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🚨FOMC LIVE w/ Nouriel Roubini #CryptoTownHall
Recorded: June 14, 2023 Duration: 5:43:19Space Recording
Full Transcription
Yo, yo, yo, what's up, everyone?
Ryan, you're with us?
So you've got to do your interview now.
When does your interview, Scott?
I'm here.
I'm just going to jump off from the beginning.
I'm going to interview your sailor, and I'm going to hop back on again.
Because we have a marathon space today.
I think we're going to be live for like six or seven hours or something like that.
Yeah, man, I think it's the first major marathon space we do at the Cryptotown Hall.
We've done some long ones, like four hours, but I think this is the first major marathon one.
Scott, you got your coffee?
Yeah.
Uh, yeah, I'm good to go.
Before Rand, we started, yeah.
We had the one where we started at 8 a.m. and ran until 2 or 3 p.m.
So we did do six hours.
Oh shit.
I didn't, I forgot about that.
Rand, do you want to accept the co-host to invite?
Just so we have room on the space, on the panel.
Okay.
Okay, I've accepted, so I'm going to be, I'm here, but I'm not here for the first.
You're probably going to, yeah, I know.
Yeah, yeah, you're probably going to drop.
I mean, so I'll get the panel organized, Scott.
How's my audio first?
Just give me, give me an okay that audio is acceptable based on your sound good.
How about me?
Cool, man, yeah, you always sound good.
All right, so let's kick it off with, first, let's do a market update.
I know your technical analyst.
Go deeper.
Give us, like, you always hesitate from speculating.
I don't know why.
Um, so.
Speculate. Tell us what you expect to happen. Tell us how bullish you are. Tell us what the charts say. Go deep this time.
Yeah, to be honest with you, the reason that you feel that way is because there hasn't been anything as far as Bitcoin in my mind to analyze for quite a long time here.
Right. And I think it's important to realize if you're trading or even investing that there's times when you just sit on your hands and the market doesn't give you anything and you just wait.
And so, you know, I've been watching Bitcoin on higher time frames. We broke above the key level to me, which was.
25,212 back in March, right?
Almost now, actually three months ago yesterday, I think, or so is when we did it.
That was the first macro higher high that we'd had since the 69,000 top.
So for anybody who doesn't understand when looking at a chart,
a bearish market structure at the basic level is when you have lower lows and lower highs
in sequence.
And we've had that since 69,000.
The market would make a little pump, not make a higher high, drop down lower,
pump, kind of like a bouncing ball down.
right and so when we broke above that 25,212 level that was the first time we had had a higher
high in market structure which means that the bearish market structure is broken doesn't necessarily
mean that someone would say that a new bull market it just means you're in a new trend and that
if you continue to go down it would be a new bearish trend we haven't even dropped back down and
hit 2512 and i've been talking about since that day that it broke above i've been saying listen
there's nothing to do here
we'll probably go back and test 25,000, 212.
Now, we did get about 25,0003 something.
And if you're watching markets in general,
you know that when everyone's watching a level,
a level is not a line.
It's an area.
So maybe that was enough.
We got front run and bounces there.
But for me, it's just kind of this market is,
boring and go touch grass. And that's the reason that I haven't made any wild predictions.
You know, I think if we can... So you only... But you only watch Bitcoin. You don't when you say it's boring,
because outside of Bitcoin, there hasn't been anything but boring. Yeah, well, yeah, that is true.
So, but, uh, you know, making wild predictions while you have all these fundamental events,
I, I think that it seems like for a while and I said it above that when we broke that,
Alcoins are probably going to suffer.
If Bitcoin is looking good and we think it's going to continue up, I do think that actually
will eventually continue up after we absorb some of this news into the end of the year.
I think that Alcoins will do the old stay the same value in dollars and get absolutely
destroyed by Bitcoin thing, which is what we've been seeing here for quite a while.
I'm not the type to jump in and try to trade coins like B&B and Maddick and such while all these crazy events are going on because I don't feel like I have an edge when you know you can feel like things are bottoming and then you get a Robin Hood announcement and things drop 25% more overnight.
Right. And listen, there was a time in my life when I was day trading aggressively and I would have been all over those events.
Not so much now.
So for me, it's just like I want to watch, absorb what's going to happen here with the SEC,
who they're going to obviously sue next because I don't believe they're done for a second and then figure it out.
But for now, I think Bitcoin looks totally fine.
It's in a new kind of bullish trend and not that much to worry about.
I think we're going to dive really deep into stocks and the rest of the market probably later.
So probably stop there when talking about it.
But I mean, for now, Peter Brandt actually tweeted maybe I can find it.
And pin it.
But the last four days, I mean, Bitcoin has just been...
abysmally sideways and in a small range.
So there's kind of not.
That's,
hold on.
Isn't that a bullish city?
Because we've seen a lot of bad news in the last few weeks.
So if it's sideways during bad news,
isn't that a signal that we might have exactly?
Yeah.
So I think for Bitcoin,
that's what I'm saying.
That's why like right now my focus would be on Bitcoin because A,
I live in the United States.
There's nowhere that I can effectively short this market.
Right? People don't realize they're like, why don't you short? Tell me where to do it.
Right. Where I'm not going to get in trouble in some ways, shape, or form.
So unless you're holding something, you're trying to sell to buy lower, which is the most dangerous thing you can do, certainly as an investor, but as a trader, you might want to.
For me, it's like I'm constantly looking for entries for longs and I'm just not comfortable that I have enough information on this market at this exact moment to do that.
But to your point, like the fact that Bitcoin is still in that bullish trend has not even broken back down below a key level with all of this nonsense.
Really encouraging to me.
I just kind of look at this like the normal four-year cycle.
For anyone who doesn't understand, Bitcoin has the halving effectively every four years,
new supply or the difficulty to mine crypto, Bitcoin cuts in half.
So what you basically have is a dynamic for anyone who understands basic economics,
that you have supply reducing.
So even equivalent demand, slightly lower demand, or higher demand,
makes price go up. Well, at the end of these cycles, we're waiting for the halving in about a year.
You tend to get these very, very long, boring periods where things kind of float down, float up, and you
you could have literally fallen on your head, been in a coma, ignored every FOMC, CPI, Fed announcement,
the world melting down, nuclear explosions in Ukraine or whatever's coming,
and looked at a chart of that four-year having cycle and we'd be in the exact same spot
as we have in every single other cycle.
So if you want a bold prediction, it's the most boring one ever.
Super fucking sideways for the next year.
You know, maybe up 10 grand, down 5 grand, and going sideways.
And then we wait.
And in 16, 18 months...
We're a few months after the having.
So 16.
So you're saying, so when is that?
Is that a year and a half from now?
So the halving will be next April to May, mayish.
So 11 months.
And then usually it takes, you know, people view it as this big fundamental event.
But it's nothing happens on that day, right?
It takes a few months for obviously that dynamic to kick in.
So, you know, mid next summer to early next fall in 2024.
I have a feeling we'll be talking about 40, 50, 60,000 dollar Bitcoin and we'll be laughing
that it was so obvious and so easy in hindsight.
Okay, a couple of questions before we go to the agenda and the great panel that we have
in this coming up.
The question that I have is regarding the four-year cycle and waiting for the halving.
Do we have enough history?
Bitcoin is still relatively new as an asset class.
Is there enough history for us to depend on that halving cycle?
I don't think there's enough history to depend on it per se, but you have to use the information that you have,
and it has been consistent for the last two.
And like I said, if you look where we are right now, it's in the third cycle, and it looks effectively exactly the same.
I mean, you look at the weekly chart.
The bottoms were when RSI on the weekly hit oversold, which has only happened three times in history.
And then you have these sideways consolidation periods.
You know, maybe we go back and visit the lows.
I will say in the previous two cycles...
from bottom to the next halving, price came very close to double bottoming and making that second low.
Obviously, the last time that happened was March 2020 with COVID,
and we saw a drop of Bitcoin from like 10,000 to 3,800 in a matter of weeks.
But, you know, in the low before that had 31, something like that.
So I do think we're just going to chop around sideways for a very long time.
But that could change.
It could change at any moment.
But right now, if it ain't broke, don't try to fix it.
I think you try to just follow the trend.
Could I add one note there?
Yeah, and I think it's also like this self-fulfilling prophecy, right?
Because I don't know anybody right now that's not saying, yeah, yeah, of course the happening, it's going to go up.
That's kind of the narrative, right?
So it just creates this self-fulfilling prophecy.
Everyone kind of buys at the same time.
And, you know, regardless of the fundamentals, this prophecy kind of happens.
Yeah, and you just define technical analysis, right?
The only reason it's worth a good charge is self-fulfilling prophecies
because a whole bunch of people are looking at the same thing
and it becomes self-fulfilling.
So I agree with him 100%.
But Mario, more importantly, can we talk about the fact...
that I don't know
I went to sleep last night
I hadn't really checked
we had like an amazing conversation
with Warren Davidson yesterday
but it was only an hour long
we didn't sit there and compound
people listening for
six hours like we have in the past
and I woke up today
and it had 1.5 million listens
yeah man you could
these discussions
are important ones to have
but on the on the other side
we got the listens
and but do you really expect that
to lead to results
do you expect
his effort to meet us anywhere.
No, no, no, no, no.
Absolutely not.
I'm just saying...
I mean, it's funny, like, the first thing I did was I looked up most popular show, CNN, Anderson Cooper,
and it's like $1.2 million on a really good day.
And somehow we come together on Twitter and get 1.5 million people to listen to an interview with the congressman.
I just think it's astounding what's happening here, not trying to even, like, float our own boat,
because I think it grows organically.
It's a function of all the people who are thirsty for this news, and of course, this heavy news cycle.
But the fact that, you know, we can have a congressman,
propose a law and then the next day we've got him here on Twitter spaces sharing with this community
why he's doing it in his thoughts it's something that's so important to us it's just really uh it just
really made a makes a big difference i think for me for drive and why we show up and do this every day
i mean i'm already six hours into my workday here and we're getting ready for six hour
spaces you know now there's no reason for gensler not to show up
Yeah, he's got to show up. Well, the reason for him not to show up is because I've been leading the fire Gary Gensler charge long before this hashtag.
I also tweet at Elizabeth Warren a lot and invite her on, but I don't think she's coming.
But I do think that we should have Gary Gensler and that if he was acting in good faith, he would be willing to come here.
And I think we would actually all be constructive and polite and try to hear his side of the story, which is something that we try very hard to do here.
Even as dismissive as we can be, there's been a lot of guests that we've had come on who are aggressively on the other side.
What's his name John Ray? What's the, you know, Stark?
Quite a few of them who...
John Reed, John Reed Stark, I think.
John Reed Stark. I'm like, yeah, I'm trying to think of a Game of Thrones reference.
And, you know, they come on and everybody attacks them and then I say, listen, everybody,
calm down.
Like, let's listen.
This guy understands the other side.
And it does give you some perspective on whether you agree with what's happening or not.
Maybe there is a fundamental reason that the SEC is viewing things in a certain way or what's happening.
I still don't think that Gary Gensler's actually in good faith.
But I would love to have that conversation with him if he would be willing to show up.
But I think just more than anything, I find it astounding that.
we can have that made people listening. Now, to your next point, and I'm going to actually
ask Bruce about this as well, but to your next question, like, will it matter? No, I don't think
it'll matter because nothing gets passed now. There's like, if it get, it could literally become
the most popular bill in Congress get passed, and then it goes to a Democrat, heavy Senate,
and to the president to sign? I mean, do we really think that's going to happen?
Yeah.
No, because they're, you know, Gary Gensar works for them, right? And the SEC has been structured this way for a very long time. But still, I mean, it needs to be done. It's the right thing to do to have the conversation. And it's, I think it's bold that they're bringing it up, even if it's just for political points.
Yeah, man, and I want to dig into the Bynar story as well, but before that, this one will go to the panel, just to give the panel an idea what we're going to discuss next.
But Scott, last question for you is the biggest takeaways from yesterday's discussion for the audience that couldn't make it yesterday, and then we'll dig into the agenda.
Thank you.
I think the biggest takeaway from that part of the conversation, certainly, is that there's a view that the SEC is acting in bad faith, that Gary Gensler has used his position to become an activist outside of what are likely the valid laws in Congress.
But we did actually push onward David and say, hey, I.
I asked him this question, how much of this is Congress's fault?
And he said actually quite a bit of it because they need to be the one to pass the laws
that give the regulators the bounds and rails in which to operate and which to regulate.
So I think that there's a lot of fault in all parts of the government that was admitted.
But the idea here that he's proposing in the SEC Stabilization Act is effectively that right now you have Gary Gensler as the commissioner,
and then you have this as the head, and then you have this series of commissioners underneath.
like Hester Perce and others who are actually quite vocal,
that they don't like what the SEC is doing,
and they are supportive of freedom and all these things,
and those people don't have a voice.
So effectively, the act just flips that, right?
The Gary Gensler role becomes subservient to the panel, right,
much like a Supreme Court or something like that, on top.
And so there's more consensus,
and you get more of the voices that are operating on both sides.
And that's basically what he's proposing.
I think the fire Gary Gensler part is,
is just good for virality and PR.
But the reconfiguring the SEC to be a more reasonable organization, I think makes
quite a lot of sense.
And I've already floated Bruce Fenton's name for head of the SEC, right?
Didn't we talk about that, Bruce?
You're going to go lead us?
I will do it if given the job.
I'm not sure if Biden's
You're going to be like Maximus and a gladiator you come in and give the power back to the people.
I have a feeling if Biden's handlers look through my tweets,
there might be one or two that might make them feel that I'm not quite on their team.
So we may have to wait for a new president, but I'm game.
Yeah, certainly.
But I mean, what do you make of the conversation that we had yesterday?
You were obviously here.
And to Mario's question...
Is it meaningful? Is it another press move? Do you think it can actually happen? Do you think enough people can get behind it?
The bill is hard, but I think it's very meaningful that a member of Congress is talking about this and putting forth the bill and coming on here and talking about it.
You know, that's got to be noticed by, you know, everybody, including the Biden administration and Gensler himself.
I mean, the sad thing is...
that, you know, all of the, very early on, I was, you know, naive in thinking, oh, these people need to be educated.
And there's a lot of people in Washington, D.C., who spent a lot of effort.
They're like, oh, we'll educate these people.
What's apparent now to me is that, and I've talked to a lot of people who knew Gensler back at CFTC and everything, he has a reputation of being somebody who is a very good executor.
He will do what his boss says.
And that's what he did at CFTC. That's what he's doing now. So he clearly, to me, has marching orders to destroy, in my opinion, this whole industry, probably including Bitcoin and to the extent that they can, which is difficult in the U.S. and trying to roll out of people.
Off ramps. Yeah, but the answer to that is on and off ramps, right? So you can't destroy Bitcoin, but you can make it so unappealing for Americans to even try to own it or to be able to get in and out of it that they just don't buy it.
Sorry, Bruce, I was jumping in, but I mean, isn't that the way that they can effectively come out?
I think he got a call, Bruce.
Can you hear us?
Yeah, yeah, yeah, I can hear you.
Yeah, the Scott went out for a second.
Can you hear me okay?
I was just saying I think that they can attack the on and off ramps, which is what they're doing with exchanges.
That's the way you kneecap Bitcoin without killing.
Yeah, they can attack quite a bit.
And people shouldn't underestimate that, especially the meme of kind of like, oh, Yolo, Bitcoin can't be stopped, bring it.
I think that's a very bad thing.
I agree that Bitcoin can't be stopped globally.
Right.
I think even with its might, the U.S. can't stop it.
But people shouldn't underestimate just how many tools the U.S. has.
The U.S. has vast global influence with things like OFAC.
I mean, the U.S. could just say, this is forbidden.
We're not dealing with anybody who has this asset.
And that essentially kills it in the United States and significantly harms it globally.
And you'd have...
you know, fidelity and sailor and micro strategy and everybody exiting.
You know, I hope and don't think that will happen, but don't underestimate the long arm
and the power of the United States government for sure.
That's interesting, though, because the narrative that we've been talking about here quite a bit,
and I think we even discussed it yesterday then, is that, yes, maybe that gets the desired result onshore,
but it drives a more offshore adoption, but certainly more offshore adoption in the China's and Russia's of the world,
where we're already seeing, you know, we talked about spare bank yesterday in Russia,
starting to allow their customers, the biggest bank in the world, or at least it was before the sanctions.
allowing their customers to buy and sell Bitcoin,
but also the central bank of Russia a few months ago announced that they'll be mining.
We could see Bitcoin, you know, we could see them go down this path of tyrannical insanity and continue to cut down.
Remember, these are the same clowns that 18 months ago were trying to basically regulate Bitcoin miners and wallets.
So don't put anything, you know, don't think that there's anything too tyrannical that they won't do.
But we could go down the United States, and I hope and don't think we will, but we could go down.
a road that essentially just crushes this whole thing for a couple of years.
And then we could see a huge bull run driven by China and Russia, especially China.
You could see Bitcoin go up to 100,000 and another, you know, 100 alts bloom.
And then the United States would do exactly what every other country who's banned this,
including Russia and China, they'll come back and capitulate and say,
oh, I guess we can't ban this.
It's a global phenomenon.
Tyrants in centralized offices and governments have never had to deal with a global asset before.
In their ego, the Genslers and the Yellens of the world think that they can just control
the whole world because they have the power of the billion.
of the booths and the stormtroopers over Americans.
But they can't.
They can only kill us and stop us and put us in jail in our own borders.
They can't stop a global phenomenon,
especially if you have countries like China who are pushing it.
And that is something that the tyrants running money in the world have never faced before.
They've never faced this kind of competition where you have global money that's accepted in dozens and dozens of countries.
Right.
They've never had competition and they're not suited for it.
So they think that they can pull these tools.
And it's a lot like that, that meme where it shows the gate in the middle of nowhere in an empty field.
There's no fence around it.
It says do not enter.
You know, that's been a meme that's been used a lot, you know, describing governments trying to ban Bitcoin.
That's the way it is.
They've never dealt with this kind of competition before.
So I'm looking forward to them getting a powerful level.
And to your point, for people who don't think that these governments can flip-flop, how many times have we seen China ban and reopen in this market?
And it's very clear that after the ban, which we thought would stick, many thought would stick forever of only a couple years ago.
Clearly, they're seeing the United States' stance and just playing the opposite.
Yeah, exactly.
Exactly.
I think, yeah.
You know, I mean, it's, you know, China learned the lesson, I think.
And a lot of the smaller countries early on, I think Thailand banned it and a few others.
And, you know, this is just, you can't stop it.
I mean, even with all the power, and I don't underestimate the U.S. at all.
You know, the U.S. is very, very, very powerful with this kind of thing.
particularly for Americans. But, you know, it's a big world now. There's VPNs. And, you know, the China-U-S game theory is particularly interesting because, you know, China has been thinking about currency and playing these kind of games for your decades. And, you know, Bitcoin coming along kind of changes their strategy. So, you know,
And I think it's super exciting.
You know, I hope we don't end up with kind of a full-scale ban.
But, you know, something has to change.
You know, Gensler has to leave or, you know, some kind of shake up with Warren or something.
Unfortunately, we may just have to, you know, push it on through until the next election.
Yeah, I mean, we talk about the SEC in the United States as if it's the end-all, be-all, but it's obviously not a regulation.
We have regulators in every country in the world that are approaching this asset class from a different view.
Dean, I saw you just popped up.
Obviously, you're the CEO.
Before we go to Dean, just for everyone here for the finance space for the FMC meeting, we'll be kicking this off shortly.
In about half an hour, I see a lot of our finance guests in the audience.
So just a heads up there, but go ahead, Scott.
Okay.
Sure. I was going to say we have Dean here, who is the CEO of Wonderfi in Canada.
And the Canadian regulators taking a different tax sort of towards this industry.
And you guys, I believe from our previous conversations, are fully regulated, have been through
that process and are able to allow people to have access to these assets.
So what's your take from Canada on all of this that we're seeing in the United States?
Yeah, it's interesting.
I think there's a lot of parallels.
And thanks again for having me on.
But Canada went through this process.
I'd say dating back to 2019, I'm sure most of you guys are.
are familiar with quadriga.
Kodriga was Canadian-based and the largest Canadian crypto exchange at the time.
And, you know, the blowback from that certainly put a ton of egg in the regulator's face here.
In response, we saw, you know, them quickly put together frameworks on how to regulate crypto trading platforms as a starting point.
sort of through collaboration with industry,
we're able to put together proposed,
or I guess regulatory framework for crypto trading platforms
that took effect in 2021.
Bit Buy, which is the company owned and operated by WonderFi,
was the first crypto trading marketplace registered in Canada.
And in November of last year,
we also received a staking license as well.
So I think, you know, in Canada, you've seen
I guess, you know, a similar reaction to some of the unforeseen events that transpired in the U.S.
with some of the larger players in last year.
And so, you know, I think it was a strong starting point to put a framework in place for, you know, exchanges, really the heart of all this activity.
And, you know, more recently opening up the universe to include staking.
So I think Canadian regulators have done a good job.
at putting up, you know, guardrails.
Nothing is ever going to be perfect with regulators,
certainly not the first go.
But they've, you know, sort of looked at ways in which they can improve
and ways in which they can expand the scope of regulated products.
So I think...
Go ahead, sorry.
Yeah, you'd go ahead, but I was going to say Canada kind of had this massive blowup with Quadriga and then went sort of on an aggressive tack, not as much so as the United States and then came back to a more reasonable place.
But I'll tell you what I view the difference as, and we have breaking news on it or news on it today, they didn't have SBF.
Right? Sam Bateman-Free didn't go and meet with the head of Canadian regulators and all the legislators and take cute pictures and work on regulation.
And so I think we're seeing this massive overcorrection here because Sam effectively fucked us for the next three or four years.
And you guys may have seen Sam Bankman-Free, the indicted founder of bankrupt cryptocurrency exchange FTX wants a U.S. judge to throw out criminal charges brought against him following his extradition from the Bahamas.
I mean, he's literally sitting in his mom's basement smoking crack right now or his lawyers are.
I mean, that is absolutely insane. It won't happen. But I really think that that's the difference here.
If Gensler hadn't had SBF on his calendar, we might be having a very different conversation.
No, yeah. I don't think that's, I think that's a fair statement.
You know, I think sort of the heavy-handed approach the U.S. has taken is certainly more noticeable and heavier-handed than what the Canadian regulators did.
And I think...
You look at whether it's FTX or some of the other platforms, I think that's certainly, you know, partially the reasoning behind that.
So I think you're absolutely right.
Scott, have you looked at the news with Bynast, a lot of the fudge spreading in the last 24 hours?
Yeah.
I mean, the news I saw with Binance effectively, and I talked about that with John Deaton and Eleanor on YouTube this morning, was that the, once again, we're seeing the United States judicial system actually be sensible and push back a bit against the SEC, not grant them the asset freeze and allow Binance to control those assets.
So that may still happen down the road.
But for now, I think it's taken as good news for Binance, certainly Binance U.S.
I assume that's the news you're talking about.
It is.
Yeah, yeah, it is.
And there's also the fun about CZ selling,
selling,
which he immediately disputed.
Like,
he's disputed.
Have you,
have you looked at both stories of the fun story?
Yeah,
I don't know the truth behind it and I can dig in,
but I can tell you that like,
seemingly, and I like on-chain analysis. I think it's interesting, but, dude, it's not fact.
And I feel like 75% of the time that we have these breaking news about coins moving and stuff,
it becomes an absolute nothing burger. I'm not saying that's the case this time.
And can be easily disproven or shown that they were internal wallets. There's a million things where these happen.
I've been trying to dig into it, and I can't see anything conclusive except for a bunch of,
while it's moving things.
I will tell you guys, for anyone who's wondering,
the charge or the accusation effectively is that finance is selling...
Bitcoin and mass to buy BNB to defend the price of BNB so it doesn't drop and we don't have an FTT situation
where there's a mass liquidation event of BNB, it completely crashes and destroys Binance, right?
This again to me is the O Binance is the same as FTX argument that I think has been unproven thus far.
So I don't see it myself happening.
I have to believe that if Binance was selling that much Bitcoin to buy that much B&B, we would see that in the charts.
Like, why is Bitcoin having the most boring low volume ever for the last four days if finance one of the biggest holders of Bitcoin in the world is massively selling it?
So I can't see the evidence of it.
I would think we would have a major price.
Yeah, sorry, you dropped out for a second.
Anyone on the panel has looked at both sides of the story.
There's a few tweets.
I won't go through them now.
But does anyone share any concerns, Bill, Dean, Bruce, or Brian, any concerns on Bynas' insolvency?
Or possibly, you know, the rumors about Bynast's insolvency, because I'm in the same boat as Scott.
I just don't think chain analysis is enough to kind of support those rumors, but I think questions are also valid.
Go ahead, Bill.
Thank you.
No, I don't really have anything to add on the finance rumors.
I mean, I haven't seen any evidence that they don't maintain 100% reserves in kinds,
which is exactly what they should be doing as a exchange slash order book.
And if we see evidence to the contrary, then we should, you know, we should hammer on that.
But I haven't seen it.
Nor do I think.
You know, I have any reason to believe that they would be effective at hiding that,
given how large they are.
I think there's no, you know, there's nothing wrong with supporting the BNB price, I suppose,
but I don't think that they would need to do that to keep the company from being insolvent.
I think those are two different things.
Correct.
And that's where people are conflating it with FTX, right?
Exactly.
Exactly.
Because if FTT went down, it was going to expose the massive hole in their balance sheet
and fraud.
Right.
And I think Alameda was using FTT as collateral with a lot of market makers.
which obviously if the price of FTT collapsed, then that would be a big problem for all those loans.
And to my knowledge, finance is not in that business at all.
And I could be wrong.
I really don't.
And I have zero inside information.
But yeah, the other thing I was going to say is responding to your comment about Bitcoin
price from earlier.
You know, we obviously work with a lot of mining pools in our international business.
And I can tell you that those mining pools continue to sell.
aggressively, right? Because that's what their clients wants when they win Bitcoin for the most part is they don't hold.
And not all of them, but we've clearly reached an equilibrium right now. And I think this is a very different situation from where we were before the last run up because before we had to gray scale ARP trade.
I guess you could kind of say to some degree now, the gray scale arb fraud given Genesis and DCG and, you know, I guess BlockFi's role in that.
But we don't have that right now.
And so 25K actually seems to be the quote unquote real price or 25 to 30K seems to be the real price right now.
And what's interesting to me is that with the happening, it's not necessarily the buying that becomes a self-fulfilling prophecy.
It's the fact that the mining pools will be selling less because they'll be winning less.
And that actually changes the denominator significantly in terms of potential energy on the sales side.
And that is extremely bullish to me versus kind of the unsustainable type of trades that were going on during the last run-up.
So I'm very encouraged by a lot of the crap getting removed from the system.
And, you know, we'll see how that plays out.
But, you know, there'll be a few narratives that I think drive Ethereum.
We'll see what they are.
I think AI and the resurgence of defy will be likely candidates.
But I think those two factors combined with the likely liquidity pump that we're going to see, which I've talked about on your...
stage here a few times, I think are pretty bullish signs for Bitcoin in particular.
So just to be clear for the audience, when he's talking about Bitcoin miners, they mine Bitcoin, and then they can either decide to hold it or, as he said, they're right now probably net sellers.
So that implies Wayne talks about equilibrium, that there's also quite a bit of organic demand to offset.
that supply that's being sold onto the market giving us this equilibrium of price.
And that's not always the case.
If there was no demand, we would see price going down pretty aggressively because
miners are huge sellers in the market.
And what's more interesting, it's absolutely right.
And what's more interesting is retail is debt.
And so somebody's buying, right, to establish huge wallets.
We've seen it.
We've seen that it's largely whale wallets.
I mean, the money, quote, unquote, in crypto is buying.
And that you can't see on chain.
Yep, that's right.
So we're seeing a lot of family offices, institutional investors taking up that slack, but not retail.
And so what that means is, is that.
you know, from a contrarian perspective, retail is completely off the bus.
And when a, when a group is completely off the bus, there's only one way to go.
Well, two ways.
One is you can stay where you are, which almost never happens in markets, or people start
getting back on the bus.
And so I do suspect that over the next 18 months, somebody mentioned 18 months earlier, I think maybe it was used to.
Yeah.
Yeah, that I do think retail is going to get back on the bus.
And it's going to be driven by, I know I'm a broken record here, but overall increases in liquidity to support the fact that we are going to have most likely a V-shaped.
recession and all of it again supports the bull case that I keep hammering on.
I agree with you. It'll be driven by liquidity but the simple way of saying that is that
those same people who are apathetic or think of Bitcoin to scam or got burnt and sold it
are going to buy again when prices at a certain level and they fomo back in.
Or new group for sure. Yeah, either way. That's right. But it's going to take basically price
price going up to drive people in to drive price up, which is the way that markets rise and fall.
And yeah, I think in this case, retail will come last. They used to lead, but right now they're
not leading, which is super interesting. I think that's what's creating this equilibrium.
And it's going to take, if you want to get to 50K, it's definitely going to take retail coming
back in. And, you know, I think the, what's interesting is the longer it takes,
the more likely the next run-up is going to be sustainable.
What turns miners from net sellers into net buyers?
Not having...
Well, okay, so there's two aspects to minor selling.
The first is participants in the pools.
And the participants in the pools, by and large...
You know, they're happy to take profits at this level.
And that's fine.
You know, and then there's the actual miners that own their own equipment and are in this for the long term.
They actually don't want to sell.
right they want the tax advantages of not selling they'll they'll actually happily borrow
against their bitcoin if they can or just hold it and and if necessary sell some to grow
and and but they need they need the price to be higher in order to sustain themselves
at scale so that they can sell less
to sustain their business.
And so there's two different groups in that mining world that you have to consider when you were trying to figure that out.
The pool participants will generally keep selling forever.
Now the good news there is that the pool participants are going to get smaller and smaller output via the next happening and the happening after that.
But the miners simply need a higher price in order to sell less.
And you can see we just pinned a tweet above,
Justin, Bitcoin supply on exchanges falls to five-year low.
Bullish.
Okay, so the narrative there for anyone who doesn't understand,
once again, it's just the very simple supply demand dynamic.
If there's very few coins on exchanges to be sold,
it means that any spike in demand,
obviously, is going to send price through thinner order books
and price will be able to move up higher.
But we can also say that there's a massive...
loss of supply on exchanges because there's just bad news everywhere.
Right.
So like there's a lot of people who rightfully or wrongfully are moving everything into
self-custody, even since FTX Celsius Voyager, but now off of even to some degree
coin base, people are going to be forced effectively off of Binance, US, and a lot of people
are moving off finance.
So that's going to naturally reduce this supply.
Yeah, I think, I think two things.
One.
Bitcoin can come back on exchanges very quickly, like in minutes, right?
Literally in minutes because that's the way it works.
But I think the more important right now is retail sentiment is just dead.
Whether it's whales moving into wallets, cold storage or whatever, the retail sentiment is just,
non-existent.
Everybody's apathetic on the retail side.
So that's the most bullish part of this to me, not that the Bitcoin has come off of
exchanges per se, because that can change in a heartbeat.
Okay.
I think retail sentiment being dead is bullish because now there's only one way to go.
Yeah, if they're all gone, they can't go.
I'm not a trader. I'm not a technical analyst.
Based on everything I've said, it just, everything points to a bottom,
excluding any Black Swan events.
And even Black Swan events, there's not much left.
I've been saying that, yeah, I think we've all, all I know Bill has, I have, you have been saying that.
I mean, to me, FTX was the bottom.
I just can't imagine, and listen, that it could arise if there was some, and I think very, very low chance of some massive event with Grayscale or one of these that caused a force selling.
But who are the four sellers in the market right now?
Right.
I think finance would have to blow up.
I mean, you're talking about a massive amount of supply that would have to be.
Bill, Bill, what did you say?
What has to blow up?
I said if finance blew up.
That's just like literally the last Black Swan events is Bina's blowing up or less
less concerning is any action towards USA towards Tether.
Yeah.
But otherwise,
but then look,
let me say something
that makes Bruce happy.
So Bruce,
did you see the news
there just announced
about 10 minutes
where Bill Gates
is meeting
Xi Jinping.
That's the first meeting
that the team is about
to tweet it out
and that's the first meeting
that Xi Jinping has
with a private entrepreneur
from the US
according to the media articles.
So you're going to go to the
No, no, I don't know if he met Xi Jinping or others within the Chinese government, the CCP.
I haven't checked that.
So I'm just referring what the media article says, but kind of goes back to the point that influence money is shifting east.
Now, that could be a bigger debate, a bigger macro debate, and I know Jay would love to destroy me here, and we're going to get into macro very shortly.
But Bruce, it kind of indicates towards the increase influence in the east could be a light at the end of the tunnel that we're seeing now with the U.S.
Well, at least the SEC's action against Binance and Coinbase and crypto in general.
Well, it doesn't make me happy because they're a bunch of statist authoritarian, you know, bootzumpers also.
You know, they're horribly statist and authoritarian.
I mean, they're even worse than we are.
They're communists.
You know, communists are bad.
You know, we used to call them commies and for good reason.
They're horrible.
It's a horrible ideology.
Right.
of, you know, collectivism and tyranny and state force and authoritarian control.
So, you know, the nanny state authorities like Xi Jinping and everybody else in China are no better than the nanny state authorities here.
It's a bunch of Bernie Sanders, Elizabeth Warren, Xi Jinping type of nanny Karens who want to get up in everybody's business.
And, you know, oh, you can't trade that coin.
You got to do this.
Here, you need this form.
I mean, China even banned video games.
You know, what a bunch of insane authoritarian.
That's not how the world works.
Right.
People, the world is complex and people must have the ability to pursue their own way of doing things.
You can't have centralized controllers sitting there and, you know, fancy offices that they paid for with stolen money sitting there dictating, you know, how everybody runs their life.
I mean, who would think that these people are this smart?
You know, they're not that smart.
The crowd is what's smart.
You know, we don't need any of these clowns.
So the China model is a failure, too.
What I worry about is the United States becoming more like China,
embracing these horribly anti-human, anti-human rights, terrible economic policies that lead to ruin.
There's a great book called The Road to Serfdom, which many people have read, which talks about exactly this.
We are on the road to serfdom.
And, you know, heavy-handed state authoritarian control just makes us into, you know, dark and bleak state, not something that we should be pursuing.
You know, I mean, the Dubai model is maybe a little bit better because they don't have that,
heavy-handed authoritarianism.
You know, they're not perfect, but, you know,
we, you know, I think that everything is just going to flow to where there's the most freedom,
wherever that is.
And Scott, I don't know when you want to shift to the FMC discussion, because I've got a few questions for Jay on that.
But anything else to add on the Qutters?
But you invited Jay to destroy you.
And so I just want Jay to see the influence.
Actually, Jay, I'm not going to put words in your mouth, but are you not concerned, but do you see influence money?
We saw Elon meet the CCP.
We saw Vivek Ramas Mawi come on our space and.
And he wants, if he becomes president, which obviously the polls say it's unlikely, he wants to introduce a bill that bans U.S. businesses from doing business in China and vice versa.
So considering that sentiment that goes against globalization or internationalization, how do you think that will impact the U.S. economy?
How do you think that will impact the global economy?
Jay, you with us? Don't tell me you not listening, man.
He's probably tuned out because we're talking about...
He heard Bitcoin and he went to sleep.
Yeah, I've essentially made his argument.
He doesn't hate crypto.
He's been talking about the regulatory crackdown we've seen.
He's been talking about this for a while.
Now, he's more bullish on Bitcoin.
I'm putting words in his mouth since he's not here,
and he can correct me later on.
He's more bullish on Bitcoin, not very bullish on outcoins,
concerned about the regulatory crackdown, but I think we've seen the worst of it.
So I just don't think.
And then if we see a pivot now, and that can be the next question I have, Scott, if we do see a pivot,
and I know you and Rand disagreed on whether a pause is a pivot or not, but if we do see a pivot
or a pause, that's bullish for risk assets.
Dude, listen, I tweeted earlier, I will die on the pause as not a pivot hill.
I know Rand's not here to defend it, but a pause is not a pivot because a pause, they can hike again.
Once they pivot, they're not hiking again.
A pause, you could just pause for two, three, four months, and then they can start hiking again based on the data.
A pause is not a pivot historically or in reality.
We could talk about that more with Jay once he gets back here.
I think it really is interesting.
I would have loved Jay's perspective on the East, but it is very, very clear here.
I think that crypto is moved.
Do you believe in the narrative that if we see, if Hong Kong is, you know,
everything goes well in that sandbox, that Chinese sandbox, everything goes well,
do you think the next bull run will be led by China or do you think this is just,
everyone getting too excited and trying to find hope when there is.
I absolutely do.
No, no, I absolutely do.
And if you even just take a look, and we've talked about this before, volumes of even just
crypto trading and speculation in Asia are astoundingly higher than the United States. I mean,
South Korea itself does heavier volumes and has been behind a lot of these moves, just traders there
that trade in huge size and with heavy leverage. And so I think that we're not going to have clarity
in the United States. If we have a bull run in the next couple of years, which I think we will,
largely people in the United States probably won't.
have access to the assets that are leading that to some degree.
But if you see massive alt-coin moves or stuff,
and these are all delisted in the United States,
and how can we possibly be leading that charge?
So I think that offshore in general,
and certainly the East is where the next bull run is going to come from,
but I think that that's not unfamiliar territory.
We've had moves led by Asia many times.
I want a bit of a take.
Umbrella, if you want to come up for a bit, give us a bit of a take on out coins.
Let me see if there.
Mickey Zee, Mickey, I want to get your thoughts as well.
You've been in our finance spaces for the last few months.
Your thoughts on that shift we're seeing to the east.
Again, is that being overhyped?
Bill Gates meeting Xi Jinping, Elon being in China a couple of weeks ago,
and the narrative shifting to anti-China,
which shows that possibly the U.S. is concerned.
Hey, did you say, Mr. I just talked up in there, a little bit of the left.
Yeah, all good, all good.
Did you see the question?
Yeah.
Your thoughts on the narrative of the money, the power, the influence shifting to the east.
Just on crypto, I hope you guys hear me.
Just on crypto alone.
Yeah, your audio isn't great, but we can hear you.
And crypto and general, because we're going to shift to the FMC discussion.
Mr. Rubini is joining us in a bit in about 20, 30 minutes.
So you can talk about crypto as well as the general financial world, the finance sector.
Happy to jump in on China after Mickey.
Sure.
I think that...
Hey, Jay, you're back.
We're just making fun of you that you're not here.
But I'm glad you're back.
Go ahead, McKin.
I'll go to Jay.
I think the argument against crypto in the U.S. for the last few years is like, hey, where is product market fit here?
Like, what is the real benefit?
It's not really clear.
That's not true in Asia.
I think the product market fit in China is extremely clear.
Get access to U.S. dollars.
Like the dollar and dollarization on crypto is by far the product that works best.
That's clear product market fit.
And I agree that you're going to see volumes coming from Asia because that's where demand for dollars is.
And it allows people in China to get access to you as dollars, but they can't otherwise.
There's tons of capital controls in China, right?
You can't take, you know, more than $30,000 in China.
Mickey, I'm going to cut you short, but your point is a really good point.
So I'll let you wrap it up just because your audio is really bad, but you're really focusing on the product market fit.
it being more relevant in the eastern China than in the west of the U.S. and Europe.
But I think that's a different topic. I actually agree with Mickey there. And I think that I've
said countless times that stable coins are the killer app of crypto, right? Bitcoin is a killer
app in itself. But for everything else, stable coins are the killer app because people all over
the world want access to dollars. But I don't necessarily think that that access to dollars is what
drives a quote unquote bull run because that implies it's a huge move in price. So I think it's
If we're being honest, it's going to be wherever the speculators are the heaviest and wherever the FOMO is the heaviest.
It's going to lead price to actually go up.
I think on the adoption side, Mickey's absolutely right that we'll continue to see more adoption of stable coins and places outside the United States where they need them.
Which, by the way, the United States should support because that is dollarization, not de-dollarization.
And actually, companies like Tether are massive buyers of the United States.
Just one other quick point. I hope my audio is a little bit better.
much better
now that I'm subscriber to Mario my audio is better
I'm more handsome I look better my fashion is better
my dancing is better
but I think there's another
I take the point there about
about use
there's also just
like there's news now and it's been a trend
for the last year just huge capital
outflows from China
and intellectual outflows from China right
people are leaving China at a huge rate
I think the
the influence the China had based on its access to consumers market is shrinking more and more,
particularly with this trade war. But I do think, you know, crypto represents a huge opportunity
for Asia, right? It's just the ability to, you know, get access to markets that you couldn't,
that are usually you're blocked from trading, access to different capital markets. That's a huge
business opportunity for crypto builders. And I really hope to see that
that environment getting built out over the next three or four years because it's a tremendous
opportunity to get to help these people get access to different capital markets, different
equities markets. So I hope to see that be built out.
Let me ask Scott, do you mind if I ask Jay a question?
It's been a while we haven't spoken.
I'd be highly offended.
No, yeah, go for it.
Jay, first on the narrative of money, influence, business shifting to China, shifting to the east, that's number one.
And number two, your thoughts on the crackdown we've seen over the last week on crypto?
Yeah.
Oh, sure thing.
So on the first question,
I think it is,
one,
it's inevitable that,
you know,
as other parts of the globe
catch up to the developed world,
that a larger percentage of GDP
will shift to other areas of the world.
I mean,
you look at the speed of growth in India,
for example,
you look at its demographics,
its population is growing at such a rate.
They're going to have some infrastructure issues.
But, you know,
There are structural changes around demographics and birth rates that happen globally.
But I would say that out of the developed markets, when you look at institutions and you actually look at demographics, the U.S. has actually set up in the most fortunate situation simply based on.
institutions and demographics and the net present value of future tax revenue from the best
institutions right now in the world now things will change over time but one of the things that
i think is misunderstood is that you know the dollar is going to lose its importance overnight i think
that if anything it will be you know a 20 year type process but
Even then, you know, you might see its use, you know, fall to 40% or fall to 45%.
It's not a, it's not very clear, you know, every single country that people refer to, every large country, you know, has its own debt issues.
China has its own debt issues around local property, developers that are essentially financed by local governments and a huge kind of Ponzi debt scheme.
You know, the U.S. has...
huge Medicare Social Security debt along with 100 plus percent debt to GDP.
The UK has a very major issue in a similar vein, and so does Europe, and Japan is the
worst of them all. So I like to look at the dollar and I like to frame it as the best of the
worst. You know, you look at it and you have to just think rationally, what are you going
to use instead that is liquid, that's easily transactable, that people actually want to use as a
as a store of value at least in the short term and with interest rates today at 5% you know the
interesting thing to note is you know everyone's talking about at least they were until it was
debunked the bricks and
in the yuan, et cetera, but you look at what their Chinese are putting their own money.
Like the Chinese have capital controls and to some extent even India is starting to restrict
their taxing money that's leaving the country because they know that if we enter a global recession,
more and more money is going to go towards the dollar.
And we've seen that Chinese investors are actually shifting a lot of their assets into U.S. dollar deposits.
Right.
In fact, JPMorgan and BlackRock are both, there's a ton of demand.
They actually set up a hundred and banks set up 144 wealth management products they're called in foreign currencies.
Most of those products are in dollars for wealthy Chinese to take.
Dollar's not going anywhere.
Yeah, I think this, the debate of the, yeah, I think, and I think most of us agree here.
Jay, I know we've had debates on this in the finance spaces, but I think most people agree, at least in the short to medium term, the dollar isn't going anywhere.
I want to get your quick thoughts as well.
On the crypto.
On the crypto side, it will keep it a couple of minutes because I know that John Reed and Ram are up on stage as well.
But yeah, we'd love to get your thoughts.
Like, we've seen the crackdown now.
Do you...
We were making the argument earlier, not sure if you heard it, that we've seen the worst.
And fundamentally looking at Bitcoin's price response, it's been relatively steady.
Pretty boring, volume is down.
And we just pinned a tweet above that we're at a five-year, what was it?
Five-year, yeah, five-year low for Bitcoin supply.
Supply and exchanges, exactly.
So considering that these facts, I know you're not invested in Bitcoin, but I don't think you are,
but bullish, and what's your thoughts on everything?
Sure. I mean, you know, people point to this halving that's coming up as a catalyst, but I like to look at catalysts, right? So I'm an event-driven guy, you know,
We look at names that are undervalued and there's a reason to own them.
Either there's a buyout happening or a spin or a split or an accelerated buyback or an increased dividend or a JV or a partnership or new revenue.
I like to look at companies from a fundamental perspective.
You can think of me like a boomer.
I was actually pretty early.
I was actually.
in Bitcoin back in 2013 because, you know, on on the banking hedge fund side,
that was the only thing you didn't have compliance requirements with, right?
Because everything else had a 30-day hold requirement.
Not very involved in a huge way today, but what I will say is that it's very hard to time the
bottom because, you know, I think a lot of bad news might be priced in to a number of asset classes,
but, you know,
you know it's unclear whether the doj is going to go after uh finance for any type of criminal
activity um and if you read any of the disclosures you know the c has a as a civil lawsuit the doj
can actually file a criminal criminal charges if there you know is any hint of um
impropriety or using customer funds for proprietary trading.
And it's one of the issues you have in financial services that was fixed many years ago
by setting up firms like Bank of New York Mellon and State Street to essentially operate as,
you know, fiduciaries, right?
You don't, when you invest in a fund, you know, you have an agent.
you don't actually give your money to the hedge fund manager you know they put it in a trust
they put it they put it in a secondary institution the custody it's called a custodian that
custody is the money
on your behalf so you can avoid the Bernie Madoff type situation.
You don't really have that in the crypto space,
and I think you can develop it.
And it would take a lot of the fear,
and it would help the regulatory process as well.
And like, you guys are all entrepreneurs.
Like setting up a business like that is an annuity business.
So I think, you know,
There's that risk on the Binan side.
And I think Binance is, I remember they just up and left Canada when Canada said or challenged them.
So I think that there's still a chance that, you know, Binance might have to leave the U.S.
if the DOJ does pursue it.
And then it will just be a multi-year battle.
But that's not a guaranteed thing.
And then on Coinbase...
You know, Coinbase has been under a lot of heat, right?
I think there are like 19 cryptocurrencies that were judged to be securities.
And then there's this whole staking as, you know, 30, 40% of revenue.
And, you know, people are worried about after FTX, I mean, this guy really hurt the industry with his indiscretions.
There's a situation where institutions are leaving this space, right?
Outside of fidelity.
Yeah.
You know, you're not going to see a new hedge fund.
I used to talk to hedge funds in 2019, 20, that were jumping on the industry.
Go ahead.
So I was going to mention, is just some quick breaking news?
I want to mention just for the panel on the audience.
Just came out of the IMF 11 minutes ago.
And, yeah, if you don't mind, Jay, I just want to ask you a question right after.
That's relevant to the breaking news story.
And then we'll come back to the discussion is.
I'll read out exactly what we'll say.
It's 2020 net capital outflows from emerging markets
seen at 173 billion compared to 522 billion
of outflows in 2022.
That's not IMF, that's the IIF.
IIF.
I also says that the US, they see a soft landing
for the US and the US economy will avoid a recession in 2023,
and inflation is seen falling to 3.1%.
Based on this news, and I want to ask a question,
that we're waiting, that we're all going to be discussing
and debating over the next couple of hours
with Noreal Rubini and other panelists,
is could we see a pivot?
And what does that mean for the markets?
Maybe we'll go to RAM, and obviously, Jay,
I don't want your thoughts for that.
What do you mean by a pivot necessarily?
A Fed pivot?
It's a pause.
Yeah, I think what, and I'm happy for anyone else to chime in, but I think what we're seeing today is more of a potential pause.
So I put up a poll here if you go into, you know, several hundred people have put in their opinions on the Fed meeting poll.
But there are four outcomes, right?
You know, there's no opinion involved in the outcomes.
You know, number one, they could pause permanently.
Okay, and that would potentially be positive for the market.
Now, I don't think Powell would say that in this meeting at all.
He wouldn't even hint at it.
But that's a possibility.
The second possibility is that they pause.
And because core inflation has been a little bit stickier,
and they're worried about, you know,
he wants to preserve his legacy.
Powell doesn't want to be Arthur Burns.
He wants to be remembered like a vocer.
They might pause and then do another hike in July.
How much that matters?
Yeah.
you know another 25 bibs may may not break anything but the effective rates where they are is going to slow down the economy over the next six six to 12 months number three what what else could they do they could hike by 25 basis points now that would be difficult because
The Treasury, not the Fed, but the Treasury is issuing about a trillion of debt over the next three to six months.
I think 300 billion of bills this month alone.
It just wouldn't make sense to charge to basically for the Fed to charge the Treasury extra, you know, instead of giving them an extra month or two, right?
Just to get those bills into circulation.
And then the fourth outcome is obviously that they cut.
And we just don't think that's going to happen because of how strong the labor market is.
In fact, we were saying this earlier in the year where the market had priced in 12 cuts and four cuts by the end of the year.
And one cut in July, by the way.
And this was as early as April.
So I think that the interesting thing to watch is actually going to be the SAP.
in the doplot and you might actually see like the market is now only pricing in one cut this year
which is more reasonable but you might actually see the sEP go a little bit higher um for
Mario Jay really quick Mario before we get really deep in the weeds on the macro side and Jay I'm
sorry to interrupt but I know we are going to be talking FOMC in exactly those topics to death
I do want to mention this one story above that's somewhat breaking news throughout today
which is pinned in the nest.
The largest Korean Bitcoin lending service,
Happy Delio, which is Delio, DELio,
has halted withdrawals along with one of the largest
Korea yield services, Haru, invest.
Delio supposedly utilizes 41,740 Bitcoin,
$1 billion worth.
So if you dig into this, guys,
which is, it's kind of blowing my mind.
I'm doing it in real time.
So forgive me if I have any slight inaccuracies.
But it looks like this company,
Haru, is a fantastic...
effectively a 12% yield service much like a Celsius or any of these.
So apparently when we were talking about the speculatory and degenerate aspects of the
Korean market in crypto, well, they didn't learn any lessons from us and it seems like we might have
yet another contagion here in another major market.
Again, a service that's offering 12% yield.
They paused, I guess, withdrawals,
which caused a service that utilizes them
and works with them to pause withdrawals.
Apparently, we're digging into it right now,
but some other intertwined things here,
one of them is an investor in the other,
but it seems like we might have another major thing.
contagion type event going on in South Korea here with a lot of Bitcoin on the line.
And let me ask a quick question.
Jay, I'll give you the mic in a bit.
But I wanted to ask one more question regarding the...
Just the FOMC meeting. Before that, for the panel, when Noreal Rubini joins in about 10 minutes, we agreed that the co-hors for me, Scott and Ryan, will be asking the questions, mainly Scott leading the questions.
I'm not sure if we can ask, get panel questions afterwards, but yeah, we'll be muting everybody and then we'll go back to the panel right after we finish with Rubini. Is that correct, Scott?
I think that's correct. I think Rand might lead quite a bit of that as FOMC. But yes, the three of us, it's very strict rules that everybody else has to remain somewhat silent. So we will respect that, obviously.
Yeah, let's go back to the discussion. Ram, I want to go to you, can you hear me?
Yeah, I hear you. Go ahead, Margo.
Yeah, so just same question again.
You know, the FMC, the meeting is coming up.
So, you know, the basic questions.
What do you expect to see?
How do you think the markets will respond?
Some quick thoughts.
Crypto and finance.
You know, we're going to move slowly from crypto towards macro.
You bet.
Let me zoom out a bit.
So I'd say, like, my view over the last six to nine months is that we'll see rates higher for longer.
That was non-consensus.
Now it's become...
consensus so it puts me in a funny spot because i don't like being consensus but you know the fed
as you know has a dual mandate unemployment versus inflation trade off
In today's reality, that's shifted.
It really is one mandate, which is restore their credibility.
And the reason why that's important is because confidence in the Fed is actually a lever to shape inflation expectations.
If consumers and businesses expect inflation, then that starts getting baked into prices and contracts.
So I don't expect we'll see any pivot.
this year, you still have unemployment rates so you haven't seen since 1969, which obviously
ushered in a decade of higher than average inflation rate. You're seeing improvement on the good
side, but not on the services side. And it's going to be challenging setup because at the same
time, you have a withdraw down in the banking sector in terms of deposits, as well as the issuance
about $1.5 trillion in debt, which is a liquidity drain for the system.
So in the past, the Fed could have its cake and eat it too.
If there was softening the economy, the Fed could lower rates and that would generate stimulus.
But now the Fed has hard constraints.
It's making trade-offs, and those are very uncomfortable, high-cost trade-offs.
It can't have its cake and eat it too.
You're seeing that obviously expressed through the tremors we have,
that seems like once a quarter now, around the banking sector as well.
I don't expect any change in this FMC meeting.
And just for the audience as well,
I know we have a big crypto audience.
This is the Crypto Town Hall as we move to macro.
How the FMC will affect crypto,
if we see at 50 basis points,
A cut, we'll see, sorry, increase, we'll see a major downfall, 25 basis points, we'll see a downfall, zero basis points, we'll see a pump, and a cut, a 25-bip cut, we'll see a super pump.
Just got that now from the team.
Scott, what do you think, man?
I think that today, what do I think is going to happen with regard to crypto or specifically FMC?
FMC, crypto, and macro.
Yeah.
I think we're going to see a pause. I think we'll still get some hawkish language to keep
equilibrium there. I think that probably they'll talk about being data driven in the future.
I think that we should not be talking about a pivot. Sorry, Ran, if you're there.
Pause and pivot are not the same thing in my mind because a pause leaves the floor open for
future hiking.
and a pivot, once they pivot, man, they're not going to...
Let me give you some forecast, and I don't want to get your forecast.
C.D. Forecaster, a 25-bip hike.
Goldman Sachs a pause.
Societe General a pause as well.
What do you anticipate, Scott?
I would go with...
90-something percent pause.
90 something percent and and how do you think crypto react do you expect a pump as we saw based on the
I think it's baked in I think it's baked in to be quite frank first of all whatever the whatever the market does first will probably be wrong
and it'll float back in the wrong direction, in the right direction afterwards.
We see that quite a bit, which is why if you specifically look at certain
cryptos after these kind of announcements of meetings, you get what we call the Darth Mall
candles, which is a big wick up, big wig down, and settling somewhere in the middle.
But listen, I think when everyone is expecting something and they get it, why would the market
particularly react, right?
So I know that it'll likely bounce around, but right now I think that...
Crypto has to be looked through a different lens.
You might get some immediate reaction,
but I think there's far too much happening in that market
to be really concerned with what happens in that one.
So, so in reality, joining us in five minutes.
What do you think he'll say when you get to ask him at the end,
your thoughts on Bitcoin?
Do I have to? Can I ask him?
I just want to know who we're throwing in front of the bus.
Let's throw around.
He's not here.
Let's throw around.
I'll speak on that one.
I think he'll be bearish on Bitcoin.
I think he would expect a deflationary impulse as well.
Let's see.
I mean, I think we should expect an inflationary impulse as well.
I mean, deflationary impulse as well.
I agree with him.
I mean, we've seen PPI fall off a cliff at a rate never seen before in history,
commodity prices.
We'll get into all of it.
So do you know, as Noreal did say that there will certainly be a recession.
He thinks inflation will remain persistent,
mainly because of the geopolitical tensions that we're seeing.
And, yeah, it'd be interesting to get his take on the whole de-dollarization argument as well.
I want to ask him how much Pepe coin he owns. Can I do that?
Yeah, if you would never want him again on the show, then yeah.
And how much he and B he owns too.
Oh, yeah, we'll be good to get us.
No, don't ask him about buying us.
No, don't ask him about that.
But yeah, he'll be joining us in four minutes.
I'm on sending him the invite now.
But let's continue with the discussion as we prepare for Mr. Rubini.
Bill, your thoughts, what we're going to see today.
And how do you think the market will respond?
Yeah.
I don't think the market will respond at all to the pause.
I think the big question will be, what does he say about strains in the banking system?
Do they continue the – well, I just say it's a lie that there's no strains in the banking system.
which has been the narrative,
which is clearly untrue,
and the fact that,
you know,
many banks are basically insolvent
and they've caused the problem
and,
you know,
what are they doing about it?
I think that will be,
his response is there to those questions will probably end or comments will potentially move the market.
But I think Scott's right.
I think the pause is priced in, anything but that.
I think he's going to say that, you know, they reserve the right to look at future rate hikes if inflation continues to rear his head,
which is clearly nonsense at this point.
I mean, you know, PMI is in free fall, inflation's in free fall.
Yeah.
And I don't think that's going to change anytime soon.
So, so, you know, any deviation from that, I think, is going to move the markets.
But I suspect it's going to be more of the same just without a rate hike.
So I've just sent out the invite to Scott, by the way.
By the way, we have to ask, we have to ask Muriel if he owns any Bitcoin still.
When he and I did the infamous Milken panel together, I think Bitcoin was trading at about,
I think it was $2,500 or $3,000.
And he, you know, was basically just, it was awful how he was trashing Bitcoin as, as garbage and a scam.
And I'd love to hear his take on that now since I think he's been proven wrong.
Hopefully you will ask him that or maybe allow me to ask, but...
Bill has volunteered to step in front of the bus, but we are contractually obligated.
I love how Bill has such a nice calm voice.
Bill's the right one to do it.
I have no problem.
No problem asking any question that I think is appropriate if you'll let me.
So...
Yeah, I think we'll probably ask him initially for the broad strokes and then see what happens from there.
I think we're trying to bring him up probably as we speak.
So just waiting for that to happen, looking for him in the audience as well.
And I think, guys, you know, obviously we're talking about FOMC here, what's likely to happen and
we're going to have many, many hours to do so in advance of that news coming out in two and a half three hours.
And we're committed to being here that entire time.
I mean, Mario, anything you want to share before we get an Ariel up?
No, man. I'm pretty bullish on crypto.
I don't think it could get any worse than that.
I think we're in for a long bear market.
I tend to be the bullish one when it comes to macro, you know, the same camp as Jay.
And regarding the banking crisis...
Not sure what to make out of this.
It seems to have eased up now.
I'm not seeing that much fud anymore, but then again,
you know, the quiet before the storm.
Are we seeing much, I haven't been in the finance spaces, Jay, and Ram.
Have we, are we seeing much concerns within the banking sector
and when it comes to commercial real estate?
Sure.
I mean, we still have $1.5 trillion of commercial real estate debt maturities
happening over the next two years.
A lot of these...
loans were, you know, amend and pretend.
A lot of the loans are within CMBS and there's not a lot of disclosure and special servicers
control the game.
For those of you who are not as close to the market, obviously in commercial real estate,
there's several types of properties, right?
Office is one example that's under a lot of stress, especially in San Francisco, downtown
For example, you have Class B offices, big office towers that are selling for 20, 30% of face.
And if you're a bank and you originate a loan at 60 LTV, you're either trying to sell those risky loans right now and some banks are selling those loans or you're in a position where you're going to take an actual 50% loss.
If they're selling it...
prices that low. And why are they selling it prices that low? Because their capacity utilization is only
50 to 70%. So these buildings are 30% plus empty. And at the same time, their property taxes are going up.
And they're mostly a floating rate debt based on LIBRA and SOFER, which went from 0 to 5%. So if you're barring at L plus 200, your cost of
capital almost tripled.
So that's kind of the quick synopsis of what's happening in commercial real estate.
You know, is it going to be an...
Jake, can you put that in layman's terms for all the people who don't know what all the terms means?
Sure. So people borrowed money during a 15-year zero interest rate environment to buy office properties that were not well maintained.
And during the work from home, you know, especially during COVID, you, there is an already an overbuilt of these commercial properties in major cities in the U.S.
There's population flight out of those cities.
And what's happening now is with flex schedules, with work from home, you have these buildings...
that can't afford to pay rent as their lease is expired, just like you have a lease for an
apartment.
You know, these buildings have, you know, five, seven, ten-year leases.
As those leases expire, they don't have revenue to offset rising interest rates.
And that's causing a squeeze at these real estate developers and the property owners like
the Blackstones of the world, the Pimco's of the world, the broke fields of the world.
These huge multi-billion dollar managers are walking away from properties.
why? Well, one, they're getting redemptions. Like Starwood got 5% redemptions this quarter, so did Blackstone on their real estate fund, and they need to meet those redemptions. So actually Starwood yesterday announced that they're selling $2,000.
residential properties.
Imagine that.
Hasn't Blackstone had pauses on redemptions for quite a while in at least one of their funds?
Yeah.
So these funds can put up gates just like hedge funds do.
What it actually does is it's counterintuitive.
It actually accelerates the forward outlook for redemption.
So let's say you're invested in a fund with, you know,
Bill Atman.
And Bill Atman says,
you know,
we're worried about the economy.
He starts crying.
And he says,
I'm going to lock you up for five years because I want to charge you fees for five years.
And I don't want to sell all these securities at a loss.
That is viewed very badly by the LP community.
What ends up happening is the moment those two years or five years are up,
you're going to take all your money out.
So in the near term,
it might give you some revenue from fees,
but it's a horrible thing to do to investors.
And what is likely to happen is they're likely going to allow more redemptions over time, but they're going to have to sell properties.
And they're selling properties in a market where there's no bid for a lot of these properties at the same price that they bought them because, you know, interest rate costs are so different from where they were.
even two years ago. So that's kind of the issue. Now, the industry is a $20 trillion
industry with $6 trillion of, you know, of identifiable debt. A lot of the debt is at regional
banks. They're 4,500 regional banks. Most of them are not publicly traded. So there's some banks,
you know, that have 10, 20, even 30.
percent exposure that will likely need to take some haircuts.
But it's going to be like a slow moving train wreck.
It's not like something that explodes overnight, but every day I'm seeing new buildings
default.
So there's a mall in California that just $600 million loan that someone just walked away.
Yeah, they just walked away.
That's right.
So do you think that we're not seeing that crash yet just because of, as you said, there's just no bid.
So it's kind of frozen.
Yeah, it's like the real estate market.
So I did some work with a friend of mine who's in CRA, probably.
private equity and you know you when you look at this market only like 2% of the market
transacts every year right it's very illiquid that's why you know i was bearish on resi real estate
and you know we were short um in 2006 2007 2008 but things took a lot a long time to play out
and you know commercial real estate is even more slow moving you think about that you know
if only one to two percent of trends that you know one to two percent of properties turn over every
year it'll take a while um
for this to play out. And by the way, when a bank takes over your property or a fund takes over
your property through a loan, you know, they don't actually sell it right away. First, they try to see,
okay, can we cut costs and can we make rent? And then they'll try to wait for the market to get
better before they puke it out. So you need to see a lot of inventory build up for it to shock
the system. And that takes some time.
Whenever you, just to add on Jay's point, if anyone ever seen office deals, you know, before four or five years ago, we're looking at some. And basically they hand you this giant spreadsheet with two very big assumptions. The first is, hey, we're going to assume money is going to be cheap or free forever.
Right.
two, we are going to assume people are going to be in offices forever.
And once you, and if you model that out, oh, this bank is, this, sorry, this building's worth $300 million as a result of that.
But like those two assumptions, those key assumptions in these financial models that give you are, were completely wrong.
And that this process of reevaluating the value of these buildings, not just these buildings, everything, everything you can invest money in ever had basically for the last 10, 15 years had those two assumptions.
And now we're in the process of repricing everything and office buildings being sort of the canary and the coal mine here because, you know,
No one's going back.
Very few people are going back to the office
the same rate they were before.
What would be,
Mickey,
what would be the signal that we're reaching that
tipping point?
Is it a percentage of vacancy?
Is it certain with sales?
Is it the redemptions in these funds?
I mean,
how would we know that,
oh, shit,
it's this is the moment?
It's the inventory that Jay is talking about
because right now everyone's trying to figure things out.
They're like, okay, we can figure it out.
I mean, look, people are going back to the office now.
Aren't they?
Aren't people going to go back to the office?
Didn't Microsoft say this?
And Facebook, aren't people going back to the office?
So people are going to try to hold on to these assets or they're going to try to sell the debt.
And another company is going to buy it and thinking they're really smart.
We bought this debt because we're so smart because we know how to turn this $200 million office building into a viable investment here.
So we have to let that process happen.
And we're just at the beginning of that process.
And, you know,
So much as, you know, based on that, based on the footfall of office is how all the other commercial sales is valued, right?
Because now they have this, you know, a shopping center with restaurants and stuff that's based on that.
And that football is going to be gone.
So all that has to get re-rated as well.
So we're going to go through a big cycle of rewriting all this property.
Could the economy bail that out?
Like since you guys talk about it, sort of like a slow moving train wreck and it's taking a really long time.
If things improve everywhere else, could it effectively become a nothing burger with time?
I don't know. It's possible, but I don't think so. I think I don't think you're going to see, I think the way offices are going to be structured going forward, more like motherships. I don't think you're going to see the amount of office workers coming back in as we did before. And if you even have you have a 20, 30 percent drop in vacancies. I'm sorry, drop in in, if you have an increase of vacancies, 20, 30 percent, these models die. They just don't work.
So it sounds like Jay and Mickey, both of you think this is somewhat inevitable.
I think so.
Plus, the cost of capital is not going down anytime soon, right?
It's just, it's just not.
So, you know, a couple years, you know, high cost of capital, low vacancy is the entire
model changes, right?
The value of the building changes significantly and the market price goes down a lot.
So, and this is a trend. This is not just COVID, right? Like, you know, even four or five years ago, more and more people were working from home. It was, you know, there was more and more vacancies in offices. It's not like this is, you know, just COVID, you know, accelerated a trend of more and more people being remote and less of a need to have these giant, these giant offices full of people, right?
I mean, we're talking about positives.
The general economy, just answer your question.
I mean, it can't really fix the issue.
What you actually need is for corporations to force people back into the office.
And right now, I think in New York, we're at 50%.
Certain parts of the U.S. were higher.
But also, it's not just that.
If the people that are going back into the office, you know, with their, they want to go into the class A.
They want to go into the better buildings, right, with all the millennial treats and kitchenettes and all those things and technology and ability to, you know, for people to get good access to broadband and put mount big screens on the walls.
Like the older buildings with, you know, the dimly lit, you know, structures, um,
And the less ventilated, you know, less pretty buildings, like they're always going to be
They're all toast, right?
And it's just a matter of time.
Will some of them get repurposed for lofts?
Yeah.
But that process is going to take decades, right?
So it is a big problem, and it's not just offices.
It's retail, right?
Look at all the empty storefronts we still have.
It's retail.
And it's also like transitional multifamily projects.
There's like a 3,500 apartment complex that defaulted in Texas.
Right.
Because they never finish building it.
So they're projects that are being built.
Right.
There's a huge millennial demographic that wants to rent.
I mean, that's not unlimited, right?
So if you don't finish your project, you're going to sell it at a big discount.
Makes sense.
So everyone, Noriel Rubini, has joined us.
Honor to have you here.
And thank you for joining this.
I think obviously the topic today is FOMC in general, but I would love to hear, Noriel, the broad strokes on where you think things are heading.
I think we all understand that these individual FOMC meetings maybe are not that impactful, but the broader picture is what we should be looking at.
Yeah, I think, Scott, just to add to that, I think especially today on a day where a lot of people are saying,
I know you're disagreeing, but this is potentially a pivot, you know, the Fed going from raising in the fastest rate that they've ever raised in history, going to pausing.
A lot of people are saying, this is like the day of a pivot, basically. I'm interested to see what no real things are that.
Yes, thank you, everyone. It's great being here.
and be able to join this conversation.
Well, I'll start with the global economy.
You know, there has been a very sharp slowdown of economic growth this year.
If you look at the Eurozone, actually, it's already in a technical recession.
As growth has been negative, both in the fourth quarter of last year and the first quarter of this year,
things don't look much better for the rest of the year.
The UK is even worse. We are in outright stuclation with inflation very high and effectively a recession.
The data out of China are coming quite disappointing. That's why they're doing more monitoring fiscal stimulus.
They thought that the reopen is going to get through strong growth. That's not happening.
And, you know, you have about 60 plus emerging market, poor economies that have severe debt servicing problems.
They're going to default on their debts or have to restructure them.
That's why both the IMF and the World Bank estimate that this year growth is going to be really mediocre well below potential.
And potentially, there is even a tail risk of, you know, a global recession.
You know, the data out of the United States have been a little bit of a mixed bag.
There is still an ongoing debate on whether the U.S. is going to achieve a soft landing,
meaning going back to 2% inflation without...
any recession, whether there'll be a softish landing, meaning a short and shallow recession,
or whether something more severe were to happen, a more severe recession and so on.
And I would say that there are gathering headwinds on the U.S. economy.
First of all, the Fed had to keep on tightening interest rates.
They're going to take a pause right now, but my view is that this is going to be just a pause.
that the inflationary pressure underlying are still meaningful
that the Fed probably will have to start doing another couple of hikes
later on this year, maybe as early as July, maybe in September.
Why do I say that?
Headline inflation might be down only to 4%,
but Core is at 5.3, well above what is the target of the Fed.
wage inflation is still quite robust around 5%.
And the labor market is tight.
You have the lowest unemployment rate.
You have aging of population.
You have restriction to migration.
You have a fall in labor force participation rate
that has started to rise but not back to pre-COVID level.
You have the great resignation.
And you have even the beginning of kind of labor strife.
And most of the economy is services, not goods.
And in services, labor costs are more important.
You know, commodity prices have had a little bit of a correction this year
because of concerns about the global recession and weakness of China.
But the reality is that the fundamental of commodities
is that we are in a super cycle for commodities.
In part is because we have underinvested into not just...
natural gas and oil because we're bashing fossil oil producers and we're not producing as much of renewable.
But there's also massive underinvestment into green metals, industrial metals, because of regulatory constraints.
And also a variety of climate factors that restrict the production of food and fertilizer.
And the geopolitics, whether it's the brutal Russian invasion of Ukraine, whether this cold war between U.S. and China getting colder, whether it is the risk that this year or next year, Israel is going to strike Iran as Iran is becoming a nuclear threshold state.
I think there are risks that are going to lead to upside risk to commodities.
So if wage inflation is going to remain in the five range,
if commodity prices are more of an upside rather than downside,
the ECB is not done yet.
The Fed is not done yet.
Nominal rates are rising, real rates are rising.
We've had the problems, of course, of the banking system that lead to a credit crunch among the regional banks that, as you know, lend a lot to household SMEs and to commercial real estate.
And we have the excesses that they were just discussed.
both in commercial real estate and in residential.
So I think that the Fed is facing a bit of emission impossible
because they face not only a dilemma having to maintain price stability
and also growth stability, meaning avoiding hard landing,
but they have a third goal, financial stability.
So you need price stability, need growth stability about the hard landing,
and you need the financial stability.
And I think that the trade-off is going to appear,
is that either you raise rate enough to bring inflation to 2%,
but then you have to go to a Fed Fund's rate that goes to 6%.
And that pushes the economy into a hard landing.
And then you create financial stresses on banks
and highly leveraged institution in the economy.
And they have a negative feedback between the real economy
and the financial system.
the more is the economic contraction, the more there are defaults,
the more there is financial instability,
and the more there is financial instability,
there is more than an economic contraction given the credit crunch.
So either you raise rates and you fight inflation
and you cause an economic and financial crash,
or more likely you will wimp out, you blink,
and you decide you don't want to raise rates to fight inflation,
But if you do that, there is a risk of a de-anchoring of inflation and inflation expectation.
There is a wage price.
Pyrton continues.
And then you end up again into high inflation.
So my baseline is still a hard landing.
But I mean, I hear you, I'm looking at the inflation data that we got yesterday, the CPI inflation data.
Now, granted, core inflation was still a bit sticky, but if you look at the core, if you look at the CPI, the CPI had its biggest percentage drop.
It had its 11th successive drop.
You've got CPI currently year on year at 4%.
The Cleveland Fed forecasts that next month it's going to go down to 3.3 or 3.2%, which is...
well on the way to the 2% target.
You also have inflation coming down much faster than inflation actually went up,
which is I think a little bit encouraging.
When you look at all of this and you look at it on the background of how much the economy actually slowed
and the current unemployment rate or employment rate in the United States,
Do you not have some kind of hope that maybe this is not going to be as harder landing as you think?
Do you not think that this might be, like I looked at this data and I said, you know what,
given where the Fed started, when I say started, let's ignore the fact that the money was printed
and the economy went crazy and they should have started much earlier.
But if you look at it from when they started, it feels to me that they probably done
as good a job as they possibly could have done.
You know, I take your point. My response to that will be along the following lines.
First, as I pointed out, the fact that the labor market is so tight.
is a disadvantage for the Fed, it's not an advantage.
And we have a still unemployment rate that is well below Niro.
And wage growth that based on a bunch of measures is 5%,
not consistent with 2% inflation.
Two, as I pointed out, in my view, a bunch of factors
that imply upside to a variety of commodity prices,
and it's going to be inflationary.
But most importantly...
whether the Fed can stop at the current level of rates or not.
At the beginning of this year,
their view was based on the SEPP projection
that CorePCE at the end of this year
will be 3%.
And if it was going to be 3%,
that was consistent, then with a path that leads them to something closer to 2.5
by next year, and you have next year, and then maybe 2% by 2025.
However, throughout the year, they've revised upward every three months.
They're forecast of what core PC is going to be at the end of the year.
first to 3.2, then to 3.5.
And I'll make you bet that when the new SEP projections are going to come out today,
the number for CorePC for the end of the year is going to be 3.8%.
Now, if it is 3.8%, a Fed funds rate at 525 is not sufficient.
to bring you on a path that leads you to a core PC by two and a half at the end of next year and 2% by 2025.
So the idea of pausing at 525, even considering the stresses...
in the banking system was all conditional on a path for Core PCE that was bringing close to 3% by the end of the year.
So if I'm right, and their revisions by the way of the Fed are going to confirm that Core PCE is 3.8 at the end of this year.
Then you cannot stop. You have to do at least an added to hike, maybe even go to 6%.
And if you do another two hikes in an economy that is already weakening, and we've seen weakness in the PMI, some softening even in consumption, some beginning of softening of the labor market, and an economy in which even at current level of interest rates, we've seen stresses,
Initially in the banking system, but as you know, there are a highly leveraged institution among household, among corporates, leverage loans, CLOs, junk bonds, fallen angels, those that are one step away from being downgraded from investing rate to below investment rates.
All those things are going to imply a tightening of credit condition, not only among the banks,
but also in the credit market.
And to me, that becomes the tipping point for having an outright recession.
Now, whether then the recession is short and shallow as opposed to most severe, it depends.
A baseline would say, well, maybe only short and shallow.
But if then there are some non-linear interaction between an economic contraction, increasing default rates and widening credit spreads and that widening of credit spreads, causing a greater credit crunch that feeds into a worse recession, those nonlinearity can lead you from a short and shallow recession to something more severe.
You know, historical numbers, just brief the final point.
Stoical number suggests that an unemployment rate goes up by 0.5%.
You get an outright recession, meaning that unemployment rate goes up by 2 percentage point, not 0.5.
That has been always the case.
And those nonlinearities might kick in and you may end up into an outright recession.
You talked about the idea that they would blink and probably eventually pivot as the case.
I think we know that they would need to severely break something for that to happen.
Do you think that that's the stock market?
Because a base case for a lot of analysts is that they will not pivot until they see stocks crash.
Well, I think it will be not just the stock market, because actually the stock market has a limited impact on the economy, given that, you know,
50% of all equities held by the, you know, by the top 1% of the distribution of households and 80% held by the top 10%. I think that actually the Fed is much more concerned usually.
about what's going on in credit markets, you know,
if in the beginning of a recession,
you get high-heel spreads going from 300 plus to 900,
as that happened in previous episodes of a credit crunch,
if you're starting to see CLOs and leverage loan markets,
getting shut down, that tighten of credit condition,
and the risk that then more banks, as we know, are insolvent
and they're going to go bust.
That's going to be for them a bigger concern.
about what's going to happen to financial market and to the real economy,
than just a stock market correction or even a bear market.
So they're going to look at everything.
What I'm saying is if we reach, and I might be wrong,
we might have a soft landing or we might have a softish landing.
And of course, you have to assign probabilities to those.
But I can see a scenario in which...
If inflation remains more sticky, if they go to a fat funds rate of 575, another 50 basis point, let alone six, then you start to see economic stresses, financial stresses, stock market stresses, bond market, credit markets.
They feed on each other. And then you end up into a bad equilibrium and then they have to figure out.
whether they blink or not when inflation is still well above their target.
And I think they're going to blink.
But blinking only buys them time.
So, Nehruly, I want to ask you a question.
If you were Jerome Powell and you were sitting in Jerome Powell's seat,
now, as it is today, what would be your ideal action?
Well, you know, in some sense, not just Jerome Powell, but also Christine Lagarde or Bailey at the BUE.
They are them if you do and them if you don't.
Because what has happened compared to the past,
and I think that's a difference in this business cycle,
is that in previous crisis, first of all,
the driver of economic downturn, like the global financial crisis,
was a demand shock and a credit crunch that led them to recession and deflation.
And at that level that were much lower than today, yes, there was debt of households and banks, but you didn't have the corporate debt and other types of debts in the system.
So given that demand shock and a credit crunch was easy to do massive monetary fiscal and credit stimulus to prevent the great recession from becoming a great depression and avoiding deflation.
The difference today, and that's why it's more dangerous, is that in the last few years,
we've been facing a variety of negative aggregate supply shocks.
Initially was the impact of COVID on production, supply of labor, supply chains.
Then there was the impact of the brutal Russian invasion of Ukraine on commodity prices.
And the third one was the zero COVID policy of China.
So we had a situation which was slowdown of growth and inflation.
And of course, loose monetary and credit policy, fed also inflation.
But now, so we have negative aggregates, supply shocks.
But now we have also debt levels that are much higher than they were, even after the global financial crisis.
And that level, not only in the public sector, leading to potentially fiscal dominance, but also in the private sector leading to what the folks at the BIS call a debt trap.
There's so much private and public debt with central banks try to raise rates to fight inflation,
not only cause an economic crash, but also a financial crash.
So today, we have the worst of the 70s when we had negative aggregate supply shocks that are
staccflationary.
But in the 70s, debt levels were very low, private and public.
So in advanced economies, we had stactulation, but not debt crisis.
While during the GFC, we had a debt problem, household mortgages and banks, but we had a negative aggregate amount shock.
So we could do massive monetary fiscal and credit easing.
Today instead we have debt levels that are worse than after the GFC and we have negative
aggregate supply shock.
And by the way, this aggregate negative supply shock, as I discussed in much more detail in
my new book, mega threats are not just short term, they're medium long term.
Identify in the book at least 10 negative aggregate supply shocks that over time, reduce potential growth and increase cost of production.
You have de-globalization and protectionism.
You have going from offshoring to reshoring to French shoring.
You have aging of populations.
You have a restriction to migration from south to north, from poor to reach that kept the lead on wage growth.
You have this geopolitical depression that is volcanizing and decoupling and fragmenting the world.
You have the impact of global climate change both on energy prices and food prices.
You have pandemics and COVID-19 for any reason is not going to be the last one.
This is speculationary.
You have cyber warfare.
You have a backlash against income and wealth inequality is leading to fiscal policy pro-label, pro-union, pro-workers, pro-unemployed, pro-unemployed, minorities, you name it.
And you have now beginning of the de-dollarization as we have weaponized the U.S. dollar.
and leaving aside the risk of a disorderly fall in the value of the dollar,
you're creating frictions in international payment system,
and those frictions are also stagnationary.
So you have 10 forces that are essentially reducing potential growth,
increasing the cost of production on the supply side.
And on the demand side, there is so much that you have to eventually monetize it
because otherwise you're going to have an economic and financial crash.
Those are really a different world.
It's the end of the great moderation and the beginning of a new era of what I call
the great speculation or indict instability.
Those are structural factors that are going to be at play for the next decade.
Leaving aside, what inflation is going to be in the next six months.
So, Maria, let me ask you a quick question because I know you've got to jump in a couple of minutes.
I'm going to ask you about two things.
I think one of them will be a pretty positive answer and one of them won't be.
So I want to get your thoughts on crypto and Bitcoin in general, considering recent developments that we've seen over the past week.
And then the second one, you'd like a bit more.
Your thoughts on, I know this is your first Twitter space and you've seen what Elon's been doing with Twitter.
Your thoughts on Elon's moves in Twitter and Twitter spaces in general.
You know, on the first one, you know, I think everybody knows my views.
I've been a public skeptic about crypto in general and even about Bitcoin in the specific for a long time.
And I kept my, you know, my skepticism.
First of all, calling them currencies as a misnomer.
Anybody who knows anything about monetary theory knows that for something to be a currency has to be a unit of account.
scalable means of payment, stable store of value, a single numeral.
None of these four conditions applies for any crypto, let alone Bitcoin.
So they are not currencies. You know, there were 20,000 ICOs, 80% of them were scammed to begin with.
Another 17% of them lost all of their value. They've gone to zero. So there are about 600 of them left.
And since the peak of about a year or so ago,
on average they've lost even the top 10,
depending on which one of them,
between 60 to 80 to 90% of their value.
You know, people were saying,
Bitcoin is going to go to the moon,
is going to go to 100,000, 200,000, 400,000,
a million.
You know, it picked at 69, then collapsed to 16.
Now is somewhere in the mid-20s.
If you think that one being a success, to me, who cares, really?
Let alone all the other ones that are gone bust, let alone all the scams in Gipto,
let alone all the landing platforms that have gone bust,
let alone the fact that we are in the middle of a massive regulatory crackdown
against exchanges, against scams,
against stuff that pretends not to be a security,
is a security.
So I remain very, I respect that you feel otherwise,
that I'm very.
So, and I remain there.
I want to challenge you for a little bit there.
I want to challenge you for a little bit there
because you and I have been,
we've been going at this from 2016 and 2017.
You mentioned that a lot of these currencies or scams, and to be honest, I agree with you.
You mentioned that the lending platforms collapsed, and I agree with you.
I agree with you.
But a lot of that is because of the regulators and the regulator's inability to act in time to make sure that we could play with this new technology.
Now, I know that you've been vocally against Bitcoin, but do you not see the use of any blockchain technology?
Do you not see the value of a decentralized monetary system?
You spoke about de-dollarization.
You spoke about high inflation.
You spoke about all these problems.
With all of those things in mind.
Do you not see the benefit to having a...
I'm not even going to call it a currency because I'm not even going to fight me on currency, but a store of value or a digital scarce asset that could be a store that could be used as a store of value.
Let's put aside everything else. Let's put aside all the scams and the 10,000 other coins and the lending platforms.
Let's just talk about one concept, which is a digital, decentralized, scarce asset.
that people could use as a store of value?
You know, first of all, I do not believe in the decentralization
for a number of reasons.
There's a lot of talk about decentralized,
but, you know, the but bring inconsistency, Trinity,
that says you cannot have something that is at the same time, you know,
scalable, decentralized, and secure.
And lots of stuff in the crypto space is not really decentralized.
Two, if decentralization is a way of avoiding regulation, taxes, MAL, KYC, human trafficking,
terrorist financing, there'll be a crackdown on it.
You know, people say you can transfer instantaneously crypto from New York to, I don't know, Seychelles in five seconds.
And instead with Swift takes you two or three days.
Why takes you two or three days?
Because Swift has to do MLKYC.
The technology with Swift allows you to do it in two seconds like anything in crypto.
You're not paying the compliance costs.
And of course, you're saying there's an advantage.
Once there is a regulatory crackdown and you have to pay those compliant costs, there's not going to be any advantage.
There is a lot of talk about decentralization, but, you know, miners are centralized, developers are centralized,
wealth is centralized. Everything is centralized in crypto. There's rhetoric about decentralization.
And, yeah.
And everything that's to do with blockchain,
whether it's enterprise DLT or corporate blockchain,
is blockchain in name only because 99% of those projects
are with blockchains that are private, not public,
centralized, not decentralized,
permissioned, non-permissionless, and based on a small number of trusted validators that are
validating the transaction, rather they mean trustless. So you can call it blockchain. To me,
it's just a glorified spreadsheet. I use Google Docs. It's a permissioned database. Nobody calls it
blockchain and works totally fine, and it's permissioned. So 99% of blockchain is blockchain
in name only. And I remain...
of the view that even blockchain is a totally overhyped, essentially, technology.
I'm going to go back to Mario's question around spaces.
I know you've been following these spaces and what Elon's been doing,
wondering what your view is on these spaces.
Yeah, so Noreal, just kind of word the question as well,
give you a bit, because I know this is your first space.
So what Elon's done with Twitter, obviously, fighting censorship as much as you can.
And then having Twitter spaces that are uncensored and covering stories,
we've covered the Silicon Valley collapse, the FTX collapse,
and geopolitical issues live here.
Would love your thoughts on your experience today, but space is in general on Twitter under Elon.
Well, you know, I believe in the First Amendment.
And I believe in limiting censorship only when it's necessary and so on, and I'm all for
spaces of any sort, not just on Twitter, where there is an open discussion, even of any
ideas that are, how to say, controversial.
But the reality is that since Elon has decided to reduce the amount of censorship,
You have a whole bunch of people.
I'm Jewish.
There are neo-Nazis who are spewing the nastiest stuff,
including physical threats.
There are really a bunch of weirdos,
how to say, white supremacies that are neo-Nazis
that are talking about violence.
There are lots of people that are really ugly,
that we have to think about the consequences
of allowing not only these people to speak,
but as we know,
in these social media echo chambers lies and misinformation and threat can spread like wildfire.
So to me, actually, the old Twitter, where they had a few thousand people that are in charge of moderating to make sure that lots of stuff is not legal.
And by the way, there are thousands of bots.
by Russians, by North Koreans, by Iranians, by Chinese that are spreading his information and so on.
Having some regulation, it might not be perfect, but I prefer that type of regulation to just a free fall
where people that should not have this type of stage, I have that stage.
And to me, it's really dangerous and is really toxic.
You might not agree with that, but that's my personal view.
No, I think they're all valid points.
I think the concept of uncensored,
media,
uncensored communications is a new one and kind of decentralizing censorship.
So allowing people to kind of point out.
And obviously that excludes bots,
that excludes anything illegal,
that excludes anti-Semitism.
so I agree with,
with your stance on this.
And I hope your experience today and the discussion we've had today,
was enjoyable.
Any final words for the audience before we,
we, um,
At the interview, and thank you for your time, Noriel.
No, nothing else to add.
It has been a very enjoyable experience
and look forward to joining some of these dialogues in the future.
Again, thank you.
Thank you, Mr. Rubin.
I really appreciate it.
Thanks.
Ryan, your thoughts?
I have one question for Neural if he's still here.
And the reason why I have this discussion is because Scott and I always have this argument about
the de-dollarization and whether the de-dollarization is actually real.
And if there is de-dollarization, kind of like where is the de-dollarization going?
Is it going to the Chinese currency?
I mean, you mentioned it.
Do you believe that the de-dollarization is actually happening?
Well, I've written an op-ed for the Financial Times earlier this year in which I spoken about it.
And in brief, my view is we have lived since 1945 with a unipolar global currency regime
where effectively the US dollar was most of the transactions both as a unit of account,
means of payment and store of value.
at the global level.
We tried to create a multipolar system
by creating the SDR, the SDR plus with the R&B,
but that didn't get us anywhere.
But now there are some countries starting with China,
but not just China, but also other revisionist powers, like Russia, like North Korea, like Iran, Pakistan, that are challenging, of course, the economic, trading, monetary, financial, currency.
and political and geopolitical order that the US, Europe and the West created after World War II.
And in this geopolitical depression, of course, they also have to be worried about their assets being seized
if there is a geopolitical confrontation.
It happened with the Russian assets, for example, after their invasion of Ukraine.
But, you know, there is a saying that says, if I owe you a billion is my problem, but
if I owe you a trillion, it is your problem.
And the Chinese own about a trillion dollar of US treasuries.
And if things were to escalate, say, on Taiwan, you cannot totally rule out that the US would
freeze those assets, the same way they froze the foreign reserves of Russia.
And therefore, I think that what China is trying to do is to create a new bipolar global reserve currency system where these friends and allies of China are going to increasingly want to rely less.
on the US dollar and more on the R&B and related currencies, both as a unit of account,
a means of payment, store of value. Now, it's going to be easy for those rivals, the small
group of real rivals, China, Russia, North Korea, Iran to get there. The question is whether
they're going to convince also members of the global south.
you know, people in the Gulf, people in Brazil and Latin America,
Indians of the world to go in that direction.
And I think that's going to be much more challenging.
But we're going to the world is going to be divided.
It's going to be segmented.
It's going to be fragmented.
It's going to be decoupled on trade, on investment,
on technology, on data, and information on everything.
And in this kind of a fragmented world, of course,
and world divided
is going to be also divided
in terms of
global currency
so you'll have an area
still around the US dollar
and the euro
and another one around
the R&B.
So to me
the dollarization
is going to occur
but it's going to occur
gradually not overnight
but the world
is not going to go
in a direction
where the alternative
global currency regime
is based on
Bitcoin on crypto
it's going to be still
dollar and possibly
the R&B
in brief mr rubini really appreciate your time i know we've gone over time so i appreciate the extra
10 minutes you stay here thank you welcome anytime thank you good being here bye bye
have a good day sir you too bye
Right. Even Janet Yellen said that she expects the de-dollarization over time, which was a really surprising comment.
Scott, the reason why I asked is because we had this discussion, you said there is no debolorization.
And that's why I thought, you know, that yelling.
The de-dollarization is inevitable.
I just think that the time frame is exceptionally longer than Bitcoiners and people seem to believe.
And I don't understand where we're going.
If the dollar goes down.
What do you think of Yerlans?
What do you think of Yerlans comments then?
Because I know she's been worried about the dollarization for a while.
But I think that you can talk about
the dollarization is the end of the dollar
or de-dollarization is a very, very slow trickle that's manageable.
And I think the latter is probably what she's talking about.
Yeah, but then again, why mention it now if it's something in the horizon?
Is that just to kind of ring the alarm bells on saying that actions needed now?
I don't know because he's 450 years old and nobody took away her mic.
So guys, guys, just, I mean, before we carry on you, I've got to just take my hat off to one of our speakers,
Henrik, who came onto the spaces and actually came onto my show a couple of months ago and he said,
you know what, prepare for an actual melt-up.
And at the time, we kind of said, there's no melt-up.
What are you talking about?
He...
Henrik, what was the word that you used?
There wasn't a melt-up.
Blow-off.
Blow-off.
A blow-off.
Yeah.
And I think that you've been 100% right.
If I look at the NASDAQ, the NASDAX's up 40%, I think, this year.
Which is, I mean, it's huge.
And I think you came onto my show probably about three months ago.
And you said, expect this.
The NASDAQ was an 11,000 when you came onto my show.
And you said...
We're going into a blow of top.
We're going into a crazy blow of top.
Right.
How much more steam?
How much more steam list?
Oh, lots more.
Lots more.
It's just getting started.
NASDAQ is just the first thruster.
So this is, this is, you're going to see a normal rotation as you do.
So you have the leading NASDAQ stock leading on and then you'll have it to try and rotating into other stocks.
And the reason is, as I said back then, also, we're getting into Goldilocks zone.
Inflation is coming down.
Financial easing.
We have no sight of a recession.
And so I do not understand back then why people were so bearish.
And what you have now, you have simply to catch up.
And now people start and say, oh, wow, equities are actually going to rise and we're not having a recession.
And this is exactly what, you know, what was expected from our side.
And still, I'm looking at the, we have this on.
with Swiss block and the Seabroup report where we have a macroeconomic model business cycle and
no indication of a recession here.
So people saying we're going to fall off a cliff here are going to have a real nasty surprise.
I do think we're going to see a consolidation soon and we're going to have a pullback when we get
to the all-time highs, which will pull people out of the market.
But we're going way above all-time highs here.
And, you know, what is the 23,000 on the NASDAQ or something like that?
So I'm going to give you two data points here.
I'm going to give you two data points here.
I see we also got Garrett here, and I know Garris going to disagree with you, or maybe he's not,
but the last time I spoke to him, he was very much in disagreement to this.
But I'm giving you two data points here.
The first data point here is that the S&P 500 is up 13% this year.
But the reasons why the S&P 500 is up to 13% this year is because of 10 stocks.
Apple, Microsoft, Invidia, Alphabet, Amazon, Meta, Tesla, Broadband,
sorry, Broadcom, AMD, Salesforce.
And the rest of the NASDAQ, the rest of the S&P only accounts for 1.4% of the 13%
that the S&P has risen.
Now what that says to me is that,
It's almost like when people go into Bitcoin, and then once the Bitcoin rally is finished, they go into the altcoins.
They get a, they first go into the big caps because they think that they're safe.
Once they're convinced of the momentum in the rally, then they go into the smaller caps, which in this case is the slightly smaller stocks.
And then that actually drives the rest of the bull market.
The other data point for me is I researched earlier.
I actually mentioned on my show, but I researched earlier what happens after a Fed pause.
And if you look at the last couple of times when the Fed's pause, so 1995, 2000, 2006, and 2018, on average, in the next 100 days, markets increase between 10 and 20%.
In fact, the average is about 18% in the next 100 days after a Fed pause.
So when I look at those two data points, I think I agree with you that I wasn't, I didn't agree with you back then.
But I think that now I may have to change my, I think now I'm fully on board with Goldilocks.
I wonder if Gareth, I wonder.
Yeah, yeah, no, so just quickly,
Henry, just to heads up, I muted you just because you had a background noise.
I have a feeling you're responding while you're muted.
Okay.
And then I'd love to get Garris' thoughts on that same question as well right after.
Henry, did you want to respond quickly to round before we go to GERR?
Yeah, sure.
So this is exactly what was expected.
I mean, this is about understanding business cycles.
And we were not in a situation where the business cycles were turning over.
And that's why when people are just looking at markets and they just say, oh, now we have a negative day, week, a month, whatever, they do not look at where we are in the business cycle when it comes to the real economy.
The real economy is set by the labor market.
And the labor market has not been, I mean, it looks fantastic at this point.
It's very, very resilient.
So that's why you do not have a recession.
That's why you do not see markets just crash.
They do not just crash because people feel like it.
So this is what's happening right now.
And for now, we still have, it was 339,000 jobs coming out with last NFP numbers.
You know, we have unemployment numbers at, you know, still very, very low levels, even though we still see the deterioration.
So this about we just because we cannot comprehend that we're going to go higher doesn't make it right.
And what we see right now is just that people are now starting to catch up just, you know, with all humble respect here.
Like what you do now, Rand, saying, oh, now I can see it.
But, you know, this is where the structures actually tell, you know, speaks volumes.
So we're going a lot higher here. There will be pulled backs and of course NASDAQ is getting overstretched.
And about your point with the rotation?
that you have seven stocks or how many it is, that's the normal thing.
Now you're an investor.
Of course you move into what you think is the most safe things first.
And then as you said, slowly, slowly people start to turn in.
And that's again where it's important to understand at which point will the economy no longer
support the stock market.
And it does that for now and it will for the next foreseeable future, which is at least six months.
All right.
Garrett, the mic is yours.
The mic is hot.
I can feel your emotion all the way to...
Okay, bro.
No, so, so yeah, I mean, listen, we definitely are in this meltup phase and there's no doubt about that.
I mean, you know, it doesn't matter if it's good news, bad news, or neutral news, the markets want to go higher, the money from the sidelines.
You're getting people to FOMO in, right?
And anytime you see FOMOing in, that's always a red flag to me.
It's the same as you saw in the crypto markets.
It's the same as you saw in past business cycles, whether it was 07 or 1999 to 2000.
Just a couple things to note on that is...
In terms of jobs, I do want to see tomorrow's jobless claims number of the how many people filed for unemployment.
Because last week, we saw the biggest jump to 266,000 people filing for unemployment that we had seen in months, if not years, right?
I mean, it's a huge, huge jump.
Now, maybe it was an outlier.
We'll know tomorrow.
But I think that.
when you think about the rate of change of interest rates, that is shocking. And to think that it's not going to have a bigger impact on the markets when we've seen the banks closing down, you know, certain banks collapsing and the economic factors starting to slow. And I actually have real world data. So interesting, I was in the bathroom of the office building that I share with other financial institutions. And
In the bathroom, I ever heard two people talking about how their bosses are finally starting to get on them about closing deals.
They said, you know, like six months a year ago, the company was making so much money that you could basically be a slacker and you'd get away with it.
Now they're coming in saying, okay, well, who's the top performers and who do we have to let go?
And so there's this shift going on in the business cycle, in my opinion, that's starting to kind of take hold.
And you're right, the jobs numbers right now have been incredibly strong.
But the question is, when do they crack?
When do they crack?
When what happens when the government sells one to $1.5 trillion in bonds?
And that sucks liquidity out of the system.
We've seen liquidity coming into the system.
You could argue that that's helped the stock market, just like when the Fed has been easing.
That liquidity is going to get sucked out.
Lastly, I'll say this, is that we've had an amazing rally in the NASDAQ.
So, so.
If you look at the NASDAQ from the all-time high to the low in October, it was a 38% drop.
We've now rallied back 35%.
So if you look at past business cycles, check this out.
If we go to 2008, the NASDAQ had a drop of,
of 25% it rallied back 23% and then rolled over and we basically dropped another man i mean
you're talking about from peak to trough another 55% there if you go back to 2000 and if you go back
to 1999 we had a 41% drop and a rally back of 42% before the markets collapsed
And we obviously saw another 66% down there.
And lastly, I'll just throw this out, is that if you go back to 1929, the Great Depression,
the markets initially collapsed with the 1929 crash, 49%.
We rallied back 53% before then continuing down from that point.
Let me just calculate it out here.
It looks like we went down another...
Hang on one second.
Looks like we collapsed all the way down to a low of 86% more of a drop.
So my point is this,
is that everyone's looking at this rally as,
oh, wow, this is amazing.
The NASDAQ has rallied almost 40% off of the lows.
Right.
But if you look at past major business cycles, this is case in point what happens every single time.
It lures in the retail investor.
It gets everyone thinking it's a bull market and then the bottom gets pulled out.
Think about crypto at even 30,500.
I was the most hated man at 30,500 saying it was coming down just like at 69,000.
So it's human mentality.
But are you looking at other markets?
Nas, Dax just, Dax put in a new all-time high.
Nikki is shooting up higher.
Nifty is up higher.
All of Europe is putting in new highs.
So there is more to the world than just the U.S. here.
And you're not going to tell me that we are actually going to see that the U.S. will lead the world.
Sorry, that the top in the NASDAQ, which was in the NASDAQ was in November of 21, was going to be the top.
Whereas the Futsi 100, for instance, or any other, the Dax or anything else, has put in a new high in April or May.
So maybe what you're seeing here, you're throwing a lot of numbers here.
And I remember, I agree with you.
We're going to see a major, major crisis.
And I'm saying the biggest crash since 1929.
but we are just not there yet.
And markets do not fall off the, down, you know, just from the sky.
What they need to see is a deteriorating economy, and you have that.
You're saying claims are coming up, yes, but it's not just about one data point here.
There's many data points.
If you look at the number of open positions versus number of unemployed, you have a, you know, resiliently high number there.
So you're simply not in that situation.
The numbers you're talking about that, the drops you're going to see in a bear market is when you're actually in the recession.
Remember also what you had in 2008, when you had that move up in the market.
Yes, that was because you already were in the recession.
So the understanding of when you're in a recession or not is pivotal to actually understanding these markets here.
And that's where we are way off from that.
And if you look at the, if you look at the yield spread, the yield spread are not indicated.
Yes, they are in the negative.
And that means that we will get a recession, but it's not yet.
We do not have it.
And there are.
You don't need a recession, by the way.
You don't need a recession for the market to correct.
I mean, China's market is down.
a year to date and you can argue that they don't have a recession, but they have an economic slowdown.
We can have growth between zero and one percent and it can feel pretty terrible
for a large percentage of the United States population.
And, you know, there are a couple data points that, you know, you don't even really have to, again, it's just pure data.
But there's a Red Book survey that pulls 9,000 different merchandise and retail institutions in the United States.
And sales are the lowest in six years.
So I think we are in an environment where we are entering a recession in certain parts of the economy, whether it's manufacturing, which is very evident.
If you look at PMIs and diffusion indexes around the world, especially in Germany, you are seeing manufacturing recession globally.
Just...
Just on, on Jay, on Henry's point,
and I want to also welcome Ross and Vinny on stage right after.
On his point, on the UK Europe.
About the crash.
So, no, no, maybe about the crash.
Like, this is the highlights.
Like, a crash is coming.
The worst is 1929.
Gareth is saying there's going to be a massive direction as well.
I don't actually agree with that point.
No, no, no, wait, let me just clarify.
All I'm drawing to is past cycles and how cycles work.
I actually don't think we're going to get into that type of atmosphere until the end of the decade, right?
So you'll have the 100-year cycle with 1929 and so forth.
But I do think that, again, the price action is emblematic of past cycles, whether they be small cycles.
So, yeah.
So whether it's a small cycle or a big cycle, it still behaves the same because humans are the ones that are buyers and sellers, right?
So it's greed and fear emotionally driven.
So for me, I'm right now heavily short the S&P and the NASDAQ at these levels because of that same sort of prognosis with levels, retraces, and so forth and looking for some sort of pullback.
Will it be a great depression? I don't think so.
Okay, and long term, you seem more bullish.
Henrik, you know, what's your time frame?
You know, Garrett says, like, you know, end of the decade, if anything.
Henrik, where do you stand on this?
And then we'll go to Jay and then obviously Ross and Vin are two special guests.
But as I said, we have a business cycle model at Swiss Block and Seaburg Report that we have developed together.
And if you go back 120 years in terms of data on that one, when you get a signal on that one,
you actually have a recession within the next two to three quarters.
It went negative just early, late, I'll say 22.
That means that by end of this year,
we should be close to the recession.
That's what I'm saying.
So we are, let's say, like what we had in 2008,
it could be that the stock market tops in around October,
and we could see the recession sets in around December.
That is the call I have now,
and until then, you're going to see the market explode higher.
And that is because liquidity is coming in.
We see the Chinese credit cycle has been turning up really strongly.
We see speculation of our suggested of new stimulus packages coming out of China,
and we're going to see the Fed is going to pause now.
And then we also have the dollar is going to come up strong down.
Strong down.
So I say you have a tremendous move ahead of us.
This is going to be the one thing that is going to pull people in on the wrong side,
only to, which means to belong into the top.
And then for many, many reasons, when the recession sets in, and this is where I agree with Mr. Rubini and others, that when this one sets in, that's the big one.
And the reason is that we have come full cycle. There is no more easy lunch here. I mean, the free lunch is over. We cannot just do monetary policy this time around.
So you talk about the great recession that we've been discussing since the global financial crisis.
You know, Band-Aids, Band-Aids, when are we going to see the true correction?
And that's the one you're concerned about.
Do you have a time frame or any indicators on what could lead to this?
When we speak one year from now, everybody will be in, nobody will be doubt of that.
And the problem will be this time around that you cannot just, you know, print yourself out of it.
You cannot just do QE to do it because this time around you're actually going to trigger a straxflation.
So I think this time around you're going to see a deflationary bust, which is going to come by a stop by, let's say, end this year, let's say very late this year into 24.
And then at some point, of course, we're going to see all central banks of the world do their magic trick and then try to print themselves out of it.
And they're going to trigger stackflation.
And this time, the reason for stackflation is.
But are they going to print?
Of course.
Of course. Why? Because when they look deflation, the monster in the face, they rather have inflation.
And they will think that they can do with one more time that what they have done after Corona.
So I can promise you they will print.
And when they start to see, you know, whatever is going to fall out, they're going to see when the economy is starting to roll over.
I can promise you they're going to print again.
So it's hard for me to understand.
There are like a lot of different timelines that were mentioned there.
You know, there are a couple of things that you talked about as well.
We lost Mario.
Mario.
About the UK.
So Jay is talking around.
You can't hear him.
I can bring you down and back up.
So go ahead, Jay.
And then I want to go to Ross, Cabesi, Vinny, and Waheed all with us as well.
Go ahead, Jay.
So, you know, there are a few conflating points in that.
in that discussion.
Number one, you know, the rest of the world is very important, but keep in mind that like
Apple is bigger than the entire stock market of the United Kingdom.
Just to put in perspective, you know, the US stock market is like 70% of the world stock market.
market number one number two when you think about what's happened in the US economy it has
been a lot stronger than people expected you know going into the first quarter of earning
season earnings were supposed to be down 6.8% based on Wall Street estimates and they were only down
2.1% now in the second half of earning season earnings were actually worse than the first half so
it's likely that the second quarter could be worse
And one thing to note is that earnings are coming down at a faster rate than the sell side understands because every single CEO going into this year was confused.
They didn't know that things were going to slow down at the rate that they were going to slow down.
They didn't expect a banking issue.
And so a lot of them had hockey stick forecasts where every single Wall Street analysts outside of Morgan Stanley and B of A forecast earnings bottoming in the second quarter of the year.
So that is to be seen.
Now, are we going to have a recession this year?
There's a chance that we don't.
But growth could slow down.
Growth at 0 to 1% could feel like a recession, just like in China.
Growth at 4% feels like a recession.
So in that type of environment, if you have 27 million people that are now going to have to pay their student loans for the first time, you have credit card debt at a trillion, you have auto debt at 1.8 trillion, people are trying to buy cars at 13%. There are banks like Comerica pulling out of mortgage lending. There are banks, like, you know, there are several banks that have already pulled out of the auto lending market.
Until the Fed actually changes the cost of capital,
which we don't think they'll even do this year because of the tightness in the labor market,
it's a chicken and the egg problem.
If the Fed keeps rates this high,
they're going to break other things in the market.
We're seeing commercial real estate buildings default every single day,
and that will pressure the banking system,
and it will cause less lending,
which will slow down business spending,
and it will slow down retail spending.
The red book data that I showed you above,
retail sales are already at five-year lows,
and they're going lower in the second half of the year.
So, you know, they're different parts of the economy.
Because the U.S. is so focused on tech,
because, you know, that...
The top 30% of, you know, the basically seven stocks are up 55% this year and the equal weighted S&P is only up a couple percent.
So it's really like the gentleman was saying earlier, seven stocks driving the rally.
The Russell is basically, you know, underperformed.
The equal weighted S&P is underperformed.
High yield credit, which represents a thousand companies, is basically flat.
So it's important to understand when you're trying to look at these things and you're looking at technicals, what is actually driving what's going on.
And you can't have a tight labor market and the economy, you know, seeing a very no landing or a soft landing and the Fed cutting rates in the same sentence.
So people, you know, oftentimes conflate different timelines and they conflate different scenarios.
Either...
We have economic slowdown and the Fed cuts or we don't have an economic slowdown and rates stay high and that forces things to break in certain parts of the economy.
Let me go quickly to Vinny before going to you, Ross.
Vinnie, I want to just going to bring in the crypto discussion here since this was a crypto show prior to pivoting to the FMC meeting.
How will this impact crypto and risk assets in general and what are your expectations in the meeting today and over the next few months?
Well, I'll take the bare side of the equation now, and I think the Fed's going to hike 25 base points.
I just, I don't think they want to signal that, I don't know what they want to signal that the, the hiking cycle is over.
And I think that they were in the last meeting, my read on Powell was that, you know, he left the door open and he was, you know,
I don't think that...
But, Vinny, sorry, just...
I want to have to do it.
Like, if their high interest rates,
the team just sent me this,
unrealized losses on bank balance sheets
will get much bigger,
and they're already six times
what they were in 2008 at the moment.
I don't think he cares.
And I'll send you through the...
I don't think he cares.
And he's shown that he hasn't cared.
But why?
I know in flesh is a priority, but you're talking about...
He's known this for like the past year, the hiking cycle that they went on.
They knew this would happen.
So it's not like he actually cares.
And all it happens is the banks consolidate into JPMorgan or the top five or ten banks.
So it doesn't destroy the sector.
They consolidated somewhat.
I think he's...
And on Tavity's point, most banks don't own securities.
Like the bottom 3,000 banks that are not publicly traded, they don't actually own securities.
Jake, I'll let you finish off with Vinnie, because I know what he wants to, I think he wants to disagree with you, but I'll let you finish off.
And I kind of, can't link it to also crypto as well, if you don't mind Vinny before where he jumps in and then we'll go to Ross.
What does that mean for crypto?
Sure.
Now, if they rise interest rates, we're seeing, and I was reading it out earlier, I want you to talk about crypto and the economy in general and the banking sector as well. But crypto, where is the expectation? Like, we're going to see it. If we see a hike of 25 basis points, the market is not.
factoring that in.
Yeah.
So we'll probably see crypto, stocks, everything.
If you're asking, I'd say it's probably close to 45, 55% chance.
I think it's probably going to be, it's almost a coin flip,
but I'm going to take the side of them hiking.
I think that what they're trying to do is drain liquidity from the market.
I think households are still sitting with like 500.
or 700 billion in cash, you know, Powell's trying to get inflation down to 2% people, not for,
two.
He needs to drop it 50% from where.
Did the space crash or Vinny dropped...
Vin, you're there?
Oh, you've got muted by the glitch.
Go ahead, Vinny.
He's got on mute.
Go ahead.
Sorry.
So what I was saying is Powell's target is 2% not 4.
He has to get there.
He's already, he's really, like, indicated it's higher for longer.
And I think he needs to go to a higher level anyway, and he wants real interest rates to be positive across the curve.
Like, if we just listen to what Powell's been saying the whole time, there's no reason of him to stop right now.
And he would probably keep going one more hike, maybe another one, but like you can't pause the hike cycle and start hiking again the following month.
It's going to make them look bad.
And they've got a huge image problem anyway.
So the hike's going to happen, in my opinion.
I think that drains the equity from the market, which is what they're trying to do overall to keep inflation under wraps.
and getting down a 2% is going to be hard,
but he's not stopping at 3.
He's not stopping at 3.5.
He's not stopping at 2.5, maybe 2.9 to 2.9.
He'll be like, okay, it's a 2-handle.
But he needs to get it down further.
So I think it's, I'm bearish.
I'm bearish right now.
And I think the, oh, the other thing I'll add is
one of the speakers earlier on mentioned that
probably towards the end of the year
we're going to start seeing this sort of crisis coming.
I agree with that timeline.
I think it's going to happen very, very soon.
And the one other point I'll make is,
Global debt to GDP right now is sitting at 360 something percent, the last I checked.
That's global debt to GDP.
That is insane, guys.
That is insane.
And so as much as the US is just one part of the world, it's the biggest part, and a lot
of the debt is priced in dollars and the interest rates move with the dollars, the governments
can't afford, they can't afford this.
And the US raising rates puts pressure on other governments as well to raise rates too.
because of currency flows and, and, yeah, so let's watch the shit show.
Wahita, are you in the same boat?
And Bill, I'll see your hand up.
I'll go to you in a bit.
But, Wahid, I know you tried to jump in earlier.
You've been saying it for a while.
Go ahead.
Yeah, look, I'm not going to keep repeating myself,
but I want to back up one of Vinny's points,
not to actually disagree with them, back them up.
There's a lot of equity out there now, okay,
especially with the recent rally.
So no one should say regional banks will be in trouble.
Raise equity.
J.P. Morgan, give them a surcharge.
They gave them gift after gift after gift.
Okay, tens of not 20s of billions of billions of,
of dollars create out of thin air by basically subsidizing a purchase of another bank's losses.
Make him raise equity.
There's plenty of equity out there.
Ross?
Well, this has been quite a bare convention you've got going on here.
I know, man. I'm hoping for someone to come in and kind of even the people that Vinny considered bullish are not really that bullish. I just even anyone that sounds bullish like yeah, things are going to get better in the short term. It's like everybody forgot what happened last year. Everything everybody's talking about already happened.
Remember, the markets move into the future.
So everything you're talking about has already happened.
We had that last year, everything.
We had banks going out of business.
We had the market down.
That happened last year.
That happened two months ago, Ross.
Yeah, but it's all been going on.
So now, if you look out into the future, the Fed has put themselves in a pretty precarious position, which I do agree.
Because if they continue to raise rates, they're going to destroy more banks and they're only hurting the U.S. government.
So why the hell would they do with that?
that doesn't make any sense so yeah i get they're totally clueless and and basically a bunch of
academics but everybody knows it was in the wall street journal today that the shelter number is
bogus the economy is now flat in my mind there's a lot of underlying strength offset by layoffs and
high rates like really choking down credit but when you look at earnings
earnings were really good this quarter compared to estimates.
And estimates are for a pretty bad quarter in Q2, which I think are off.
And then when you look out into the next 12 months, you see earnings rising on the S&P.
That's the estimates of many, many, you know,
highly paid analysts.
And I look at my own business
and our numbers are going up,
you know,
going into the second half of the year
and they've been going down for six months.
So when you really look at what's happening in the economy
is we're in this like transition from this ridiculously inflationary
environment that they created in 21 to now a really slow growth,
you know,
sort of flat inflationary environment.
And if the Fed,
now has these tools to lower rates if they need to,
if the economy gets bad.
And at the same respect,
the economy is still plugging along a lot better
than what anybody's saying.
And that's why the markets rally.
It's rallied very simply because everybody's been wrong.
Hold on. Hold on. I'm going to disagree. I'm going to disagree with it. Whether you like it or not, the valuation is 18 and a half times forward earnings and forward earnings estimates are going up. And so markets are going higher. And you guys can all pretend the bull market hasn't started. But it started. And we've made hundreds of millions of dollars for our clients. So you know, you guys can stay short as long as you want. But eventually you'll have to capitulate.
Amen.
Amen.
So, if you actually don't need to be short, there are a lot of different ways to invest in this environment.
I mean, there's a $1.3 trillion hybrid market where you can make 11% buying prefs.
I mean, that's what we're doing.
Totally.
At 80 cents on the dollar, which by the way, if rates, if you're right and rates are cut,
those prefs are going to go from 80 cents on the dollar, $20 price to $25.
you're going to make a 30 over a 35% return just buying hybrids without taking equity risk in companies that could roll over
Yeah, you can buy high yield or like BDCs and things like that that pay double digit yields and take no equity risk and make double digit returns right now.
So this is a really prime environment to put money to work on any risk level because I can get 5% without even doing anything.
You know what I mean?
I can get 10% if I buy credit.
You know, I can get 6, 7, 8% really easily.
Right.
Okay. And then I can get, I'm up 20% of my fund GK year to date. So you've got all kinds of places to put cash to work. But I think in general, we're at the end of the cycle. You know, we all know we're at the end of the cycle. And the Fed now has lots of room to create liquidity if they need to. And that's something we haven't had in 15 years. So I agree. I agree. We've just normalized what we did was we normalize.
a broken 15-year system post-financial crisis
where we had to stimulate and stimulate and stimulate
to get all this debt and overhang out of America.
And we finally got it out.
And then Biden gave everybody all this free money
and everybody went nuts.
But if you look at people's spending behavior,
it's changed.
And this is something that no economists have gotten right,
zero percent because they're not out at the clubs,
They're not out at the parties.
They're not out at the restaurants.
They're not in Vegas.
They're not in Europe right now.
And everybody's going off and spending money.
And that's what's actually happening in real life.
Concerts are sold out.
Taylor Swift is charging $1,000.
Ross, isn't that like the whole Zoom scenario where, yeah, it's happening because of an exogenous shock to the system.
We don't know how long it's going to last.
Right.
Zoom did extremely well because people were working from home.
And now people are traveling because they're cooped up for three years.
But airline prices in the last CPI, if you looked at the report,
are actually falling for the first time in two years because there's certain,
listen, travel is going to be pretty strong for the next several months.
Right.
But consumer spending, I mean, the graph I showed you above of the Red Book survey of consumer spending, at least when it comes to retail, is at the lowest it's been in five years.
Yes, this is correct. This is correct because we've seen a shift from goods to services. People don't want lamps at Home Depot anymore. They don't want construction. What they want is Vegas and what they want is Europe and what they want our parties and restaurants.
And it's just a reaction to COVID.
So I don't want to own Zoom stock.
I own MGM resorts in my,
it's one of my top holdings.
I own Las Vegas Sands resorts
because we're going to see the same thing in Asia
now that they're coming out of COVID.
But this spending will go on for years, I think.
It's tough to disagree.
It's tough to disagree with Ross when you look at the markets
and you see that, you know, the MGMs and all the event brats
and all those are basically hitting all-time highs.
And you look at things like, like, you know,
Shopify, which is now, I don't know, 50, 40% of, yeah.
Yeah, I mean, it's still, it's at 40% of where it was at the peak of the, of the pandemic.
Vinnie, I'm, I'm going to disagree with you on whether the Fed is going to, to, to, to, to continue hiking today.
I don't see a way that the Fed continues to keep on hiking.
Last week, we had the big jobless numbers.
Yesterday, we had the biggest drop in inflation that we've had in, in since,
in the 11 months since inflation started dropping.
Today we had a massive drop in, in the PPI.
Inflation is under control.
I mean, you've got a year and year inflation at 4%.
The fleet of the,
Cleveland Fed
forecasting at 3.2%
in the next reading.
I can't see a way
that the Fed doesn't
pause now.
Take a break.
Take a breather.
Allow for stability
and then maybe continue.
And Vinnie,
let me add one thing
to what Ryan said.
Larry Fing just said a minute ago,
AI is something
we're not discussing.
AI may be the tech
that brings down inflation.
So even if you're
skeptical of inflation dropping,
you know,
something to take into consideration
seriously is AI
because it's going to
I'm deep in the AI world right now.
I can tell you from what I'm seeing,
what AI is going to do is it's going to replace a lot of jobs, for sure.
So what happens in this cycle is as companies are laying off workers,
canceling contracts, a lot of these jobs are not going to come back
if we go into high unemployment and the Fed tries to cut rates.
Right.
When the Fed tries to cut rates in the next cycle to try and stimulate the economy because they've caused the recession or depression or whatever, the jobs that were laid off first are the ones that are going to be replaced by AI.
And every company is looking into this right now.
I know companies that have laid off people because they're using AI, cancel contracts with contractors, et cetera.
It's going to create, when we go into the down cycle and unemployment goes back up, you're not going to stimulate the economy because these jobs are going to be replaced.
I think that I agree with you 100%.
I think we're going to get a cliff.
I think it's going to happen slowly and then it's going to happen really quickly.
Yeah.
And I don't think you want to be like an MBA student right now because the jobs that are going to be lost are actually white collar jobs.
You know, these are jobs.
No, no, no, no, no.
Yes, white collar, but the thing about copyrighters.
There are lots of copyrights, support staff
who work from home across the country.
These people are being replaced by AI driven chat bots
and email systems.
You have email, you now have customer support
via email where you're actually speaking to an AI agent.
We're talking like millions of jobs in the economy that are basically customer support, low-level jobs.
But guys, there's a difference between cyclical trends and secular trends.
And this is a secular trend.
This is a long, long time.
It takes years to implement for this.
So what we're talking about is a deflationary...
No, that's not true.
It does.
It does.
It does.
No, no, no, no.
No, no.
In a crisis where companies have to cut costs because of falling revenues, it will happen quickly.
Yes.
But listen, what you have right now is what you said also before.
You had a huge amount of debt in around the world.
And that is what is causing the deflationary pressure.
That's why actually, I would also say,
that at no point we have had a problem with inflation.
I know it spike to 9.1% in the U.S. and even higher in the Europe.
But the thing is that, you know, with the kind of debt we have around the world,
the deflationary pressure is there.
It's omnipresent all the time because you have exactly that.
You know, if you have a big debt yourself, you will not spend as much money.
So that is the problem.
What is going to bring the world.
And an aging population.
Anti-aging population.
where it's going to bring this world into the next growth cycle is first of all, yeah, it will be blockchain, which is going to create trade across the world, and then it will be AI, machine learning, robotics, and the like, which is going to bring up productivity.
But these are secular trends and these are not something that happens within the next few months or a year or two years even.
So what we're talking about here is that why is the inflation coming down now?
It is because what we had earlier on, the spike we had was not because of money printing because then Japan should have had inflation, you know, soaring long ago.
It is because we had a mismatch imbalance between supply and demand.
And now that has been coming down.
Inflation is lacking the business cycle.
The business cycle was turning up really strongly because of all the stimulus.
And then now you're starting to see that the business cycle is turning over slowly.
And inflation is going to come down very, very strongly as well.
As I said all along.
And now we're down to, as you once said, 4%.
But that's only here in the numbers that we see.
They are lacking.
Actually, I can see...
that there is somebody from truflation here and I love the work of them from them.
They actually, you know, point out the sub-components of, you know, the inflation rate.
And the real inflation rate in the U.S. right now is lower.
And this is what the Fed also understands, that the lacking indicator of inflation is not what you can steer the economy of.
You're not just going to sit and say, is inflation 4%, oh, we need to bring it to two, and then we hike.
That's simply too simplistic a view.
So we are in a situation here where the Fed is now probably done.
They are starting to see the deterioration also in certain areas of the economy, and they do not want to crash the economy.
And why should they go even higher?
I mean, this is about, they need to hike because they need to find inflation.
Well, inflation is dropping really fast, really, really fast.
I agree.
4.9 to 4%.
That's fast.
And they are starting not to say, and they even said that last time, we aren't in this
inflationary environment.
And that's exactly what we are.
So they are already now starting to think, okay, we need a soft landing.
It does not just mean we need to hike to get inflation under control.
They have that way under control already.
Now it's about making sure that we also get us, as they would call it, a soft landing,
which I absolutely do not believe in.
I agree.
Vinnie, I don't see a way that the Fed doesn't pause today.
And to be honest, I actually think that I disagree with the market.
I don't think we get another rate hike this year, to be honest.
100%.
100%.
I think the Fed's just looking for an excuse to pause.
They know they've gone too far.
They've sunk all the banks in California pretty much.
And the last thing they need is more financial stress.
But a quarter point isn't going to change inflation.
We all know that.
So it doesn't make any sense for that.
But, Howard, why do they raise rates last time,
even after what happened with First Republic until they came to the Valley Bank?
Why didn't, why did they?
Because I think they were, they were dead set on getting to their, what they said they were going to do so that they would have some credibility after they completely blew inflation with the transitory thing.
So they said we agree.
We agree with going to five percent.
So we're agreeing with it's not about doing what's right. It's doing what what's in their
best interest for their image, right?
No, it's not just their image. It's their credibility. And so remember, the Fed has to
have a credible position in the economy or else it all hell could break loose. And so, you know,
I'm not a fan of Powell's Fed in any way. But I do think, as a
As the academics set out to, you know, set a rate at a certain level, they've done this.
You know, 5% happens to be what they teach you at Econ 101 is like the neutral rate.
You know, so this isn't like genius work from the Fed by any means.
But I think once again, they wanted to have their credibility and now they have their excuse to pause.
And that's what I think we'll see with hawkish language, with hawkish language.
Yeah, Master, I fully...
Run, let's have a market-based case already.
Yeah, Rand, can I want to ask you a question.
What do you, so bringing it back to crypto as well with the answer, but what do you expect to see over the next year or two?
And, you know, we heard, I think it was Gareth that say that by the end of the decade, that's when we're going to see the great recession or depression or the great correction or whatever you want to call it.
But do you, you know, do you expect something worse to come in earlier?
Yeah.
I'm not expecting it.
I think that these are just business cycles.
You go through good cycles and you go through bad cycles.
But is it still a cycle when we've been delaying the,
we're looking at the amount of debt in the economy
and looking at what's happened since 2008?
Can you still call it just another cycle?
Yeah.
Yeah, I mean, it's been going since 2008.
That means it's been going for, what, 17, 15 years.
I mean, it's just the continuation of a cycle.
I think we're going to get used to living with all this debt.
I'd like to believe at some point there's going to be de-dollarization,
but I mean, I think I'm on Scott's side here where
I think the dollarization takes a lot longer than we can imagine, so to speak.
It's going to take years and years and years.
You know, right now there's nowhere to de-dollarize to.
Let's just start at that point.
There's nowhere to de-dollarize to.
I want to de-dolarize.
Where am I going to?
What am I going to the Chinese?
Yuan, to be honest, as much as I don't like, as much as I don't like...
the dollar, I'd dislike the Chinese yearn a little bit more than I dislike the dollar.
But, Ran, in terms of the recession later on, let's just look at the data.
We got a yield inversion now.
So that is a trigger for a recession.
It's been that for so many years going back.
And we all always sees that when you have the bottom of that yielded version, when it goes to the lowest point, it takes around the year or a little more before the recession gets here.
And that bottom was in February of this year.
That puts us in for a recession, which is start around February of next year, which is also the timeline I have.
So this is about just calling off the recession all at this point here.
I think that's a huge mistake.
And especially because we have the leading indicators, if you look at that,
They are in a very, very strong decline, which tells us that the coincident indicators, which
is job market and the like, is going to see a rather steep decline as well.
It's just not here yet, but it's going to come.
And this is where I think we are just dismissing data, which is right in front of us.
The bottom of the yield inversion from that time on, and it takes a year, 13 months, 14 months,
then the recession sets in.
And if you go back in time, you can see the last five, six, seven times, that is what we have.
So right now we are in the zone of Goldilock where we are, you know, seeing inflation coming down,
and recession is not right there, and everybody's starting to say they're struggling,
are we in a secular up market or down market?
I'm saying we are in that, you know, quiet phase before the storm really hits us.
And if you look at some of the charts from the structural perspectives, we got like emerging markets,
we got a huge rally coming, and I want to emphasize that, a huge rally coming.
Also in the Hangsang, in emerging markets in China and elsewhere,
But when we get to those tops of that, that is the point where we're going to see the recession sets in.
So 2024 is going to be really bad.
Until then, 2003, enjoy it.
It's going to be nice.
Yeah, I mean, I want to agree with you.
I want to agree with you.
I just, I don't see what crashes this market so badly.
I think the only thing that can crash the market is very, very, very high debt by the US.
To me, that's the scariest factor here is the high debt that the US has to pay.
You're talking about, you know, crazy, crazy numbers.
You're talking about 30 trillion on an average rate of, if they start renewing it around 4, 5%.
That's a big number.
What crashed the market in 2008?
Yeah.
consumer debt or real estate debt.
But when...
No, it was a banking debt de-leveraging caused by toxic debt and poor underwriting.
The US government debt is not what's going to cause a recession.
It's going to be a business cycle.
Exactly.
Some idiosyncratic event, some big financial institution blowing up.
It's not going to be because of that in the near.
Agreed.
You can't compare the situation today, the financial crisis, where you had just massive,
massive levels of fraud in the system where all the collateral debt of the banks was actually bad.
In our case, all the collateral debts of the banks are fine.
It's really more the issue of the banks themselves and the way they manage themselves and their risk.
But the Fed certainly has put a lot of financial institutions into shaky ground.
And hence why I think the Fed is done because they don't need more banks going under.
That's for sure.
Yeah, I'd just like to jump in real quick and just talk about business cycles.
And I think it's personally, I don't view it as being a normal business cycle.
I think ever since the gold standard and got taken away and then you had the Fed with the mandates,
you've seen the Fed slowly tinker every recession to try to get the economy back on track.
And what they've had to do every time is tinker more and more to the point where after 2009,
they had to flood the economy.
so much liquidity into the system.
COVID came.
They did even more.
They started to lower rates, obviously, to zero.
And what to me it does is it inflates the cycle.
It elongates the bull cycle.
And just like a drug addict, right?
I mean, if you really want to stay up for three days straight,
you can stay up for three days straight and take plenty of drugs to do that.
But you know what?
There's a downside to that.
There's a...
eventually have to pay the piper.
And I think that's where I'm more nervous about it.
If you look at the tinkering they did after the dot-com collapse,
which then led up to the real estate bubble and the financial collapse in 2009,
then you look at what they did after.
It's even bigger.
The stimulus that they came in with was bigger than we have ever seen in our lifetimes
or probably ever.
And so you have to think at some point there is something that has to be corrected in that,
the downside move.
Yeah, I'm just inviting the new panel. Sorry guys, I was just on you.
Cabasi, you've been pretty quiet, man. Oh, there you go. Now you put your hand up.
I want to get your thoughts. You've been covering the Silicon Valley Banker Labs with us for a while.
You've heard different perspectives there. Most people are leaning to the bare side, at least in the medium term. Where do you stand?
Yeah, I mean, we were bearish last year.
We've been bullish, you know, based on the majority of this year, starting in February
and this whole run.
I mean, I think, look, there's a million reasons to be bearish, but the reality of it is
the market isn't reacting to it.
And the bank collapses clearly were the first thing that the Fed broke, and they know that,
which is why we're still calling for no more rate hikes this year at all.
And I think even Ross mentioned it, you know, you can't look at what's happening right now in the news and the headlines and say the market needs to fall because of that.
Markets are forward looking.
They're not even looking at what's happening in the next three months.
We're looking into 2024 now.
And it's clear that inflation is coming down quickly.
And I just don't see any reason for the Fed to raise rates further at all.
And take these probabilities that you see with a grain of salt.
I mean, I just made a tweet about this.
You're...
Four weeks ago, we were, markets were pricing in four rate cuts by the end of this year and no more rate hikes.
And then last week it was two rate hikes and no rate cuts.
Now it's something in the middle.
So it's, you know, nothing is definitive right now.
And I think it's clear that inflation is coming down quickly.
The Fed does not want to break anything further.
And even if they did do some surprise 25 basis point rate hike, I mean, we're talking about 25 basis points for something that's probably going to be undone later this year anyways.
But as far as the market, I mean, you know, we were bearish when there was a time to be bearish, but I just don't see you might have a pullback here and there for a few percent, but I don't see any big crash happening anytime soon. And I still think that the October 22 low was the low for now. I don't think that low is going to break anytime soon.
Let me read out what the chief investment officer of J.P. Morgan's Investments Management said.
And I want to get your thoughts on it, Kobasi.
If we are right and we've seen the last Fed rate hike and the market starts pricing in rate cuts and they start cutting rates, then those cash returns will start to evaporate.
You will have locked in not only carry, but also get some capital appreciation.
I'd love to get your thoughts on this, Cabacy.
So yeah, I mean, look, I think the Fed as a whole, right? They know that
They, first of all, they know that they're looking at lagging data.
And that's clear, right?
That's why these tools like trueflation and these other things that people have mentioned are important.
But they also know that they already have broken something.
So I don't think that they view anything more, you know, inflation is still their top priority.
And they want to save face.
And there's, you know, there's this whole problem with the unrealized losses that you brought up.
And but I also think they know that.
I mean, we've had the fastest rising interest rates in history for the last two years.
So they know that what they've done so far has been severe.
And I just don't see a case for even one more rate hike this year, I think it's going to be very hard to see it happen.
So I mean, like I said, I mean, I think it's now is the time to be bullish.
I mean, we've obviously been in a hot run.
And you could see a few percent pullback here and there, just a natural market pullback.
but I don't see, you know, the bare case really proliferating.
I agree.
I agree.
When the music's on, you're going to be daunting, bro.
And I think that's what it is.
Yeah, I'm with this guy.
I'm with this guy, 100%.
100%.
100% yeah yeah and you can't anyone that's been investing for years knows that fighting a trend in the long run is never profitable right the trend the trend has clearly been up and even if the pain trade is up and and you have to you know you're long but you're you're seeing all these headlines and and all these tweets and you're worried that oh we're going to crash because of the next
big catastrophic event.
Well,
the trend hasn't changed.
I mean,
it's been up the entire year
and I think that continues.
Yeah.
Go ahead,
Ryan.
I'll go to Caleb with questions.
The trend is your friend
until the end of the trend.
I think that's it.
Gareth,
are you still not changing
your,
your,
your,
your,
your,
Who are you asking?
Cabelso?
Because I want to go to...
Oh, Dareth.
Oh, sorry.
Yeah, I was just going to say, no.
I mean, my outlook is still that by the end of this year, we will be in a recession.
And I do think the markets are in the process of putting in a short-term top here.
I still don't believe that the October lows will hold through 2024.
So I still think there's further downside.
To me, this would be one of the weakest cycles to the downside,
considering the massive rate of increase in interest rates that we've seen in every other factor.
that I'm seeing it. I know we brought up consumer spending earlier, but I think it's important
to recognize that consumer spending was massive from savings right after COVID. It's now switched to
credit cards, right? So you have this rotation. Yes, the consumer is spending, but now they're
building up debt, which eventually we know is unsustainable. At some point, they're going to have to,
you know, stop spending. Caleb, can you get, do me a favor, Caleb, can you hear me?
Yeah, yeah, I can.
Yeah, look, man, I haven't been in the finance basis, Silicon Valley Bank,
I don't wake up early enough, and you've been really active with Danish.
Can you tell me what's happened, tell the audience, really.
I'm not asking for myself.
Tell the audience what's happened since then.
Because in those spaces, everyone was talking about the banking sector and their balance sheets.
I did mention something earlier, a statistic earlier.
I mentioned it again, and I mentioned the source as well, that the source is Wolf Street.
And I'll read out what they said.
If the Fed raises rates today, unrealized losses on bank balance sheets will get bigger.
They are already six times what they were in 2008.
But yet, no one is talking about the health of banks or not as much as it was before.
And the concept of a or the narrative of a banking contagion, you know, I don't think anyone's mentioned it so far.
Is that still a worry?
I think that the longer rates remain elevated.
It's still a worry.
In November of 2021, I published a theory called the earthquake effect talking about how
historic monetary tightening was going to expose more naked swimmers and potentially have
a tsunami approaching the U.S. economy.
I started to think at the onset of the banking failures in the beginning of March that
we were in the precipice of seeing that tsunami far out on the horizon.
Right.
But, you know, admittedly, the Fed's backstop of the financial system in coordination with the Treasury and the FDIC has been ultra-effective, right?
We have not seen a massive run on deposits as a result of bank-specific failures.
We've seen deposits decline because I think a lot of depositors have recognized that.
certainly some elevated risk within the financial system, but they've been capitalistic in
their nature to go out and capture a higher yield in money market funds and in treasuries
specifically, which are basically trading at.
you know, decade plus highs in terms of their yields that investors can capitalize on.
And so on March 13th, something that I actually published was, you know, some sort of actionable
investment advice that people could be listening to, which was that the NASDAQ would perform
the SMP 500, which would outperform the Dow Jones.
Why was that my perspective?
Because the Dow had the most exposure to financials and the NASDAQ had the least exposure
to financials.
And so when we started to see out of nowhere, the Fed's balance sheet increased significantly
reserve start to uptick a little bit higher. From that perspective, you know, all else being
equal, liquidity in the market was improving. In addition to, we started to see earnings come out
significantly better than expectations. Were earnings still down on a year-over-year basis? Was
revenue still down on a year-over-year basis? Yes, 100%. But the market is a forward-looking
pricing mechanism and it's priced based on analyst and investor expectations. And
And so during that time, right, since the morning of March 13th, the NASDAQ 100 is up over 27.4%.
excuse me, since March 13th, up 27.4%.
And, you know, it's basically had minimal pullbacks along the way.
Has mega-cap tech been leading the charge higher?
Yes, absolutely.
But, you know, I also published data earlier this morning looking at new 20-day highs,
new 50-day highs and new 52-week highs in the S&P 500.
And I have to say,
You know, we're seeing broad-based participation.
Yesterday, we had 109 stocks.
22% of the S&P 500 making new 50-day highs.
24 of those stocks were industrials.
17 were consumer cyclicals.
This is surprising.
10 were financials, right?
Who saw this coming?
And so, you know, the market has been making higher highs and higher lows.
We've been seeing more stocks make more highs than more stocks making new lows.
This is all very beneficial under the hood.
And, you know, it's in a backdrop of, you know, better than expected economic data, more disinflation, less concerns about banking, so on and so forth.
One thing that's, I'll finalize my comments with this because I don't mean to go on too much of a rant here.
The market does not bottom on good news.
It bottoms on less worse news.
And that's super key for investors to understand.
The market bottoms on less worse news.
And that's exactly what we've seen since last October.
And when was the bottom?
Last October.
Amazing.
I think it's a good opportunity to introduce David Lynn, who's just joined us.
Yeah.
He's going to help us here.
He's going to join us here in the moderation.
David, welcome, my friend.
He's also got an amazing channel that he's just started on YouTube if you guys want to check it out.
And probably a great time to say that if anybody wants to advertise on these Twitter spaces
or if you were a project and you want incubation, we've pinned two tweets with the email addresses for any queries.
One of them is sales and one of them is incubation at the Cryptotownhall.com.
Any business related queries, send them to those emails and we'll attend them as quickly as possible.
Let me, Ryan, Ryan, come on, that's how you do it.
So guys, whatever the market will do today, tomorrow next week, next month,
crypto and non-crypto.
So we are working with projects.
We want to come on the show, the crypto show.
This is generally a crypto show.
Today is an exception because we've got the FOMC meeting.
Okay.
Do not hit us up, no more DMs.
Now you've got to email us.
Just pinned above, you can check it above,
or it's on Rand's profile.
There's a tweet with the emails.
If you want to come on the show,
or if you want to work without incubation,
we're still working with projects.
We get tokens, equity, and return for our services.
So we're still pretty active and pretty bullish.
But, yeah, Ryan, I'll let you do the intro for David.
And can I, actually, can I kick off with a question for David, Rand?
Yeah.
yeah go for it yeah so so david as we prep for the for the uh to start streaming the fomc meeting
my question to you is you interview people in the space crypto and non-crypto um on your channel and
what's the general sentiment because we've seen people on the panel he disagrees gonna split
started off more bearish now becoming more bullish i'm leaning more on the bull side i think ran is
in the same um gareth is on the opposing side what's the what's the sentiment like now and how
has it shifted over the last few months
Thanks for having me. Can everyone hear me?
Yeah, bro, we can't hear you. Go ahead.
All right, cool. Thanks very much for having me.
Good to see you, Mario. Good to see you around and a lot of other faces I recognize.
Yeah, the general sentiment has been bearish to the point where if you are anything but bearish, you are labeled a contrarian, even by your own right, which I find amusing.
Mario, we're contrary. You're not 20%.
I love being contrary.
The market has been on a tear.
Tech stocks have been on a tear.
I see Gareth Solowice here, hi, Gareth.
We've had a conversation with Gareth before about this very topic.
And, you know, the tech stocks, if you strip away the tech stocks from the S&P 500, the S&PX has been flat.
And so it's really just a couple big names and the big tech spaces that have been driving up this rally in the indices.
And so the general sentiment has been bearish because of an impending recession.
But like I've talked to some contrarian traders about this, everyone's short right now.
And the only thing you can do is buy things back when everything's short.
And so because of that, markets will keep going up.
That's the contrarian view right now.
But the overall sentiment to answer Mario's question directly is very bearish.
Okay, that's good.
So I'm a contrarian.
Caleb, you're a contrarian as well.
Yeah, we're the two contrarians.
We're clearly the two contrarians.
Dave, I agree with you that I think the general sentiment is most people are short or not long yet.
And I think that that tells me that we're going to be pretty early in the cycle, I think.
Who's short, though? I mean, I think that's a misconception that I think there is an insane amount of short covering since March.
I don't actually view that if you look at mutual fund data, mutual funds raised cash to about 2.5% local high.
They've actually deployed about 50 basis points of that cash already chasing.
And hedge fund managers had already de-rists in 2022 when it came to tech.
They've actually realized that they were lagging and they have been aggressively buying these names.
So I don't know.
Like who is actually short?
Yeah, sentiment's not great.
But I think a lot of the short covering has already happened.
I agree with that.
Yeah.
I think that's exactly right.
Outside of the happy names.
with the high short interest, right?
Because it's obvious with those names,
if you have 50% short interest,
you haven't seen covering yet.
No, people haven't been covering at all yet.
I think we're starting to see it,
but with the S&P pushes further, we'll start to see it.
I think I agree. I think I agree. I think that that's, I mean, if I look at the numbers, as I said, it's 10 stocks that are that are pushing up the entire S&P 500. And I think it's the same situation as we have with Bitcoin before we get an old coin run.
only once people are really convinced of the Bitcoin run,
that they then move to the old coin run.
And I think that that's exactly what's happening here in stocks.
You've got the Microsoft, you've got the Apples,
you've got the invidias and whatever else pushing up the S&P.
And I think the rest are going to follow specifically after the-
The short interest ratio for the S&P as a whole
on the 500 stocks is actually pretty low.
The high short interests are in the very challenged
businesses that either don't generate profitability or have high debt.
Yes, people are underinvested.
There's a lot of cash on the sidelines.
There is $800 billion that's moved into money markets in the last six months.
And there's 200 billion that's moved into bonds.
So there is money that can move back into equities.
But I think saying that there's a huge short interest in the S&P 500 is just not right.
It's a very low level of short interest across the S&P.
Dave, what do you think?
I mean, you speak to these people daily.
You speak to investors daily.
Tell us what your data points are.
Yeah, so I'm just looking at the CFTC commitment to traders report.
The S&P 500 speculative net positions right now.
Yeah, it's pretty, it's, it's pretty short right now.
I mean, I'm happy to look at some other data that other people are looking at
futures, but I'm just looking at the short interest data for, right?
Oh, okay.
I'm looking at short interest data, not swing traders, right?
I'm talking about just in general, short interest across the S&B 500 names is actually
pretty low relative to historical levels.
That's what I'm seeing too.
I haven't heard from Peter.
Peter, you've been pretty quiet today as well.
Can you hear me?
Mr. Brandt, can you hear me?
I knew he either has a glitch or he's dropped out.
So I wanted to bring it down and back up because he wouldn't usually be this quite.
Gareth, go ahead.
Well, I fixed Peter's...
Yeah, I was just going to add in.
Yeah, I'm seeing the same thing.
I mean, you know, on the S&P, there's a lot of hedges going on.
So I'm seeing bigger institutions that are long buying puts on the market because they're trying to protect their long portfolios because of the crazy run we've had on.
But...
Overall, when you look at individual stocks, it is historically low.
And I just like to point out, too, that it's not like people are overall bearish.
Like, if you look at the fear and greed index for the stock market, it is an extreme greed right now.
It's not super high.
It's at 81.
But it's definitely telling us that the general public has flipped to the more bullish side, which again is usually towards the end of a run versus the beginning.
I'd like to just talk in here really quick.
I tend to be a Tesla, you know, shareholder.
So if you look at Tesla's short interest, it's gone up by 20 million shares over the last six months.
So there are a lot of people who are short individual names and maybe not the indexes.
I have a general question for anybody who wants to take it.
So to answer Marvel's initial question about sentiment that I've been hearing, people...
At least the people I've been talking to, a lot of them are bearish because they think the recession is either already here, the data hasn't reflected that yet, or they think a recession is pending within the next two quarters or so.
And so the assumption here is that the underlying assumption is that bare markets usually coincide with a recession.
The data doesn't necessarily support that.
Not every single recession in the past has been coincided by a bare market.
So I'll just ask anybody who wants to take this question is let's assume we will get a recession sometime within the next four quarters.
Do you think stock markets will tank because of a recession?
I think it's hard for people to know exactly how things will play out because if we enter a deep recession, the Fed is going to cut, right?
So different parts of the economy will react in different ways.
However, I do think that earnings trajectory is headed lower.
Is it going to continue lower in 2024?
If...
We continue at this pace and there aren't any material changes in policy.
I think one thing that people are missing who have not been in the market for 15, 20 years, is that having a cost of capital this high,
slowly but surely decreases demand of everything, whether you're a small business or a consumer.
Now, if they change that, the Fed is arguably hiked too high for too long already.
And if they keep that through the end of the year, through the first quarter of next year,
you are going to see an acceleration of the things we're seeing already, which is just defaults across.
And, you know, we talk about commercial real estate.
There's a $5 trillion publicly traded corporate debt market and private loan market that is going to,
has already seen more bankruptcies than we saw in April of 2020.
And that, by the way, is what is going to cause credit spreads to rise and is going to cause
the Fed to, I think that's what's going to cause the Fed to cut.
And that's going to take place because in 2024, because during COVID when rates were zero, all these companies took advantage of zero rates and they refinance their debt, just like you refinance your mortgage.
They refinance their debt to 2025.
Commercial real estate firms couldn't do that.
The reason why they couldn't do that was they had been amending and pretending a lot of these
retail loans and office loans through 2008.
And because of the work from home, banks weren't willing to refi at those same levels.
So these guys just said, oh, the economy will go back to normal.
Let's not worry about it.
What ended up happening is these buildings never saw utilization go up.
Now, the corporate situation is actually worse than the commercial real estate situation
if rates stay high for another year, let's say, because all
All these maturities are coming due starting in 2025.
And when you refy debt, if you're the CFO or treasurer of a company, you start thinking about refinancing a year before the bond matures, right?
You're not a moron.
So in those types of scenarios, if you're a decent company today, but under $2 billion in enterprise value, you're borrowing at 12%.
You're not borrowing at 5%.
You're not borrowing at 7%.
You're not borrowing at 9%.
If you're borrowing unsecured, you're borrowing at 12%.
And if you are a bad company and you, for example,
if you have exposure to a lot of these companies,
crypto, financial services, Medtech, any company that doesn't generate free cash,
you are borrowing at 15% or you're shut out of the market.
So you either have to raise equity at a very dilute evaluation
or you have to raise debt at a price that is likely hurting your equity value.
So it's not all hunky d'ory.
If the Fed were to just normalize rates to 2 or 3 percent, things could be okay.
And the economy could slow down and then rebound.
But if the Fed keeps rates like this and things really start to break, what Powell, I'm sure, understands is that some things that will break will not be able to be fixed.
But guys, isn't that normal business cycles where the Fed goes from too tight to too loose to too tight to too loose?
Of course.
It's a little bit different now because the economy is more levered than it's ever been before.
You guys keep talking about government debt and you forget that corporate debt and commercial real estate debt are at very, very high levels.
And...
Although a lot of these companies raise liquidity during COVID, some of these companies in private equity
You've had 15 years of multiple expansion.
When you have 15 years of multiple expansion, companies start borrowing it nine times debt to EBITDA instead of three times debt to EBITDA because they think that they're worth 15 times so they can take on more debt.
So what ends up happening then is companies that are not as good tend to borrow more money.
And when that happens and people realize that this company is only worth four or five times and it has six, seven times of leverage.
Right.
That creates a solvency at perception or a risk.
And that makes it difficult to refine.
That's what starts this bankruptcy issue.
So it's not as easy as you guys make it think.
Like it's not going to affect S&P 500 companies.
It's not going to affect NASDAQ companies because they're under levered.
But it will affect the majority of companies that issue in the high yield leverage loan in private credit markets, which is a pretty big employer in the U.S.
So...
Again, this can change because this is a Fed created problem.
Right.
And if the market is forward looking and the market actually thinks that the Fed is going to,
it could be a very shallow slowdown.
But I don't think...
I don't think people, anyone on this panel can actually articulate what is going to happen and what could actually break.
There are things that are going to break that we aren't even talking about because of how high the cost capital is.
I think I agree with you because if we knew what was going to break, we'd put in the measures to make sure that they don't break before they did.
Henry, I see you've got your hand up.
And after that, we're going to go to Peter Brunt because I want to get a view for the charts.
And we are.
Did everybody who's the sound or just me?
Yeah.
I got the sound.
I got the sound here at least.
So thanks.
Yeah, and I absolutely agree with what you're saying here.
So what is SSRJ?
I can see it here on the icon.
Yes, this is a normal cycle in that way.
We see that the rates are coming up.
It has anything to do with the Fed.
Let's just agree that the Fed is following the market.
So we can just go take a look at it.
The market rates, the two years is actually what sets the rates.
for the Fed.
So take a look.
Sure.
Let's see the Fed follows the two gun lexas as well.
And that's why it's about the business cycle.
And that's why we're going to see the leading indicators, which we have seen coming down,
breaking into also the coincidence and also into the lacking indicators, which is the rates.
And that's what we're seeing now.
We're seeing the slowdown in the rates and the rise of the rates.
And actually we've seen the top in the 10 year back in October as well.
So we have all these components in place.
And that's why I agree with you.
This is what is going to break something.
And it already has broken things.
And forget about this from the financial world.
Think about this from average Joe.
For me, for me and me here in Denmark.
I mean, I'm paying three or four times on my mortgage loan here all of a sudden.
And that is bringing my consumption down.
And when you do that on billions of people, which is what is happening out there, then you got the big cycle.
So this about, you know, Mr. Henrik, 100% right.
Now think about a company that has 10 billion of debt and two billion of you.
I agree with you.
I agree with you.
And they have floating rate debt.
Quick numbers, because this is just pure math.
Floating rate debt at 10% on $5 billion is half a billion dollars.
You have one billion of EBITDA.
Your cap tax is 300 million.
So you have a billion of EBITDA,
earnings before interest,
taxes, depreciation,
500 million of interest.
But you're preaching to the quiet here.
I'm with you.
And,
And all of a sudden, your cap-ax, you try to cut your cost, you cut your cap-ex from 300 to 200 to 200.
You have 300 million of free cash flow left.
LIBOR was zero.
LIBOR went to 5%.
All of a sudden, your interest costs double.
And your interest went from 500 to a billion.
Now you're burning 300 million a year.
And that's my point.
And that is exactly my point.
I said, it's commercial, it's businesses, and it's private.
It's ordinary people.
It's a consumption.
It's 17% of the GDP in the U.S.
Consumption.
And consumption will come down because people are facing higher financial mortgages and whatever it is, you know, payments on that.
So this is the problem.
This is what is turning to supertanger.
So this is not about something that's going to change really quickly.
We're going to see the supertanker turn really slowly and something is then by the end of it.
When the recession really sets in, when we're starting to see the deterioration of the labor market and elsewhere,
we will see companies starting to also, and we'll see the fault.
We're going to see the black swan coming out somewhere and then people will say this is the reason for the crisis.
Exactly.
I agree.
I agree.
Would you agree, everyone's calling this a business cycle and forgetting what happens in a business cycle.
When you're in a business cycle, defaults go up in credit spreads,
are they estimate the probability of default of a company over the duration of that debt in that net of the recovery right when that spikes the Fed is looking at that the Bank of America B.O you know B.A OS index you can find online that predicts bankruptcy and bankruptcy predicts on implied so the
So this, everyone's saying, oh, this is a business cycle, not understanding that in a business cycle, you actually see defaults go up.
And the reason why they haven't gone up is because during COVID, everyone refied out.
And we're approaching that cliff next year.
And also because no one can predict the future.
No, no, no, but also, I will say.
reason is also because you know business was where we're earning so much money last year you know
everybody was expanding their capacity in certain certain forms and that is also why we're going to see
the deflationary pressure because for a certain amount of time you're going to say oh this investment
i did i need to stick to that but
But then all of a sudden you're going to say, okay, the demand is not coming back.
And this was the surplus, the huge demand we got from the stimulus coming out.
And that was why the spike that came out from that in terms of inflation was because the demand was not there.
The businesses tried to react to it.
And now they had to react in the other direction.
And that's why we're going to have a business cycle roll over.
So, yes, we're going to see a just one second here.
We're going to see absolutely a fallout of this and we're going to see, you know, businesses fail.
All right, Gareth, I see your hands been up for a long time.
Go for it.
Mike's yours.
Yeah, I was just going to bring up, I just was curious from the Bulls on the panel, is that, you know, if the bull case is just there's money on the sidelines, I mean, that's, that's more of a much more of a short-term narrative.
That's not something that's going to sustain you for years and years.
Are we thinking that there's no sort of slowdown is the economy going back to this?
this roaring type of atmosphere because I look at some of these large cap stocks, right?
We're talking Apple and so forth, which has made up a majority of the upside in the S&P in the NASDAQ,
and they're now trading at PE ratios, forward PEs of north of 30, right?
You're talking Microsoft and we're talking Apple and all the rest of them.
And so now you're at these crazy expanded PEs.
And if we see any sort of recession, right, is like what are these stocks pricing in at this point?
Because right now there's literally nothing negative on the horizon that's affecting valuations.
Money's just chasing in.
And you look at, you know, does China start to ban more chip companies like they did with Micron?
I mean, there's so many possible negatives.
But to me, I look at the market and there's literally nothing being priced in.
And you can see that in the VIX, right?
The VIX is at historic lows, not seen since P.
before COVID. So again, I'm just curious about the bull case. What's the longer term driver here?
Or is it just simply money on the sidelines?
I got to run. I'm listening to hear your thoughts. Peter. Oh, sorry. Sorry. I got to run.
So I just wanted to say goodbye to everybody. Thank you for having me, Mario.
Thanks, Ross. Thanks. Appreciate it.
Thanks for us.
Peter, I know you've been waiting a long time. I'm actually dined to you whether you're taking the bull side or the bear side of this argument.
Well, hey, thanks, Mario.
You know, I guess I'm just too old and probably not smart enough to worry about trading what hasn't happened yet.
And, you know, I just, I'm always in the market.
stock market bottom last October.
Now, somebody said, no, we really topped in December, January, 22,
and we're still in bear market.
But as far as I'm concerned, we've been in a bull market since the October lows.
And in my way of thinking, really, there's nothing more bullish than a market that's going up on Marie.
This is just a typical market that continues to rally.
Right.
and go up on a wall of worry.
And somebody mentioned commitment of traders.
Let me touch on that.
You look at the S&P 500, commercials.
And we're talking now about big trading houses.
We're talking about people who've got skin in the game, long 370,000 S&P contracts, hedge funds.
short 340, 350,000 contracts.
The COT, as far as I'm concerned, is that I want to be on the side of commercials.
I don't want to be on the side of hedge funds.
Hedge funds to me is what I want to bet against.
As a matter of fact, if you look at the present net long position of
of commercials and S&Ps,
it's close to as large as it has ever been
in the history of the S&P contract.
If you look at hedge fund shorts in the S&P,
it's as close to as short as it has ever been in history.
You know, just one other thing,
I'll kind of pass the hat to those who,
really want to talk about what has yet to come, but is not now. And that's the yield curve inversion.
Of course, we have this big inverted yield curve, or at least it's a flat yield curve, but there are some internal signs that that yield curve may be wanting to normalize.
And I look in trade.
the spreads within the Sofer 3 contract. And, you know, I've been long, the September
Sofer short the next June Sofer, and it's a trade that's working, which means that within
the pricing structure of the Sofer, the Sofer is saying, we need to go back to a more normalized
yield curve or we at least need to take some of the inversion out of it, which for me is kind of
an early warning sign. So anyway, I'll pass it on to those who
we should get Peter up here
I love to listen to that
that was that was great
the Sofer trade was great
Do you have any targets for
Do you have any targets for
For the upside or
Are you just riding momentum at the moment?
No, I think S&Ps make a new high.
I mean, you've got an inverted head and shoulders bottom,
people say, oh, a head and shoulder.
Don't tell me about head and shoulders.
But, you know, the reality is that patterns take place.
Some patterns fail, some patterns...
carried in the implication.
There's by all evidence, we had a head and shoulders bottom and the NASDAQ has almost reached
this target.
It's there for all practical purposes.
We've completed head and shoulders continuation pattern in the S&Ps.
It projects prices at least close to the 5,000 levels.
So, you know, for right now, I look at a market that is going up on a wall of worry.
I look at a market that's got a near historical large
commercial position near historical large hedge fund position and you know a market that's going
up and you know who cares whether i'm an index trader i don't care whether one a stock is carrying
the index or 20 are well done peter that's that's super helpful but um i'm in peter's camp is there is there a
way to to give that some some points on the other side as well
Um, just very quickly.
So like on the on the head,
head and shoulders pattern,
I'm not a technical guy,
but I think it's,
listen,
the market goes up over time.
You will benefit and you create wealth by being long indices.
You can position.
You can trade.
What we saw in 2020, 2021, 2021, 2022 was a period of extreme excess.
And we made a fortune since the fourth quarter of 2021 of shorting busted SPACs and crappy companies and frauds.
And a lot of those companies still exist in the system.
The S&P 500 and the NASDAQ are going to perform differently than the majority of the economy because today the concentration of companies without debt and pristine balance sheets is very, very high.
Those companies are trading at high valuations partially for the right reasons because they are areas of safety.
And one of the reasons why their areas of safety is we talk about hedge funds from their short perspective, but they're also long.
Most of these funds are multi-manager shops that run market neutral.
And what these guys at Citadel at Ballyazni, 0.72, Eisener and others are doing right now is they are aggressively buying.
these tech names while shorting, you know, other other names in the basket.
So they realized that they missed the trade and there is, you're talking about concentration risk,
there is an insane amount of money.
concentrating in these names because as a hedge fund manager, speaking from experience,
nobody's paying me to buy T-bells or prefs or safe things that are easy money layups.
They're paid to buy highly liquid issues and to short names against them and generate
levered alpha, like Citadel's levered 11 times.
They are short stocks and they're long stocks against it.
So just let you know, if you look at the CFTC, which is not representative of the entire short interest of all the stocks, it's one representation of people using futures to hedge.
You also need to talk about the other side, which is all these guys are aggressively buying tech to offset the shorts in their book because they're worried about missing out.
And there are swings that happen like this in the marginal trade, the marginal buyers in the market,
there are 300 billion of CTA swings every month in the hedge fund market, which is a three trillion,
right?
Two thirds of which is equity.
You have to understand that they are all aggressively buying these names because they're worried
about missing out, especially during the banking crisis, value underperformed growth.
Hedge fund managers following the value factor had their worst performance in the last decade in May of 2023.
Right.
And they're aggressively trying to reposition.
It is very difficult for anyone to know how that positioning is playing out.
But from the sidelines, it does look like the market always climbs a while,
worry, first of all.
But second of all,
I don't think you can say one thing about the CFTC and avoid the other part of it, which is a lot of the move in the tech names is not retail.
Retail is not driving Apple to all-time highs.
A lot of its hedge funds also repositioning.
And I think that needs to be understood.
And whether we go back to the lows, nobody can predict the future.
But I think we're overdue.
for some sort of a correction because there was relief and there was a lot of short covering,
believe it or not, that happened after the debt ceiling was resolved and after the last CPI prints.
And you need to put that in perspective.
You know, it's not clear.
I don't know, I don't care who you are.
It is not clear that something else isn't going to break in the system and that the economy is not going to slow down.
If you look at every leading indicator globally.
Yeah.
Travis, I want to get your views.
I see you just come up as a speaker.
I know you've been listening for a couple of what I've seen here for a while.
What do you think?
Are we in this raging bull market that Peter Bruns seeing or are we actually about to see the top as Gareth and a few others are seeing?
Just to keep it 100, you know, I run a crypto fund and
Crypto is completely divorced from macro right now, in my opinion,
just because of all the idiosyncratic stuff we have going on right now.
So I really don't have too much of you on macro at the moment.
Yeah, well, Travis, this is perfect. So, so in terms of crypto being completely detached, how long do you think that will be for? I hear myself a bit echo, Travis. So if you can mute when you're in your speaker, don't speak. But yeah, so how long do you think that will last? And do you think that we will see correlation again? If equities continue the bull run that some speakers have talked about, could we see crypto follow suit?
So in the very near term, it seems like all of crypto is kind of waiting on this DOJ charges against Binance, which everybody seems to think is coming quite soon.
And that's going to be a kind of near term shoe to drop.
And we'll have to see what that looks like and what the knock on ramifications are from that.
But then...
There's like an adage that I came up with a couple years ago that I think is a very good way to frame Bitcoin, which is Bitcoin loves QE and detests QT.
And when you look back over the last however many years of crypto's history, Bitcoin's history, you know, I think that that does hold quite true.
And when you look at, you know, a pause right now, and then we can argue about how long they're going to keep rates high before they start cutting.
We can argue about how long they're going to keep rolling the balance sheet off before they pause on that.
And like whether or not that's enough...
for, you know, Bitcoin to start heading higher.
I'm not sure.
You know, normally the way these kind of bare markets and crypto have worked historically
is that, you know, Bitcoin dominance rises through the bare.
Bitcoin, you know, kind of takes off, gives the sort of all clear sign,
and then capital starts to flow into alts.
in a bull market, alts outperform Bitcoin by a lot on an absolute basis during a bull,
but then give all of that back and then some in the subsequent bear.
I do kind of struggle to see...
how much capital can flow into alts with this level of regulatory uncertainty in the United States.
I agree.
Yeah, yeah.
I agree.
Despite the moves, just Travis, despite the moves we're seeing in the east?
Yeah.
Yeah, yeah, I'm just not sure it's enough with with that level of uncertainty about how Alts are going to get treated in the United States.
And this SEC Coinbase case, like, you know, you're not going to get clarity in three months or six months from this.
You know, this is likely going to be a long, drawn out thing and it's going to have its own legal timeline associated with it.
There is some chance that as the fact patterns start to emerge in SEC versus Coinbase,
that if the market starts to get a sense that the SEC may lose that case, which they certainly could.
You know, the market may start to express that in the alt's market,
but like that's not going to be the next, you know, few months kind of thing.
So I think we're just going to have to have a good amount of information,
additional information kind of come out before the market can start to get a handle on trying to price in
whatever eventual outcome happens with that case.
I'm interested to hear Peter's view.
Peter, you said you trade indices, you spoke about all the indices, you gave your outlook on the S&P and the NASDAQ and the tech stocks.
How do you see Bitcoin?
I mean, Bitcoin is enough of an index fee to trade, right?
I'm extremely constructive on Bitcoin.
I mean, I'm constructive from kind of my own macro view, which is probably...
not put together in the same architecture as somebody who really looks at economic macro.
But, you know, I just view Bitcoin as its store value, is the ultimate store value.
And so the only trade I'm absolutely sure of is that the U.S. dollar and other fiat currencies will buy less 20, 40, 60 years from now.
than they do right now.
And so while Bitcoin is going to have these huge swings,
multiple X, 2x, 3x, 5x rallies,
followed by 85% declines.
I think long term, it's a store of value play.
It's a store of wealth play.
I think we saw the bottom of the bear market,
Bitcoin back in November,
we're on our way up.
I see three or four short-term positive things in Bitcoin taking place right now.
So the big price level that I'm looking at in Bitcoin, it's really if we can get back up over 28.
I think if we can get back up over 28 and a half in Bitcoin, we won't see 25 again.
So you went to 25 again.
You went to 25 again.
You won't see 25 again ever, or you won't see 25 again in this cycle?
We won't see 25 again in this cycle.
Wow, interesting.
And do you look at, do you look at, like, Ethereum and maybe like Ethereum as a proxy for other old coins, or is that too far below the line?
Well, I just hate all the coins.
I think 99% of all coins will become worthless.
And that includes the alcoins that a lot of people think is not going to be one of the
all coins that will be.
Worthless. I like the decentralized nature of Bitcoin. I mean, my long-term store value play on Bitcoin is based on that. It's based on decentralization. I think that's one of the key features that will make it the legacy coin.
So, yeah, I would, I've traded ether from time to time. I don't go past Bitcoin and Ether. For me, Bitcoin is crypto and crypto is Bitcoin. And so that's really my focus. I know some people are in love with some of the functionality that's built on top of Ether. But I think.
In five years, we're going to have superior utility built on top of Bitcoin.
Peter, by the way, can you hear me?
Yeah, we can.
No, hold on.
I don't think Peter can.
Peter, can you hear me?
Peter.
Yeah, Peter can't hear me.
Yeah, I thought so.
Oh, you can.
Oh, perfect, perfect.
Yeah, cool, cool.
I thought that was a glitch.
But the question is for you, Ron, actually.
What's your portfolio like, Ryan?
I don't think I've ever asked you that, at least not for a long time.
So my portfolio right now probably, it's probably underweight Bitcoin.
So I'm probably about...
25 to 30% Bitcoin.
I'm probably about
right now about 20% in cash.
And then the balance is a mix of altcoins,
Ethereum and a couple of other big
old coins. I don't hold much of the small
altcoins anymore. I think I've done most of them.
And look,
I mean, I think that
my portfolio isn't optimally constructed
given we haven't restructured
our portfolio fast enough, given
the nature of the SEC attacks.
So, yeah, Maria, I'm going to actually send the question back to you.
What are you, how you structured altcoins versus Bitcoin?
Yeah, I think we're overweight, surprisingly.
We're overweight altcoins, but we're kind of, you know, moving away slowly from crypto.
I mean, so we're very heavy crypto and a bit too heavy on outcoins.
But mostly through, you know, just VC type place.
So, you know, investments for two, three, four, five years.
And move to what, AI?
Yeah.
Moving not, AI, obviously.
I know it's very frothed up, but it's something we're watching,
we've got the AI show, so it's from the media side.
We're doing a lot there.
Outside of that, I'm not a big fan of cash.
I should be, it's probably a mistake of mine.
And my e-commerce business is sitting on a lot of stock,
and we stocked up heavily because we're pretty bullish.
So the market does collapse, and if Gareth is right or any other bears are right,
I'm not screwed, but I'm not going to be too happy.
So I'm relatively bullish.
I did not expect the regulatory crackdown we've seen, even though we've been talking about it for a long time.
I did not expect the SEC to be that aggressive to be labeling that many tokens as securities.
From a macro level, I'm very bullish.
I'm not the expert here.
I tend to listen to a lot of the speakers, but I just feel like there's
I started getting bullish when the whole, everyone was crying, a banking meltdown.
Because I just thought it was very easy for the Fed.
If things got really, really bad, it wasn't hard for the Fed to pivot.
Like, I think the solution wasn't really too difficult.
And I'm a believer in that AI will increase productivity.
And I think that will play a role in inflation dropping.
Yeah.
I'm relatively bullish on the geopolitical situation, even though you see me do spaces here and there about like China tensions, World War III risk, et cetera, and Russia escalation, all that.
I'm relatively bullish, but then again, I've never expected Russia to cross the border.
I've never expected markets. Crypto to collapse the way it did. I never expected a lot of things that we're dealing with now.
So I tend to be more of an optimist. But yeah, that's where I stand.
Is there a coin that is inverse to the S&P?
I'm just curious.
Inverse or completely, or zero correlation.
Everything, I'd say like now everything, almost every, all the outs are zero correlation.
Like, where's Travis?
Travis, you could correct me if I'm wrong, but I just feel like, at Ryan, we can hear you eat that beautiful meal.
Travis, I think that everything is, is not inverse, but just does not correlate with, with, uh,
with the stock market with the SMP at the moment
just based on the
amount of Black Swan events that we've
seen. I think it's just been annihilated.
Only since April, Mara. Only since April, we lost
our correlation to the NASDAQ and the
F&P and we started correlating a little bit more with coal.
But that's only since April. I was actually covered
on my show today where we
looked at the correlations of
crypto versus
all the other asset classes.
And it's actually...
Are you talking about Bitcoin or just Bitcoin or all crypto?
I'll say crypto.
And Bitcoin, how is the correlation with Bitcoin and the S&P, Brian?
Because I noticed Bitcoin decorrelated, yeah, like, like, once a second.
Yeah, it's totally, it's totally uncorrelated right now.
And Bitcoin's correlation to...
different macro instruments kind of ebbs and flows over the last however many years and it goes
through these instances where it'll be you know very tightly correlated and then it'll wane and
you know sometimes it's correlated to tech stocks sometimes it's correlated to the remembe sometimes
it's correlated to gold sometimes it's correlated to inverse dixie sometimes it's correlated to
you know inverse yields like this this kind of thing but it the
it really has ebbed and flowed, and it has a tendency to, you know, decorrelate when there's either
really good or really bad idiosyncratic news within crypto.
And obviously, you know, it's been a bit of a shit storm in crypto these last few months.
And so the correlations are...
or not there at all.
Let me,
I want to ask,
before we get to the meeting
and we start streaming it,
I do want to ask the panel
about their thoughts on AI
and, you know,
it's very easy to make the argument
it's overhyped, et cetera,
but the impact of AI
on productivity,
inflation,
and the amount of capital
flowing into it.
So I want to get some thoughts
on that.
Before doing so,
I just want to read what Wells Fargo
So what Wells Fargo put out.
FOMC's main meeting, so last month, indicated the end of an aggressive tightening cycle,
with a unanimous vote for a 25 basis point rate hike.
But keeping options are open for additional hikes.
Monetary policies lag and the 500 bib of rate hikes suggest the Fed may choose to wait for another month.
The most likely outcome is no change in the policy rate, but the possibility of a hike in July...
has been
the narrative has been
similar across
across the board
however increasing
uncertainty
and deferring views
within the FMC
raises the chances
of potential
dissent in future meetings
so I think
the next month's meeting
is where Ryan was saying that we could see a pivot,
or Ryan is already calling it a pivot.
Others see a potential hike next month.
So I wanna get thoughts on what I just read on AI's impact.
In the meantime, for any project listing
or if you're an investor, you're sitting on a portfolio,
we are, so me, Scott and Rand,
are accepting projects to come on the show,
and more importantly, projects to join our incubator,
strong focus on Web 3 and crypto,
bullish, long term, we're pretty bullish.
So we're working with a bunch of projects for equity and or tokens in crypto and even AI.
So hit us up.
It's a pin tweet above.
You can email us.
There's two separate emails, one for sponsorships, one for incubation.
So hit us up above anyone in Web 3 or even AI email us above.
But just back to the question.
I've read what Wells Fargo put out.
But I want to get thoughts on AI.
Maybe we go with Patrick.
Patrick, you've just joined us.
Good to have you, man.
Can you hear me?
Yes, hello.
Hello.
All right.
Do you want to speak again so I can make sure your mic is good?
Testing.
One too.
Yeah, your mic is pretty rubbish, man.
If you can fix it, I'd love to get your thoughts on the situation, your thoughts on the meeting we're going to see.
And then I could shift to the AI decision.
I'll give you a couple of minutes.
Let me go to the AI discussion.
Caleb, Cabasi.
Um...
Is it getting overhyped?
Will it impact productivity?
Are we being too hopeful by saying AI will, like Larry Fink said earlier today, will play a role or will be the reason that inflation starts to drop considerably?
Cabasi, is that wishful thinking?
I don't, I mean, okay, is it overhyped or not?
I mean, that's tough to say.
I think AI is...
It's not just a fad that's going to disappear.
That's for sure.
And could it be a bubble and the next big thing at the same time?
Absolutely.
I mean, no market just appears out of nowhere becomes a top thing driving the markets
and then, you know, keeps going up straight up forever.
So...
I think AI is, it's definitely the next big thing.
I mean, I don't, I think there will be a lot of players within the space that disappear or don't become.
But moving away from the question about being overhyped, do you think it will really impact inflation in the next couple of years?
No, I mean, not necessarily.
I don't think AI in the whole inflation.
I mean, there might be some correlation there, but I don't see that being a predominant
driver of inflation over the next year or two.
Do I see it being a predominant driver of the market?
And is that another reason to stay bullish in markets?
Yes.
I mean, I think the AI hype in terms of market potential is still only getting started.
I've been very bullish of Nvidia since October.
I've been very bullish of basically any big...
name behind the the both the hardware and software of AI and I think you know you see if you take out
You've seen all the headlines if you take out the AI stocks from the S&P 500 were or we're up two percent year today or flat in some cases and
I mean, is that something that people are spending into a bearish narrative that a few names are holding up the market?
Yes, but that also speaks to the potential of AI and what people are expecting.
So I still think AI has room to run and I think it's going to keep supporting equity evaluations into the end of the year.
Let me go to Patrick Knoshoff.
Your mic is working. Patrick E.
Yeah.
Yeah, I plugged in my headset, but I appreciate it, man.
Give us, give us a quick thought.
What do you expect in the next 10 minutes and what do you expect over?
So we have two topics really away from AI.
The decision today, what's going to happen next month and your thoughts on the markets?
Well, look, I'm a macro guy and I have to zoom out.
I just nested a post.
I just did, guys.
It's.
what the Fed reacts, what makes them budge.
And as a chart trader, I try to find these correlations.
And initial claims seems to be a macroeconomic event that really spooks the Fed.
So they have probably a plethora of other metrics they check.
But if you check out that chart, whenever initial claims break out and they really start trending upwards,
that's when you start seeing the first rate cuts.
So I have a chart that's over 50 years,
and you'll see that when the initial claims start moving upwards.
And also initial claims, guys, I didn't overlay here,
but if I would have done the 30 year divided by the 10 year,
when the long-term prospects of inflation start outpacing the shorter term,
that also, that chart looks exactly like the initial claims,
jobless claims.
So look, it's starting to move up, the initial claims.
Is it enough yet for them to get spooked and start cutting?
Right.
we'll find out
but it is trending upwards
so the probabilities of getting rate cuts
are increasing as time moves on
so Patrick I love that comment
because I think that going forward
it is inevitable that
unemployment is going to go up
but I think you need to see it go up
to you know above 5%
I mean the Fed uses lagging data
we all know that
they use lagging data
and they're bureaucratic
and their academics
and out of the last
50 years and you look at economic cycles
even further back
13 bare market through 13 economic cycles.
10 of those resulted in a hard landing because primarily because of the Fed and three were soft landings.
So because the Fed uses lagging data and because they act too late, if they start to act, which I think they are,
they're going to start cutting rates when defaults go up and unemployment starts really ramping up closer to 5%.
By that time, a lot of things in the economy will already be broken.
Right.
And some things, like some corporate defaults, will be so bad that it's going to be hard to come back.
There are going to be some institutions that just are wiped out, small businesses and medium-sized businesses.
So I think the issue is that the Fed made a mistake.
They loosened the economic policy for too long, and they put too much money into the system along with fiscal policy.
And then on the flip side, they're probably going to tighten longer.
And that's something that none of us can actually predict.
The market's been wrong about it all throughout this year.
And, you know, it would be interesting to see if Powell is more forward-looking than Bernanke or Yalan or Greenspan.
Because at this point, he doesn't look to be.
Look, we've got you, I'll give you the mic right after, David, just because I know we've got a few minutes before I reached out the decision.
Mike, Joe and Rob, Mike, do you want to go first?
Your thoughts, what we could expect in a few minutes and your thoughts on the markets?
I'll check if that's Mike McGlone.
There's so many mics in the world.
It is you, sir, yes.
Thanks, Mary.
They're not going to do anything.
They're going to be hawkish and they're going to stay hawkish until the stock market goes down.
What does Hokkish mean?
What does Hokkish mean?
They'll keep jawboning.
They're going to just keep jawboning.
They're going to stay vigilant.
You know, each governor coming out and warning that they'll keep rates restrictive.
And here's what I think you should look for to expect a decent bottom and decent buying opportunities.
When you get surprise rate cuts, a series of it and a long variable lag.
So I do appreciate people who say the market's going to go up because it went up.
And I'm talking about the stock market.
But to me, we're at the stage right now.
Put yourself in the Fed shoes.
There is no reason for them to consider anything except to keep rates at these levels
and high until the stock market tells them by going down.
Because inflation is going down, everything's fine.
The way I look at it-
So, Mike, just to confirm you're saying no interest rate increase, just keeping rates high.
Yep.
It's already priced in.
If you look at the WRIRP function on the Bloomberg terminal, it shows virtually like 7% they're going to hike today, 50% they'll hike at the next meeting in July 26th.
And still potential they're going to hike in September.
But no cuts.
And that's the way it's going to stay.
And that's just let's talk about direct correlations.
Stock market going up, rate hikes staying in the system, rate hates staying strong.
Stock market going down is what it's going to take for rate cut.
That's my point.
We're not going to get that liquidity system until the market forces them.
Mike, what do you think about the RBA in the Bank of Canada hiking after the pause?
And not only that, expectations for the RBA to do three more hikes this year and the Bank of England to do two hikes and the Bank of Canada potentially to do another hike.
How did that narrative change and what drove that change?
And I'm muted you, Mike.
She's got on mute again because I heard your TV in the background.
Yeah.
So to me, exactly.
That's the key thing is the surprise rate hike from the Bank of Canada is, and any,
all these rate hikes are not, that's the key fact.
That was a statement from our chief of FX strategies in B.R.
Trill Friedman.
It just, these things are still tilting that way.
And that's what I really enjoyed about, you know, the long-term technical strategists.
And people come on and say, you have to buy it because the market's going up and have all these patterns and things.
This is something I've never seen.
And I've only been trading since the 80s where the Fed is still hiking despite plunging commodities.
Right.
you know and all these forward looking things really tilting down where this to me is what's
changed in every single thing that everybody in this calls has been doing in their entire investment
careers and that is the fed is not there to save you this time and the cryptos are pointing to that
the the yield curve is pointing to that the commodity collapses point to that there's only one
thing left and that's a stock market so this is a key point there's only two key banks in the
plant that are cutting and that's because their economies are tilting negative that's china
and Japan. So Mike, there's a real estate expert that just messaged, his name is Sokiel in Toronto, and basically what he said was
was that and his family owns hundreds of millions of real estate i think you know
bank of canada pivoted back i mean reverse pivoted they hiked after a pause because real estate
prices started inflect higher and it looked like the bank of canada was bent on you know
preventing real estate speculation just like when pal started in 2021 you know he was very clear about
sending real estate prices lower we had 7.5 trillion a wealth created in two years he was hell
bent on increasing unemployment despite what congresspeople badgered him about and he was hell about
bent on you know keeping equity market and crypto's included in that you know preventing fervent
speculation and it's all about inflation expectations and well i
We might, I actually think that the Fed is hiked too much and too far.
And in a normal economic environment, I would have probably assumed that the Fed was going to cut and I would have started to go long.
But what's actually happening is if Powell is so terrified of being the next Arthur Burns and he actually keeps rates this high until PC heat actually hits 2%.
then he is going to create a self-fulfilling prophecy where he actually blows up a number of things in the economy that we won't even know about until three months after they happen, to be honest.
So, I mean, I agree with you, Mike, that, you know, it's very difficult just using technical indicators because hedge funds are aggressively buying tech right now.
And we had this mini AI boom.
And a lot of it's based on reality.
And a lot of it's just complete bullshit because a lot of companies are just reclassifying revenues as AI.
Right.
Um, so I, yeah, guys, just a heads up.
We got two minutes to go before the decision.
So, yeah, two minutes to go before the decision.
Just give you guys a heads up as soon as a decision.
Patrick, sorry.
Patrick has a decision.
Mike.
Sorry, can you hold on?
Did you hear, sorry, Jay, did you hear Rand just speak now or not?
Just make sure if it's glitching for you.
Oh, I'm sorry.
I just have the Bloomberg television behind me.
So if Mike was responding or someone are responding, I'm sorry about that.
No, no, Rand was speaking by morning if it's a glitch you can't see.
We got two minutes left before you go in.
Mike as well, just the email that's working at the moment.
The incubation email is not working.
So if you're interested in working with us, DM, Ryan.
I'm getting a lot of comments.
And let us know what you expect in the comments below.
Before we give the mic to mic,
and then Ryan, you'll interrupt when the decision is out.
For the audience, we haven't told you, go in the comments, ask us questions there, tell us what you expect and what your thoughts are after the decision is out.
Mike, a minute or so, a few seconds before the decision is out, go ahead and Ryan will interrupt you.
So don't feel.
Perfect.
Just to let you know, things don't break typically until markets go down and make them break.
We saw a little bit of that.
You basically are missing that component right now.
All right, so we've got a few seconds before the, the, the, the, the, the, the, the markets all pretty much flat, you know, across the board.
SIP just started dropping.
Okay, I'm getting a, okay, rates are unchanged.
So the first bit of news that I can tell you is that the Fed is right is held rates unchanged.
That's come out right now.
Markets haven't even responded yet.
It's have to literally came out the second.
Yeah, we have a pause.
Now we're going to wait for the details and we're going to wait for the press,
the press pack or the meeting pack, which is going to come out any second.
Now, as soon as it does, I'm going to read through it.
I'm just waiting for the newsroom to drop.
Yeah, the market's pretty flat.
Still haven't reacted yet.
Well, I guess the markets were actually expecting it.
I guess the markets were actually expecting it.
Oh, they're absolutely expecting.
I'm saying NASDA 100% down.
Hold on.
Sorry, sorry.
Sorry, hold on.
Who's talking about NASA.
Go ahead, Caleb?
Yeah, that was me.
I'm seeing NASDAQ 100 futures down quite a bit here on one minute candles.
If I zoom out on five minute, we've just fallen.
On one minute candles.
Yeah, I mean, it's Fed Day.
So down 0.45% over the cost of the cost of.
Oh, I love one minute candles.
I love one minute candles.
Yeah, I can see the SMP drop as well.
The NASDAX flat.
I mean, on the day, the NASDAQ.
Session lows on the NASDAQ.
Yeah, so I think the market's waiting for the market's waiting for,
Okay, so I'm getting some more.
I'm getting some more news.
Voted 11.0 for Fed's fund rate action.
So unanimous vote to keep rates unchanged.
Economic activity has continued to expand at a moderate pace.
Holding rate steady allows assessment of policy impact.
So, I mean, this is a pivot.
This is saying we're going to hold steady for a while.
I'm surprised.
Unanimous, though.
Yeah, I'm also surprised, but generally there are unanimous.
I mean, if you look at the last couple of months, they've been unanimous.
It says recent indicators suggest that the economic activity has continued to,
has continued to expand at a modest pace.
Job gains have been robust in the recent months, and unemployment rate has remained low.
Inflation remains elevated.
The U.S. banking system is sound and resilient.
Tides of credit conditions continue for households and businesses are likely to weigh on economic activity,
hiring, and inflation.
Right.
The extent of these effects remains uncertain.
The committee remains highly attentive to inflation risks.
The committee seeks to achieve maximum employment and inflation at the rate of 2% over the long run.
In support of these goals, the committee decided to maintain the target range for the federal fund rate at 5 to 5.25% holding the target range steady at this meeting allows the committee to assess additional information.
its implications for monetary policy. In determining the extent of which additional policy
firming that may be appropriate to return inflation to 2% of a time, the committee will take
into account the cumulative tightening monetary policy, the lags which monetary policy affects
economic activity and inflation.
and economic and financial developments.
In addition, the committee will continue reducing its holdings of treasury securities and agency debt
and agency-backed mortgage securities as described in its previously announced plans.
The committee is strongly committed to returning inflation to its 2% objectives.
How am I doing, guys?
Do I sound like Jerome Powell?
Some breaking news on the Fed.
On the rate levels, the Fed median rate forecast rose to 5.6% for the end of 2023.
And that's what we expected in yesterday's space that they were going to increase the SEP forecast and for 4.6% for the end of 2024.
So the Fed is basically saying, you know, higher for longer.
We may not hike, but this is the worry that I have.
They'll keep rates higher.
This is exactly what we expected.
I mean, we basically got exactly what we expected, which is why the market's pretty much
on really moving.
You've got the, you've got the NASDAQ.
I'm not looking at, I've got to be honest, I'm not looking at it on the one-minute candles,
but the NASDAQ is completely flat.
The,
The S&P 500 down 0.41 and the Dow Jones down 0.33.
So pretty much...
Keep in mind, the Fed just said they see inflation to 2.5% by the end of 24 now, 3.2% by the end of 23.
Core inflation, 3.9% by end 23 and 2.6 by end of 24.
And they've said every single meeting, they're committed to 2% inflation.
So it seems like they're still leaning with higher for longer if they don't even see inflation at 2% by the end of 24.
Yeah.
Do you think a pivot will spike inflation again?
I think people have talked about cuts for a while.
So just suppose they cut.
Is that going to re-evigorate inflation?
Not only cut if the underlying economy is tanking and deflationary anyway.
So no in the short term.
Ryan, I am looking at the, I'm not looking at the one-minute candles.
I'm looking at the one-second candles on Bitcoin.
And we are moving slightly lower.
Yeah, so Bitcoin is moving slightly lower, SMP, slightly lower.
It's just chopping slightly.
It's not anything, I think, of note.
U.S. dollar picked up slightly as well.
No major impact.
I think that was all expected.
Your initial thoughts, Patrick and Rob?
Yeah.
Yes. Look, if I could just chime in there, I nested SPX versus 10-year yields.
Like another 50-year chart, but just to contrast, these one-minute charts, there was a paradigm shift event that happened when after the spike of the SPX versus the 10-year yields, I think, back in 2020, 2020.
We've broken out down of a 40-year trend line, and now the yields are going to, they're broken that upwards trend of SPX outperforming the yields.
And for to be in a bull market like we had from 1980s all the way to 2020 with that 10-year interruption in the 2000s, SPX has to outperform the...
the 10 year yields.
And right now,
that's not what's happening.
So even if nominally,
NASDAX is doing a bare market rally
or going up,
the SPX is going up nominally,
if you adjust them for 10 year yields,
they are not in a good place at all.
So rub pools or more could happen
to the US equities nominally.
And you have to expect that
adjusted for inflation, adjusted for 10-year yields, the U.S. equities are not going to be performing,
giving you as much return as it did in the 1980s or from 2010 all the way to 2020.
So people have to bear in mind there might be better investment ideas other than NASDAQ and tech.
While the anomaly, they're going up high, other stuff will be going up higher.
Well, the CD stay high above 4.5%, the rates that is.
You can just hold cash and beat inflation right now.
Exactly. There's a whole bunch of instruments right now. They'll give you a better return than what used to work from 2009 to all the way to 2020, 21. The game change. But people, they're in old habits, right? What's Alamud? It's tech. It's crypto. It's AI. People are looking at all these nominal gains, but they have to look. Adjusted in real terms. Are they really getting the return they need?
Anything else, Ryan? Ryan, can you hear me?
While waiting for rent to come in, Jay, how the market's looking still pretty flat?
Or everyone that thinks is sitting there trading.
Cabesi.
Hello.
Mark is definitely not flat.
S&P's down 30 points since this was released.
I'm looking at the rate futures.
I mean, there's now not even a single rate cut likely by the end of 23 based on futures.
So it seems like...
I think markets are viewing this is a little bit more hawkish than they expected because part of the release was that there may be more rate increases later this year.
Inflation at 2.5% by the end of 24, obviously, is a long time away.
But they also said most Fed officials see rate cuts in 2024.
So I really think this is the Fed just kind of hedging in both directions because they don't really know.
It's a wait and see type of thing.
And they want to see how the data trends.
Yeah, I'm just having a look at the, where is the Eustola?
I had it open just now.
Eos Stoller is still going up.
The SMP is still going down by the looks of it.
Let's take it.
Let's go to Dixie.
Drop to 25.
The Dixie is spiking as well.
No, where is it?
Yeah, it is.
103? What is it? 103.26. Yeah, 103.26. Yeah, exactly. It was just before it was
102.2.106 is a love there. Yeah.
Six or seven, yeah, just before it was seven. So your thoughts on why the market is reacting as
such, Mike, your initial thoughts?
Yeah.
Yeah, I'd like to add a key thing to remember here.
Real money doesn't move right after after when I see me.
This is purely speculator traders.
And I really enjoyed listening to Peter because when I was dealing and did this kind of stuff,
this is all high leverage spec trading.
It's completely insignificant, which is happening now.
You've got to give it a dare to let the dust settle and see the real flow.
Yes, right now the signal is potentially short term.
The best is over.
We've priced in for the end of the cut.
The whole world said we're going to be done cutting.
And once you're done cutting, that's a great thing.
But just be really careful.
And I see, that's one thing I love being with Bloomberg.
I see the announcers do it all time.
They say, ask me, Mike, why is market up?
Why is it down?
I don't care.
It doesn't matter.
So let's be careful with that and point out really what's happened here.
They didn't hike.
They signal they would hike again.
and maybe it's the end of the cycle,
but ask yourself what's going to take them to stop hiking.
And we already answered that before.
Guys, I'm looking at the dot plot.
In case I don't know what the dot plot is,
that's when each member of the meeting gets a document
and they put a little dot on where they think rates are going to be
at the end of a certain time period.
And if I look at it for the end of 2023,
they're looking at between 5.5 and 5.75.
So that means that they are seeing another...
Two increases, right?
Yeah, they're seeing another one to two increases this year.
That's what the majority of the Fed are seeing.
And I think that that's why the market's responding like this,
because the majority of the Fed members are saying that they're going to get another
two rate increases this year.
And that, just to give an idea of the majority, one, two, three, four, five, six, seven, eight, nine, nine out of one, two, three, four, five, six, seven, eight, nine, nine out of nine out of eighteen.
See the, see the, see the, the, the rate at, at the end of twenty, three, at between five point five and five point seven five percent.
So I think that's the reason why the market's responding, the way it's responding.
And just, I mean, just to hedge up here that this is the same way that the market's reacted at the previous FMC.
I think the Fed members have a almost responsibility to come out a little bit more bearish.
And I think that if we look at what the market is actually pricing in, having seen this, so we're looking at what the market has seen,
Having seen this data, I'm just calling up the the chart.
It'll take a second just to load.
Very much computer, my PC is very, very, very slow.
Just make sure, everyone listening, just make sure in the comments,
let us know your thoughts and decision in the market's response.
whether you're bullish or bearish.
So do let us know in the comments in the bottom right corner,
ask us questions as well.
And we've also fixed the emails for everyone asking why,
you know,
we cannot email you if you want to work with us,
et cetera.
Just check the pin tweets.
They've got the amended emails.
If you want to work in a incubator,
go ahead, Ron.
Here's what the market's seeing now.
The market's seeing one more rate increase this year.
Even though the Fed is calling for two,
the market seeing one more rate increase this year and then no rate cuts.
Now, I've been saying there's going to be no rate cuts for a long time.
I think now the market's actually agreeing with that.
But I also don't think there's going to be one more rate increase.
I think we're done, to be honest.
But let's see what happens at the next meeting.
And I guess let's talk.
Let's see what parlous is to say.
Right now, the probabilities of a, hold on, I'm just looking,
this data is coming in very, very, very fast.
So on the 26th of July...
which is the next FMC meeting, 93.4% chance of no rate-time.
That is as per the probabilities now, which is...
Hey, Rand, can I put that, add some...
It's right now it's 70%, 70%, basically, they're going to hike at that rating.
The Fed funds are priced for 5. a quarter.
The current effective rate is 5.08.
So you're right, but they're still leaning more towards a 25-basket point hike at the July meeting.
69% at the moment.
Go ahead, Patrick.
Yeah, just when people want to know what's going to happen with the next rate cut,
it depends always when it happens in these macro cycles.
So I nested just another chart, guys.
Again, it's a big, big pitch chart since 1947.
And when U.S. equities have been outperforming, let's say, the producer price index,
rate cuts, even if they happen, they're always seen as bullish events,
and they sustain the up move in the U.S. growth stocks.
But once the SPX, let's say, broke down versus inflation, broke down versus a produced price index, like a technical breakdown of an up trend, the rate cuts are actually seen as bearish.
And sometimes you guys, I hear you guys talking.
You hear, oh, well, if they cut, it's because the market and the price goes, let's say the market tanks.
Well, it's because the market has priced in some type of capitulation or, you know,
watershed moment and it's been priced in.
So it flips.
It's not always a rate cut.
People have been used to the past 10 years rate cuts.
Let's say the market propels upwards.
But right now we're in a dynamic that the rate cuts could actually be a rug pulse.
So, wait, I'm reading something now from Zero Hedge, Mario.
I don't know if you just want to put in that tweet,
but the thing that shocked,
the thing that shocked the market is when they compare,
comparing the May dot plot to the June dot plot.
So bear in mind we're one month later.
And in May, when they did the dot plot,
The terminal Fed fund rate, where most Fed officials saw the Fed fund rate was at 5 to 5.25 at the end of, at the end of 2023.
Now they're seeing it at 5.75.
So what they're saying is the rates are going to get higher and stay there for longer.
So not higher rates for longer, but actually even get higher rates.
and stay there for longer.
And that's what shocked it.
You can see it much better in this tweet that I've asked Mario to tweet from Zero Hedge.
But what shocked the market is.
Yeah, it's the May dots versus the...
the June dots. Again, I think that the market usually does overreact to this, and the market actually does price in its own assumptions, which you can see on the on the CME futures page.
Can I just say it's Jonathan here. Hi there, Mario and everybody else.
Can I just say that this seems to be disastrous for the CNBS, the CRA market?
So rates are going to remain higher all the way through to early 2024, but QT is continuing at pace.
So this is just very, very negative.
But don't you think that this is what the Fed had to do,
don't you think that this is what the Fed had to do,
you know, if you're going to pause,
you also want to protect yourself going forward and say,
look, we kind of reserve the right to raise rates.
I think that that's maybe the situation here.
Well, they're trapped, but they.
I mean, they've been trapped since they started tightening monetary policy.
It was two lakhs for decades before, and now they're tightening.
And, of course, they're stuck between a rock and a hard place.
I mean, you know, there is a collapse developing within commercial real estate in the U.S.,
I think it was Trap at the end of last week.
I forget who one of their analysts said that delinquencies could be higher than 10% by the end of the year.
And of course, what they need is they need interest rates to come down and rapidly.
And they also need quantitative tightening to stop.
You know, the tightening of the Fed's balance sheet sort of, you know,
reduces the capital that's in the system.
So, yeah, it's not good.
I'm not sure if it's not good.
I mean, I think, let's just take things to what down.
The first thing is let's celebrate the pause,
because we finally, after X amount of consecutive increases,
some of them by 0.5 basis points and something by 0.25,
we now have a pause, which is for me...
a slight pivot.
And I think the only thing that is actually scaring the market here is where the Fed officials see rates at the end of the year,
which means I think in their heads they're getting ready to say,
we're leaving the options open for another for another for another for another for another interest rate hikes.
That's that's that's the way I see it.
I think more will be said on this on at the press conference,
which we're going to stream live in about 13 minutes.
13 minutes.
Point out that the Fed's own staff doesn't agree with Powell.
Like in the last meeting, I'm not sure what they'll say in the next meeting coming up in 10 minutes.
In the last meeting, Powell was very clear that he doesn't agree with their own staff's projections of a mild recession by later this year.
So I think the dot plots are reflecting what the governors think, not what the staff thinks.
So ultimately, I'm not sure who's going to win this battle.
It's my concern is.
Jobs, the next jobs report, isn't it?
So obviously if CPI starts to sort of fall at an accelerated rate,
and if the jobs numbers, if they call, then it's unlikely that they'll need to increase the rate by another, you know, 25 basis points.
But if the core inflation remains high and if the jobs reports, the jobs numbers are still buoyant and positive,
then, you know, it's going to be very difficult for them not to raise.
So the problem I see is that, you know, there's been hope in the marketplace that actually
the Fed will pivot and then shortly after that, say within a following quarter, start to
reduce interest rates and that hope has now gone.
And I know they've advised in the long term, you know, well, our rate's going to be sort of,
you know, five and a half percent or five and a quarter percent.
But now what they're saying is actually it's definitely going to be above five percent.
And of course, you know, the market.
About 5.5.
Yeah, well.
About 5.5, actually.
That's their saying.
About 5.5.
They also just, sorry, the reason I interrupt you, we just got another segment from the Fed report.
And the Fed no longer expects the US to enter into recession in 2023.
Cool.
which is interesting because we had a lot of people here saying that in Q4 we're going to have a recession.
I think Henrik was one of them.
Gareth was another one of them.
I think they're both actually off the stream now.
But the Fed is no longer seeing a recession in 2023.
The Fed expects a 4.1% unemployment rate at the end of 2020 down from 4.5% now.
And they're seeing GDP increase by 1% from 0.4%, which was the previous...
So is that the governors or the staffs?
The staff revised your projections, right?
That's from the Fed report that came out.
I guess it's from the government, yeah.
Yeah, they revised, yeah.
They revised.
Okay.
I literally don't understand how they're even doing.
Sorry, David, but I don't understand how they're doing those metrics.
Like, I understand that the data might be showing them that,
but clearly the staff at the Fed are talking to Main Street and the governors aren't.
Because just like...
If you look at the higher rate employers in the US, for example,
which is small to medium businesses,
they have had on average of 15% to 20% reduction in their credit.
And essentially they all run on credit.
So I just don't understand how they get into that number.
I get that the data chart might be seeing that.
But if they just speak to tens of thousands of people who are on,
just literally go on to Twitter and use the search tool
and tell me which business is growing versus three years ago even.
I can't see how that makes sense.
So just to respond to that very quickly, the Fed, the reason why the doplot went up dramatically, and you can argue whether to, you know, 5.6% is dramatic or not is because of this idea that the Fed views unemployment to stay at 4.1%.
This is exactly what I was saying earlier in the call.
Unless unemployment, it's literally verbatim what I said.
Unless unemployment goes above 5%, the Fed is going to, or the trajectory is that way, the Fed is going to keep rates higher for longer.
And that's enough to break the momentum that we've been seeing so far this year.
And the fact that the Fed believes that there is no recession this year, it literally said that you can't have it both ways.
You cannot have the Fed cut rates to zero and the economy to have a soft landing.
And on the other frame of things, if the economy does have a hard landing, then the Fed, of course, will ease.
But you can't have both. You can't have your cake and eat it too. And that was, I think, the mentality going into this Fed meeting.
Like yesterday, we literally said that the SEP would be higher. Sorry, Joe, go ahead.
All good.
Yeah.
You know,
I think we've been in some sort of rolling recession since literally like almost
Q422.
You know,
when you look at big tech,
you know,
you look at Apple,
you know,
it's like they had their two consecutive quarters of negative net income.
You know,
Google,
same thing.
Something like a Shopify,
you know,
they actually went negative and now they're coming out of it.
You know,
you look at the banking sector.
You know,
they should have had a much worse,
moment than they did like outset from unlimited queue we're going to save everyone no matter what
happens right so i think that was the befuddlement that happened where you know you kind of have this like sector
separation between the recession and I think that's throwing people off and I think the next thing
like is housing right we're in a full standstill like we're at seven and a half percent 30 year mortgage rate
like the the millennial and now gen z they're in full capitulation mode even though you're seen
go ahead we got a question now finish off finish off joan i've got a question for you
Yeah, I mean, you're seeing rates at 7.5% for decent FICO's, you know, on a like a $300,000 loan, you know, new loan apps are actually up this this week for the first time, you know, and the highest it's been in a couple months here. And, you know, they're capitulating these.
you know, where, where is all of this money, though? And when you look at some of the core
inflation that people are looking at, you know, you've got a ton of money that's been saved
by these folks, but they can't go drop, you know, $100,000, $200,000 on a home. They don't want
to pay four times as much as they were going to pay or two and a half times as much as they
were going to pay, you know, when rates were really low. And so they're going to go spend it in other
places.
Yeah.
So you got a tweet by Walter just a few seconds ago.
The phrase was from an analyst.
The phrase, quote, at this meeting is a strong hint that holding steady is seen at just this meeting,
implying that more hikes are to come soon, presumably July or September.
It's very much a signal for a summer hike.
It kind of goes against, similar to what Scott said and against what Rand said is that health.
So if they don't raise interest rates today, the hikes, it does not mean we're in for a reversal.
So the poor as much as many would have expected to be.
A lot of it depends on the press.
Go ahead.
I think put yourself in the position of the Fed.
You're already embarrassed because we got here.
You're already embarrassed because inflation was transitory.
You're already embarrassed because of where we got to.
You don't want egg on your face again.
So what do you do you say?
Look, at this meeting, we're holding rates steady.
That gives us the option to continue to raise rates later on.
And as I, when I read in the statement, they said, look, we're going to keep evaluating the data based on holding rate steady.
I'm still putting my money on the fact that there's no more rate increases, but let's see.
I may be wrong.
The market is showing that rate increases are expected.
We'd love to get some thoughts on this.
And also the response from the market.
Like if you look at the, so Bitcoin drop but nothing major, we saw the SMP drop.
But again, it doesn't look that big of a drop.
And the Dixies up kind of recovered the drop that we've seen over the last 20.
24 hours. So just based on the market response, and I want to go back to you, Joe,
we'd love to get your thoughts. And then what language should we be on the lookout for
in the press conference in a few minutes?
Well, I think if you've got to operate under the pretense that, you know, these guys actually don't know what they're doing, right? And so we've raised rates to a certain level. And I think 25 more basis points doesn't really do too much to us. I think it's the hold steady that people are really trying to keep an eye out for and how long is that hold steady. And, you know, is this a new norm of operating your business with, you know, this environment is what people are trying to understand. But I, you know, I think.
you know when you look at the the decision here it's it's hey let's hold and let's hope and that's
all they're doing they're doing the same thing as us we're let's hope that the numbers turn around
let's hope um you know employment you know like unemployment starts to move up a little bit and that's
all they're doing but yes like ran is saying it's they're they're in the their government agency
and they're safe and pace yeah let me let me read out some analysts uh um their thoughts on on the
the market response the market was pretty so i'm going to read out here michael james
at Wedbush Securities, he's the managing director there.
The market was pretty overbought going into the meeting
and any sign of hawkish commentary was going to be negative.
We received it and that's the initial knee-jerk reaction.
We need to get more color from Chair Powell,
but the initial statement clearly reads more hawkish
than the market was prepared for,
at least coming into the statement.
And we've got other statements that are on the same of Sam Stovall says the market is sold off because investors are concerned that will be possibly at least two more rate hikes between now and the end of the year with no rate cuts.
Some people were expecting that the Fed would actually pause this month, but also not raise rates anymore, that they were high enough, while others were thinking that they'll pause at this meeting, but maybe add one more hike in July and that would be it.
However, it does seem that if the FOMC members have become even more hawkish since the last meeting, and I think it has taken investors by surprise.
Initial thoughts, Caleb, Rob, and again, what should we in Cabasi as well?
And what type of language would you be looking out for in the press conference in a few minutes?
And Ryan, interrupt us when the conference starts, please.
I'll just keep my comments here on this pretty brief.
The fact that this was a unanimous vote to pause, it sounded like that was kind of surprising to some people.
I think that's exactly what we should have expected.
Yeah.
The Fed has been very persistent for the course of the last 20 years, really since even Bernanke,
that consistency and unanimous votes and, you know, falling in line is very, very important,
particularly at inflection points.
And so to see this decision today and the consistency of the vote, I think, is what should be relatively unsurprising.
I did one of those long form tweets talking about how, you know, I think given the fact that the Fed has invoked the mistakes of Arthur Burns in the late 70s and the flip-flopping of policy, they don't want to repeat that, right?
They don't want to pause or cut and then have to hike again and, you know, kind of keep
keep playing both sides because one thing that's super important for both the health of the
financial system and the economy is some form of consistency in monetary policy. So when the Fed
pauses or when they cut, they do that for quite some time.
When they hike, they do that for quite some time.
Rewind back to the 2015 hiking cycle.
What did they start that hiking cycle with?
Hey, guys, we are going to hike rates by 0.25% every other meeting.
And that's exactly what they did for two and a half years.
Right. And so given the fact that they've cited the mistakes of Arthur Burns and the inconsistency of policy in the mid to late 70s, I think if anything, this is officially a reflection of the Fed's confidence that we are firmly in disinflation.
The unfortunate part about that is they are six months too late to recognize disinflation
and adjust monetary policy as such.
And so this is going to be the new challenge going forward.
From my perspective, inflation and the inflation story is now old news.
Expect to see the labor market become the new focus for market moving dynamics going forward
and Fed policy.
Rob,
I agree with you 100.
Yeah, go ahead.
Yeah, Ryan, just jump in.
By the way, Rand, just jump in, interrupt whoever's speaking and just I'll mute everyone.
Two minutes to go.
Every Fed decision this year has been quote-unquote unanimous,
but then when we exit the Fed blackout period,
every Fed official says the exact opposite thing is the person next to them.
So I don't think the Fed is added in the time.
You're not suggesting they're inconsistent now.
Come on.
What was that? I didn't hear you.
You're not suggesting they're inconsistent now, are you? Come on.
Yeah, exactly.
The Fed decision is transitory, guys. The Fed decision is transitory.
Yeah, yeah, yeah.
So, I mean...
Yeah, we have one minute, one minute left to go. I'm watching...
I'm on the stream. I've got one minute left to go.
All right, Ryan, do you want to...
Okay, Ryan, Ryan, do you want to stop the music?
Okay, we're in an airport lounge.
Yeah, no.
Go ahead Cabaci and then we'll go to Rob.
We've got seconds a guy.
Yeah, I mean, I was just saying, I mean,
I don't think they're nearly as aligned
as they're making themselves out to be,
there's no possible way that every single decision this year was unanimous.
Like, you're telling me,
every single person has voted for the decision that the Fed made this year.
That's just, I mean, I think they're just trying to appear.
I think they want collective denial.
I think they want people to think they're working together.
Exactly.
It's a perception, right?
So I think, you know, there's still a lot of uncertainties for what's going to come.
I think out of all of the meetings, this one's going to be the most thing to listen to new ones.
Here we go. Just, they're just waiting for Powell. They've put on the mics and...
Hey, Ray, just a quick tip. If you're watching it on YouTube, click the settings button and put it on 2x speed,
and I guarantee you'll have the fastest live here in the future.
And just in the meantime, everyone while listening, just let us know in the comments.
We'll be watching the comments, getting your thoughts, and preparing questions for the panel.
So make sure you put your comments in the bottom right corner.
And yeah, Ryan, we can kick it off on your like.
Okay, well, there we go.
Good afternoon. My colleagues and I remain squarely focused on our dual mandate to promote
employment and stable prices for the American people. We understand the hardship that high inflation
is causing, and we remain strongly committed to bringing inflation back down to our 2% goal.
Price stability is the responsibility of the Federal Reserve. Without price stability,
the economy doesn't work for anyone.
In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all.
Since early last year, the FOMC has significantly tightened the stance of monetary policy.
We have raised our policy interest rate by five percentage points, and we've continued to reduce our securities holdings at a brisk pace.
We've covered a lot of ground, and the full effects of our tightening have yet to be felt.
In light of how far we've come in tightening policy,
the uncertain lags with which monetary policy affects the economy, and potential headwinds from credit tightening,
today we decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings.
Looking ahead, nearly all committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2% over time.
And I will have more to say about monetary policy after briefly reviewing economic developments.
The U.S. economy slowed significantly last year, and recent indicators suggest that economic activity has continued to expand at a modest pace.
Although growth in consumer spending has picked up this year, activity in the housing sector remains weak, largely reflecting higher mortgage rates.
Higher interest rates and slower output growth also appear to be weighing on business fixed investment.
Committee participants generally expect a subdued growth to continue.
In our summary of economic projections, the median projection has real GDP growth at 1.0% this year and 1.1% next year,
well below the median estimate of the longer run normal growth rate.
The labor market remains very tight.
Over the past three months, payroll job gains averaged a robust 283,000 jobs per month.
The unemployment rate moved up but remained low in May at 3.7%.
There are some signs that supply and demand in the labor market are coming into better balance.
The labor force participation rate has moved up in recent months, particularly for individuals aged 25 to 54 years.
Nominal wage growth has shown signs of easing, and job vacancies have declined so far this year.
While the jobs-to-workers gap has declined, labor demand still substantially exceeds the supply of available workers.
FOMC participants expect supply and demand conditions in the labor market to come into better balance over time, easing upward pressures on inflation.
The median unemployment rate projection in the SEC rises to 4.1% at the end of this year,
and 4.5% at the end of next year.
Inflation remains well above our longer-run 2% goal.
Over the 12 months ending in April, total PCE prices rose 4.4%,
excluding the volatile food and energy categories,
core PCE prices rose 4.7%.
In May, the 12-month change in the consumer price index came in at 4%.
And the change in the core CPI was 5.3%.
Inflation has moderated somewhat since the middle of last year.
Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.
The median projection in the SEP for total PCE inflation is 3.2% this year, 2.5% next year, and 2.1% in 2025.
Core PCE inflation, which excludes
volatile food and energy prices, is projected to run higher than
total inflation, and the median projection has been revised in the
SEP up to 3.9% this year.
Despite elevated inflation, longer term inflation expectations
appear to remain well anchored, as reflected in a broad range
of surveys of households, businesses, and forecasters,
as well as measures from financial markets.
The Fed's monetary policy actions are guided by our mandate to promote maximum employment and
stable prices for the American people.
My colleagues and I are acutely aware that high inflation imposes hardship as it erodes purchasing
power, especially for those least able to meet higher costs of essentials like food, housing,
and transportation.
We are highly attentive to the risks that high inflation poses to both sides of our mandate,
and we are strongly committed to returning inflation to our 2% objective.
As I noted earlier, since early last year, we have raised our policy rate by five percentage points.
We have been seeing the effects of our policy tightening on demand in the most interest rate
sensitive sectors of the economy, especially housing and investment.
It will take time, however, for the full effects of monetary restraint to be realized,
especially on inflation.
The economy is facing headwinds from tighter credit conditions for households and businesses,
which are likely to weigh on economic activity, hiring, and inflation.
The extent of these effects remains uncertain.
In light of how far we've come in tightening policy, the uncertain lags with which monetary
policy affects the economy and potential headwinds from credit tightening,
The committee decided at today's meeting to maintain the target range for the federal funds rate at 5 to 5.5% and to continue the process of significantly reducing our securities holdings.
As I noted earlier, nearly nearly all committee participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year.
But at this meeting, considering how far and how fast we've moved, we judged it prudent to hold the target range steady to allow the committee to assess additional information and its implications for monetary policy.
In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
In our SEP, participants wrote down their individual assessments of an appropriate path for the federal funds rate based on what each participant judges to be the most likely scenario going forward.
If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 5.6% at the end of this year.
4.6% at the end of 2024, and 3.4% at the end of 2025.
For the end of this year, the median projection is a half percentage point higher than in our March projections.
I hasten to add, as always, that these projections are not a committee decision or plan.
If the economy does not evolve as projected, the path for policy will adjust as appropriate
to foster our maximum employment and price stability goals.
We will continue to make our decisions meeting by meeting based on the totality of incoming
data and their implications for the outlook for economic activity and inflation, as well as
the balance of risks.
We remain committed to bringing inflation back down to our 2 percent goal and to keeping
longer term inflation expectations well anchored.
Reducing inflation is likely to require a period of below-trend growth and some softening
of labor market conditions.
Restoring price stability is essential to set the stage for achieving maximum employment
and stable prices over the longer run.
To conclude, we understand that our actions affect communities, families, and businesses across
the country. Everything we do at the Fed is in service to our public mission.
We will do everything we can to achieve our maximum employment and price stability goals.
Thank you, and I look forward to your questions.
All right, so now we have the questions that are going to come up.
Thank you, Colby Smith with the Financial Times.
I'm curious what gives you in the committee the confidence that waiting will not be counterproductive at a time when the monthly pace of core inflation is still so elevated.
Interest rate sensitive sectors like housing, while they felt the drag of the past Fed actions have started to recover in some regions and financial conditions, you know, most recently were easing.
So...
I guess I would go back to the beginning of this tightening cycle to address that.
So as we started our rate hikes early last year, we said there were three issues that would
need to be addressed kind of in sequence.
that of the speed of tightening, the level to which rates would need to go,
and then in a period of time over which we need to keep policy restrictive.
So at the outset, going back 15 months, the key issue was how fast to move rates up,
and we moved very quickly by historical standards.
Then last December, after four consecutive 75 basis point hikes,
we moderated to a pace of a 50 basis point hike,
and then this year to three 25 basis point hikes at sequential meetings.
So it seemed to us to make obvious sense to moderate our rate hikes as we got closer to our destination.
So the decision to consider not hiking at every meeting and ultimately to hold rate steady at this meeting,
I would just say it's a continuation of that process.
The main issue that we're focused on now is determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time.
So the pace of the increases and the ultimate level of increases are separate variables.
Given how far we have come, it may make sense for rates to move higher, but at a more moderate pace.
I want to stress one more thing, and that is that the committee decision made today was only about this meeting.
We didn't make any decision about going forward, including what would happen at the next meeting, including we did not decide or really discuss anything about going to an every other meeting kind of an approach or really any other approach.
We really were focused on what to do at this meeting.
So there was no kind of initial debate about the possibility of July,
any sense of the initial support at this stage for that move?
So again, we didn't make a decision about July.
I mean, of course, it came up in the meeting from time to time.
But really, the focus was on what to do today.
I would say about July, two things.
One, decision hasn't been made to, I do expect that it will be a live meeting.
Okay.
Thanks, Howard Schneider with Reuters.
I was just wondering if you could help us understand the narrative here because it feels like there's been a level shift in the dots, stronger GDP, less of a hit on employment, slower progress on inflation.
And I'm wondering in this sort of where's the disinflation coming from?
The labor market's going to be stronger, it looks like.
It's not coming from there.
Demand is not coming down all that fast, according to GDP.
You've doubled your estimate of GDP.
So what's the narrative here?
It seems like it's getting more immaculate rather than more messy.
So you're right that the data came in, I would say, consistent with, but on the high side of expectations.
So, and if you go back to the old, the former SEP, the last SEP in March, you will see that growth moved up.
These are not huge moves, but growth estimates moved up a bit.
Unemployment estimates moved down a bit.
inflation estimates moved up a bit. And, you know, all three of those kind of point in the same
direction, which is, you know, that perhaps more restraint will be necessary than we had thought at
the last meeting. So although the level, frankly, is pretty, the level of 5.6 is pretty consistent,
if you think about it, where the federal funds rate was trading before the bank incidents of early
March. So but we've kind of gone back to that. So your question is, where is the disinflation
going to come from?
And, you know, I don't think the story has really changed.
We, the committee has consistently said and believed that the process of getting inflation down is going to be a gradual one.
It's going to take some time.
And I think you go back to the three-part framework for core PCE inflation, which is,
we think, as good an indicator as you can have for where inflation is going forward.
You start with goods.
With goods, we need to see continued healing and supply conditions, supply-side conditions.
They've definitely improved a substantial amount.
But if you talk to people in business, they will say it's not back to where it was.
So that's one thing, and that shouldn't enable goods prices to continue.
Because inflation to continue to come down over time.
In terms of housing services inflation, that's another big piece.
And you are seeing there that new rents, new leases are coming in at low levels.
And it's really a matter of time as that goes through the pipeline.
In fact, I think any forecast that people are making right now about inflation coming down this year will contain a big dose of
this year and next year will contain a good amount of disinflation from that source.
And that's, again, probably going to come slower than we would affect.
That leaves the big sector, which is a little more than half, pardon me, of the core PC inflation.
That's non-housing services.
And, you know, we see only the earliest signs of disinflation there.
It's a sector.
It's a very broad and diverse sector.
I would say in a number of the parts of that sector, the largest cost would be wage costs.
It's a service sector.
So it's heavily labor intensive.
And...
I think many analysts would say that the key to getting inflation down there is to have a continuing loosening in labor market conditions, which we have seen.
We have actually seen, you know, I could go through a number of indicators suggesting there has been some losing in labor market conditions.
We need to see that continue.
I would almost say that the conditions that we need to see in place to get inflation down.
are coming into place. And that would be growth meaningfully below trend. It would be a labor
market that's loosening. It would be goods pipelines getting healthier and healthier and that kind of thing.
The things are in place that we need to see, but the process of that actually working on inflation
is going to take some time.
Nick?
Okay.
Nick Tameros of the Wall Street Journal.
Chair Pal, what's the value in pausing and signaling future hikes versus just hiking now?
I mean, not to be flippant, but I don't lose weight just by buying a gym membership.
I have to actually go to the gym.
16 of your colleagues put down a higher year-end, 23 rate today.
A majority of you think you're going to have to go up by 50 basis points this year.
So why not just rip off the Band-Aid and raise rates today?
So the first I would say that the question of speed is
is a separate question from the question from from from that of level okay so and I think if you look at the
CEP that is our estimate our individual it's really accumulation of our individual estimates of
how far to go I mentioned how we got to those numbers in terms of speed it's it's what I said at the
beginning which is speed was very important last year as we get closer and closer to the destination
and according to the CEP we're not so far away from the destination in most people's accounting
It's reasonable, it's common sense to go a little slower, just as it was reasonable to go from 75 basis points to 50 to 25 at every meeting.
And so the committee thought overall that it was appropriate to moderate the pace, if only slightly.
And there are benefits to that.
So that gives us more information to make decisions.
We may try to make better decisions.
I think it allows the economy a little more time to adapt as we make our decisions going forward.
And we'll get to see, you know, we haven't really, we don't know the full extent of the consequences of the banking turmoil that we've seen.
It would be early to see those, but we don't know what the extent is.
We'll have some more time to see that unfold.
I mean, it's just the idea that we're trying to get this right.
And this is, if you think of the two things as separate variables,
then I think that the skip, I shouldn't call it a skip, the decision makes sense.
And so, so the market's not really buying with policy,
with only the June employment, with only the June employment and the CBI report for June,
due to be released before the July meeting, you get the ECI after,
you get the senior loan officer survey after you get some bank earnings at the end of next month.
information will the committee be using to inform their on whether this is in fact a skip or
a longer pause? Well, I think you're adding that to the data that we've seen since the last
meeting, too. You know, we, since we chose to maintain rates at this meeting, is
It'll really be a three-month period of data that we can look.
And I think that's a full quarter.
And I think you can draw more conclusions from that than you come from any six-week period.
We'll look at those things.
We'll also look at the evolving risk picture.
We'll look at what's happening in the financial sector.
We'll look at all the data, the evolving outlook, and we'll make a decision.
The NASDAQ is up a hundred points, sir.
Thanks for taking our questions.
Gina Smirik, New York Times.
You obviously in your forecast marked up the sort of path for growth, marked down the path
for unemployment, marked up the path for inflation pretty notably.
I wonder, you know, since March, what has changed to make you think that the economy is
a lot more resilient and inflation is going to be a lot more stubborn?
And given that, you know, why do you feel confident that this is as high as you're going to have to revise the federal funds rate?
Or do you think it's possible we could have even a higher than 5.6% terminal by the end of this cycle?
You know, I mean, on the first part, I just think we're following the data and also the outlook.
The economy is the labor market, I think, has surprised many, if not all analysts over the last couple of years with its –
extraordinary resilience, really. And it's just remarkable. And that's really, if you think about it,
that's what's driving. It's job creation. It's wages moving up. It's supporting spending,
which in turn is supporting hiring. And it's really the engine, it seems, that it's that it's driving
the economy. So it's really the data. In terms of, you know, we always write down at these meetings what we think the
appropriate terminal rate will be at the end of this year.
That's how we do it.
It's based on our own individual assessments of what the most likely path of the economy is.
it can be, it can actually in reality wind up being lower or higher.
And I, you know, there's really no way to know.
But it's, it's, it's what people think as of today.
And as the, as the data come in, it can move around during the intermeeting period.
It could wind up back in the same place.
But it really will be data driven.
I can't, I can't tell you that that I ever have a lot of confidence that we can see where the,
where the federal funds rate will be that far in advance.
I think that's a key point.
That's what we were saying earlier.
That's a key point.
Mr. Chairman, thanks for it.
You had said back at the end of May that you thought risks were getting closer to being into balance.
Is that still the case or has your mind changed about the balance of risks out there?
And also, could you give us an idea of what would be a sufficiently restrictive funds rate?
Obviously, the current rate, according to the committee, is not sufficiently restrictive.
Is it 5, 6?
Is it 6?
Is it 6?
Where is sufficiently restrictive?
Thank you.
You know, I would say again that I think that over time, the balance of risks, as we've moved from very, you know, from interest rates that effectively zero now to five percentage points with with an SEP calling for additional hikes, I think we've moved much closer to our destination, which is that sufficiently restrictive rate.
And I think that means, almost by definition, that the risks of...
sort of overdoing it and underdoing it or are getting closer to being in balance. I still think,
and my colleagues agree that the risks to inflation are to the upside still. So we don't
think we're there with inflation yet because we're just looking at the data. Now, if you look at the
at the full range of inflation data, particularly the core data.
You just aren't seeing a lot of progress over the last year.
Headline, of course, inflation has come down materially.
But as you know, we look at core as a better indicator of where inflation overall is going.
So I think, you know, what we'd like to see is credible evidence that inflation is
topping out and then beginning to come down.
That's what we want to see.
Of course, that's what we want to see.
And, um,
I think it's also, we understand that there are lags, but remember that it's more than a year since financial conditions began tightening.
I think it's, I think the reason we're we're comfortable pausing is that we are still, much of the tightening took place over last summer.
And later into the year, and I think it's reasonable to think that some of that may come into effect.
So we're, you know, I think stretching out into a more moderate pace is appropriate to allow you to make that judgment of sufficiency, you know, more with more data over time.
Rachel?
Thank you.
Hi, Chair Powell, Rachel Siegel from the Washington Post.
Thanks for taking your questions.
I wanted to ask further on the lag effects when you're considering when you would hike again
throughout the course of the year.
Are there things that you would expect to kick in as those lag effects come into effect
that would inform your decisions?
Have you learned things over the past year that give you some sense of timeline for when
do expect those lags to come into effect?
So it's a challenging thing in economics.
It's sort of standard thinking that monetary policy affects economic activity with long and variable legs.
Of course, these days, financial conditions begin to tighten well in advance of actual rate hikes.
So if you look back when we were lifting off, we started talking about lifting off.
By the time we had lifted off the two-year, which is a pretty good estimate of where policy is going, had gone from 20 basis points to 200 basis points.
So in that sense, tightening happens much sooner than it used to in a world where news was in newspapers and not on the wire.
So that's different, but it's still the case.
What you see is introsensitive spending is affected very, very quickly.
So housing and durable goods and things like that.
But broader demand and spending and asset values and things like that, they just take
longer.
And you can pretty much find research to support whatever answer you would like on that.
So there's not any certainty or agreement in the profession on how long it takes.
Right.
So, you know, then that makes it challenging, of course.
So we're looking at the calendar.
We're looking at what's happening in the economy.
We're having to make these judgments.
Again, it's one of the main reasons why.
it makes sense to go at a slightly more moderate pace now as we seek that ultimate.
I can't point to that ultimate endpoint.
I can't point to a specific data point.
I think we'll see it.
When we see inflation, you know, really, really flattening out reliably and then starting to soften,
I think we'll know that it's working.
And ideally, by taking a little more time, we won't go well past the level where we need to go.
I was curious if you could give us an update on what you're seeing on credit tightening since the bank incidents from March and how you're teasing that out apart from these lag effects.
So it's too early still to try to assess the full extent of what that might mean.
And, you know, that's something we're going to be watching, of course.
And, you know, if we were to see...
what we would view as significant tightening beyond what would normally be expected because of this channel,
then, you know, we would factor that into account on in making rate decisions.
So that's how we think about it.
Let's go to Chris.
Thanks.
Chris Ruegaver at Associated Press.
You mentioned that many of the trends are in place that you want to see core services
X housing has come in pretty low in the past couple of months.
And as you noted, a significant portion of core inflation is now housing prices.
And then we've had some quirks in use car prices.
So given that these trends are in place, I guess I'm sort of asking the flip side of
Nick's question.
Why...
signal additional rate hikes, aren't things headed in the direction you need? Why not simply give it even more time or,
it's surprising to see so much hawkishness in the dots given what we're seeing recently?
Yeah. So, you know, we've, remember, we've, we're two and a half years into this or two and a quarter years into this.
And forecasters, including Fed forecasters, have consistently thought,
that inflation was about to turn down and, you know, traditionally, you know, typically
forecasted that it would and been wrong. So I think if you, I think if you look at the core
PCE inflation overall, look at it over the last six months, you're just not seeing a lot of progress.
It's running and it's running at a level, you know, over four and a half percent, far above
our...
our target and not really, you know, moving down.
We want to see it moving down decisively.
That's all.
We're, you know, of course, we are going to get inflation down to 2% over time.
We don't want to do, we want to do that with the minimum damage we can to the economy, of course.
But we have to get inflation down at 2% and we will.
And we just don't see that yet.
So...
Hence, you see today's policy decision, both to write down for the rate hikes by the end of this year, but also to, you know, to take, to moderate somewhat the pace with which we're moving.
I think we'll give one or two more questions.
I'll go in a follow-up.
I mean, the last press conference you mentioned, you didn't see wages driving inflation.
And, you know, there was some research from the San Francisco Fed, suggesting wages aren't necessarily key driver.
But you've talked about the labor market today and the need for softening.
Can you give us a little more specifically of how you see the tight labor market driving inflation at this point?
Thank you.
Right.
So, um...
i'm not going to comment on on any particular paper but i would say that the i think the overall
picture is that at the beginning in you know early 2021 inflation was really becoming for very
strong demand for largely for goods people were still at home they had money in the bank
and they wanted to spend they spent a lot on goods and of course at the same time and because of
that high demand to some extent supply chains got all snarled up so prices went way up inflation went way up
That was the origin, and it wasn't really particularly about the labor market or wages.
But as you move into through 21 into 22 and now in 23, I think many, many analysts believe that it will be important, an important part of getting inflation down, especially in the non-housing services sector.
getting wage inflation back to a level that is sustainable that is consistent with 2% inflation.
We actually have seen wages broadly moved down but just at a quite gradual pace.
So, and that's, you know, that's a little bit of the finding of the Bernanke paper with Blanchard of a few weeks ago,
which is very consistent with what I would think.
So, Michael McKean.
Michael McKeever, Bloomberg Radio and Television.
You said in the past that you don't like to surprise markets.
It's kind of been the Fed's view.
Markets should have an idea of what you're going to do before you go in.
You also said a number of times that it would take a while to bring inflation down.
You reiterated that again today and that we would get to a point where inflation could
be sticky.
So I'm wondering, as we go into the next meetings.
how Wall Street or others should look at your reaction function, what will you be reacting to time or data?
In other words, if nothing much changes, if we're looking at the same sort of labor market,
the same sort of inflation levels in July or in September or November, will you move because you've said you feel you need to?
Is it time that's going to require additional movement or would it be a reversal in inflation?
So I don't want to deal with hypotheticals about different ways data might move out.
So we, of course, we're not, we don't go out of our way to surprise markets or the public.
At the same time, our main focus has to be on getting the policy right.
And that's what we're doing here.
And that's what we'll do for the upcoming meetings.
I will say the July meeting will be live.
And we'll just have to see.
I think you'll see the data.
You'll hear Fed people talking about it and markets will have to make a judgment.
Well, do you think inflation is likely to continue coming down based on the lags and based on your threat of additional movement?
Or are we going to be in a period where we're not going to know what's happening?
You know, I think if you look at...
If you just look at, I'll just point you to the forecast.
So inflation is running, core PCU inflation is running at about four and a half a little higher than four and a half percent.
And the median FMC participant thinks it will go down to 3.9 on a 12 month basis this is by the end of this year.
So that's expecting pretty substantial progress.
That's, that's a pretty significant decline for half a year.
So that, that's the forecast.
You know, we do try to be transparent in our reaction function.
We're committed to getting inflation down, and that's the number one thing.
So that's how I think about it.
It's going to be it.
Victoria Guido with Politico, could you talk about the balance sheet and how you're thinking about it?
What are you looking for to judge whether we're approaching reserve scarcity and is treasury issue
and it's going to affect that?
Also, are you considering lowering the RRP rate in order to take some pressure off banks?
So let me say, first of all, on the treasury part of it, if I can talk about that and then go back to the balance sheet.
So on that, of course, we've been very focused on that for a couple of months, as everyone
has.
Treasury has laid out its borrowing plans publicly.
I think we all saw, I saw the Secretary's comments yesterday to the effect that Treasury
has consulted widely with market participants about how to avoid market disruption and
that they're going to watch carefully for that.
So that's from the Treasury, which actually sets the borrowings.
At the Fed, we'll be monitoring market conditions carefully as the Treasury refills the TGA.
The adjustment process is very likely to involve both a reduction in the RRP facility and also in reserves.
It's really hard to say at the beginning of this, which will be greater.
we are starting at a very high level of reserves and still elevated or RAPE to take up for that matter.
So we don't think reserves are likely to become scarce in the near term or even over the course of the year.
So that's the Treasury part of the answer.
We will, of course, continue to monitor conditions in money markets, and we're prepared to make adjustments to make sure that monetary policy transmission works.
Was there another part of your question?
Yeah.
Are you considering lowering the RRP rate to help take some pressure off banks?
So we have a number of, I would say the RRP doesn't look like it's pulling money out of the banking system.
It's actually been shrinking here lately.
So I don't think that's not something, something we've thought about a lot over time.
It doesn't really look like that's something we would do.
I think it's a tool that we have.
If we want to use it, we can.
There are other tools we can use to address money market issues.
But I wouldn't say that that's something that's likely that we would do in the near term.
No, yeah.
Thank you.
Janelle Martin with Bloomberg.
Have you seen sufficient cooling in the housing market to bring inflation down?
For example, how does the recent rebound affect your forecast and how does it factor into
monetary policy?
So certainly housing very interest sensitive and it's the first place really,
or one of the first places that's either held by low rates or that is held back by higher rates.
And we certainly saw that over the course of the last year.
We now see housing putting in a bottom and maybe even moving up a little bit.
You know, we're watching that situation carefully.
I do think we will see rents and house prices filtering into housing.
into housing services inflation.
And I don't see them coming up quickly.
I do see them kind of wandering around at a relatively low level now.
And that's appropriate.
Do you think you'll have to target that with further rate increases?
Well, I think we look at everything.
We don't just look at housing.
So I think, you know, the way it works is individual participants sit in their offices all over the country
and they write down their forecast and including their most likely forecast, including
their rate forecast.
And then they send it in on Friday afternoon and we accumulate it and then we publish it for
you.
So that's how they do that.
Well, I don't know that housing is...
itself going to be driving the rates picture, but it's part of it.
Just a NASDAQ up about 1%.
So we are getting a bit of a rally.
Thank you for taking the question, Mr. Chairman.
Edward Lawrence with Fox Business.
So I want to go back to comments you made about in the past,
about unsustainable fiscal path.
The CBO.
The Dixie is 1.2.2.9.
in 10 years. The CBO also says that federal debt will be $52 trillion by 2033. At what point do you talk
more firmly with lawmakers about fiscal responsibility because I'm assuming monetary policy cannot
handle alone the inflation or keep that inflation in check with the higher level spending?
I don't do that. That's really not my job. We we hope and expect that other policymakers will
respect our independence on monetary policy.
And we don't see ourselves as, as, you know, the judges of appropriate fiscal policy.
I will say, and many of my predecessors have said that we are on an unsustainable fiscal path and that needs to be addressed over time.
But I think trying to get into that with lawmakers would be kind of...
inappropriate, given our independence and our need to stick to our knitting.
Is there any conversation then about the Federal Reserve financing some of that debt
that we're seeing coming down the pike? No, under no circumstances.
Courtney.
Courtney.
Thanks for taking our questions, Chair Powell.
So looking at the SEP, it looks like GDP for this year was raised significantly, your
forecast for GDP this year.
The unemployment rate, meanwhile, was pulled downward.
And so should we take that as a sign that the committee is more confident about the prospects
of a soft landing, at least more, at least as it relates to what you were expecting in March?
You know, I would just say it this way.
I continue to think, and this really hasn't changed, that there is a path to getting
inflation back down to 2% without having to see the kind of sharp downturn and large losses
of employment that we've seen in so many past instances.
It's possible, in a way, a strong labor market.
is that gradually cools could aid that along.
It could aid that along.
But I guess I want to come back to the main thing,
which is though simply this.
We see the committee, as you can see from the SEC,
the committee is completely unified in the need to get inflation down to 2%.
And we'll do whatever it takes to get it down to 2%.
Over time, that is our plan.
And...
You know, we understand that allowing inflation to get entrenched into the U.S. economy is the thing that we cannot allow to happen for the benefit of today's workers and families and businesses, but also for the future.
Getting price stability back and restored will benefit generations of people as long as it's sustained.
And it really is the bedrock of the economy.
And you should understand that that is our top priority.
Just a quick follow up on that. I'm just a little confused because you said the committee will do whatever it takes to get inflation down over time. But when I look at the SECP, inflation is still projected to be elevated next year, but the Fed funds rate is lower than where it is now. Can you help me understand that?
Sure. So, you know, if you look two and three years out with the forecast, first of all, I wouldn't put too much weight on forecasts even one year out because they're so highly uncertain. But what they're showing is that as inflation comes down in the forecast, if you don't lower interest rates, then real rates are actually going up, right? So just to maintain a real rate,
right?
the nominal rate at that point two years out, let's say, should come down just to maintain real rates.
And actually, you know, since we're probably going to, we're having real rates that are going to have to be
meaningfully positive and significantly so for us to get inflation down, that probably means that,
that certainly means that it will be appropriate to cut rates at such time as inflation is coming down.
really significantly. And again, we're talking about a couple years out. I think, as anyone can see,
not a single person on the committee wrote down a rate cut this year, nor do I think it is
at all likely to be appropriate if you think about it. Inflation has not really moved down.
It is not so far reacted much to our existing rate hikes. And so we're going to have to keep at it.
Julie.
Hi, Charles Chabonis Abel.
The mic is coming.
Oh, I'm sorry.
Thank you.
Hi, Chapoal, Julie Chabanas, AFP News Agency.
The May Job report showed a rebound in May in Black Rockers Unemployment.
Is it consistent?
I think we pretty much got the gist of it.
I think it's pretty much just more of the same now.
Thoughts, guys.
Let's start right here.
You, Ran.
Yeah, go ahead.
I have a very important question.
Do you still think that a pause is a pivot?
Yes, very, very much.
Well, hold on, hold on.
Come on.
He said that they will likely continue to raise rates.
How can you be a pivot if there can even be the chance of raising it?
No, no, no.
He did not say they were likely to continue to raise.
He said likely before the end of the year.
No, no, no, he did not say that.
I'll have to go back.
The majority, he said the majority of the Fed members thought it was like me.
See, I'll read out exactly what he said.
Let me read out what he said.
There's two things he said on that point.
Nearly all policymakers view some further rate hikes they see appropriate.
Next one, another one here, nearly all participants see further hikes appropriate.
And the third one here, some further rate increases likely appropriate this year.
So he gave his own personal opinion in the third one I mentioned.
And the other one is policymakers and participants.
So I'm very confident, I'm more confident than ever that there's going to be no more interest rate hikes this year.
It's a pause.
And I think it's, and I think it's a pivot.
Okay.
If it's a pivot, then what is a pause?
How would you define pause if that is a pivot?
That is a pause.
That is a pause.
So pause the pivot.
Correct.
If you're going up and you pause and you're pivoting.
I think this is semantics.
I think we're on the same place.
I think smart.
But Scott,
do you think that they're disagree on this.
I think like I said,
I will die on the scale.
Let's forget about those.
We'll die on us.
We'll see.
Listen, I actually tend to agree with you on the future path.
I'm hoping that they won't raise again that we will then see the pivot.
But I think for me.
I think to expect cuts anytime soon is a little aggressive.
But yeah, we should go on the panel for sure.
Yeah, yeah, tell Scott, right, tell Scott he can't hear me.
Tell Scott he can't hear me.
Scott, you can't hear Mario.
I don't think we're going to get cuts, to be honest.
And I said that from the beginning.
I don't think we're getting cuts.
I just don't think we're getting any more increases,
but I certainly don't be getting cuts this year.
I think rates stay as they are until the end of the year.
Until unless and until something breaks.
And how did the Marcus respond?
Just I'm bringing Scott back up.
But how did the Marcus respond so far?
I haven't opened it up yet.
So the NASDAQ is about 1%.
They've recovered most of the drop, hasn't it?
Yeah, the NASDAX up 1%.
The Dixie's back below 103.
It's 102.9.
The only thing that's not moving is Bitcoin, but I think we'll get a delayed reaction.
I think tomorrow we'll get a move from Bitcoin.
But either way, it's not much of a reaction.
So, Scott, you're back up.
I want to ask you a question before we go to the panel.
Is that your thoughts what we just said, and do you think we've seen that we might see it?
Forget the semantics. No more rate hikes.
Is that a possibility in your books, Scott?
I would say that odds-on, I would say no more rates personally.
But I think that the very fact that they're still open to it, to me,
let me, let me jump in. Scott, Scott, you've got a lot of background noise, man.
A lot of background noise. I think it's on your...
Oh, Ryan, you can mute your mic, please, man.
You got a hot mic, Ryan.
Okay, I'm just about to remove it.
Yeah, I don't think that's me.
Oh, cool.
And while you're doing this, Ryan, let me just tell the audience one thing.
I've just pinned it above.
Let me remove other pin tweets.
I've just tweeted the links if you want to join us,
if you're a crypto or even AI project, if you want to be incubated by our team.
Or if you want to be advertising on the show coming up on the show,
hit us up, Rand's tweet.
It's pinned above mine as well.
So my profile or on Rand's profile.
Hit us up.
Probably Scott retweeted it as well.
So hit us up, check any of our profiles.
The email is there.
And if the email doesn't work, just put it in the comments or DM us as well.
But the best is to email us, it's in the tweet.
If you want to come up on state or not stage,
if you want to advertise on the show or if you want to be incubated by our incubator.
Mark, your initial thoughts on what was just...
well as you said because there's two things like when I'm reading what was said
mark it just doesn't seem like the rate increases are over but then Rand is like
yeah they're bluffing but the market seems to agree with Rand based on the
reaction we're seeing so far Bitcoin's recovered SMP is recovered
the the Dixies is back almost back to the same levels and your thoughts mark
Well, we, first of all, Mary, always good to be with you and the rest of this distinguished panel, Rob, and all the rest of my friends.
Well, look, we got the hawkish pause that I was expecting.
I think it's pretty clear from these comments that we've got another 50 basis points coming our way between now and the end of the year.
I was very interested to hear Chairman Powell sort of.
you know, this thought bubble, I wish I was watching live, kind of a picture him looking up in the air saying, you know, I don't know what disinflationary pressures could be coming to make us feel more comfortable. We know exactly what those disinflationary things are, right? It's the American consumer who's out of credit.
out of savings is especially excuse me eventually you have to stop
spending money on experiences which is why you have that
distinction in services and non-core services etc that's got to come to an end
at some point but i have a question for the rest of the panel
did anybody catch him
saying this is why we skipped and then stopped himself and so wait a minute i'm not going to call
it a skip so not to continue the word play but words matter and wall street analysts analyze every time
this guy whispers or makes any kind of a sound is it a skip Freudian slip for sure what does that
mean yeah i think it's a skip right that's how i took yeah i think you slipped because he quickly
corrected himself and said i mean pause and skip means more hikes coming
Exactly, exactly right.
So then why, based on what you just said, Mark,
if Mark gets analyzed every single word he says,
then why are they responding, reacting to where they are,
and we can't just say markets are forward-looking
and then say markets are wrong?
Why are they reacting more positively to the press conference after the decision?
Rob, why are you laughing at me, Rob?
Hold on, Rob is laughing at me, Mark.
Hold on, two sakes.
Rob, what is it?
Well, I find it funny that, yeah, you were right.
Yeah.
I was right. No man, I was definitely not right.
I have not...
As in you can't be forward...
You can't be forward projecting and then reactionary, I agree.
Okay, okay.
Mike, go ahead.
Rob, always is to be such a contrarian, Mario.
No, listen, I think just like as somebody said a moment ago,
it might have been you, wait and see on Bitcoin's reaction.
This is the market's initial reaction, right?
We got the pause we wanted.
We didn't get the hike that a few banks were expecting.
I don't...
know how anybody thought that that was going to be the case, especially after yesterday's
CPI number. But I think the market's breathing a sigh of relief as expressed with this little
tepid rally, but give it time. I think once the market has time to digest all of this, I think
we could see everybody realize that we had a hawkish pause and as close to as explicit an adoption
of two more 25 basis point rate hikes as we were going to get from this Fed chair at this meeting.
Yeah, I agree. Look to the markets on Friday close to see what the big guys are doing.
Peruvian bull, good to have you. It's been a while.
Yeah, good to see you, Mario.
Man, I'm expecting you to speak for a while because you haven't been on stage for a long time.
But it's not while I was. Can you give us all your thoughts? What did you expect beforehand?
Based on what was what about the decision? Markets response and the press conference that we just saw.
Yeah, well, I was expecting a pause.
I mean, the data is cooling on the headline numbers.
The core is still elevated.
We're still at that kind of around 5% in the core PCE,
but that may take a lot more time to calm down.
I was surprised.
I mean, there's a couple things that I thought were really poignant from the conference.
One is, yeah, that 40-slip that he made with
the hint at possible rate hikes in the future.
And the other thing was the question that the report,
I'm not sure which organization they were with,
discussed about the coming treasury issuance of the next decade.
And they basically said, you know,
debt is,
the federal debt is expected to expand to over 50 trillion by 2040.
And will you finance that?
And Powell said, you know, unequivocally, no.
And that is surprising to me because that's a huge signal right to the bond market that the Fed is planning to not be a buyer for this future treasury issuance.
And I don't, I think that that's, I think the reporter should have rebutted to that because I don't know how that's going to be possible heading forward on a, on a go forward basis.
And, you know, the further that we've.
we travel down this road of rate hikes, the more that Treasury is going to be paying on interest.
And there's a lot of, you know, Giant Yellen's going to have to refill the TGA by about
one trillion of the next few months just to, you know, get the government back to a healthy checking count.
My question is, I mean, maybe we can open us up to the panel, but does anyone really believe that bullshit?
Right. I mean.
That Powell says he's not going to buy anything more.
To your point.
To your point, who is going to buy, you know, a trillion or $1.5 trillion worth of treasuries?
And knowing that, I believe, a third of that $31 trillion in debt or something is coming basically to maturity in the next.
year and we'll have to be refinanced from 2% or below to above 5%?
How is that going to work?
It's a great question.
We should put that to the panel.
Exactly.
Go ahead, Bergen.
Oh, no, this is, so I discussed this back in October of last year.
This is what I call the Peruvian bull debt paradox.
When you have a treasury that's so indebted that interest payments are starting to eclipse major budget items,
like, for example, the U.S. Navy, we're paying more in interest than we've
fund the Navy for each year.
That means, yeah, it will be the entire military very, very, very soon.
And so what happens is Powell is now running into this debt paradox where he thinks that by hiking rates,
he's going to be lowering inflation, but all he's, he is maybe lowering inflation in the short term,
but what he's doing is he's resetting all the treasury bonds at higher rates that the treasury will have to pay out.
And if tax receipts don't rise to meet that, you know, government demand for, for money,
then the government's going to have to fund it somehow,
and that means deeper deficits,
more treasury issuance,
and long-term, more debt.
And so this gets us into a debt spiral
that is not good in long-term.
And Powell will be creating the opposite effect of what he wanted.
With higher rates,
he'll be creating higher inflation in the long term.
And this is the same thing, by the way, that...
Go ahead.
Yeah.
Can we say anything that Argentina's running to do?
I mean, you said going into a debt spiral.
And I've spoken with many people on these panels who believe we're long into a debt spiral already,
especially when you consider the reduction, how much was collected by the IRS for taxes this year.
Like we said, the fact that this is going to be the number one line item, obviously,
is going to be servicing this debt rather than, I mean,
that being more than military spending is astounding, right?
Right. I mean, when you think about it and knowing how much comes in and goes out, isn't this already a debt spiral?
Yeah, exactly. We're already past the event horizon. I mean, the question is how fast does this accelerate? And, you know, if Powell continues to hike, this will only accelerate, you know, more rapidly, that he'll only exacerbate this crisis at the benefit of lower, you know, short term CPI. So his question has to be, does he want to lower CPI in the short term and accelerate the debt spiral or does he want to pause or even cut, slow down the debt spiral and then allow inflation to run hot?
So key points since we stopped the stream, the press conference just ended.
So I read out a few key quotes that the team wrote down from when we stopped the stream.
We are talking about a couple of years out for rate cuts.
Okay, that was an interesting one.
We are talking about a couple of years out for rate cuts.
That's one thing mentioned there.
We are not seeing the kind of progress FOMC wants on core inflation,
which is what you mentioned.
I think it was Mark that mentioned that.
Oh no, that was your Peruvian.
We expect wages not to fall but to grow more slowly.
Dynamics in the labor market is central to our discussion.
We are watching CRE carefully.
I do expect there will be losses in commercial real estate.
The Fed is carefully monitoring the banking system.
And last two points, last point is as we see what's happening with credit conditions,
individual banks will take macroeconomic implications into account in rate settings.
So, final quick points.
We'll have some quick thoughts.
And in the meantime for the audience, check the PIN tweet.
If you do want to work with us in the incubator, if you're a crypto or non-crypto project, hit us up.
It's the emails in the tweets above.
And let us know in the comments, your thoughts or any questions that you have.
So far, let's go to you.
Amy, good to have you back on the panel.
Thanks. Yeah, you know, I'm actually really happy with how this conference went. I was thrilled to hear the slip of the word skip because I think that he was pretty clear that saying over and over again, the 2% number. He really reiterated he wants to see inflation get back down to 2%.
And that, to me, a skip is more appropriate than a pause.
And, you know, they're indicating they could still see another 50 basis points of hikes.
And I actually do think that's appropriate, especially if they are really committed to that 2%
number and you know he also reiterated that not a single person wrote down a cut for this year um so
i do think that that was an appropriate level of hawkishness and i i was pretty happy with
with what he said what should have you on the debt spiral then amy in that in that view do you
think uh that that's going to become more problematic that we were discussing before or do you think
we're being hyperbolic i would love to hear the other side of that argument um
Gosh, you know, I mean, I think we are in the debt spiral to some extent.
So it's hard to say.
I think at this point the debt spiral is probably unavoidable.
It's just a matter of how rapidly or how slowly it's going to spiral.
So, you know, in terms of whether or not we see it.
Do me a favor, because I'm going through the comments.
Can you just explain very basically for the audience what you mean by a debt spiral
and how that would look like?
Yeah.
A debt's peril, what it would look like?
Correct, and how that would impact the markets and the economy?
I mean, if we just continue to have a debt spiral,
then we're going to just roll into inflation and hyperinflation.
Because if we continue to have debt that we cannot sustain and make payments on,
I mean, eventually, I think the only way for the economy to continue on
would be to inflate away that debt.
Print, print, print, print.
Print, print.
Print, print.
Print and inflate.
inflate away the debt.
Um, and then we're going to see, um, amongst that we'd, we'd see a wage price spiral,
but we would see, um, I mean, that would be an inflationary crisis.
Um, and I do think that, I don't think it's totally hyperbolic to think that that
could be on the horizon or that we could be in some sort of early stages of that.
But, um,
In terms of it's tough because I think just today, looking at the data that the Fed is looking at, looking at where the policy is right now, I think they're making the appropriate policy decision for what they have to work with right now.
Could it prove in the future to be wrong? Sure.
But, you know, I think to them, the debt spiral is still sort of this problem.
thing that's out there that they can't really quantify right now and they can't really necessarily
they're not looking at that that's like a broader bigger picture thing that right now they're
literally just looking at like the the PCI they're looking at the CPI the PCE they're looking at
the numbers that they have and they're trying to make the best decision that they can with this data
that is probably a little bit lagged but it is the data that they have um they can't
make policy decisions on these scary hypotheticals, just like with the cracks in the CRA
market and the banking sector, like those are real things.
Those are out there.
The weakening consumer is a real thing that's out there.
But they can't make policy on those because they're not quantified.
They're unknowns at this point in time.
So they're just going off the data that they have.
Right.
And I mean, I guess to be fair, although I don't know if that's the right terminology here.
It's not really the Fed's job to be concerned necessarily about the debt spiral, right?
It's on their horizon, of course, but to your point, their job is inflation and labor, right?
And so, and I think we saw that very clearly with the regional bank crisis.
At no point did the Fed give a single inch on admitting that they had anything to do with
that by raising interest rates so quickly and causing that problem in the banking system.
it's uh yeah scott wasn't wasn't that crypto's fault though scott i thought that was crypto's fault mark
everything's crypto's fault it's actually all my fault i'm pretty sure because i like crypto i mean you just
have to ask which community uh in crypto whose fault it is but yes that was apparently which is
why apparently it was appropriate for them to seize a bank on a sunday
So, look, I don't think, I agree with you.
I mean, it's not in their direct purview, but I think that this should absolutely be on their radar because the problem is, you know, to describe a debt spiral basically for the audience or for anyone who doesn't understand it, you know, the way governments operate is they have a budget and they try to match their tax revenues to their expected spending.
And if they spend more, then they have to find that money somewhere and.
what they do is they issue bonds, bills and notes and bonds to finance, you know, temporary government spending.
And that this money will add up.
And what they usually do is they roll over the bonds by issuing new bonds to pay off the old ones.
And as the deficits grow, the total debt issuance grows and the interest on that debt issuance grows.
And so what happens with the debt spiral is the total debt gets so large.
And the interest payments get so big that the government or the sovereign gets caught in a trap of continually issuing more and more debt to pay off the older maturing notes.
And so, for example, this year the CBO is forecasting $663 billion in interest payments.
And that's going to rise to $745 billion next year and $1.4 trillion in 2020, or 2030, which I think is a massive underestimate.
I did the back of the napkin math.
And if they refinance, of course, they're not going to,
but if they had to refinance all outstanding debt at the current one-year treasury rate,
it would be $1.6 trillion, which is 40% of last year's tax receipts.
And this is a serious issue because as the government issues more debt,
you know, the interest rates rise because credit risk rises unless the Fed
septuant does QE.
And that interest rate rise means that they have to pay more and more on that debt.
And then the rate of the debt growth accelerates and the interest payments accelerate.
And this is a hyperbolic process, right?
It doesn't go linearly.
It grows exponentially.
And so you run into the situation where you're a country like Argentina,
where you raise the Fed fund rates to 85%, and inflation goes to 110%.
And inflation two years ago, and Argentina was 50%.
So it doesn't matter how high you raise the rates because all you're doing, if the sovereign is the main one in debt, all you're doing is accelerating this debt spiral where this government has to issue more and more debt to pay off the interest.
And then that means more interest payments.
payments next year.
And so it's very dangerous.
And I know that, you know,
Powell may want to adopt the veneer of complete,
you know,
third party neutrality and central bank independence.
And, you know,
that's a,
that's wishful thinking in my opinion because he's going to be faced with the choice
of either financing this debt or letting the treasury go into the bond market
and try to sell this to banks and seeing if the banks actually have the appetite for this,
which if this continues in the long run,
the,
they won't have, which will be very bad.
So, yeah, I think it's absolutely a problem long term.
Yeah, we've got Jeffrey gone like he's saying,
Fed's decision is a quote, hawkish pause.
he doesn't think the fed will continue to hike interesting he does not think the fed will continue
to hike agrees with ryan and real economic indicators look very bad that's just three minutes to go
to cnbc interview does anyone think the fed will hike this year as they so maria we spend a lot
of time talking about that does it really even matter
Does it matter if the Fed hikes 25 bips or keeps rates where they are for a year?
I've already said it, Mary.
I think we've got two more 25 basis point hikes coming.
My apologies.
Yeah, hold on.
Yeah, yeah.
So I think it's a glitching for you, Mark.
You can't hear Jay.
I'll bring you down and back up.
Sorry, go ahead.
The bigger thing to focus on, which is what I think the market
is is really taking into account is that the fed basically said no cuts
and said that you know the s a p showed two hikes this year whether they do that
or not who cares the market is only pricing in one anyway
But what worries me is if they keep rates above 4% through next year, which I frankly don't think they will, but that's what they're saying.
If that happens, a lot of things are going to break in the economy.
That is the main thing to focus on.
QT lasting through next year and rates staying above 5%.
JJ, can you list some of those things that you think will break?
Absolutely. Absolutely. And by the way, this is, you know, my own opinion doesn't have to play out this way. And secondly, for these things to break doesn't mean it's a catastrophe. But it does mean that certain sectors could see sharp changes in perception within credit, within commercial real estate.
And, you know, the credit market is huge.
You look at the high yield bond market, 1.3, 1.4 trillion.
Leverage loans, 1.4 trillion.
Private credit, $1.3 trillion.
That's $4.5 trillion of debt plus $1.5 trillion in maturity is commercial real estate.
That is literally, I literally just gave you $6 trillion of reasons.
of things that could potentially break, not including the banking system, which is 20 trillion.
The entire shadow lending market is 90 trillion.
The Fed is actually more worried about the shadow lending market, is what Powell said at the end of the speech I was just listening to, than the banking system.
The banking system is like $4 trillion of good assets.
They would need those assets to fall like a trillion and a half.
before I think the Fed would be concerned.
I think that things that could break could be people starting to be delinquent on their
auto loans because they can't afford to pay them.
People not paying their rents after living rent free for so long.
Evictions after the eviction moratorium.
Student loan payments forcing people to default on their credit card debt because credit
card rates are at 30%.
you know, those consolidated upstart loans for 620 FICO score of people who are now paying
a well above 20% to borrow for a consolidation loan.
And the fact that people will likely are used to forbearance on
on their student loans and we're making decisions about rent and mortgage and family expenses and
health care and cars, you know, $800 a month payments before they realized that they were going to
have to pay their student loans. So I think that there are several things. And again, the market
climbs a while we'll worry. But I do think that there are several things that will slow the
economy down. And I think the greatest part of what the, of what Powell stated was that the
Powell is looking at the market. And he actually stated he told us,
when they come up with the SAP projections.
It's the Friday before the meeting, which is more information than we've ever had.
He's telling us how he makes the omelet.
So all these Fed governors get together on Friday.
They look at where the stock market is.
They look at where high-yield OAS is.
They look at the reserves in the banking system and all the other lagging indicators that they look at.
And they made a decision to say that the economy is going to grow at 1% this year
and 1.1% next year up from 40 basis points.
And they think that core inflation will be 3.9% by the end of the year.
Now, whether you think that that is wrong and whether you think it'll be lower, they give
themselves room for error and they say they're data dependent.
But the fact that they looked at the stock market on Friday and then today said that we
expect the market to grow, the economy to grow at 1%.
Just shows that every time the market rallies, you're just giving the Fed more room, more of a
margin of safety, so that...
Howell doesn't make the Arthur Burns mistake.
And until the shift moves from inflation to unemployment,
I think that will continue to be the case.
And it may be for a few months.
You know, it may not be for very long.
But to say that this is over, I think is very premature.
I've just got great points, Jay. I've got two counter arguments I've heard to that, and I'd like to get your opinion in response.
So the first is that on high rates, the economy has seen elevated rates all throughout the 90s, for example, mid 80s as well.
And those sectors that you brought up haven't collapsed immediately.
2008 was, you know, a decade after the 90s, for example.
The second point is that even if the Fed lowers the Fed funds rate immediately, it will take a while for credit card and personal consumer credit debt rates to go down because those are usually sticky upwards.
So how would you respond to those two?
That's a really good point.
I love being on these because not only to talk to a number of kind people, but also to learn from you guys and to learn from your questions as well.
So on those points, you know, I had done some thought on that.
The 90s were a completely different time when it came to the U.S. government deficit under Bill Clinton.
When it came to U.S. corporate debt, we were just emerging out of the commercial real estate crisis of the early 90s.
Banks had cleaned up their balance sheet.
Several hundred banks had already gone bankrupt during the savings and loans crisis.
So we were emerging...
in a situation where things had already been cleaned up to, you know, when it came to junk
bonds and, you know, we all know Michael Milken came up with a junk bond and blew up the savings
and loans banks and what happened with commercial real estate back then.
So we were emerging after that in the 90s.
And at that point in time, rates could, you could afford to see rates higher because household
formation was very robust.
The 90s were the best time in history for the U.S. economy.
You had people, you know, building families, homes are affordable, they are buying assets,
they're buying cars, you went to a two-car home, you had women going to work, you had
growing up, growing of the labor force.
And, you know, you didn't have a period of, you know, the divergence between the middle
class and the upper class was not as wide.
And people could, you know, and things were affordable.
I think the debt levels were much lower than in the corporate sphere, in the consumer sphere, and in the government sphere.
So to compare now, people compare now to the 70s, that's a completely incorrect comparison as well because we were an industrial economy then.
We're a service economy now.
To compare ourselves to the 90s is also completely different.
You know, you were talking about 30 years ago and we didn't have anywhere near the amount of debt that we have today at the valuations that we have today.
Yeah.
So those are the things I think that are different.
And also, for every 1% interest rates go up, half of our debt in the government, 30 trillion net of the Fed holding.
So let's say 24 trillion, let's say 23 trillion, 22 trillion.
As that matures, the Treasury is paying an additional $400 billion of excess interest.
And that has to come from somewhere because our spending didn't really come down with the debt ceiling negotiations.
It has to come from increased taxes.
And nobody wants that to happen.
So, you know, so our view is that, you know, one, the Fed will cut at some point.
But in the near term, the economy is so levered that if rates were to go to close to 6%, you would see
thousands of bankruptcies. And I'm talking about middle market businesses, small businesses as well.
You would see thousands of bankruptcies over the period of the next 12 months. And the market is not
prepared for that. So I think eventually the Fed is going to act. But to your question, this is
nothing like the 90s because the, you know, 6% interest rates now are like 10% interest rates in the 90s.
Or higher.
So then how can any...
Even the fixed charge coverage...
Yeah, that's a good point.
No, that's a good point.
Yeah, thank you.
If that's the case, then how can Powell even, like, get away with hinting at higher rates?
If getting close to 6% will start, you know, blowing things up.
That's a great question.
Jay?
Brilliant question.
So I couldn't hear the gentleman speak because I think the Twitter space is too big.
Yeah, so, oh good, okay.
So Peruvian is saying, if there many things will break for 8, 6%, how could Powell even hint
at an interest rate hike?
I think that they're, that Powell, I mean, look at the market, it's flat.
I think the Powell has been better than Bernanke, better than Yellen, and better than
than Greenspan at threading the needle.
He is a very eloquent speaker.
He's very balanced in the way he approaches conversation.
He's never rude or disrespectful and he always thinks before he speaks.
And I think what he's trying to do is he's trying to get inflit.
He raised 500 basis points in 12 months, majority of that being within six months.
And what he's trying to do is he's trying to squash inflation because he knows all the
debt maturities that are coming.
Him front loading this, he waited too long, but front loading this is actually the right thing to do because if he squashes inflation early, then rates can fall and you won't see as many defaults happening later.
So that's why I think he's trying to thread the needle and get as high as possible without creating inflation.
uh an idiosyncratic shock so when he was talking about commercial real estate in the banking
system he's like yeah we expect small banks to see volatility he's he basically said that commercial
real estate um exposure is concentrated in a lot of the smaller banks in america but it's also well
distributed so what he said there and it offend i'm sure to defends people is that he's okay
with some of the smaller banks seeing these issues
And frankly, just like when he said in November of 2021, that he's okay with people losing their jobs.
He's being very honest with how he approaches things.
And I think he's done a great job of threading the needle.
The problem is he waited too long to hike.
Right?
And then he kept conditions too low for too long.
It's triage, isn't it, Jay?
You know, he's just trying to manage the problem.
I mean, if you look at business rents in the U.S., 40% delinquency.
You've got 3% delinquencies, you know, in the CNBS space, commercial delinquencies.
And, you know, as I said earlier, that's expected to rise to 10%.
So again, I mean, you know, it's going to deteriorate.
I suppose you're right in some sense that if he can bring inflation down,
then he has more policy tools and levers that he can use to try and lessen the pain,
sort of 18 months, 24 months out.
So Jonathan, you know, I think you always make eloquent points.
And I love that you're up here, sir.
That is exactly correct.
The biggest risk that the Fed faces is that inflation kind of stays around 3% or 4%.
And then we actually see some sort of economic crisis.
It can be a left tail.
It can be something that I'm not smart enough to understand.
We don't have a crystal ball.
It could be, you know, something like in Japan, you know, some nuclear explosion.
And then, you know, some sort of.
idiosyncratic event or another version of COVID.
It could be anything.
It could be banks collapsing in China.
It could be banks.
You know, so if he doesn't have, if he's worried about cutting and doing QE going into the next crisis, that is what causes a deflationary spiral shop for a short period of time.
And he's trying to.
avoid that because our balance sheet of the Fed has gotten so big relative to GDP that the only way to prepare for the next crisis, which is what the Fed's job is, is to get inflation down as quickly as possible.
Yeah, no, you're spot on, Jay.
I mean, you know, as I sort of interrupted you and maybe you didn't hear, but, you know, they're looking at geopolitically, China, obviously, potentially reducing its holdings of U.S. treasuries.
You're looking at OPEC.
that is also potentially looking at further reductions in oil output to try and force the price up.
So all of those are inflationary.
And I love that you brought that up.
OPEC, look at the last 20 OPEC cuts.
Every time OPEC has cut, and I know it's lagging data...
the oil market actually falls it's really bizarre right like opec reacts to slowing demand
and the chinese economy has not rallied as has not come back as fast it doesn't mean oil can't
go from here because i think inventories might come down especially as we finish up drive as we
go into driving season
But in the first half of the year, oil demand has been anemic.
And it's the first time in a long time since COVID.
OPEC has cut two months in a row.
Imagine how scared they must be.
And guess what?
Saudi took the brunt of it.
I personally think that Russia is selling more oil to Asia than is being disclosed.
And they're trying to take market share from Saudi and they're playing a game.
And that is hurting the oil market.
And that's actually helping our inflation numbers come down.
So Russia is actually helping the U.S. in a funny way.
But to your point, the geopolitical risks coming back at the end of the year around Ukraine, Russia could be something.
You know, China volatility could be something.
But there are, you know, you could see Turkey.
Look at what happened in Turkey.
Turkey hired the former co-CEO of First Republic Bank.
and then you know Erdogan won the election the Turkish lira has imploded imagine what
happens to European banks in Spain that own hundreds of billions of dollars of Turkish debt.
Now nobody's talking about that.
I think one of the only people talking about that but it's not something I expect right away
but it is a left tail risk that could cause
global contagion, right?
Especially as Europe is in a weaker economy and is leaving,
they're doing their own version of QT called LTRO3 expiration.
So again, like people...
Which is way bigger than the feds, by the fed. So people all come up and they all pretend to be experts. Nobody is an expert in the market. Like we're all predicting, reacting. And what's important to know is Donald Rumsfeld, right? The no-knowns, known unknowns. And Powell is basically telling you that he doesn't know what's going to happen. But the only way to prepare for that is to hike rates,
to a point where we're not imploding the economy,
but we're slowing down to 1% growth.
And that's what he wants.
Also, Jay, just on that,
I mean, of all of the places around the world
that you could see a spring...
of a random, I guess, unforecastable or not forecasted crash.
It would probably be the European markets right now.
You're absolutely right in terms of a lot of these banks are holding on to other European nations,
gilts, etc.
And they are not in good place in general.
Turkey's not in a good place.
It hasn't been for a while.
That is actually dragging...
markets in Europe. And then we've got ECB tightening much, much tighter than the Fed. Generally
speaking, the market in Europe is much, much more stagnant than the US. And so, you know, this,
you know, in many ways, it could be Europe drags America. We are looking at in these spaces, we look to
the United States to lead on everything. But,
Europe needs China.
Europe has led...
German exports to China drive the German industrial giant.
And without...
This China stimulus could change things.
Let's see. I think that they're hamstrung
as to how much stimulus they can actually do.
But the...
And it's only a temporary fix.
It's only a temporary fixed.
And, you know, we're looking at European stocks rallying, but keep in mind, European
stocks are trading it less than half the multiple as US tech specifically.
So some of it's catch up.
Some of it's the fact that power prices actually went negative, believe it or not, in Europe.
And they have, because of good weather conditions in Mother Nature, they had a very good
year in terms of managing power prices compared to last year. That market climbed a wall of worry.
That doesn't mean that things in Europe are okay. It just means that they're a lot better than they were
last year. And I think Europe still is much more susceptible to an economic slowdown than the US,
especially if Asia slows down and their trading partners do less trade with them. Yeah. And just to just to finish that
point off, I mean, like,
we did have a very warm winter, which was incredibly lucky considering the European energy situation.
And my company works across that, it was panicking.
I mean, the executives of these energy companies were panicking.
And I think they are still panicking today.
The panic is now pushing out to, well, actually, if we have a bad winter this winter or next winter, the European market.
in general the economy shrinks there's no doubt on that and it actually starts with germany
they've even got reserve power issues and that's just power that's not just get into the fact that
the debt here per ratio of the economy is much much higher growth is not here and inflation
is stubbornly higher than wage growth of six percent in in the uk six percent i mean yeah against
the core inflation of basically ten
Rob, it's also worth pointing out that most of the European energy companies, the retail companies,
They bought on the futures market.
So they entered into contracts that were longer than usual because of the high prices.
So they're locked into playing elevated prices at a point now where prices are actually relatively cheap.
And obviously if we have a cold winter or there's a disruption to Norwegian gas,
then we have a huge issue.
Most of the long-term LNG deals, at least 40% in the market,
are being secured by China at the moment.
So we don't even have that to fall back on.
So there are so many risks that are there.
But to Jay's point earlier of, you know, Europe needs China.
The US needs China, and you can see that by, you know, Bill Gates, he's going to meet with Xi,
Tim Cook went to China, Elon Musk went to China, the CEO of Qualcomm, all of the big tech companies.
They've all gone to China because they know that,
China is two sides of the coin for them, and it's fundamental to their business.
So it's supply and then it's demand.
And without China, they can't be competitive as global players.
Yeah, I would add into that.
China's had this really weird international messaging where
you know, it's going around essentially begging everyone to trade in the yuan because it needs it to,
and we're viewing that as a de-dollarization moment. I actually think that's testament to the fact the dollar is
really, really strong. And so, yeah, she is out there. The problem that you've got is that geopolitically,
they, to your point, Jonathan, they are absolutely necessary for a lot of the companies that are
carrying the market right now. And so it's in this weird place where
She's desperate.
You can see that with the fact they're looking at stimulus, bank bailouts,
the real estate market in China's poor,
the economy's really not recovering well after the unlock.
And actually, I think you're now seeing executives getting really, really, really concerned
that a slowdown in China would be really bad for their business in general.
And that should be sending alarm bells to people anyway,
because if those CEOs are out there meeting with the president to talk about flows,
to talk about.
AI developments, whatever their key products are,
that's a big indicator that they're actually concerned, not bullish on it.
And I'm going through, I'm just going through the audience questions.
Before you respond, I think it was you, Jonathan.
Just going through the audience questions, a lot of people are asking just for a quick overview on what that means, what all that means for crypto.
After the Fed decision today in the press conference.
So if anyone in the audience, one of our regular panelists wants to come up, just give us a quick overview there.
In the meantime, for anyone in the audience, the pin tweet above, and Jay, I remove your tweets occasionally.
So don't, don't personally can pin them again.
But I've just, if you look at the pin tweet or it's on top of my account, there's an email there if you want to come up and advertise on the show, join the pictures that we have or join our incubator for Web 3 projects, crypto and AI projects, hit us up and you can work with us or come on the show.
Otherwise, just to kind of update the crypto audience right now as well, we've barely talked about crypto.
So quick two minute overview.
Maybe Robb.
And Mark, I think you guys, I'd love to get your thoughts on what that means for crypto and anyone else that wants to jump in.
Scott, I'm not sure.
You still with us, Scott?
Yeah, of course.
Yeah, yeah.
Yeah, fuck.
Okay, then I'll give you, then I'll ask you the question.
What does all this mean for crypto, man?
Crypto has much bigger problems than FOMC, man.
Okay.
Yeah, but moving away from those.
Imagine those problems didn't exist.
What does that mean?
Because even if the problems are fixed, if we're seeing a liquidity crunch or seeing risk assets taking a hit, that will still play a role.
Because the existing problems have kind of hit rock bottom.
And I think the only thing that could take crypto even lower is macro events.
There's other things that can take crypto lower, but...
Binaus imploding.
What else?
Like I said, we have bigger problems on the horizon.
But frankly, listen, I think, and I think there's
There's a consensus certainly among the hosts and a lot of the guests that crypto is probably bottomed for this cycle.
And this is something we talked about, oh, I don't know, five hours ago.
But, you know, crypto, Bitcoin specifically travels in a four-year cycle that surrounds the halving events,
which is when the new supply of Bitcoin is reduced roughly every four years.
And if you just look at the chart of that four-year cycle, even ignoring everything that's happened on this planet in the world, go into a coma, nothing's changed in this cycle from the previous ones.
So I think that, I mean, I honestly hate making predictions, as you know,
but I think we just have a very, very, very boring, sideways, choppy, apathetic year.
You know, we go down a few thousand here, we go up a few thousand, go up to 35, down to 20.
And then by the end of 2024, we're in a bull run and looking back and going, wow, that was so obvious.
Anyone else agree, Rob, where do you stand on this?
It's interesting. I don't have a massive view on the pricing of crypto. What I would say is that in order for cryptos in general to grow, you're going to need institutional money. And the problem that you've got at the moment and what I see for longer term prices is
being a problem is yes you've got finance and yes you've got debt you know sorry credit
interest my brain's really slow sorry interest rates rising the problem with interest rates
rising is that that generally has a drag on the economy because things you know cost more to run
and people don't have as much money to invest in such things on a retail basis,
and they definitely don't have that an institutional basis.
And so that, until that's resolved,
and I think until the finance situation is resolved and the SEC finally makes the decision
about what it means by all this stuff,
you're going to have, I think, agree with Scott,
a relatively sideways action,
and then hopefully they don't kill it completely or do something...
monument they've already been a bit stupid
to how they're handling things but
hopefully they're not monumentally stupid and do something
that cracks it but we'll see.
Yeah I mean by the time by the time we get that clarity
it'll be a different SEC with a different
with no Gary Gensler
so Gary Gensler be working for Bynets by then
He already didn't get that job.
Yeah, I know.
He took that job with MCS afterwards.
If you're going to continue like this,
we're never going to get Gensler on the show.
You do know that.
There's pro and con.
You get it off the chest.
That's the benefit where you get out of doing this.
The con is bye-bye, Gary Gensler.
Okay.
The question is the one of them.
If we miss that Gensler and Elizabeth Warren,
I will sleep pretty well at night.
I have heart palpitations every time I hear Elizabeth Warren speak.
It just makes me feel so uneasy.
Because she's so hot.
Well, I don't like to comment on people's appearance,
but I just think that her views are just so unreal.
It drives me insane.
It's just with everything she says starts with,
these billionaires and then off she goes.
She's away.
Yeah.
Mary, I just want to know if you ordered the t-shirts yet that say don't call it a skip.
I have not. Do you want to do it first?
Can you just, can you update him again, update the audience?
Don't call it a skip. Can you update the slip-up that happened earlier today?
Yeah, of course, during the press conference with J-Pow as I lovingly refer to him.
Who are you referring to? Sorry.
So there's Mark is speaking right now, Jay. You can't hear him. I'll bring you down and back up, Jay.
Hey, go ahead, Mark.
Yeah, and sorry about that before I couldn't hear Jay when he was speaking.
I hate to talk over my friends.
Yeah, but what we're referring to with the Don't Call It a Skip was the Freudian slip on the part of Chairman Jerome Powell in conjunction with the press conference that he had, as he always does, after the formal announcement of the adoption of,
of the pause that the Fed would not hike or cut rates during this June meeting.
But in response to a question in Mario, I don't remember who the reporter was, he said, well,
you know, in conjunction with this skip, and then he quickly stopped himself and realized that he had said something he shouldn't.
And he quickly corrected himself.
It's a, no, it's not a skip, it's a pause.
Pause, pose.
And he continues to answer the question.
And the reason that's interesting, a part aside from the fact that crazy people like myself and Rob and Scott and others that literally listen to every connotation and intonation in the man's voice, and I know that probably means we should get a hobby or a dog.
It does, it does, yeah.
It does, right?
But the words have meaning and words matter, and by saying a skip, when you skip something,
you know, I'm going to skip my diet day and today I'm going to have some carbs,
that means I'm going back to the routine the next day, which is as close to an explicit adoption
of further hikes this year.
It's part of the reason why.
when I was talking over Jay before, inadvertently, I said we've got two more 25 basis point hikes in store between now and Christmas.
You are a gentleman.
I didn't even know what was going on in the background because of the tech glitches, but thanks.
Let me just send out a few more advice of our speakers coming up.
But I go to Amy, Amy, you've been pretty quiet.
Any final thoughts on the decision today in the market's response as we wrap up the space?
You know, I just listening to what he said, I don't know that the diet was the best analogy, because whenever somebody says, oh, I'm skipping my diet to the cheat day, I feel like that's the end of the diet.
You don't go back to it after that.
But I do.
Well, maybe it's 100 points before Christmas in that case.
Maybe I'm wrong if you think about it that way.
Yeah.
But I feel like, I just want to think, I just feel like the Fed has been consistent.
I know we're trying to all criticize them, but they've been like constantly different narratives popping up.
And, you know, especially the banking contagion, banking collapse and the economy, the economy going through the great recession, the great deal leveraging.
We're talking about everyone was freaking out by the debt ceiling just a few weeks back.
um yet the feds policy been consistent they focused on inflation's been consistent
and everything seems to be okay we could be avoiding a recession can anyone give credit to the feds
i know jay you kind of hinted at giving him credit can it and ryan as well can anyone give them
credit are they doing the right thing like i know they they're they're an easy they're
They're an easy target to just make fun of them and blame everything on them.
But things could have been a lot worse.
Guys, don't forget we are in the midst of a war up in Ukraine.
There are tensions with China.
We've had today Bill Gates' meeting, Xi Jinping directly.
It could be a one-on-one meeting, which hasn't happened in years, with any big entrepreneurs.
Right.
From the West, we're seeing, you know, Vivek Ramas Mawai, he's been on our space and called for a complete ban, a bill to ban businesses from doing business in China, U.S. business from doing business in China and vice versa.
So taking sanctions to another level.
Like considering all these factors in the geopolitical tensions we're facing, you know, the world is not falling apart, Jay?
Well, the Fed, I think.
It's easy to target them because they made two obvious mistakes.
Now, there are some political considerations,
but the one mistake that the Fed made was leaving policy conditions too easy.
There have been a number of papers written as well about the wastage of
of a lot of the stimulus about the corruption and PPP.
The government itself has admitted to almost $500 billion,
the number is likely higher, of a misspent capital
that probably went straight into real estate in crypto and asset classes.
And what the Fed did was the Fed, essentially, along with the fiscal stimulus,
made the situation worse, and they made inflation worse.
But they shouldn't have hiked.
The last six to nine months of easing shouldn't have happened.
and then they waited to hike
from
probably six to nine months too late.
Now, it's easy for me to say that because I don't have the stress that Powell has,
but I think those are two easy things to target.
But on the contrary, I think the Fed, the Powell has tried to fix this.
He understands that he might have made a mistake, maybe he had no choice in his mind,
but I think he's tried to fix this and focus on inflation coming down in a very rapid fashion.
He's tried to pull inflation down, and his goal...
In my opinion, it was to pull inflation back down to 2% within two years.
And it's taken a little bit longer.
And I think that he understands that he needs inflation to go down before the next business cycle.
And he's communicated it almost to a painstaking extent.
Today in the Fed meeting, they told us...
Mark was even commenting on, you know, there's some hidden things he said, but he blatantly told us how they come up with the SCP target.
Like, they're being almost too transparent.
So I give the Fed credit.
Sometimes that can be annoying if you're a long-term investor.
But the Fed has been incredibly transparent.
And they've done the right thing because we're with unemployment, you know, I think they've probably overtightened.
But...
given how tight the labor market is,
they had room to do it.
And given how the markets are,
they have room to do it.
And regarding the transparency,
we're all trying to cash their bluff,
but what if they're just not bluffing?
Again,
I'm not the expert here.
You guys are,
but yeah,
so I'll,
Rob,
I will...
I will wrap up the space because it's been almost six hours.
Scott, he said we'll do six hours.
We've got to miss it by 15, 20 minutes.
I thought we'll drag with this on for 15, 20 minutes,
just so we could say we did a six hour space again,
but I think it's not worth it.
What I want everyone in the audience to do before you go,
before you leave, because the space will end.
I'll see you again tomorrow at 6.15 p.m.
if you're in crypto or earlier if you're in...
No, not 6.15 p.m. I'm in Dubai.
by whatever
Yeah,
exactly.
And I know
this is a
finance space.
A lot of you
probably come in
earlier for the
finance space
where Scott is there too.
But the
crypto space,
crypto down hall.
But more importantly,
I want you all,
everyone in the audience,
go on the pin tweet above
or it's on my profile,
the latest tweet on my profile.
The latest tweet on my profile.
And I want you to do two things.
Either message us if you want to come on the show or work with us.
If you have a project or you know a project, if you're an investor with portfolio companies, do that.
And if you're not and you can think of a good project, tag them in the comments.
This way, they'll see the tag and they'll hit us up if they want to work with us.
I'm shilling it harder than I usually am just because I feel like I want to start shilling more.
Otherwise, I'll see you all tomorrow.
I really appreciate it.
It's got final words.
You know what I do?
Actually, Scott, you know what I usually do?
I was about to do it to you.
I'm like, no, I don't think these people would like it.
Yeah, you caught me right when you do the final work.
I know how I'm about to get hung up on in the middle.
Oh, no, I won't do it here.
I don't think anyone will understand it,
but you've seen me do it in other spaces, have you?
Yeah, so just, yeah, so just what I do in other spaces.
I don't do it here, especially not to Scott because he scares me,
but what I do in other spaces.
I was about it to you.
You can't because I'm the host.
You can't do it.
But just what I usually do,
what I usually do is I tell,
I go choose a random speaker,
generally someone we know,
Joe,
I do it a lot to Joe up or the co-host.
I'm like, hey man,
any final words,
but in incredible space,
any final words for the audience.
And they're speaking,
as soon as they start speaking,
I just end the space.
It's the most beautiful feeling
you get when you do it.
Cold, cold.
And generally people take it well.
But I don't do it in the finance spaces
just because I know that this is not the right audience
and Scott is a scary guy,
but Scott,
I'll let you wrap it up
since you've been really active in the space.
God, I want to be able to end.
Speaker
Faith Tribe
from
Faith Tribe
