WEBVTT - Mark and Dylan LeClair Talk Bitcoin Risk and The Big Picture 0:00:00.000 --> 0:00:02.480 Hello, and welcome to another episode of the Mark Ma Show, 0:00:02.480 --> 0:00:05.360 where we're talking about the decentralized revolution, the way the 0:00:05.360 --> 0:00:08.399 world's changing through our eyes, and of course we're trying 0:00:08.400 --> 0:00:10.760 to navigate this, and we're trying to navigate it um 0:00:10.840 --> 0:00:14.160 not to survive this, but to profit from it. And 0:00:14.200 --> 0:00:15.680 so I like to look at it, you know, from 0:00:15.680 --> 0:00:17.560 a news perspective, to change the way we look some 0:00:17.600 --> 0:00:19.560 of the headlines, we can see what's changing, and of 0:00:19.560 --> 0:00:23.120 course bring to you some exciting guests, and that's what 0:00:23.160 --> 0:00:26.320 we have today. I have on with me a returning guest, 0:00:26.760 --> 0:00:31.240 Dylan Leclair. He is a macro strategist. He is a 0:00:31.360 --> 0:00:36.519 senior analyst at the bitcoin magazine Pro and he is uh, 0:00:36.640 --> 0:00:38.680 he's young, but he's years ahead of his age. This 0:00:38.800 --> 0:00:41.080 kid is so smart. I love talking to him, and 0:00:41.120 --> 0:00:43.800 we cover a lot of ground. We're talking the big 0:00:43.840 --> 0:00:47.160 macro picture, what's happening in the global macro, what's happening 0:00:47.159 --> 0:00:49.760 with the Fed, FED policy, liquid in the financial system. 0:00:49.920 --> 0:00:53.360 We talk about the potential risks of Japan them moving 0:00:53.440 --> 0:00:56.240 up their yell curve control, which shows are potentially flinching. 0:00:56.560 --> 0:00:59.000 Then we dive down into risk assets. We take a 0:00:59.000 --> 0:01:01.440 look at bitcoin, we look at big potential risk with 0:01:01.680 --> 0:01:05.560 gray scale bitcoin trust, the tether situation, so and so 0:01:05.640 --> 0:01:07.720 much more. Let's go ahead and just jump right in 0:01:07.760 --> 0:01:11.199 with Dylan. All right, Dylan, here we go. Long overdue. 0:01:11.200 --> 0:01:13.120 I've had you once on the show. I'm excited to 0:01:13.160 --> 0:01:16.120 have you back against so much stuff to discuss. Uh. So, 0:01:16.200 --> 0:01:18.560 first of all, thanks for taking the time. Yeah, thanks 0:01:18.600 --> 0:01:20.720 for having me on Mark, it's going to connect again. 0:01:21.160 --> 0:01:23.280 I saw each other in Los Angeles a couple of 0:01:23.319 --> 0:01:25.800 months back, and uh, certainly a lot of a lot 0:01:25.800 --> 0:01:28.280 of transpired since then, so we got some stuff to 0:01:28.319 --> 0:01:30.880 catch up on. It makes our jobs easier when there's 0:01:30.880 --> 0:01:34.160 actually stuff to talk about, right. Um, I started making 0:01:34.200 --> 0:01:38.080 content for bitcoin and twenty sixteen then I made crypto content. 0:01:38.200 --> 0:01:40.280 I I'm not really ashamed to admit I did for 0:01:40.319 --> 0:01:42.240 a while twenty nineteen I kind of just got off 0:01:42.240 --> 0:01:44.959 that and just went back to bitcoin only. But I remember, um, 0:01:45.560 --> 0:01:49.760 like nineteen like there was just nothing to talk about, 0:01:49.840 --> 0:01:52.240 Like there was nothing going on, like in the depths 0:01:52.280 --> 0:01:56.520 of the bear market. Uh, this bear market has been fireworks. 0:01:56.800 --> 0:01:59.640 There's plenty to talk about. Um, I want to talk 0:01:59.680 --> 0:02:02.520 about Let's let's start like macro macro and then let's 0:02:02.560 --> 0:02:05.320 kind of like dive down into that. So let's start 0:02:05.360 --> 0:02:10.240 with the big macro picture, which it seems like regardless 0:02:10.280 --> 0:02:13.079 of what any on chain data or technical analysis or 0:02:13.080 --> 0:02:15.840 even fundamental analysis tells us, it seems like the macro 0:02:16.000 --> 0:02:18.560 pictures in charge. And when I say the macro, like 0:02:18.639 --> 0:02:22.720 the dollar, the FED. So let's let's start there. Um, 0:02:22.800 --> 0:02:25.040 let's talk about the Fed. You know, obviously they started 0:02:25.080 --> 0:02:26.600 they said they were going to raise rates. Well, first 0:02:26.600 --> 0:02:28.480 they said they weren't even thinking about thinking about Then 0:02:28.480 --> 0:02:30.560 they said they weren't gonna raise rates for four years. 0:02:30.840 --> 0:02:33.280 Then they said, okay, we're gonna start raising rates in November, 0:02:33.560 --> 0:02:36.720 and risk assets have just continued to sell off. They've 0:02:36.800 --> 0:02:40.720 raised rates at the fastest and most aggressive rate in history. Um. 0:02:40.800 --> 0:02:44.040 It seems like they're about to break something, which Powell 0:02:44.080 --> 0:02:48.600 said he's happy to break something because they can rebuild it. Um, 0:02:48.720 --> 0:02:51.680 which kind of shows what they're doing. UM. I tend 0:02:51.720 --> 0:02:53.280 to kind of take them at their word. They're not 0:02:53.280 --> 0:02:55.120 really trying to surprise the markets, are trying to really 0:02:55.160 --> 0:02:58.359 kind of project what they're doing. What's your view on 0:02:58.360 --> 0:03:00.600 this whole macro picture of what's going on? And kind 0:03:00.600 --> 0:03:02.799 of where rat in the cycle have they? Have they 0:03:03.040 --> 0:03:05.280 given us ultimate pain? Are we still got more pain 0:03:05.320 --> 0:03:08.280 to go? Yeah? I mean that's the that's a trillion 0:03:08.280 --> 0:03:11.320 dollar question. Uh. I I kind of ultimately believe that 0:03:11.360 --> 0:03:14.880 there is more pain to go in this macrocycle into three. 0:03:14.880 --> 0:03:18.280 I mean I don't know the specifics obviously, Um. You know, 0:03:18.880 --> 0:03:22.040 equity bear markets, bear markets and financial assets in general 0:03:22.120 --> 0:03:25.800 are characterized by you know, face ripping reversal rallies. But 0:03:25.840 --> 0:03:29.440 I really think that higher for longer is the reality. 0:03:29.720 --> 0:03:31.680 H and and everybody trying to front run you know, 0:03:31.840 --> 0:03:35.520 this pivot, especially equity investors. Right, the more that financial 0:03:35.560 --> 0:03:39.480 conditions loosen across the board, uh, the more rooms paradoxically, 0:03:39.560 --> 0:03:40.920 you know, the more that people buy the dip and 0:03:40.960 --> 0:03:43.800 the more that people chase uh chase stocks here, that 0:03:43.960 --> 0:03:46.040 the more room it actually gives the FED to tighten 0:03:46.080 --> 0:03:48.080 the belt more. Um. And so we kind of see 0:03:48.080 --> 0:03:50.720 this play out, uh and kind of this uh this 0:03:51.080 --> 0:03:54.840 uh like jigsaw pattern throughout two where you know, think 0:03:54.920 --> 0:03:57.800 it too bearish and then and then it reverses, Volatility 0:03:57.800 --> 0:04:01.040 comes back in and Pala goes Nope, guys like just 0:04:01.080 --> 0:04:03.960 pack it up, go home. Um. So I don't necessarily 0:04:03.960 --> 0:04:06.680 think that, like you know, UM, three thousand on the 0:04:06.760 --> 0:04:09.320 SNP is going to happen tomorrow. But I do think 0:04:09.360 --> 0:04:12.440 that most of the of the kind of the repricing 0:04:12.440 --> 0:04:15.760 and global assets and in global financial markets was due 0:04:15.800 --> 0:04:19.000 to the discount rate rising rapidly obviously UM, and that 0:04:19.120 --> 0:04:22.880 was because of FED tightening, but also bond investors realizing, Okay, 0:04:22.920 --> 0:04:25.599 if inflation, if we're out of this disinflationary regime and 0:04:25.640 --> 0:04:28.880 potentially entering a new one, what's what's this new cost 0:04:28.920 --> 0:04:31.440 of capital? How should I be you know, pricing the 0:04:31.680 --> 0:04:34.000 discount rate ten years out, thirty years out. And so 0:04:34.839 --> 0:04:37.599 I think, you know, the SNP at four thousand, there's 0:04:37.839 --> 0:04:40.000 you know, the equity risk premium if you look at say, 0:04:40.080 --> 0:04:41.560 and that's a big word, but if you look at 0:04:41.600 --> 0:04:43.880 just say you know, because investing is relative, right, so 0:04:44.080 --> 0:04:47.119 if you look at bonds compared to equities, it's actually 0:04:47.200 --> 0:04:49.960 kind of paradoxically it's equities are more expensive here than 0:04:50.000 --> 0:04:53.159 they were at the beginning of two relative to bond markets. 0:04:53.480 --> 0:04:55.960 So I think that that's something that investors should keep 0:04:55.960 --> 0:04:58.520 in mind, UM, just so they're not surprised if we 0:04:58.560 --> 0:05:00.560 do see some more downside, because I I still think 0:05:00.600 --> 0:05:04.839 that until said otherwise, Right, the FED pivot is kind 0:05:04.839 --> 0:05:07.120 of this more and more so buzzword than anything, and 0:05:07.120 --> 0:05:09.159 a pivot is actually going to require some real pain 0:05:09.200 --> 0:05:12.239 to be felt an employment, housing, and more seven financial 0:05:12.360 --> 0:05:16.000 and financial markets. So that last piece that you said there, 0:05:16.040 --> 0:05:18.320 so it's going to require more pain in the economy, 0:05:18.400 --> 0:05:21.560 the housing markets, etcetera. So, but you started out by 0:05:21.560 --> 0:05:23.920 saying that the stocks going up give the FED room 0:05:24.040 --> 0:05:26.960 more room to tighten, and so it seems to me 0:05:27.200 --> 0:05:29.840 that the FED doesn't really care about your stocks. They 0:05:29.839 --> 0:05:32.320 don't care about your house, they don't care about your retirement. 0:05:32.360 --> 0:05:34.360 They actually want to bring those downs, are trying to 0:05:34.360 --> 0:05:37.719 crush demand. What they do probably care about is obviously 0:05:37.800 --> 0:05:40.880 liquidity in the banking system. Uh, they care about the 0:05:41.120 --> 0:05:45.320 maybe the economy unemployment, that's one of their dual mandates. Right, So, Um, 0:05:45.440 --> 0:05:48.440 do you think stocks being high actually gives them room 0:05:48.600 --> 0:05:50.920 to tighten or do they not care about that and 0:05:50.960 --> 0:05:54.279 really they're looking at again the employment and like bank 0:05:54.320 --> 0:05:58.840 liquidity or do you see it more holistically? Yeah, I 0:05:59.200 --> 0:06:02.000 think that just you know, a lot of investors, um 0:06:02.320 --> 0:06:05.039 kind of haven't maybe not haven't realized but there was 0:06:05.080 --> 0:06:09.560 somewhat of a regime change in May two, right where 0:06:09.560 --> 0:06:14.359 for the past few decades investors were were rewarded with 0:06:14.400 --> 0:06:16.800 buying the dip, and the FED and global central banks 0:06:16.839 --> 0:06:19.960 could really inject an unlimited amount of liquidity and and uh, 0:06:20.000 --> 0:06:23.680 it wouldn't show up in consumer price inflation. Obviously. We 0:06:23.680 --> 0:06:26.000 we you know, saw cp I at forty year highs, 0:06:26.640 --> 0:06:28.080 and the FED came out and said, all right, well, 0:06:28.080 --> 0:06:30.120 we really got to get this lower. Um. You know, 0:06:30.160 --> 0:06:32.800 inflation low inflation is one of our core mandates. And 0:06:32.800 --> 0:06:34.160 we see that not just in the FED, but the 0:06:34.400 --> 0:06:37.120 euro Zone, the Bank of Japan, etcetera. Right, So, um, 0:06:37.200 --> 0:06:38.839 what that means? And they literally are telling you this, 0:06:38.920 --> 0:06:42.680 They say, we want employment unemployment higher. Right. So, so 0:06:42.760 --> 0:06:45.000 even though it's part of their dual mandate, Um, they're 0:06:45.040 --> 0:06:47.840 they're honestly really like embarking on a on a mission 0:06:47.839 --> 0:06:51.880 to reverse engineer the wealth effect, lower assets, uh and 0:06:51.960 --> 0:06:54.920 also higher unemployment to crush that demand. Like you said. 0:06:54.960 --> 0:06:56.600 And so I don't think that job is finished. I 0:06:56.640 --> 0:06:59.359 think inflation, uh is is stickier than a lot of 0:06:59.360 --> 0:07:02.279 people expect, despite uh, you know, kind of the reversal 0:07:02.480 --> 0:07:04.960 in the year over year prince, we've seen over the 0:07:05.000 --> 0:07:07.280 last five or six months, it's still a lot higher 0:07:07.320 --> 0:07:10.680 than the two percent mandate, which is arbitrary. Yes, but 0:07:10.760 --> 0:07:12.920 some of these things, like core CPI is a lot 0:07:12.960 --> 0:07:15.520 stickier than I think a lot of investors expect um. 0:07:15.560 --> 0:07:17.840 So for that reason, I think that you know, we're 0:07:17.880 --> 0:07:20.440 still in a tightening cycle. Until I said otherwise, And 0:07:20.440 --> 0:07:22.680 if you look at the history of of of FED pivots, 0:07:22.920 --> 0:07:25.320 they don't pivot until things get bad, and actually things 0:07:25.480 --> 0:07:29.000 often get worse after the pivot. So so we'll we'll 0:07:29.040 --> 0:07:31.360 see here. But I think, uh, you know, for for 0:07:31.480 --> 0:07:34.760 the bulls that are chasing here, uh, they might be 0:07:34.800 --> 0:07:38.440 a little bit blindsided by you know, macro conditionings, liquidity 0:07:38.840 --> 0:07:42.680 and real like economic data, not financial assets getting worse 0:07:42.720 --> 0:07:46.600 in so we'll see how that stands. Yeah, I mean, 0:07:46.600 --> 0:07:48.680 obviously of us have a crystal ball and and and 0:07:48.760 --> 0:07:52.280 I constantly referenced the insanity that we all have to 0:07:52.280 --> 0:07:54.320 sit around and try to read some guy's mind to 0:07:54.360 --> 0:07:56.320 understand what's gonna happen with our money. I mean, it's 0:07:56.320 --> 0:07:58.520 just the stupidest thing in the world, but it's the 0:07:58.600 --> 0:08:00.560 it's the world that we have write the game. What 0:08:00.640 --> 0:08:03.640 will what what's our fate? Let's all listen to Jerome Pal. 0:08:03.720 --> 0:08:07.160 I I often liken it to, uh the insanity I'm 0:08:07.160 --> 0:08:10.240 in southern California, but the insanity of the uh punk 0:08:10.240 --> 0:08:13.240 satani Phil or whatever. Right the groundhog, like if he 0:08:13.280 --> 0:08:15.440 comes out and sees his own shadow, like spring goes 0:08:15.440 --> 0:08:17.960 longer or whatever, and like everyone watches the groundhog and 0:08:17.960 --> 0:08:20.640 it's like that's kind of like we're all watching like 0:08:20.800 --> 0:08:23.640 Jerome Pal. Uh, but it is what it is, right, 0:08:23.640 --> 0:08:25.960 and so we so we kind of have to navigate that. 0:08:26.360 --> 0:08:30.640 But um, it seems like Jerome pal tries to be 0:08:30.720 --> 0:08:34.240 very clear, like, hey, there's more pain ahead, pain pain, pain. Uh. 0:08:34.280 --> 0:08:35.920 He finishes to me, He's like, hey, guys, you're not 0:08:36.040 --> 0:08:38.600 listening to me, like the stock markets rallying, but like 0:08:38.640 --> 0:08:41.600 I'm telling you there's more pain, right, And it almost 0:08:41.640 --> 0:08:45.920 seems like, um, the markets are calling his bluff, like 0:08:46.120 --> 0:08:48.040 we get it. We get it, you're serious, and we 0:08:48.080 --> 0:08:50.080 get it. You're committed to sticking with it, and we 0:08:50.120 --> 0:08:52.240 get it. There's pain, and we get it. You're gonna 0:08:52.480 --> 0:08:54.760 We understand it, and we believe you, and we believe 0:08:54.800 --> 0:08:57.680 that you believe it. But we also see the constraint 0:08:57.720 --> 0:09:01.360 that you're going to run up against, and so we're 0:09:01.400 --> 0:09:03.760 betting that we can hold on longer than you can 0:09:03.800 --> 0:09:06.160 hang on. Maybe the markets are saying something like that. 0:09:06.240 --> 0:09:08.040 Do you think maybe there's like this little chicken and 0:09:08.080 --> 0:09:10.440 egg or not a chick game of chicken going on 0:09:10.480 --> 0:09:12.080 where the markets are like, Okay, we get it, we 0:09:12.120 --> 0:09:15.160 get it, but we bet you the banking system the 0:09:15.200 --> 0:09:18.200 quity is going to dry up before um that happens. 0:09:18.960 --> 0:09:20.400 Or do you think it's just the people are stupid 0:09:20.400 --> 0:09:23.040 and they're just trying to buy the dip? Uh? Yeah, 0:09:23.080 --> 0:09:25.760 I mean I think, um, you know, a big driver, 0:09:26.400 --> 0:09:28.720 a big driver, and equity markets is often just price 0:09:28.800 --> 0:09:32.200 agnostic passive flows. Right. It's not actually like astute active 0:09:32.240 --> 0:09:36.160 investors making you know, uh, really advanced financial decisions. It's 0:09:36.200 --> 0:09:40.199 just pensions for owen Case, plowing money uh into broad 0:09:40.200 --> 0:09:42.560 based equity and bond in disease. Right. And then and 0:09:42.600 --> 0:09:44.439 they don't even know what they're buying at what price. 0:09:44.440 --> 0:09:47.000 They don't care right there, investing for the long term, 0:09:47.240 --> 0:09:50.559 and often that's why you see like the severe dislocations um, 0:09:50.720 --> 0:09:53.000 whether over the short term or or the long term. Right. 0:09:53.040 --> 0:09:55.320 And then you know, active managers on the margin, whether 0:09:55.360 --> 0:09:58.400 it's long, short, etcetera. Right, kind of have to clean 0:09:58.480 --> 0:10:01.000 up this mess. But sometimes the tail lacks a dog. 0:10:01.080 --> 0:10:03.200 So I do think there's excess liquidity still in the 0:10:03.200 --> 0:10:05.440 banking system. Right, there's still two trillion dollars in the 0:10:05.480 --> 0:10:08.959 reverse repo just parked. They're getting four four and a 0:10:08.960 --> 0:10:11.960 half percent yield, right, So until that draws down meaningfully, 0:10:12.240 --> 0:10:14.880 you know there is excess liquidity in the banking system 0:10:15.040 --> 0:10:18.160 at the very least um. But yeah, I think that. 0:10:18.280 --> 0:10:20.640 You know, Powell, he's literally said right like, there was 0:10:20.679 --> 0:10:22.400 this one I think it was a month or two 0:10:22.440 --> 0:10:26.480 back when when uh someone incorrectly during the fom CN 0:10:26.520 --> 0:10:28.920 beting said hey, bond and equity markets are rallying, and 0:10:28.960 --> 0:10:31.280 that was a lie, right, and Powell like almost like 0:10:31.280 --> 0:10:33.880 shook his head like cheese and came out like super 0:10:33.920 --> 0:10:36.920 aggressively hawkish and was like guys, listen up, like and 0:10:36.920 --> 0:10:40.040 and that was like, oh wow, he's just like he's serious. 0:10:40.080 --> 0:10:42.760 So I think over the long term, right, everybody knows, Mark, 0:10:42.840 --> 0:10:44.280 you talked about it a lot. I talked about it 0:10:44.320 --> 0:10:48.680 a lot. These debt dynamics, right, federal debt to GDP, 0:10:49.080 --> 0:10:52.160 global debt to GDP at you know three, these things 0:10:52.200 --> 0:10:54.960 are unsustainable and the only way out is financial oppression. 0:10:54.960 --> 0:10:58.120 Monetary debasement, right, a sustained period of inflation higher than 0:10:58.160 --> 0:11:02.040 interest rates. Um so so titaning can't be the game forever. 0:11:02.720 --> 0:11:06.120 But I think to get there right, the pendulum almost 0:11:06.120 --> 0:11:09.240 has a swing to the far extreme of Oh wow, 0:11:09.480 --> 0:11:11.800 you know, the easing is a must. And I don't 0:11:11.840 --> 0:11:13.880 think we're there yet. So is it a game of 0:11:13.880 --> 0:11:16.800 of of tea leaves and reading this magic ball? Yes? Right, 0:11:16.800 --> 0:11:20.040 but unfortunately or fortunately that's the game. You know, we're 0:11:20.040 --> 0:11:23.160 all we're all playing, Yeah, and and and again. I 0:11:23.400 --> 0:11:25.760 take him at his word. I believe the FED tries 0:11:25.800 --> 0:11:27.520 to project out what they're doing. So he said in 0:11:27.559 --> 0:11:29.599 November twenty one that they're gonna start raising rates. He 0:11:29.640 --> 0:11:33.160 didn't start raising rates until what March of so like 0:11:33.200 --> 0:11:36.120 they give you this long wide time frame. Now again 0:11:36.200 --> 0:11:37.920 he said we wouldn't raise rates for four years. He 0:11:37.960 --> 0:11:39.520 did in two years. Now they're saying they're gonna keep 0:11:39.559 --> 0:11:42.679 rates really high. But things change. But I think when 0:11:42.720 --> 0:11:45.959 he said that would rather break things because we can 0:11:46.000 --> 0:11:47.719 rebuild them. I think you have to take that part 0:11:47.760 --> 0:11:50.000 pretty seriously. And so to your point, there's a lot 0:11:50.040 --> 0:11:52.679 of liquidity in the system. He's prepared to see a break. 0:11:53.160 --> 0:11:56.320 I think, and again this is just my whatever, my 0:11:56.360 --> 0:11:59.160 opinion for what it's worth nothing, but I think that 0:11:59.400 --> 0:12:02.240 probably this year we see it get worse faster than 0:12:02.280 --> 0:12:04.559 he expects, and things do break, and then they need 0:12:04.640 --> 0:12:08.040 jerk reaction and blow it back sky high again. UM, 0:12:08.080 --> 0:12:12.520 but we'll see, um if we go, If we go, 0:12:12.640 --> 0:12:14.720 I guess even a little bit further. Although the FED 0:12:14.800 --> 0:12:17.000 is kind of driving that, I know, UM big news. 0:12:17.000 --> 0:12:19.280 It seems like also I mean talking about like liquidity 0:12:19.280 --> 0:12:23.160 in the system, Japan being one of the largest holders 0:12:23.160 --> 0:12:27.480 of treasuries, UM has been selling treasuries right there, they're 0:12:27.760 --> 0:12:32.000 they're Japan is basically just like f t X right 0:12:32.360 --> 0:12:33.520 if you if you, if you look at it, like 0:12:33.520 --> 0:12:35.959 a small microcosm like ft X, created a token and 0:12:36.000 --> 0:12:39.400 a thin air their ft T token. UM. Nobody really 0:12:39.440 --> 0:12:40.880 wanted to buy the f t T token, but they 0:12:40.880 --> 0:12:42.600 manipulated the market so it made it look like there 0:12:42.640 --> 0:12:44.920 was values, so people bought it. When nobody wanted to 0:12:44.920 --> 0:12:46.800 hold the token anymore, they started dumping the f t 0:12:46.880 --> 0:12:49.160 T token, and so then Japan then f t X 0:12:49.240 --> 0:12:50.920 was forced to try to prop it up by it, 0:12:51.160 --> 0:12:52.880 So they're selling whatever asse is they could to prop 0:12:52.960 --> 0:12:56.080 up the token, but it didn't matter. Nobody wanted to NFL. 0:12:56.120 --> 0:12:58.000 And if you look at that and then look at Japan, 0:12:58.240 --> 0:13:00.200 Japan is the same thing, right, Japan is a as 0:13:00.240 --> 0:13:03.880 a yend token. Uh, nobody wants the end token. They 0:13:03.920 --> 0:13:06.320 manipulate the market to think it has value. Now they're 0:13:06.320 --> 0:13:10.080 stuck selling treasuries to try to prop up the end token. UM. 0:13:10.120 --> 0:13:12.240 But like it's just the only a matter of time, right, 0:13:12.280 --> 0:13:13.959 And I think the big thing that I want to 0:13:13.960 --> 0:13:16.600 I want to ask you about was the yield curve control. 0:13:16.720 --> 0:13:19.440 So what seems to kind of catch me about this 0:13:19.480 --> 0:13:22.080 story is so for people that don't really understand, is 0:13:22.120 --> 0:13:25.760 that Japan basically manipulates their bond market to kind of 0:13:25.880 --> 0:13:30.080 artificially peg the rates. And the thing that catches my 0:13:30.120 --> 0:13:33.360 eyes that they had to change the rate they're pegging at. 0:13:34.000 --> 0:13:36.679 And it seems like I've always said that pegs are 0:13:36.679 --> 0:13:38.559 meant to be broken. Traders are always going to go 0:13:38.640 --> 0:13:40.960 after the peg. George Soros got famously rich in today 0:13:40.960 --> 0:13:42.680 from breaking the you know, the peg and the Bank 0:13:42.679 --> 0:13:46.480 of England UM and once they've given once, the traders 0:13:46.520 --> 0:13:48.240 are kind of like, Okay, now we know you're gonna 0:13:48.320 --> 0:13:50.960 give in. Does that kind of open up the floodgates? 0:13:50.960 --> 0:13:53.360 Do you think was that like you flinched first, now 0:13:53.360 --> 0:13:56.400 you're probably gonna lose kind of sign Yeah, I think 0:13:56.600 --> 0:13:59.840 certainly adjusting that policy rate, Uh, you know, kind of 0:13:59.840 --> 0:14:02.959 a roads the credibility um and you know, people argue 0:14:02.960 --> 0:14:05.240 back and forth whether central banks have any credibility left. 0:14:05.240 --> 0:14:09.280 I think they, you know, somewhat they do, right and 0:14:09.360 --> 0:14:11.280 given that right that the Bank of Japan has a 0:14:11.360 --> 0:14:15.679 trillion dollars at their disposal. Yeah, so somewhat of an 0:14:15.720 --> 0:14:18.319 FDx type situation, but they have all quite a big 0:14:18.360 --> 0:14:21.160 war chest to keep this game going right now. Um 0:14:21.200 --> 0:14:23.440 So I kind of think I I like to explain 0:14:23.840 --> 0:14:26.400 yield curve control, quantity of using like these kind of 0:14:26.400 --> 0:14:29.800 big terms that that seem very complex. Um like quantity 0:14:29.840 --> 0:14:31.800 of using right is printing a fixed amount of money 0:14:31.840 --> 0:14:35.840 and buying bonds at any price. Right. Yield curve control 0:14:35.880 --> 0:14:39.080 is printing potentially an unlimited amount of money to keep 0:14:39.160 --> 0:14:41.720 the bonds at a fixed price. Right, so goes lower 0:14:41.760 --> 0:14:43.720 than this price, it goes higher than this yield Right, 0:14:43.720 --> 0:14:46.400 because bond prices and yields are inverse of each other. 0:14:46.640 --> 0:14:49.400 So if it if it goes above twenty five basis points, 0:14:49.440 --> 0:14:52.480 which they switch to fifty basis points zero point five, 0:14:53.160 --> 0:14:55.760 will print any amount of money to keep this ten 0:14:55.840 --> 0:14:57.600 year yield at this rate. And they have to do 0:14:57.640 --> 0:15:01.080 this why, because they're debt to GDP is the worst 0:15:01.080 --> 0:15:04.840 in the world. I believe it's right. So some mathematically 0:15:05.200 --> 0:15:07.480 they need to erode their real debt burdens. And how 0:15:07.480 --> 0:15:08.680 are they going to do that, Well, they need to 0:15:08.760 --> 0:15:10.400 let inflation ramp, and they need to keep their bond 0:15:10.440 --> 0:15:15.320 yields pinned, because otherwise the sovereign, the Japanese government goes 0:15:15.760 --> 0:15:19.120 goes belly up essentially, right. So so speculators all over 0:15:19.160 --> 0:15:20.640 the market are saying, all right, well, if you're gonna 0:15:20.640 --> 0:15:22.960 print this money, we're just gonna short the end. We're 0:15:22.960 --> 0:15:25.200 just gonna short the en and and and get dollars. 0:15:25.600 --> 0:15:29.040 And so the Bank of Japan comes in uh and 0:15:29.040 --> 0:15:31.160 and and really to kind of stem this speculate the 0:15:31.400 --> 0:15:35.440 speculators they sell a bunch of sell a bunch of dollars, 0:15:35.440 --> 0:15:37.240 and button by the end. Right, So it's almost a 0:15:37.240 --> 0:15:40.200 circular logic in a way, right, because they're printing en 0:15:40.600 --> 0:15:44.160 to buy their bonds and then they're selling selling dollars 0:15:44.400 --> 0:15:46.400 to buy the end, right, so they can keep this 0:15:46.440 --> 0:15:48.200 game going for a while because they are one of 0:15:48.240 --> 0:15:51.440 the world's biggest holders of treasuries. But eventually, right, the 0:15:51.760 --> 0:15:54.320 speculators who are both shorting the bonds and the end 0:15:55.120 --> 0:15:57.280 are gonna, you know, maybe not break the Bank of 0:15:57.360 --> 0:15:59.640 Japan because they're you know, quite the titan in the market, 0:16:00.240 --> 0:16:02.040 but they're gonna, you know, they're gonna burn through that 0:16:02.080 --> 0:16:04.640 treasure chest eventually. Um. So it's gonna be really interesting 0:16:04.680 --> 0:16:07.960 to follow that. So why do you think following that 0:16:08.120 --> 0:16:11.280 is even important? I mean, if it's if it's so 0:16:11.360 --> 0:16:14.200 far off, well, I think one of the biggest things, 0:16:14.240 --> 0:16:16.280 right is is you can see um and Bloomberg has 0:16:16.280 --> 0:16:18.440 released a couple of stories on this. Right. So there's 0:16:18.480 --> 0:16:20.720 the bond, there's the bond yields, right, but there's also 0:16:20.840 --> 0:16:24.360 the kind of the swaps, so traders, there's derivatives, and 0:16:24.400 --> 0:16:26.600 there's there's these swap rates are almost like kind of 0:16:26.600 --> 0:16:30.160 a bond futures. And so those swap rates while the 0:16:30.680 --> 0:16:33.880 peg was at twenty five basis point zero point, those 0:16:33.880 --> 0:16:36.560 swap traders had that that policy rate at like forty 0:16:36.680 --> 0:16:39.040 or fifty basis points, so they were already front running 0:16:39.040 --> 0:16:41.600 the move. And now those swap the swap rates for 0:16:41.680 --> 0:16:43.440 the for the ten year yield for the Bank of 0:16:43.720 --> 0:16:46.720 uh for the Japanese government bonds are at about eighty 0:16:46.840 --> 0:16:49.840 nine basis points, so eight zero point eight zero point 0:16:49.880 --> 0:16:52.280 nine percent, right, so they're already front running that next 0:16:52.360 --> 0:16:56.040 kind of capitulation move um by by shorting these bonds. 0:16:56.080 --> 0:16:58.680 And I think what the the key here is is 0:16:58.720 --> 0:17:01.520 that sovereign debt, rather whether whether it's the Eurozone or 0:17:01.520 --> 0:17:05.600 the you know, U. S. Treasuries or or Japanese government bonds, 0:17:05.960 --> 0:17:09.000 right these are the biggest markets, sovereign debt is fungible 0:17:09.280 --> 0:17:11.879 on a on a on a FX hedged basis. What 0:17:11.920 --> 0:17:14.399 I mean by that, it means that global debt, especially 0:17:14.400 --> 0:17:17.399 from sovereigns, that that won't nominally default on their debt. Right, 0:17:17.600 --> 0:17:19.960 a corporation may or may or may not default on 0:17:20.000 --> 0:17:22.240 their debt. Well for a sovereign, you know, they're just 0:17:22.240 --> 0:17:25.320 gonna print the money essentially, so they're never gonna nominally 0:17:25.359 --> 0:17:28.000 default on their debt. So there's derivatives that that you 0:17:28.040 --> 0:17:30.840 can basically hedge out the currency risk, So investors of 0:17:30.920 --> 0:17:34.359 Japanese government bonds would say, hey, maybe I'll just hedge 0:17:34.400 --> 0:17:37.680 my yen exposure and buy treasuries instead. So, so when 0:17:37.680 --> 0:17:39.640 the Bank of Japan is printing a ton of money 0:17:39.680 --> 0:17:43.119 to keep their bond yields artificially suppressed, that actually affects 0:17:43.240 --> 0:17:45.399 the bond yields of every other market in the world. 0:17:45.760 --> 0:17:47.879 And so you saw when they capitulated, and when they 0:17:47.880 --> 0:17:50.159 went from twenty five basis points to fifty basis points, 0:17:50.240 --> 0:17:54.840 global bond yields immediately ratcheted upwards. Right, So bonds sold off. 0:17:55.160 --> 0:17:57.199 And so I think that's that's the kind of the 0:17:57.200 --> 0:17:59.600 move here, is that you know, who knows what their 0:17:59.640 --> 0:18:02.280 policy you will go to next? Right, They certainly have 0:18:02.480 --> 0:18:04.960 a huge treasure chest and are willing to burn through it, 0:18:05.840 --> 0:18:09.080 but the yen the and really that the Japanese government 0:18:09.080 --> 0:18:11.240 bond market is basically one of the one of the 0:18:11.280 --> 0:18:13.159 biggest currency is one of the biggest bond markets in 0:18:13.200 --> 0:18:15.720 the world, aside from the dollar and the treasury market. 0:18:16.040 --> 0:18:18.240 And so you know, they own a whole bunch of it. 0:18:18.240 --> 0:18:21.840 They own the government bonds. But depending on where those 0:18:21.920 --> 0:18:28.399 yields go global markets could react quite quite meaniqually Okay, So, um, 0:18:28.400 --> 0:18:31.960 it's it's interesting for traders. It maybe isn't as important 0:18:32.000 --> 0:18:34.439 for the global macro picture because they have quite a 0:18:34.440 --> 0:18:36.399 long runway of a trillion dollars worth of bonds in 0:18:36.400 --> 0:18:39.040 front of them, So nothing really imminent there. It's more 0:18:39.080 --> 0:18:43.160 just kind of interesting than it is potentially imminent imminent 0:18:43.160 --> 0:18:45.960 moves for the rest of the global market. I think 0:18:45.960 --> 0:18:47.480 that's fair to say. I mean, certainly some good to 0:18:47.560 --> 0:18:49.359 keep an eye on. Um, you know, maybe for the 0:18:49.359 --> 0:18:52.920 average investor, uh, that's just you know, maybe passively holding 0:18:52.960 --> 0:18:55.280 up a portfolio or investing for the long term. It's 0:18:55.560 --> 0:18:58.400 it's you know, following the yen or the Japanese government 0:18:58.640 --> 0:19:01.480 bond policy rate probably believe isn't you know, top of 0:19:01.640 --> 0:19:04.479 top of mind. But for for you know, macro traders 0:19:04.480 --> 0:19:06.320