TIP301: Grant Williams & Luke Gromen Talk Global Macro Economics (Business Podcast)

Automatic TRANSCRIPT

You're listening to t I P on today's show. We have two huge guests. Mr Grant, Williams the CO founder of revision TV and the popular website. Things that make you go, not only do. We have grant, but we also have Mr Luke Roman, who's the founder of the research firm, the forest for the trees. Both of these guys are two of the smartest macro thinkers I know so get ready for an incredible episode as we cover all things happening in the global economy today. You're listening to the investors podcast well. We studied the financial markets and read the books that influenced self made billionaires the most. We keep you informed and prepared for the unexpected. Hey everyone welcome to the investors podcast I'm your host Preston Pishin is always accompanied by co? Stig Broder Sin. And, like we said in the Intro, we've got grant Williams here Luke, Roman guys man. It's awesome to have you here. He this is so. This is what I've got in mind for this episode every time I have a conversation with folks like yourself. It seems like when we stop recording all the best conversation and all the best questions for each other kind of comes out, and since you guys have done a lot of interviews, I'm kind of curious if you've seen the same thing happen. So what I WANNA do is just have a conversation like that where we can basically ask each other. Whatever's on your mind whatever kind of up in the air right now and so for me the thing that I wanna talk about to kind of kick this off I want to hear grants thoughts on something that Luke had posted the other day and Luke. You posted this thing about China offloading their debt. And their dollar denominated debt into the emerging market. Tell grant the little bit about your post and I want to capture grants thoughts on it. Is that the one that they were talking about basically some sort of jubilee or forgiveness for? Market data. I just thought it was interesting. I thought it was a bit of a geopolitical contest going on with basically US China bowls trying to ply both honey and vinegar to the rest of the world to basically pick one side of the other, so I just thought it was interesting. Signpost I don't know fully what make but I'd love to hear your thoughts on brand because it was interesting to me. The timing is amazing for me I. wrote a piece. I published Shifts Lake cooed the long telegram. There was a memorandum published by the US on May Twentieth. especially a memorandum from the US, it came out of the National Security, council under the presidential sale, and it would basically a essentially declared war and China I just a fascinating a fascinating place in the region, the opening couple of paragraphs right, it says this is from the White House. Since the United States and the People's Republic of China established diplomatic relations in nineteen seventy nine United States policy toward the PSA was largely premised on a hope that deepening engagement would spur fundamental economic and political opening in the PSE and lead to its emergence as a constructive and responsible global stay called with a more open. Society Only forty years later it's become evident that this approach underestimated the will of the Chinese Communist Party to constrain the scope of economic and political reform in China. Is Reformed slowed stalled reversed. Let's say the pay has chosen instead to exploit the free and open rules based order an attempt to reshape the international system, and it's five. Now, that's just the first two paragraphs. This thing goes on, and it's an extraordinary document and people should absolutely look this up and read it because as it's a defacto declaration of war against China. And when I write about this I went back to the Cold War, and there was a guy in the embassy in the Soviet Union George Kennan, he was a lifelong civil servant, and he wrote a telegram back to the State Department in Washington. He was asked for his opinions when the Russians were refusing to endorse the IMF nineteen, forty six, refusing to endorse the world. World, bank and styling gets up and makes a speech which as appointed. That was very much within the Soviet doctrine at the time. This shouldn't of caused anyone to even bat an eyelid, but he basically said capitalism and communism cannot coexist peacefully, and we're here to make sure that communism wins, and so they ask Kenan what this meant and his boss on the ambassador said. As you see fit, and this guy wrote a five and a half. Thousand Would Telegraph. where he pulled no punches, he basically called out the Soviet said this. This is wall. We cannot do anything the best we can do contain them, and it set the policy for the Cold War essentially, and that's what we've just seen happen, and the amazing thing to me is look you posted. Pepper posted coming so soon after this, this article was posted my twentieth and it was literally within a matter of days that the stuff in Hong Kong happened right with Beijing cramming through security laws in Hong Kong. If you think that's anything other than a tactic is not, this is the way it's going to be. We're GONNA hold back. So I think luke, this idea of trying to lead and talk about forgiving. Emerging market debt is a classic play right this everyone's GonNa aside and so I just think it's a really important article one you posted, and so is this telegram toes this memorandum from the State Department. And I think we're entering a very difficult period that could be fraught with conflict and too big POWs very much at odds with each other. We wrote a report about it. The thing that really grabbed me is is I think it was on the second page? Is the US overtly stated that it is a new great power competition and I thought the same thing I sent it to another good friend of mine in the business, and his reply was gosh. A war scroll I think there's some real eyebrows raised in terms of what that said Marguerite turn in terms of just okay. If we're going to be a great power competition than I think the rule out of the rules, rules of geopolitics, the which reflect maybe this debt forgiveness attempt by China and your point on Hong Kong grant which is very well taken. They. Start to reshape rules of finance in a way back to Cold War markets, great power, competition markets, and quite frankly might be the. There's a lot of market. Participants are using the post Cold War Lens to evaluate what is sort of new Cold War markets are very very early in his new cold, War markets, which I get some interesting implications. And if you think about this dramatic side of Hong Kong itself and the financial data that's flowing in and out, it's just a treasure trove of nut just data, but also networking effects for them strategically, and then you can end in the social unrest in the US and some could see that as number Tuni. Exactly right, and if you look at some of the propaganda in China about the unrest in the US I mean it is, they've gone full force with this. Stuff is a picture of It's kind of a cartoon, but there's a statue of liberty kind of with a utopian chaos, and out of the green shale is like a policeman kneeling on some on the bottom of it. I mean it's not pulling any punches and the quotes that have come out from professors at various universities in China, obviously free speech, but what they're saying is clearly party directed, and it's all about the hegemony. It's all about. These trap being real. It's all about the US quote. Unquote Manic towards the People's Republic of China. You've got both sides kind of coming together you harmony in the White House and amongst Republican policy at pointing the finger. China! You're going to have the Democrats also struggle to be pro China so. This is all coming together and nobody does a better job than Luke of paying attention to this stuff. He's work around. This is lot of anybody. Frankly, and what's happening over in that part of the world is a lot of our attention, because things could get kind of very shaky very fast over there I think. So. How does oil play in some of this moon for? I don't think anybody ever expected. The negative price dumped that we. That was insane. What's crazy negative price dump or hurts up one hundred percent often to carry bankruptcy. mean. I. Don't know I thought. I'd seen to own the oil thing now. It's crazy. I saw that I saw that post today on the hurts thing and and I had to go look like they declare bankruptcy, and then the stock prices I mean it's. It's just a total meltdown. Bit in every which direction you wouldn't expect you know as a little kid and when you're in elementary school, somebody goes up to you and they say oh. It's opposite day. That's truly what we're seeing right now. On a serious note, so I was reading, I forget where I saw the article, but they're saying the oil monsters coming back as far as the the price drop. What are you guys thinking? Is this balance that we have seen just in the last couple of weeks? Is that was the bottom in, or are we going to see some more lows? I think. It depends on. In this ties back to the point of the rules of geopolitical in an economic competition, being redefined more Cold War I. Thank was recalled to happen to oil beyond upbounce verses sort of sustained growth I think is going to depend on really two things number one the ongoing success of China's ability to produce more of their commodity boards in particular energy in their own currency a we learn to different credible sources earlier this year that Saudi had begun selling at least some oil to China in yuan, and so that would depend. Depend. I think that'd be very critical. In terms of determining the price of oil, right because you know the CFO of one of the biggest commodity traders in the world told me on a roadshow fifteen years ago back in a former licet commodity markets the marginal ton prices the whole, and so if the marginal ton of oil is being priced in you one, and suddenly you get begin to get more of an influence of the dollar cross rate on the price of dollar oil with every marginal barrel that moves to. To you WANNA go a lot of people in the me. Talk about oil. Hear other people talk about you want oil on this contract and similar. China's been trying to do. I think they've been under the assumption that was not going to matter until half the world oils, Yuan or a third of the world, but that's not the case because as a commodity market in the marginal. Tom Price is the whole, so I think when you look game, we think think about oil. is okay now. We have this ramped up. Up Great Power Competition you know we can probably safely assume that China who has been moving pretty rapidly more rapidly of last two three years in terms of getting more of their commodity import bill yuan as it is, you can only assume they're going to get more aggressive with that and that ties into the point of okay we'll. How do we get more people to do that? While you need to win? Friends and influence others, maybe a start forgiving things like that. Try to play the long game on that front. And on the other side, what I think matters, royalism, what is the dollar because of the one dollars cross rates start to be more important than the price of dollar oil than if you can get a weaker dollar likely seen on the margin, it's not weakened a ton, but we've seen marginally week over the last two or three weeks. It's a tailwind for oil. In that world now the flip side is if the US can clamp down on and the spread of the pricing of oil and yuan goes back to dollars and sort of build a very big dollar block around the world sort of go back to the Kissing Jerry and I guess if that's where the dollars oil. Is At at and that's all then then you back to a world I think we can see oil. Really go crazy on the upside, but I don't think it can for as long as China's still able to be. You know sort of playing this game where they can start shifting weather import bill into their own. I think you bring up a good point Luke and if I can add to that given the amount of US dollars that has been printed over the last couple of weeks, you might have expected that the dollar would have weakened. It's interesting. You say that given what they've done so far on the fact that we know this is the beginning not the end of this. You would have expected the parents to be weaker than it has been. Pointed exactly right. It's surprising to me that we haven't seen it. Come off material hotter. The Luke Chrome and Brent Johnson show rolls on twitter. This various end dances and bulls being spike lifted Ryan. It's always fun to watch, and it may just be that perhaps the euro. Still this question mark over the German Constitutional Court really hanging over it so people on one hundred percents show how that's GonNa go so the hedging their bets with that. Given what the Fed have done what they are committed to do, and it's not often. You get very carefully planted fed articles talking about how she is unlimited. There's a reason the we're seeing those quotes out there. That's to tell people exactly what's going on here and the flood of money. That's going to get thrown at this thing as and what is needed, I mean I think. They're gonNA white at all. I mean we've seen that. They've acted so fast this time round and what's happened ironically is going to embolden them right because they have this snapback bounce, which I don't think is purely down to fed liquidity this time. But when you're a guy with a hammer, everything looks like a nail. Right and they've got a hammer. This looks great. They're gonNA. Look what happened when we through two trillion it, so maybe we have to throw three truly next time, but we'll get sixty percent bounce I mean it's craziness to me, but we have to sit and watch this him. and. What's crazy is when you provide that much liquidity, and it doesn't weaken the dollar at all. I mean it's almost like giving more meth to a meth addict that I. Mean That's where we're at. You're supplying all these dollars in the markets soaked him up instantaneously without any type of drop in the dollar so when they have to print again I mean it's you're doubling down your quadrupling down on what you did last time just to keep this patient alive. Is Insane. The what the I've watched on it to is on the flip side of if we want with the Treasury general account has done while offense been pumping money, and on one side treasuries been sucking it out with in the same staggering rate, really right where the biggest TGI balance we've ever seen exposed four hundred or four hundred twenty billion dollars, and it's sitting at one point four five trillion dollars now and so historically when Tj go the. And the dollar the dixie have been very closely correlated as the treasury liquidity out, so it's been surprised on really on both sides a that all this liquidity interest rate differential collapse, and the things that we're talking about ever resulted in a weaker dollar, and then on the flip side. I've been watching this Tgi, going up and up and up, and at some point that's going to reverse when it reverses. Presumably you'd be increasing the currency in circulation in the US like a sixty percent annual rate or something crazy right and I wonder if it isn't just being sterilized. Sterilized for the moment by Treasury and white treasuries, even doing Ademi. Is it the trump administration basically trying to hedge themselves against the Fed wear? They're saying I will maybe fell. Try to make the economy bad and get us out of office, so we're going to stock up this war chest of a trillion and a half that we can spend in the economy to turbo charge it in the last three months before the election which, but it's that Stella actioning. Is that the sterilization a really that that should be dollar weakness on the common? That goes the other way. The corollary to that is on the TJ goes up delegates of vice versa so I'm with you in I fully understand exactly what I'm seeing in the dollar markets. There's a great show I saw from Eric homeboy this week. And he had he plotted the Treasury net receipts also months against the Fed Balance Sheet and As, he said you're either for the first time ever. The amount printed by the Fed has exceeded the total tax receipts. The Treasury over the twelve month period took in three point two, six trillion, and they've printed three point three one. So that's it right, but if a guy's that cost of watch this stuff this is. What a time to be alive right? If you like charts, take one look and go what hold on a second. This doesn't make any sense I mean. I see fifteen now it's extraordinary and and I think what's amazing is so many of these things. Everyone's just saying okay. I just need to ignore this until we get something I can relate to again and I can take a look at the Rosenberg. Is All over this and he's put a fantastic stuff out. You know it was not fun dive on twitter. They should be and he's calling this stuff out. But when you look at these charts, Unemployment Charleston is saying that initial claims are continuing claims. I mean when you talk about off the charts they are literally off the charts and and people don't seem to be bothered by it because I just don't think they can get their head around it, so I don't know how this works itself out what it takes for people to think we'll. This isn't a this isn't going to go back to how it was I. Just don't understand how that even an option in people's minds. You know what I mean. It's clear that that's not going to happen. So this is what I'm really struggling with. Pull Robin Hood stuff aside because that's just that's just crazy and you look at what happened today. Unless tomorrow is even crazier, today is going to be one for the record books with some of the stuff that went on the Chesapeake today you know one hundred and seventy one percent followed through chapter eleven after hours I. Mean it's extraordinary. What's happening there on market is trading for what was said. On the dollar for their yeah, but this stuff is. It's all happening and it's. It's so confusing for everybody right now for almost more so for the people who spend all day. Look at this stuff because you just have no idea. Where is anymore? Everything that coming at you is completely misrepresentative everything you've learned over your time in the business. I had a guy asked me. So, what do you think about this v-shaped recovery in kind of snarky way and I said I think it's an I. shape recovery I think the bid. You're seeing a bid up. Spread here that gap so high up that it's GonNa hit a an exclamation point on the top of. Dot The I on this thing. The Idol Hi. It's an honor. Yeah this is crazy and you know it's funny. Because Luke you on our show back in I want to say march or something like that. And you said unflinchingly you said Oh. We're going to have a melt up right like this isn't. Even this isn't even really a question like we're going to see the market. Melt up and we had the cove it. It got slammed, but then it just took off all of our momentum indicators initially on our site where flashing Red Ripe, and this about and some of them turn green, and then all of them turn green and sure enough. You are exactly right I think you're starting to see a meld up here. Probably if I had one thing, sue me. That was really important, and really under followed thus far has been. What happened to the Treasury market from March ninth the march teeth during the selloff so February eight February. Nineteenth equities peak began selling off so between February, nineteenth and March ninth twelve trading days, toilet, twelve trading days and We've long been saying that the equity market so important the economy, and if it sells off too far too fast, you're gonNA see a problem in the treasury market, and that's researches sort of said, but it never really been tested and then on March night all of a sudden the treasury market started crashing right alongside the equity market, and it kept crashing. It fell. Almost tick. Tick for and I. Think this was a really big moment I, said it jokingly, but but I think it's true. Is I think the Fed thought it was all fun and games with risk off until the treasury market lost tonight. And as soon as the drink market and the Fed and their meds, they're meeting March fifteen. They actually said the treasury market. The treasury market ceased to function effectively. And that to me I. think is a really big sort of. Link to everything we've seen since because what we're really talking about. Here was the United States for the first time in our memory partisans, the seventies of the first time in in our careers are memories was seeing its sovereign bond market it. Sovereign Bonds Underpin the whole shooting match of course. They were traded like emerging market bonds with a fiscal problem where the economy shrank gang, the stock market selling. And the bonds yields are rising sharply folk, massive lowest granite, but they were rising and bid ask spreads in the deepest most liquid market in the world blew out guys at a trade of those vons forever saying they've never seen anything like it and that. I think is the real wild card. In terms of answering your question of how long can this go on? How long will this go on I? Think a lot about we've seen. The Fed do has been about basically bailing out the treasury market fixing the Treasury market when you read the histories of some of the great hyper inflation's, it's almost always a desire to basically make sovereign debt nominally money good no! No matter what and into my eyes, that's what the feds started having to do in March, and so they have kind of their head. because. Do you want to be the go pick up! The phone calls the Marines and says after the US. US government's presumably drafting up this. We are in a new great power competition document March. Do you want to call it? The Dod in the Pentagon, the Pentagon and go. Hey, guys, your funding costs just went up two hundred basis points because the treasury market stopped functioning because the world's melting down in the answers. That's not gonNA happen and then filters back into this view that I I really think we are in. Almost Venezuela's -ation of US markets where they have to keep yields at politically expedient levels in by virtue of our debt levels that means negative real rates as far as the eye can see if we want to engage in win, brainpower, competition and so. I think it can go on a lot longer than people think that's not to say. We can't have a pullback or that any anything like that, but it just said. I just think this great power, competition means the US government cannot afford positive real rates for a long long time and I think they have the means motive and opportunity to keep them at negative real rates for a long long time, which is ultimately intellectually offensively good environment for. Gold gold miners and stocks. It looked like a window. Into the real world. I looked at it and said. That's what happens when the Fed on not in there, too, because it kind of cooled him off guard right and it's like all right. We need to get on top of this quick and that to me was just confirmation that we're not going crazy, right? It's win. The diocese mechanism removed Marcus. Do function the way. Way We think they're going to function and economic reality does why on cell phones even the mighty US Treasury market so that to me was I agree I think it's incredibly important and I think they will be paying attention to that, and they will do everything they can to stop that happening because that window were it to open leads exactly what you said it would. Take a quick break and hear from today sponsor. Although. We're value-based investors at heart. It has long been known among investors around the world that systematic or quant strategies have become a highly successful way for professional investors to extract returns from the market. In fact, most of the top ten hedge funds in the world today like bridgewater associates and renaissance technologies discovered this decades ago and there's one podcast that covers this area and finance in great detail in its top. Top traders unplugged dot, com, and right now you can get a free book explaining how to systematically identify follow market trends as well as a comprehensive guide to one hundred of the best investment books of all time, just go to top traders unplugged dot com slash T I P to get your books today again. Just head over to top traders unplugged dot com slash T ip. You'll be glad you did. Yes. It was like the curtain just briefly opened up and you can see all these people just piling money into the system like there were shoveling coal into the steam engine of a train, and then closed again, and you're standing that thinking holy moly everything I thought, but didn't know Israel. That's right into my eyes. The Fed then confirmed that they were concerned about not only in the meeting minutes, but if you go to the mid April link put out sort of a quickly released, they might have even been on a Friday but the supplementary liquidity ratio metrics under either dodd-frank or Basel I always get confused even. Decade plus of banking regulations to make banks more safe, and to make liquidity in the banking ratios more Tang and they said look. We're going to temporarily suspend the S. L. Ours Treasuries. So that the banks can basically buy as many treasuries they want with effectively infinite leverage. It doesn't Ding the liquidity ratios when the banks by treasuries, and so you kind of look at this and okay great power competition that day unprompted treasuries and they're going. Use the banking system to help. Soak up this liquidity. Tomorrow is the quid pro quo is look I would love to be a bank and put you know, basically have no capital surcharge to buy a treasury and I clicked the coupon and away I go. That's it's not bad. You're making a positive spread right until yield her native and I don't think they'll ever be negative for us. Treasury bonds, but as long as yields are nominally positive. It's almost free money to the banks free nominal money. It's not free money on a real basis to these backs. Hey so what's going on the repo market because it looks like it's Ram backup now in the last couple of weeks. You remember back in two thousand seven there about eight paper in the will that knew what the tastes prayed was. Remember that right now. There's nine nine and it was like what's going on with. Nothing nothing to see here, and we saw those lips and the tests, but everyone I knew that was involved. That market was like this is serious, right? This doesn't happen. That shouldn't have happened. This can't happen and I think the same thing, right? We had this crazy period and the fury, which everybody in a position to was saying this is nothing to worry about is perfectly normal. That tells you how big a problem it is, and these things do. The Ted spread quietened down originally until it just went off the reservation and I. Think the same with the repo market, the stresses there was happened in the real world away from equity markets with seeing that erosion of trust again that we saw. In. The counterparties on shore? What's going on and they? They want to hold their cash and they. Only do business with people that convinced I can do business with and the only person who's GonNa. Be Out of step into. This is going to be the fake, and they will to what we've been saying all along in this conversation. They will buy anything print anything. Do anything whatever they have to do. Because I think looks right I think they realize now that the gun is to the head. And every single chicken that patch coming home to roost at the same time. And so if they don't step in now and do quote unquote whatever it takes this thing over in a hurry, and I guess to their credit in some way. I think they realized this and I think they understand how bad a situation in which tells me they will come up with all kinds of Christ look even talking about yield curve control, right which I mean. I'm sure has to happen at some point and. I think it's right I think later this year. You'll probably see that bay against dependent on recovery. I think it's dependent on their second wave and number two things that I granted that your point earlier on just what's happened in the real economy I thought was a really good one. which was you the seven eight crisis? It was sort of these esoteric security instruments that were we knew what was going on in housing, and we could put the non run housing right, which was originally sixty billion, then it was eighty billion, and then when they got really crazy, and made it one hundred, twenty, billion in losses or something right, which by the end of the crisis was adorable league. In terms of the number, because we didn't know what was sort of behind the scenes with all this stuff, whereas now when you talk about the counterparty risk, and what these banks have to be thinking, you see headlines go by were. Awesome today where a quarter of commercial landlords got paid in full in the last month and a half or two months right, so no that business where that's by nature that's a debt of business that runs tens of leverage right. They put down ten percent equity and so. If, you don't get paid ten percent a year. You break, even if you're not getting paid twenty percent, you're losing my, so there's just this great degree of uncertainty in the real economy. Right out in the open very easily easy to see and that just, and then we moved into a quarter end with rebuil-. Anyway, which has sort of been a hot. Point as sort of each quarter ran as banks or window-dressing or chewing up books. However, you want to phrase it. You know it's a really good point, just real world. You haven't had this ability. We'll look at the stock market and the stock market is supposed to reflect economic reality. What really you need to do right now is be out on. The street took in business owners to get a real sense for how bad this is. Because we come. They're all closed. He can't even go into the store and took. These guys say hey. Hey look you know what's one of the things like on the ground? We've got the PP that will roll off at some point I'm sure they're gonNA have to re up with that. Because the effect that's going to have on the unemployment numbers so that that real economy is totally being masked by the stock market performance and the disparity between the two so extreme. And dacoven thing basically got them there and I think the social unrest has gotten narrated were basically into. You know no long for a longtime in our careers. Central Bank policy was seen as a dial right. We can dial it out below. We can dial stocks to the moon. The world's This was sort of always going to be where it was going. I just think that the the greed. Severe this slowdown was basically probably pulled it forward. A couple years worth. This, going back a couple of years every couple of months you'd see an article talking about how fifty percent of Americans didn't have five hundred bucks for a surprise, auto bill or the fragility in the system, and how many people don't have any savings? How many companies have owned companies? There are in the SNP. It's in the hundreds which is crazy. We knew the. The system was fragile. We all knew that all the daters out. There has been swirling around for a couple of years. And now here we are right where all these fragile businesses have lost a quarter of their years revenue people have lost jobs. There was Deutsche Bank charter tonight at slot put up. Fifty percent of households have lost employment income in the US. And it doesn't matter which way you cut it understand the fragility of the balance sheet of Corporate America Household America and governmental America. If you understand the fragility and the numbers ruled there, then what's in the last three months doesn't get repaired by what repaid two thousand eight doesn't look so you just have to kind of sit here and deal with the madness and kind of maintain your focus on the end-game of this thing and look you know you do look what's out there in front is because what's funny is very very misleading and it's GonNa. Catch a lot of people I suspect. Given, the ridiculous amount of printing has happened this year. Gold is only up by eleven percent, and the S&P five hundred is trading gold, but only seven percent. Taking the circumstances into account wise gold, not taking off in this environment. The question with gold is always right, always why and then win the two questions that everybody wants to ask about gold. It's normally. Why is it not done X.? And when is it going to do what and if you look back a mid to late? February in the market cracked. You had this period the beginning where the stocks tumbling and goes I fully, and everyone's sitting there, saying the hill goes source, be going up lost my golden up performing, but there was a period there in the first couple of weeks You'll one ounce of gold thirty three percents more in terms of unit, so yes, pay in a ten day two week period so it. It did what it was supposed to do, and I think a lot of people get kind of hone smuggled by fixating on the price of gold and people talk about the price up and let you I would have expected the price to go higher, but when I look at it I. Look at all the other stuff that we've been talking about all the leaves Oh being pushed. Now there's four or five guys pushed on this lever to stop it spring in back. and. Go always just sits there, right? It doesn't doing it's just. At the center of the financial system, and all the chaos goes on around it, and it never really a case of gold rising. It's a case of things around sinking and right now the stuff around isn't sinking goes kinda sitting there and optically risk assets. A high everybody's got the bit between the teeth again and gold really hasn't done anything I. Mean I suspect what you'll see is when the obamacare resumes, which is my base carries. You will see gold optically star to look better. And you'll see people coming in to see a little bit in the mind is already. We've seen some people starting to buy the mining. She hasn't and it really gave them a cake. 'cause it's such a small market, but yeah, what normally wise and go gone up I. Don't know it's really not something. I spent an awful lot of time thinking about which I I suppose people but I. Don't know looking at the price ICAL. I'm looking at what Bazi relative to other as you said, it bothers me seven percent Morrison pay now than it did a few months ago and that's even with this major. The S&P Godown says it's where it was in nineteen ninety-four right so you could have had your money this whole time. And not miss out on any of the stuff, right? You could buy the shares today. The same product of Nineteen ninety-four had no stress, so none of us really not. It's kind of a mystery, but then it'll do what it does. It is time to me either look. At Bell. Surprise hasn't done better as well I i. think where this could go as I thought. The Dutch National Bank last fall accepted. Look at the system comes unhinged. We're GONNA need gold to rebuild the system and so to me. I think gold is sort of performing. Yeah, it's been a little disappointing relative to the chaos, but I think ultimately. Where gold really shine in this system really does break down and I think that's important, too. When you tie back to what we were talking about at the start of the show in terms of this great power competition, if there's really a new cold war between the US and China. I think there is I. Think you think there is as well then all of a sudden? It becomes a currency competition as well which is interesting right, so it looks at the US treasuries outstanding the market value. The US official gold divided by foreign held treasuries outstanding, so it's basically the amount by which the US is gold collateralized, all the foreign held treasures outstanding, and so, what's really interesting about that chart is prior to nineteen eighty nine when the Berlin Wall came down and. Broke up. The US foreign held treasuries outstanding were never less than twenty percent collateralized by the US goal at market value, and it was often forty percent has actually forty percent more often, so say twenty to forty percent nine hundred eighty. When there was a dollar crisis, it got as high as one hundred thirty three percent so basically. The US is official wall was more than one hundred percent collateralized thing, all foreign held treasuries outstanding, which is a true gold bubble, but the numbers five percent today so for me where I really expect to see gold performed is. I think one of two things, either it becomes crystal clear that we're going to get an asset hyperinflation that basically the answer is the Fed stopping is never going to bail out the eurodollar market and the balance sheets of forty trillion over the next three years. People are going to go okay, and I think golden perform really well in that scenario. I think the. The other way performs if we keep going down either. This great geopolitical competition because the reality is the US dollars way too strong to be able to really compete and the other scenario I think it does really well in as if they lose control standing. We get a chaotic collapse of the system. Then I think you see basically right office sovereign auburn debts. Or rubbing right down right often the only thing on central bank balance he step to collateralized offset those write downs goal, and that's where I think you could see a huge step up, but I think it's a much more systemic thing that we'd have to see or or get further along on the systemic thing, because I think what we just witnessed was his stomach, but I think they nipped in the bud. Fast enough is alternately. Would goal is telling us at this point? How you handicapped flu? Ozone, those three outcomes heady handicap. I think most likely as a combination of great power competition, and basically the asset hyperinflation. The US I think asset hyperinflation. The US is really my base case at this point and part of that is because the great power competition reinforces that because you didn't have a great power competition and have China finance the great power competition against China going to have to finance it. Doesn't have the balance sheet. Luke when you look at the price action that we've seen in the past week and a half. I think completely confirms what you're saying. I mean this market's moving out. There is nothing in front of it. At least the index is that we're tracking I mean they're just getting bid there not even shaken during the day. I mean this is a straight bid at the open straight to the clothes. For the last ten days, the market's been running, so if that trend continues which is seems like it is into the coming weeks, the FEDS GONNA. See what's happening. They're going to clearly understand that it's them. That's causing this I mean there's no way they couldn't. So then what's the tool that they have to slow it down after they pumped all that liquidity the system? How do the is there anything? I think some of what we're in the last ten days. You referred to I. Think is some capitulation ride and you seen legends like Druckenmiller. Saying Look I. I got my lunch right and he's not the only guy I think. A lot of people are really negative had to cover. There's some element and that that's driving that, but to your broader question of what are they going to be able to do that's. That's you can't shrink your balance sheet, right. I mean I guess you could shrink your balance sheet if you can get the banks to buy it so during World War Two and that's where I think we'll. Ultimately for a great power competition, where foreigners not by nearly enough treasuries, basically, the US domestic private sector and the Fed are going to have to finance everything. We want to do in this great power competition. In World War Two, the percentage of total US banking system assets that were in treasury exceeded fifty percent. Number spiked percent today so I. Think the first thing that's going to happen that the Fed does have some wiggle room. I think they're going to turn the US banking system into Treasury foie Gras. They are going to stick a hose down the throat, the banking system and they are just going to pump their belly fully treasuries, and it's not a terrible deal nominally for the banks like we said before there's basically no cost Kerry and Okaz, the capital against US treasuries, but the government cannot win the great power competition. Less real rates are negative, so they're gonna be losing money overtime. Overtime on a real basis, but making money nominally in the near term, so they have some wiggle room. The Fed could maneuver there, but ultimately they can't let rates rise, and if they implemented curve control. Then you have to pick your rates. You know your levels pretty carefully right? Because if you to level level, you'RE GONNA buy a lot more to hold those levels, whereas if you pick them high, then you can be lesser than you can buy less, but if you pick them too high, then it becomes hard to finance the Great. Power Competition Given Delo their painted into a corner. That's a really interesting idea that you're saying that. They're gonNA, pump the banks Fulla of treasuries in I. think that they would have because the other big challenge that they've got. They've got to keep the slope of the yield curve positive, because if it starts inverting these banks, I mean they go boom as soon as at thing converts on them, so if they're controlling the amount of treasuries that are sitting on their balance sheets, they then can also control the shape of that curve a whole lot better, but are they going to be able to soak up that liquidity in a manner by doing that? I'm trying to wrap my head around that idea. Person let me. Ask You a question because we're talking about okay. What do they do if this thing runs away, but we may be at the point now. Where why would they think like that? Why would they try and stop this thing running away? Because at the end of the day they realized now. If it stops going up and starts coming down there on the hook, right they're. They're going to have to spend an unlimited amount of we save said they're willing to do, I can't believe they wanna do it because they realized that they're going to need all these bullets at some point, so maybe this is like okay well. We've already shown that. We don't take the punch bowl away. Why don't we go and put a fifth of Jack Daniels into this thing? I mean. It's what possible reason do they have to try and stop this runaway do? What's fascinating when you look at the stock market in Venezuela Argentina and you look at it in nominal terms, it's fascinating the shape that it has at a very similar point where we're at here. In the US, it gets really violent. The moves in I would argue we've seen to violent move so far. The first one wasn't nearly as violent. The one that we just saw the my expectation. Moving forward is that we're going to continue to see these violent waves. They definitely don't go anywhere in real terms, but as far as a nominal terms. They kinda go up, but they're really violent, so. I guess my expectation is that we're GONNA see a new all time high, and then that's where the feds GonNa say oh. My God were putting too much in the system disease. This a little bit, and then you're going to get the cataclysmic whips ought to the downside only for them to add the next unprecended amount of liquidity into the system. It's a really great point. Press in because I think it was Chris Cole away recently. I think I read maybe where again it's I. Hesitate to use just the easiest example, and it was one of look at the Weimar Republic what happened to stocks in nominal terms, the average person and myself included have made this mistake. When I I look as easy trade, you borrow bunch of marks and you buy stocks, and you own Germany for free. And he said, but you have to really look these violent reversals that you talked about. The reality was the only way to get in point to point. B. and gain wealth was to be unloaded. Actually because if you were levered either way, those swings cleaned you out in between, so it's a really interesting point. Again I don't think the US is going to be clear, but I do think there. Are you know when you look at the fiscal side when you look at the wealth inequality, savvy social unrest side when you look at what happened with the Treasury Market March I think we're moving toward sort of Venezuela ization of the US market. So you say we're not Y MAR situation. I guess I. DO think we're in that situation and maybe to tinfoil hat here. Why do you think that we're not? The reason I think we're not. I think there are certainly some things that are very similar I mean maybe the biggest is that we have war reparations do that. Are Inflation adjusting an impossibly large percentage ADP in the form of our entitlements right I mean the US government can print dollars, but they can't print healthcare services, which is what they owe, the baby boomers, but there's two things I think in particular that are different than the first is of the political situation, which while his continued to get worse when you read the history books, it's not you know if we start having. Gun fights between ANTIFA and you know the southern boys, or whatever they are in major cities around the country and the COP, stand aside and be of local guys running beer hall, which and taking the basically La seceding from. That would be more parallel to what Germany was suffering at that time was not that bad yet and the other thing that is i. think critical. Is that the US? Still has the ability to produce virtually everything it needs at the right price, so for perfect example shale right as the dollar collapsed ninety percent against oil, going from twelve, two, hundred, twenty, one hundred fifty bucks over our. Our many years and what we got out of that was nigger, mental, eight or ten million barrels a day of oil, and there's a lot else that the US could do. Where ultimately that's what would stop the hyper inflation from being completely currency destroying leg of Mr my view. He's not saying couldn't get very inflationary but I. Just don't think it can destroy currency in the same manner. Interesting arguments grant. For me the outcome is uncertain, but what I'm just listening to two very smart, very knowledgeable guys discussing whether the US is Venezuela why Germany. But. That's the thing for me right because. You both sign it with a straight face, and and and and they're both. Outcomes! That's a really really important thing for people to understand. Ten fifteen years ago. We wouldn't have been having this conversation and be if you had a done. It wasn't a possible outcome. It was kind of some fantasy that you thinking about well. Let's just gain this out just for fun right, but when guys like you wrestled with outcomes, it tells you that we're in a place that is on a path. The potentially leads to one of those things, and how far down that path we are is to be decided, but with what's going on. You know when you talk about what was going on in in Germany back. During the Republic, we've seen flashes that in the last few days, we've seen social media posts from people outside the window in new. York I was talking to someone today that I'm looking at this thing, and it's like a scene from the Batman movie. The Dark Knight so it's just chaos in the streets of New York just off to Lowest Nece, and there were so many of those those kind of posts, and you look around anything. How did we get here so we can go from Things are Kinda screwed up right now to. How did we get here in a matter of three or four days? That's what people have to understand. Is that outcomes like that as well now comes? Republic. Crazy until you three days away from them. It's all fun and Games. Until you go to the storm, there's nothing there and that's where the Mall Ugo my money's not good for. Them pointed to. The weeks ago. She's talking about people's willingness to bear inflation. Now haven't been locked down. Everybody has a recent memory of going to the grocery store and. Buy What you want, so you go back in a few weeks in a loaf of bread, five bucks instead of to fifty people are probably going to go. Yeah, well, it's better than having no bread like we had a month ago, so yeah, Alpine five bucks for the bread, and it's that willingness to accept the higher prices that is the kind of tone in the K. to this thing, and if we get inflation, we haven't taught. Let Yeah, but if we get inflation on the stuff. I was GonNa say is anyone you pointed. To serious people talking with a straight face about these outcomes, another piece of evidence at that is we're talking about empty food shelter in America. Maroney grocery store my wife weeks on one level I understand this situation, but on another level once you understand that it was as Nicholas seem to lead talks about the system was not anti fragile. Wait we went from in the name of efficiency from having whatever thirty forty sixty processing plants around the country, if anyone plant has. Against Kobe shut it down. Now? We got like five plants that make the process all the property. Of any one of those go down. You're by definition going to have shortages in parts of the country, but it was just something. It was very very weird to be in America and go to the grocery store and see empty shells never seen it in my life. But there it was. So let's continue talking about some of those prices that we are seeing grocery stores. We see the price of for instance meek off dramatically and so many other products. What is driving those price terance right now? Do you guys expect that to accelerate? Boys I! Judge in the world man. please. Come. Until you're a vegetarian. I'm sorry, go ahead, Gresh. No, I was just gonNA. Say the inflation thing. It's all about expectations, right? It's all about people's expectations, and and expectations rise then that's really often all it takes, and we're seeing that people's expectations based on what's happened are increasing, and that's a very dangerous place to be I. Mean Baumbach is screaming deflation. and. The price action would suggest that even if we do if I'm going GONNA have to go through another deflationary shock of some sort before we get there. But People's willingness to pay higher costs and people's expectations and people's feelings. You have a more intense feeling of inflation when you lose your job, because suddenly, everything seems more expensive to you right because you don't have an income and it's just this mindset that people are in. Believing that prices are gonNA. Go Up! That's what it takes people to start. Go out and try and get in front of that and the data that we're seeing suggests that we're not quite there, but we're. We're approaching a tipping point where people do stop to worry about job and saw holding and the price of meat. Go Up! I'm going to fill the freezer. A new freezer because of its own as well it with me now we close to that again. It's like a lot of these things we come back to this conversation. We're close. We're close close to all these crazy outcomes and for forty years inflation bit crazy outcome, right? It's just another example of something that we have a generation of people who for whom is not an issue or problem, bore likely outcome, and so it's been just discounted on the shelf as something from the history books and we could go running stuff. Put out fantastic shot of inflationary surprises. So in one thousand, nine hundred fifteen. Inflation US CPI one percent. In one thousand, nine, hundred seventeen two years later is twenty percent. In nineteen forty five, it was one percent two years later. It was nineteen percent seventy two. It was three percent two years later. It was twelve percent. And so that's how quickly these things happen when they happen, and we've built up a hell of a lot of complacency, all component parts of this financial system that we upright it. Inflation is a big part of that in the complacency around inflation. Saying it's just not something you have to worry. About is just another dangerous thing to take for granted I think. I think that's right, and I think too. When you look at structural even away from food when we go back to work in this new great power competition boy, the globalization has been remarkably disinflationary or labor for stuff or consumer goods. And another way we can read that document that power competition document is globalisation's debt now. We're GONNA. Go back to relocalising. By definition is going to bring back inflation. It's going to be more expensive to make elsewhere because Luke seven of the ten biggest container port in the world in China and Even. If you start moving this stop elsewhere, it's going to take a lot of costs jammed very quickly to get it done, and so to me I. think that the amount of complacency around in a lot of people are paying attention to the US China, tensions, and De Globalization but I don't think to me. The bond market is extremely complacent about the real implications of what this is, which is, we're hearing the policy guys all saying. We are divorcing China much faster this. We're GONNA resort much faster in the market's gone. and. It sets up exactly what you just described grant where you go from one percent to twenty percent a couple years right and it's interesting because each of those times when that happened, fifteen to seventeen isn't wartime. Supply chain, you're building stuff up and then seventy two right end of a war and currency system these types of things they just they happen, and this is the end of thirty forty year period, fifty year period of globalization, and this sort of sequence of the US moving is supply chain from one nation to another mason or another mansion, each cheaper each time and. Where are we gonNA put this stuff? It sounds like some it's GonNa come back and more expensive areas. Let's take a quick break and hear from today. 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When you look at how ray value talks about inserting liquidity when you're in these types of environments, and he talks about the use of quantitative easing where you're buying a bond, you're basically inserting it into the top of the economy, and then you have to balance that with liquidity insertions into the masses through universal. We call it universal basic income now, so my question is in. It's I think. Think. It's Kinda surprising that we've been exercising that insertion point of quantitative easing straight into the top of the economy for more than ten years straight without hesitation without implementing the other access point, which is to the masses through universal basic income, because politically, it's been really unpopular now all the sudden. The first payment has gone out and you know we were talking about this being a drug earlier. And I think politically after they do this. They see the feedback that they're receiving for. Hey, that was awesome. Give us another shot of that. My expectation, my impression moving forward is that we haven't even hit the tip of the iceberg with universal basic income, curious to hear your thoughts. I agree I get stressing the Rubicon right is releasing on to talk about. Hey, the Fed can land, but it can't spend and I understand what he's saying, but I think it's semantics. Say once you get to a UB I, because if the government spends and then grand to your point, defend is buying up the bonds in greater amount than the entire tax receipts. Sort of two sides of the same coin and agree that once you cross that Rubicon particularly in the social unrest environment. I am particularly in a setup. Where as we discussed before where monetary policy has gone from a dial two on off I think it's GonNa. Be Real hard to turn off. Will they say there's nothing low opponent temporary government program? And and one that gives money to people. Once you give people money tried taking away from right, particularly as Luke pointed out in an environment like this where people you come home and by the front door. You got your protest outface I'm home from work. Honey I'm going to put my black Moscow mind. Ninja suit I got pick up the banner. which are we taken out today? People are in that mood, and so they're getting checks from the government. They're also reading all kinds of skills. Skills about the fat cats, who a company, even richer and wealthy in them and twelve hundred bucks is great when it comes through the Doa, but you realize it doesn't really make the difference you need it to make, and so you want more, and there are plenty of things you can hang your hat on saying how we'll see go out. And starbucks took ten million pillows, loans, and Elise chipotle's. We're going to boycott. GonNa do this and? So once this thing begins this no way the guys who are going to write these checks and sign them. Don't understand this once this begins. As I say you're going to take this money away from people. I E because they're going to need it and be because if you try. They're going to get pissed and we're in election. And what? You don't want a Piss people so we've crossed the Rubicon. We've to over the Rubicon. We didn't even white through. We leapt to the other bank. We're running and I dread to think what this will turn into this experiment and you bi, because the hands are out and from what you said. Presley's absolutely right right. Wall Street has been bailed out. To An unconscionable gray and street deserves by that. There's no two ways about it right. But. It's tough to see how they bail out my straight and keep the system together whatever that means because the data file both out, or they choose politically expedient route, which is bailing out mine straight and let the system go to hell, which they can't do so binding just Wall Street is no longer option because the people are wise to that now so I just think that takes us full circle to where we started. This with is unlimited Amanda Printing. That's going to have to happen because now you've got to by everybody. You have a choice. And the thing when you consider how they've been able to cure for so long benefiting the haves and not do you be benefiting the have nots in order to do Qe the process Assembly Matz easier. You don't have to run by Congress for instance and not does that something s political cost as you be, I would be almost impossible to get through congress on the most circumstances, but because of covid nineteen and grunts part about being an election year now the stand that's four prudent fiscal policy have just changed so perhaps you all right whenever you say that nothing is more permanent than a temporary program. I think the beauty. of Qa was that it was? It was just all kind enough. To not, really understand it. Everybody that you trust from a political standpoint and the Poulsen Banenky. All these trustworthy guys, standing up and saying we're GONNA save you right? This is what we're GONNA do it's spicy variation on the theme of the old joke about what's the difference between a recession a depression? Recession is when you. His depressions when you lose yours and that's kind of where we're at now in that before we had this shop spike in a white and a lot of people's lives turned upside down. Now it's you know a third of the working population and so suddenly this problem is everybody's problem. And everybody is either toasted the CIA today. Fifty percent of households have lost employment income. So that's your fifty percents of everybody that everybody knows lost the job, which is why we saying the consumer spending numbers. Numbers fool of a cliff and people the savings going through the roof. So this is where we're at and so now you don't have an option to bail out the banks because pick a number of how many millions of people need that extra unemployment checks, so qe was great when they did at first because no one really understand what was going on now. People still don't understand it, but fail bilked because there's been enough ink spill to about how wall, street westbound out, not mainstream. They don't know what that means. They can grab onto that and it's a cold to rally behind to demand. To be might whole by the government and I. Don't see anyone out there. That's going to be able to sign a note of it. So how much longer until we see municipality start failing and needing bailouts along with everybody else. As it tomorrow yet. Watch. Illinois looking at tap defend already. They're spot neither in a tough spot before this unrest and now. It might be much more structural. There's probably a lot of conversations going on at a lot of very expensive houses in very nice cities in America on. Do we really want to be here? Where is this GonNa? Go if they ban the police, do I wanna live in a major metro area? You know I saw Bernard Kerik on twitter today and six hundred cops the he knows they're gonNA resigned. What are these cities? Start to look like the New York? We've all come to know what love analyzed thirty years is great I understanding it wasn't that Nice? A place in the seventies in terms of the crime levels and the finances etc, I think the Kobe thing was one thing, but now I think the social unrest and I think the change in perception of potential relative safety of American cities. Cities going forward now combined with the work from home shift where you make a case, commercial real estate has a structural problem you're seeing corporations will let you work from all, and you know, and and then Amazon, of course, which has been documented over and over what what Amazon's done to storefronts in. It's it's now even hitting the fifth avenue of the World Madison Avenue of the world. Let it. you know I I think there's a lot of cities in a lot of trouble, and that then comes down to the question of were about to see how different the US versus Europe with Greece right where are they gonNA put these cities through the ringer, going to default on top expansions and teachers pensions. After we bailed out Wall Street twelve fifteen years ago and maybe we will, but again there's going to be a political cost to that on the other side that I. Think will be further supportive of things like you. Be I in in larger amounts. What have you? We've seen the trial believe we've already seen that trauma. I forget who it was. It was a very prominent Republican politician coming which was now. A couple of weeks ago, until about how Hazel Municipality should be allowed to declare bankruptcy and immediately everybody kind of jumped all over. It became a big thing for a couple of days, and they it up pretty quick, but that felt like a trial balloon to me I. Mean You know we had during the Great Depression people forget all console went bust. Right the statement bust, so there is precedent for this stuff again. We're in a modern world where this stuff hasn't happened. And and it's. It's entertain, but. At this point, everything is on the table and anybody WHO's trying to structure portfolio trying to manage your portfolio, who isn't entertaining the most extreme outcomes in terms of how they're thinking about protecting themselves from possible Taylor risks is missing a trick because they should be listened to guys like you talking about these outcomes, because you have to have a plan for a while more outcome, you have to have a plan for municipalities declare bankruptcy. You have to have a plan for these things now because. Every single one of. Their high probability events opposed to being these one off one hundred. Yeah. Okay last question and grant. I'm going to get back to the SMIRK. All right, so you guys now I'm a Bitcoin Bull I think that it's going to have a major role playing forward. I get the impression that you guys are less bullish or somewhat skeptical of that so I'm kind of curious here your skepticism. I'm GONNA give you. My very succinct. Concept, because I asked about bitcoin. And I I. Don't try to avoid the onset, but my answer is always the same I'm bullish Bitcoin I. Think everybody should on some bitcon because it's a great. On an uncertain future, and it could potentially be a game changer for people, but my understanding of it, and the depth of minorities is so far below the people to immerse themselves in this thing, but I don't see how my opinion any constructive Houston, whatsoever because the people who understand bitcoin understand it way better than I do and the Gulf. In my experience when you don't immerse yourself, in Bitcoin, it's such a fast changing technology. It's such a fast changing world. That I think we'd have to make a commitment to be deep deep deep into blockchain, and really understand it, which means you have to give up a lot of time on? Things. All you have to find a lot of small. Really understand it and all questions about it and get the dummies guide, which is the Rue I've Jessica so. Yeah, my opinion is everyone. Should some but people asking me for my opinion bitcoin? People made a loss. You be one of the. I've taught my girls. A I said you know the hallmark of somebody who was very intelligent. Somebody who says I don't know, or won't you tell me what you think or those kind of things and I? Just I love that response. See Now Billy Connolly said. The deficit of an intelligent person is someone who can hear the William Tell overture and not think of the lone ranger. Awesome. Luke, let's hear me and. Echo a lot of grandsons. I own bitcoin a sort of a tail position for me. I've always looked at at the same boat Osama's. There's a lot of people understand it a lot better than I do that I would defer to I. Think of it in a very sort of simplistic way of it being almost as a a new drawers herb asset with no counterparty risk for the millennial group. If you will and it's, it's easier, it's it's. It's sort of a digital goal. My one hang up on. It is an relative to gold at least is. Ultimately is not on central bank balance sheets, and so in a world where central banks continue to exist I. Think Bitcoin will do really well, but I think gold will also do really well and I feel like I understan- gold better and that if central banks are GONNA have to basically run a sovereign debt global sovereign debt bobble outcome of that. Is that global sovereign? Sovereign debt is going to have to be written down significantly possibly up to one hundred percent, if it was certain nations in the twenties against the only other asset on central bank balance sheets able to do that, which is goal, and so I think Gold's GonNa really up for sovereign debt I think bitcoin will do well alongside. That has always been my thought on it. So I WANNA play a hypothetical here for you, because I think the speed at which something progresses in value could have a important impact on how things transpire here moving forward. And I'm of the opinion that in the coming six months to a year were about to see some aggressive price movement on Bitcoin, due to various things that have been happening with protocol so today. The price of Bitcoin is close to ten thousand and were recording this. June of two thousand twenty. Let's say the price of Bitcoin runs to aggressively runs to twenty thousand by Christmas or like January. Timeframe of twenty twenty one where it's literally doubled. And in the backdrop we have all of this chaos that we've just described. It seems like it's pretty much the very high probability of an outcome. Playing out does that. Situation that. Just becomes a self fulfilling prophecy, just because of the sheer fact that it starts to look like a gold chart in one thousand nine twenty Germany. Is supposed to mean for me what I wanted to see from. Bitcoin is how it performs in a crisis. We kind of nearly a look at that a couple of months ago. And it didn't do great. which is understandable, will risk assets. Go Off, so I definitely want to see what it does in a crisis, if it goes to twenty thousand with kind of seeing that before we saw that back in two, thousand, seventeen and the twenty seventeen, we saw that run up to nineteen thousand wary too so I think that will give people confidence again, but I think to get the juices flowing lot. We're seeing some of these robinhood stokes at the moment. It's going to have to do something really crazy right, which could conceivably do? It won't be more as Luke's at the tail position for me until I see. And Event and I say do people run to it or away from it? Because I know an event, people will run towards gold because they always have done. Yeah, you might get the initial selling. People will want to own gold. Do they want to own bitcoin or do they want to? Cash out that bitcoin because they don't show I, don't know the answer is a fascinating to watch. Luke. Could you talk more about the difference between become and the gold market, and also no some thoughts on the role of the BITCOIN exchanges? I do think bitcoin is still a pure market than gold and by that I mean there's your paper. Derivatives attached for me. I would get really excited. You know essentially me last year. Technically bitcoin was moving up, but I forget what some of the technicals was four, thousand or five thousand when it broke out, but it was interesting in April or May last year, one of the bitcoin futures exchanges shutdown, and it was interesting to watch on bitcoin react as soon as it happened, it took off and so for me following goal as long as I have in the way that I have. One of those bullish things for me for bitcoin would be to see that futures exchange shutdown, and have it be a true market again is. Is Union find tweet from it at the time in late seventeen. One of my big regrets to seventeen eighteen was not selling the bitcoin ahead, but not maybe even trying to sell some futures and margin card just crazy high, but then he won't. Employment is as those futures will be rolled out bitcoin community. This is a sign except it's an I was same. This is GonNa be a freaking disaster for Bitcoin. Because this is how they control walled as the financialisation the futures are when you have a cash settled futures market on a monetary asset like a goal or like a bitcoin what it does is it begins to shift price discovery from the physical supply-demand fundamentals to has the biggest balance-sheet right it's. It's almost like going to a casino and playing no limit poker with Warren Buffett. Right where you might have a royal flush, but you know he's got a hundred billion dollars. They'll take your house and everything else, and so you have to them as sort of what the futures markets as they develop around these monetary acid in monetary asset defined something with a very high stock to flow ratio right. It's basically something that isn't. It's a monetary assets money. It's not used for anything else. It's not a commodity saw. I would love to see the futures market. Go Away or be severely impaired for Bitcoin I think you'd see bitcoin take off again. When you say that I think a big component of that in the gold market is to physically saddle. There's expenses there's friction to do that easily. In bitcoin physically settled bitcoin markets where you can take possession of the coins literally at the snap of a finger, so all of that frictional administrative piece of providing physical delivery gone, and as long as you have some market that you can go to. That conducts that physical change. Maybe that makes that argument mute so I participated in a derivatives market with bitcoin where I can buy long dated call options like just recently purchased one for a December of twenty, twenty one and guess what in in order for the person the. The right the other side of that contract, they had to cough up one full Bitcoin, one hundred percent equity into escrow in order to write that contract and I guess I'm looking at it from the other perspective is now that the derivative markets particularly in Bitcoin are requiring one hundred percent upfront escrow of the underlying that bitcoins locked up. It can't be traded. It can't be sold anymore. I think that's really bullish for the market long-term that you're seeing this lockup of one hundred percent equity I. think it's a little crazy guys. I don't WanNa. Take any more of your time. This was amazing. I really really want to do this again. If you guys are poor. Anytime I go your other half so. Glad to the company. Thank. You both get our people. Hand off to your handles where they can learn more about you volley with. The at Luke, Groman on twitter and F F T T. Dash LLC. Dot Com for more information about research products. And I am at T T. H and the acronyms of things that may go home and the websites, the same t h dot com. Gentlemen thank you for your time. Guys So this time, this show will play question from the audience, and this question comes from Aj, you ego. high-priced instinct investing has simple rule of buying low and selling. Responsible allocators locked in buy back their own shares of companies when they think their stock prices low or undervalued. On the other hand, why don't companies issue new shares? When the market is hitting all time highs or they feel their stock is overvalued. Don't think companies should day trade their own stock. Wouldn't this be a good strategy for companies to buy back when share prices are low and reissue them at higher prices? Fantastic question and a very insightful Christian really shows that you truly thing as a capital elevator now one reason that comes to mind is the book outsiders, and you might remember that because of that here on the podcast we'll make sure to linked to that. In the show. Notes was episode one hundred eighty. It's a book that is both endorsed by war. War, buffet and Charlie monger and would really stands out in that book is that the best CEOS are also the best capsule caterers and they're doing exactly what you're saying. They're using their own stock as currency, and they have the deepest respectful evaluation, so they sell up whenever the saga serve expensive and the buyback when it's out of favorite in the market. So you might be thinking well if it's that simple. CEO's across America must be the best captured caters. But that is actually not the case. CEO's being great council a caters very often exception to the rule. Now it's not that they're not skilled, but whether often excel is a sales people or politicians why the became CEO's in the first place. Really few people in corporate. America rose to the top because they make better decisions when to issue and buyback stocks at the right time. And even if they did which unfortunately the don't, it's also very tricky to have a good timing. Even the best indicators US might think that stock is trading at a very high level and issue stock, or the might be one to buy back. She s when everything looks cheap. But if the Maga has vast of different opinion, it might in hindsight looked like the CEO does know the value of his or her own company while the real reason. Reason is that the market just acted very rational, and then a final reason why the timing is off is actually that this year might be acting rational and what I mean by that is that whenever a stock is trading an all time high very often this because the companies also spinning off a lot of cash, so even that what looks to be an attractive stock price issue she S. There's really no reason to dilute the stocks since. Enough cash to pursue your best projects. and. The extra cash skew generates from issue in stocks you own invest them in the second best projects, which by definition would give you a worse return. So Aj I don't have really anything else to add other than what stick had covered and I would tell you to go back. Listen to our episode when we cover the book outsiders I would tell you to read the book outsiders. This book is by William. Thorndike and it covers eight unconventional CEOS, and really with all eight of them are doing exactly what you're describing is. They're just incredible capital allocators. They're not only great at running the operational side of. Of the business, but they're also really good. At allocating all. They retained earnings an investing them into businesses. non-operational subsidiaries then give them a higher return as a company because they're able to employ that that this retained earnings in a manner that many many CEO's are not able to do so I would tell you to check out that book so Aj for asking such a great question. We're going to give you a one year subscription to RTP finance tool. Tool this helps you do the things that the folks in the book. The outsiders are that we're talking about here. which is allocating capital by finding undervalued companies using all those metrics to read through the financial statements, and we have all on our website in a very easy to understand way so that you can conduct intrinsic value calculations on the fly, quick, easy and simple for anybody else out there. If you WANNA get your question played on the. The show, good ask. The investors dot com, and just record it. If your question gets played on the show like Aj's, you'll get a free one year subscription to RTP tool. If people want to check out TI P finance, just go into google and type in TI, finance or go to our website, the investors podcast dot com, and just click on the finance tab, and you can find it all there so AJ. Thanks for asking such a great question. Or I guys Preston. I really hope you enjoyed this episode of the Masters. PODCAST we'll see each other again next week. Thank you for listening to thank. To access our show notes, causes or forums go to the investors PODCASTS DOT com. This show is for entertainment purposes only before making any decisions consultant professional. This show is copyrighted by the investors podcast network written permission must be granted before syndication.

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