's like, "Oh my god, it's a 100-year event. It's a 100-year event." Whether it was, whether it was 1998, it was 1999, 2000, it was 2001, it was 2008, it was, you know, 2020. And like, we've had so many hundred-year events. It just, they happen. And those are the black swans. So, you just have to be aware of that. Um, we, so Bitcoin down 50% already, you know, I, it, it has been wiped out. And so the question is, does it get dragged down with the rest of the market on something else? It's not going to lead the way down from here. And that's my opinion. So, that's number one. Number two, the VIX is at 30. That's not nothing. It had been sitting around 10 for years here. And now it's at 30. And the market is still hanging around around its all-time highs. And so that's a very interesting data point right there. Is the VIX 30 out of control? No. You don't see the VIX out of control until it's too late. When the VIX is at 60 or 70 or 80, that's it. There's no way you can buy insurance at that point. It's over, you know. Um, so that's another interesting data point. And then the last data point that we should talk about here, Scott, is that as I understand it, 20 millionth Bitcoin is being m, um, minted here. So, you have 5% of the Bitcoin supply left to be mined over the over the next 100 years. 5%. So, this is a seriously anti-inflationary asset. It is a, it, this asset is not, it, it does not get devalued like other assets do. I mean, it is a fraction of what gold gets devalued by the expansion of of the gold supply every year. And so, that, that is a very interesting data point that I think a lot of people are missing because of just nonsense and and just, you know, disinformation, misinformation, and purposeful misinformation from, uh, you know, certain networks that that just refuse to recognize that Bitcoin has a fixed supply. So, there's just an important data point out there as well. Those are all things that are happening while this market is uncertain. And so, if you're a Bitcoin holder, longtime holder, and you haven't sold, then it should give you some comfort that long term that this is, uh, this is an asset that's going to benefit from that, that very, uh, strong, a very strong probability that the government's going to continue printing money to fight this, uh, deflationary effects of AI and and any sort of downturn in the economy. And by the way, just worth noting, James, that at the same time, a lesser, uh, landmark event, but Michael Sailor just bought Bitcoin for the 101st time and over a billion dollars again this week. So, we, we saw huge numbers on STRC last week, so I'm assuming that's where that's coming from.
But, uh, and that's, and that's an important, that's an important part. I was on stage with him, uh, uh, was it last week or the week? Yeah. I mean, God. Uh, and so we talked a lot about STRC, uh, stretch, and this STRC product. And, um, and for the people who don't know it very well, a very simple explanation is that, uh, this is, this is a, um, it's, it's a preferred, it's a perpetual preferred that pays you 11 and a half percent, um, yield at when you buy it at par at $100. And so, and, and that is, I, this is a, an alternative to something like private credit. Is it, do they, do they expect it to be, um, volatile in periods of downturn? They're not delusional. They, and, you know, sitting on stage with, uh, Fong Lee and Michael, they understand that this is not something you can keep as a checking account. But this is something that that gives you a better yield, a long term, than something like private credit where you don't know what is what you actually own, and you don't have access to that capital. And so, it's a, but it's a different. What what they're doing though is that they're, they're literally just borrowing fiat to buy Bitcoin at infinitum, you know, and so, um, that's, and that's the, and this is just, it's a, it's a mind-blowing, uh, shift in in how to arbitrage capital markets. And that's the, and long term though, it's, uh, you know, this, this is where they're going to be able to just continue buying Bitcoin.
Yeah, I can't believe I didn't have this story pulled up. And I don't even know if we have time to unpack it. But you mentioned private credit, 5:00 fund limits withdrawals as, uh, redemption, the third one right in like in two weeks or something. I, I don't know what the timeline is, but in a few weeks, or the third one. I mean, this is.
Yeah, I'd be interested. Did they, did they say anything about this in the in the morning meeting, Mike? Because this is a, this is a big deal.
It was, it wasn't mentioned. I had to hop off part of it, so they might have wanted.
Right. So.
I want to hear your views on it.
I think it's very important for people to understand what this means.
Because a lot of people think private credit, go, oh, this is going to be the, I've heard people make the asinine comment, well, this is the same thing as 2008. It's just a different cause. It's, it's not. It is an overarching thing. Uh, mortgages and and building subprime is basically saying real estate has major pockets that were overvalued. And those major pockets that were overvalued, under people understand it. It got, it got to every level of society. You had strippers flipping, you know, condos, yada, yada, yada. What's happening in private credit is something very different. There are, private credit is a much broader thing. It is companies borrowing money to build out businesses. Some of which have done very well and are doing okay. Some of which are absolutely royally effed because they built out businesses not knowing what was going on with AI and they no longer have a business model. And in a private, and here's the worst part about it, is that they're not marked appropriately.
Correct. And so unlike real estate where at least there's some form of mark. I mean, if something sells, it's like, okay, it's there. You have to do something with it. In this case, you have sectors. And so you, it's just, it's not that private credit is bad. It's that there are a lot of individual companies who have borrowed on the private market that cannot pay their bills back and may in fact be going bankrupt. And so, if you're a private credit portfolio manager, then if you were focused on companies on SAS, you are you are screwed out of luck, right? If you're a private, you know, credit manager and you're focusing on building restaurants, you're probably fine. I mean, you know, the restaurant business is up, down, whatever. But I mean, you get my drift. And so, the notion that all of private credit is bad is just, that's just not true. What's happening here is we have a massive disruptive change going on in the economy that's going to help companies and hurt companies. And private credit happens to be one of those cases where the company, some of the companies that are being hurt are going to go boom. And when you go boom, that leaves holes in your balance sheet. And the problem with a lot of this stuff is what James just said. When he said not marked, what is he saying? This is a, a, this is a famous debate. Uh, Cliff Asnes is probably the most, most, uh, articulate on the subject. He runs, you know, AQR. People don't know who Cliff is, you know, and he said, "Yeah, I, people like to believe that their their private credit or their private investments don't have volatility compared to public markets." Well, the reason is because public markets, every single day, you get a price, you know, on the screen, every minute, right? You know, while the markets are open. If it's crypto, it's 24/7. Whatever it's, you know, you know, six hours somewhat a day, you know, five days a week. Yeah, a good example would be a good example would be you when you were holding private, a private equity fund that's in invested in biotech, and then the entire biotech sector in the market is down 25%, but you're getting a statement from your private equity fund that says that it's marked at cost. That's it's not marked pro properly or appropriately, you know, and that's the problem.
That's it. It's exactly right. And so what this means to people, because we always talk about uncertainty, is there's a lot of investors, it's a non-not a small, there's it's not a small number, right, that are totally uncertain about what their what their investments are actually worth. That's the issue. And, you know, and they don't have, they don't have access to the liquidity of it either. And so, you know, and so you're w, and you're watching, you're watching endowments try to unload this stuff. You know, they're trying to unload it and they're unloading it at, at, you know, that at a discount because they want liquidity out of it and they want to be moving into other stuff. And so it's going to, it is it going to be like a 2008 style implosion? I don't think so. It's just gonna, but it's very, it is an important, um, you know, piece of the market that that we we're not really talking about enough, probably.
Right. Does that answer your question, Scott?
It does. Yeah, it does. Because it seems like one of those hidden in plain sight potential black swan situations.
The one thing I, I, I do want to clarify because there's a lot of these, especially in the crypto world, people who have no understanding how these companies work. There's all these conspiracy theories, Black Rock's gating people. It's like, guys, this is what you signed up for. If you bought into a, there are many, many private funds, not just credit, but otherwise in hedge funds that literally have, when you, when you sign the papers, they tell you, we are going to limit withdrawals to be this amount per quarter. Or others say, we reserve the right to limit. Why? Because the investments that the fund is invested in doesn't have liquidity. So, if in fact, they didn't, what does have liquidity mean? Let's just make this simple. If you're in a private credit fund and they had to liquidate say 10% of the fund in a day, then they'd have to go source bids. Those bids could be double-digit percentage below what they believe they're worth. And so, what they're trying to do, what they're doing is when you take, take your money, they're telling you.
Protecting you, protecting you from forcing a fire sale.
Right. Exactly. So, it's sort of like saying, you, you put your money in here, you are not, you can't get liquidated. We are not going to create, we're not going to sell at the bottom of a down wick. So, this is not nefarious people. It is not nefarious at all. It is the reason you structure these funds this way.
It's a necessary function. Yeah.
And that is important because got so many people on crypto Twitter are like, or crypto X, whatever the hell you want to call it, you know, are saying, "Oh, look what Black Rock's doing. Maybe they're going to do this to IBIT." And it's like, "Oh god, IBIT." I literally have seen at least three different posts that said that. And and with all due respect to the people who wrote them.
You're not doing that with.
Go to school. Don't invest.
Get in.
Do something because you literally don't have any idea how markets work. It is, there is a huge difference between a between liquid assets and non-liquid assets and the way that funds operate. And just because it's the same company that runs both, please dear God, don't make that that that that comment because it's just so stupid. Such.
Okay.
Now I've insulted enough people in the audience. I think I've done okay for the day.
It's the perfect time to wrap. It's 10:01. Everybody hates us. And we can go on. Here you go.
Actually, I think I, I would like to give our audience credit for being wildly intelligent human beings that understand the deep functions of all markets.
No, no. I, I think that actually this audience probably does. But when you, when you look out and you see people with these conspiracy theories like, and I, I spend time on other spaces, not like the ones that we do, but like on Bitcoin today. And and while I love Lauren and Terrence, the co-hosts, they get some people up there who are just absolutely tinfoil hat kind of crazy. And and this is, this is exactly the sort of thing that will come up in one of those spaces. And I'll be the the one person saying that it's not crazy. And I'll get yelled at saying, "Oh, you just, you're just a shill for TradFi like."
I saw your Black Rock check was sent in the mail.
So.
Yeah, exactly. Yeah, it's with all the other checks that I don't have, but that's okay.
You and me both. Funny. Uh, if, if you say anything positive about anything, you're obviously getting paid. All right, guys. We got to run. Thank you, Dave, Mike, James, yet another amazing Macro Monday. See you next week. Thanks, everybody. Peace.
That's dope. That's dope.