Rising Liquidity Is Fueling A Bull Market In Gold & Bitcoin (Part 2/2) | Lyn Alden & Luke Gromen

Summary

This transcript from a podcast episode dives into discussions on macroeconomic trends, focusing particularly on inflation, federal debt sustainability, and the impacts on assets like Bitcoin and gold. The speakers explore the theory of a secular inflationary environment driven by the necessity of sustained negative real rates for the reserve currency issuer's debt. They analyze mid-cycle indicators for Bitcoin and bullish prospects for both gold and Bitcoin, anticipating significant price movements within the next 18 months. The conversation also touches on geopolitical factors affecting oil prices and the broader implications for the financial markets, including fiscal dominance influencing investment strategies.

Takeaways

• 🌍 The discussion suggests we are in a secular inflationary environment, primarily due to unsustainable federal debt of the reserve currency issuer, requiring sustained negative real rates.
• 📈 Bitcoin is considered to be mid-cycle in its bull run, with expectations of reaching six figures in the next 18 months, reflecting a bullish outlook on cryptocurrency.
• 🔗 The episode is sponsored by Mantra, a security-first, compliance-focused L1 blockchain, emphasizing its role in onboarding financial institutions into Web3.
• 🛢️ There's an ongoing debate about whether we are in a secular regime of inflation or a disinflationary regime, with significant attention on the role of oil prices in this context.
• 💰 The potential refilling of the Strategic Petroleum Reserve (SPR) by the end of the year and its impact on oil prices and inflation rates was highlighted.
• 📊 The interview explores tactical investment recommendations over the next 12 months, particularly focusing on the expected performance of gold and Bitcoin.
• 📉 There's a detailed analysis on the price trajectory of crude oil, noting its recent rebound and discussing factors that could influence its future pricing.
• 💵 Discussions about the U.S. dollar suggest it might remain range-bound or slightly depreciate over the next year, impacting global liquidity and investment strategies.
• 🎯 The dialogue transitions into the potential effects of fiscal policies on market conditions, emphasizing the shift from monetary to fiscal dominance in economic planning.
• 🌟 The conversation ends with a focus on how different asset classes might perform in response to inflationary pressures and fiscal policy changes.

Q & A

What is the primary reason mentioned for the secular inflationary environment?

The primary reason mentioned for the secular inflationary environment is the federal debt of the reserve currency issuer not being sustainable unless real rates are sustained negative for some period of time.

What does the speaker predict about Bitcoin over the next 18 months?

The speaker predicts that Bitcoin will continue to perform favorably over the next 18 months and would be surprised not to see six-figure Bitcoin values during this period.

How does the speaker view the future of oil prices and their impact on inflation?

The speaker expects oil prices to be range-bound between $70 and $90, and believes that any significant movement in oil prices will have a substantial impact on inflation rates.

What is the speaker's opinion on the U.S. Strategic Petroleum Reserve (SPR) and its refilling?

The speaker highlights the difficulty in refilling the SPR, especially during an ongoing war, and mentions that the U.S. has stopped trying to refill it, which could impact oil prices and energy markets.

What is the speaker's stance on gold and Bitcoin as investments over a 12-month time horizon?

The speaker is bullish on both gold and Bitcoin over a 12-month time horizon, expecting their values to increase significantly.

How does the speaker describe the current state of the dollar and its future movement?

The speaker views the dollar as range-bound and expects it to be sideways to down over the next 12 months, influenced heavily by the euro and other currency pairs.

What is the significance of the relationship between oil, gold, and Bitcoin as discussed in the transcript?

The speaker suggests that gold and Bitcoin are linked to oil through energy costs and fiscal pressures, indicating that as the world requires higher oil prices to sustain economic growth and debt servicing, the relative value of gold and Bitcoin, which are energy-intensive, is likely to increase.

What does the speaker mean by 'fiscal dominance' in the context of the economy?

The term 'fiscal dominance' refers to a period where fiscal policy, government spending and taxation, has a more significant impact on the economy than monetary policy, such as interest rates set by central banks.

How does the speaker view the role of the Federal Reserve in the current economic climate?

The speaker believes that the Federal Reserve's influence on the economy is diminishing in the face of 'fiscal dominance'. They suggest that large structural fiscal deficits and decisions around government spending and taxation are more critical factors currently driving the economy.

What is the speaker's perspective on bonds as an investment?

The speaker refers to bonds as a 'blood sport', implying that investing in bonds currently is challenging and may not yield significant returns. They suggest that other asset classes like gold, Bitcoin, and energy stocks may provide better returns and serve as more effective hedges against economic risks.

What is the speaker's forecast regarding a potential recession and its impact on inflation?

The speaker expects higher inflation before a recession, but does not have high conviction on the exact timing or dynamics of a recession. They suggest that any potential recession in the current fiscal climate might look different from past experiences, potentially being more sector-specific and less globally impactful.

Outlines

00:00

💸 Inflation, Bitcoin, and Market Predictions

The speaker discusses the inevitability of sustained negative real rates due to the unsustainable federal debt of the reserve currency issuer, predicting a bullish future for both gold and Bitcoin. Amidst a mid-cycle market assessment, the speaker anticipates a significant rise in Bitcoin's value within the next 18 months. The dialogue shifts to a broader economic outlook over varying time horizons, emphasizing the uncertainty surrounding inflation rates and market responses to geopolitical and economic developments. The mention of strategic petroleum reserves and oil prices highlights the intricacies of inflation pressures. The speaker remains optimistic about investment opportunities in Bitcoin and gold due to favorable market conditions.

05:00

🛢️ Oil Market Dynamics and Investment Strategies

The conversation focuses on the fluctuations in the oil market, particularly the effects of the Strategic Petroleum Reserve on oil prices. The speakers discuss the impact of geopolitical factors and U.S. shale production on the oil market's stability, suggesting a probable range-bound scenario for oil prices between $70 and $90. The dialogue explores the challenges and strategies associated with buying back oil, especially in the context of ongoing geopolitical tensions and U.S. energy independence. Emphasis is placed on the investment approach towards oil-producing equities as a way to hedge against the unpredictable movements in oil prices, highlighting the interconnectedness of market forces and geopolitical dynamics.

10:01

🌍 Global Economic Trends and Energy Market Insights

This section delves into the global economic shifts, particularly focusing on U.S. and China's roles in shaping energy demand and supply. The discussion underscores the evolution of U.S. shale production and its integration into the global market, reducing the likelihood of significant supply-side surprises. Additionally, the speakers analyze China's economic policies and their impact on the global energy demand. The broader economic context sets the stage for discussing potential market scenarios, including the effects of political actions on commodity markets and the strategic positioning of major economies in response to these dynamics.

15:02

💰 Gold and Bitcoin Market Prospects

The discussion pivots to the potential for significant price movements in gold and Bitcoin markets, linking these assets to global liquidity conditions and investment cycles. The speakers articulate a strong case for a bullish outlook on both gold and Bitcoin, citing indicators that suggest we are mid-cycle in a bull market for Bitcoin. They anticipate major price milestones for Bitcoin in the near term and discuss the strategic merits of investing in gold as a stable asset during economic fluctuations. The conversation also contrasts Bitcoin and gold as investment options in different economic scenarios, providing a nuanced view of how these assets might perform in stagflationary versus high-growth environments.

20:03

📈 Predicting Fiscal and Monetary Policy Outcomes

The final section explores the implications of fiscal and monetary policies on bond yields and broader market conditions. The speakers discuss the role of the Federal Reserve and Treasury in navigating fiscal challenges, suggesting that traditional fiscal and monetary levers might be less effective in current economic conditions. They argue that larger structural issues, such as the size of fiscal deficits and the strategic management of treasury maturities, will play more crucial roles in shaping economic outcomes. The dialogue culminates in a critical examination of how fiscal dominance might redefine traditional asset allocation strategies, particularly the effectiveness of bonds in offsetting equity market volatility.

Keywords

💡Secular Inflation

Secular inflation refers to a long-term increase in the general price level of goods and services in an economy over an extended period. In the context of the video, the speaker suggests that we are in a secular inflationary environment due to the unsustainable nature of the federal debt of the reserve currency issuer, which can only be managed with sustained negative real rates. This concept is central to the discussion as it underpins the speaker's views on the future trajectory of economic indicators and asset classes like Bitcoin and gold.

💡Federal Debt

Federal debt is the total amount of money that a central government of a country owes its creditors. In the video, the speaker argues that the federal debt of the reserve currency issuer is not sustainable, implying that the current levels of debt are excessive and pose significant risks to the economy. This forms the basis for the speaker's predictions about future inflation and the performance of various assets.

💡Bitcoin

Bitcoin is a decentralized digital currency that operates without a central authority or government and uses blockchain technology for transactions. In the video, the speaker is bullish on Bitcoin, expecting its value to increase significantly over the next 18 months. The speaker's optimism is based on the belief that Bitcoin is in the middle of its bull run and that macroeconomic factors such as inflation will be favorable for the asset.

💡Gold

Gold is a precious metal that has historically been used as a store of value and a hedge against inflation. In the video, the speaker is also bullish on gold, suggesting that it will rise in value alongside Bitcoin due to the expected inflationary environment. Gold is seen as a traditional safe-haven asset that can protect investors from the eroding effects of inflation.

💡Bull Run

A bull run refers to a period in a financial market where prices are continuously rising, typically driven by strong investor confidence and optimism. In the video, the speaker believes that Bitcoin is currently in the middle of a bull run, indicating that the asset's price is expected to continue to increase significantly over the next 18 months.

💡Strategic Petroleum Reserve (SPR)

The Strategic Petroleum Reserve (SPR) is a stockpile of petroleum maintained by the Department of Energy for use during a national emergency. In the video, the discussion around the SPR focuses on the strategic implications of refilling the reserve and the impact of oil prices on inflation. The speaker suggests that the efforts to refill the SPR and the price of oil could influence the trajectory of inflation and, by extension, the value of assets like Bitcoin and gold.

💡Fiscal Deficit

A fiscal deficit occurs when a government's expenditures exceed its revenues, resulting in the need to borrow money to cover the shortfall. In the video, the speakers discuss the fiscal deficit in the context of the U.S. economy, suggesting that large structural fiscal deficits are a bigger factor in influencing economic conditions than the actions of the Federal Reserve. The fiscal deficit is linked to the sustainability of debt and the potential for inflation.

💡Real Rates

Real rates, also known as real interest rates, refer to the interest rate on loans or investments adjusted for inflation. In the video, the speakers argue that sustaining negative real rates for a period of time is necessary for the federal debt to remain manageable. The concept of real rates is crucial in understanding the speakers' views on the future path of inflation and the performance of various financial assets.

💡Purchasing Managers Index (PMI)

The Purchasing Managers Index (PMI) is an economic indicator that measures the performance of the manufacturing and services sectors and is used to gauge economic health. In the video, the speaker refers to the PMI to discuss the potential for future inflation, suggesting that an upcycle in PMI could be a critical test for whether inflation remains high or returns to lower levels.

💡Energy Markets

Energy markets refer to the global trading and pricing of energy resources, such as oil, natural gas, and coal. In the video, the speakers discuss the energy markets in the context of oil prices and their impact on inflation and the broader economy. The speakers suggest that the dynamics of energy markets, including the price of oil, will play a significant role in shaping the economic environment and influencing asset prices.

💡Monetary Policy

Monetary policy refers to the actions taken by a central bank to influence the economy by adjusting interest rates and the money supply. In the video, the speakers suggest that monetary policy, particularly the actions of the Federal Reserve, may have less impact on the economy than fiscal policy in the current environment. The discussion highlights a shift from monetary dominance to fiscal dominance, which changes the way investors might consider the impact of interest rates and inflation.

Highlights

The discussion begins with an analysis of the current economic environment, highlighting the secular inflationary concerns due to the federal debt of the reserve currency issuer.

Bitcoin is expected to remain favorable in the asset market over the next 18 months, with the speaker surprised if it doesn't reach six-figure values in that timeframe.

The conversation shifts to the broader economic themes, questioning whether we are in a disinflationary or inflationary regime, with a focus on the price of oil and its impact on inflation.

The speakers discuss the strategic petroleum reserve (SPR) and its role in oil price stabilization, noting recent reports about refilling goals and their potential underreporting.

The expectation of higher highs and higher lows of inflation compared to the previous decade is expressed, due to the unsustainable nature of federal debt unless real rates remain negative.

The speakers consider the role of productivity and energy in the inflationary environment, with a focus on the link between oil prices and inflation break-evens.

The view that oil prices will range-bound between $70 to $90 is presented, considering the challenges of refilling the SPR and the impact of geopolitical factors.

The conversation includes the impact of US and Chinese demand on oil prices, and the expectation of a range-bound oil market in the next 6 to 12 months.

The speakers discuss the potential for a shift in the global oil market due to the rise of shale oil and the disruption of global energy markets.

The discussion touches on the outlook for the US dollar, with expectations of it being range-bound or moving sideways to down in the next 12 months.

The speakers express bullish views on both gold and Bitcoin, expecting significant value increases over the next 12 months.

The unique period of time where the reserve currency issuer has a fiscal problem, necessitating negative real rates, is highlighted.

The conversation concludes with a discussion on the potential for inflation to exceed 5% before a recession occurs, given the current fiscal and monetary policies.

Transcripts

I think we're in a secular inflationary

environment for a simple reason the

federal debt of the reserve currency

issuer is not sustainable unless its

real rates are sustained negative for

some period of time Bitcoin most of the

indicators that I tracks uh point to

being fairly midcycle in terms of the

Bull Run um and so I you know I still

think the next 18 months look look

favorable for the asset I would be

surprised not to see six figure Bitcoin

over the next 18 months obviously

anything's POS possible but but I'm I'm

bullish on both gold and Bitcoin in that

in that time frame hey everyone this

episode is brought to you by Mantra the

security first compliance focused L1

which is onboarding the next wave of

financial institutions you're going to

be hearing all about them later in the

show but for now Mantra thanks for

making this episode possible so I I got

one final question for you here and

maybe some longer term stuff and then um

I'd actually love to zoom in on this

next year or like six to 12 months or

something like I think one of the things

that's it's sometimes hard to parse out

as a listener here are you know when

we're talking about these these big

themes are we talking on a 5 to 10 year

time Horizon are we talking on a 6 to 12

month time Horizon and I'd love to get

uh into some more of the your Tactical

recommendations um over the next 12

months but before we do you know we've

got um the I think one interesting

element would here on the long term

would be do you guys see us being in a

secular infl uh regime of inflation or

are we still in this sort of

disinflationary regime that we've seen

for the last uh 40 some odd years and

you know one one thing that's been sort

of of interesting to watch is the price

of oil you know has steadily crept back

up uh I there was a there was an article

I saw in Reuters about a month ago that

there's a goal to refill the spr which

is some 230 million barrels of oil by

the end of the year which I thought was

a little bit under reported on if

they're actually going to try to do that

um but I I would be curious to get your

both your takes on you know where do we

go in in terms of oil from here how much

is that playing into inflation and you

know are we going to ever get back to 2%

or you know this has been historically

sort of a heretical opinion but are we

going to settle more towards you know

somewhere in the range of three or 4%

and the the FED is eventually going to

adjust their target I think we're in a

secular inflationary

environment for a simple reason the the

federal debt of the reserve currency

issuer is not sustainable unless its

real rates are sustainably sustained

negative for some period of time uh and

that can kind of go back and forth

but that is what needs to happen again

barring some massive productivity

Miracle

um that's like I think I think a lot of

all the other inputs to

inflation are secondary or tertiary to

that simple mathematical reality

um I think that's that's I mean that's

the key to me so I I think we're going

to have higher highs and higher lows of

inflation than we had in in the prior

decade that that's how I would describe

a secular inflation um and you know kind

of a a a a major thing I've been

pointing out is so questions I got over

the past couple years were are they

going to get inflation back down to 2%

and my answer has generally been I don't

know but I I'm I don't think that's the

right question I think the right

question is what's going to happen with

inflation the next time we have an

upcycle in pmis for example purch like

manufacturing purchasing managers index

um because I think that's the real test

you can you can get inflation down

temporarily if you're willing to have a

recession if you're willing to

disinflate enough and that's that's kind

of the pseudo cycle we've been on it's

obviously been offset by fiscal as we've

been talking about so they they've not

gotten it down to 2% but they have they

have muted it significantly we're

starting to see early signs of of PMI re

acceleration um you know kind of

rotation and what sectors are doing well

and so I think the big test is if we get

an upcycle in PMI what does inflation do

my my expectation is that inflation goes

up or stays sticky when we get that next

PMI Rise um and so it's not a matter of

you know could could they touch 2% uh

sometime this decade sure um you know

but the question is can you sustain

there and have like another cycle of

growth while still sustaining there and

I think that's that's the much harder

thing and so because I think this is

going to be more energy intensive cycle

um I I think we're going to be more

linked to what happens with energy uh

than we have been in in say the the

prior uh 10 years or so um and so I I

think my expectations higher highs and

higher lows compared to what we had in

say the 2010's

decade and so what are what are both of

your thoughts on where let's say the

price of crude oil goes from here I

think today we're sitting around just

under $90 um something in that something

in that region and there was a period of

time back in 2022 when it looks like

when it looked like energy was really

taking off then you could speculate on

whether or not this was political it

sort of looks like it was the US started

to sell off the Strategic petroleum

Reserve uh prices went down and sort of

stayed there and it moved out of the the

public linelight but it's it's really

started to rebound pretty dramatically

and I guess my question especially if

they're building back the spr up do you

think it takes off from here stays flat

like what do you think on maybe like a

six to 12 month time Horizon like what's

going to happen with energy well last

week they came out and said they've

they've stopped trying to refill it

which is oh really I missed that trading

trading is hard short squeezes are hard

dumping it when you have the supply is

pretty easy especially into a war but

buying it back is a little trickier

especially if the war is still going on

um my view on oil has been and over the

last call it I don't know four to six

months maybe uh and it still is is it

for the moment at least is is oils range

bound like you know below 70 US Shale

starts to roll off uh or starts to have

uh you below 70 you start to get below

us Shale Break Even points and that

doesn't mean you're going to immediately

shut down Shale but like the the world

of

20145 um or the world of covid you know

barring some sort of new pandemic

shutdown where oil goes to you know 25

like it did in early 15 like that is not

that is not sustainable for Shale and I

think

critically on the downside we saw like

us Shale production just finally

returned and surpassed 2019 Peaks like

late last year so it took us four years

to get back after that shut down it took

like a year and a half two years in the

in the 145 down cycle to get back to

Prior highs my point here is that if you

get oil low enough for long enough and I

think that's below 70 maybe it's 60

maybe it's 50 but I definitely it's

below 50 um you're that you start

shutting down us Shale production and

taking it offline uh you are effectively

seeding the global oil Market to Russia

and Saudi Arabia for the next two to

four years uh and so I think

geopolitically there is no interest in

the United States in doing that so I

think 70 is is like floor the flip side

is we saw last fall is once oil gets to

85 90 the treasury market starts to has

Pro have problems uh and once again you

know oil gets to 85 and the 10 year

takes off like scalded Cat last week so

um you know you're starting to see

inflation break evens pick up the

correlation between between oil prices

and inflation break evens are actually

pretty good so uh I think the US and

right on course last week the Biden

Administration comes out and goes well

we're not GNA buy back all that oil as

soon as oil gets over 85 right so I I

think oil will be range bound $70 to $90

um the challenge is we've already sort

of shot our shot in terms of running

down the spr and managing that uh we've

talked about why slowing down the

economy is is not good China you know

Chinese demand appears to actually be

pretty good despite all sort of

commentary about you know what the

weakness in commercial real estate there

might mean for the broader economy

um and so I I think we'll be 70 to

90 I am I have had raised to me the view

that look neither PU or NBS want Biden

reelected and both are acutely aware

that uh higher oil will help that happen

um and so maybe you see something

geopolitically that to me is the wild

card where you could see oil higher uh

but failing that I I think will continue

to be range B sort of 70 to 90 on

oil that's generally how I view it I

think the upside breakout risk is is

higher than the than the downside

breakout risk um and one one reason i'

I've lik to play this Base by owning say

oil producing equities and other energy

related equities is that they've already

been priced so that this oil level is is

good for a lot of them their their

valuations their balance sheets their

profitability works pretty well at at

current prices and so um rather than

have a View kind of in the near term of

what happens with old prices I've been

preferring to focus on those equities um

my expectation is that this this is kind

of the new range but that in some point

in in the years ahead I do think we'll

break out of this range um wouldn't uh

that that's something I'm less um

confident on the timing on than say

fiscal dominance but I do think that

eventually we break out of this range

but in the meantime I think we're we're

range-bound um and that that that's

that's basically a disinflationary

offset that doesn't exist anymore so

from 2015 to 2020 the rise of shale oil

very much um disrupted Global energy

markets uh because Supply came online

faster than demand and a lot of that

Supply was unprofitable um so even the

ones bringing it to Market weren't

really making money from it at least

their investors weren't um and so as we

kind of go forward um I do think that

that that glut is behind us now that

doesn't mean that us Shale oil is going

to necessarily go down quickly or you

know even go down at all but I think the

Delta the the rate of change um over say

a fiveyear period is not going to be as

significant as it was back then and I

think the the global market now has this

Shale built into it um and so I think

there's there's fewer positive surprises

to the upside in terms of Supply um over

the past year and a half China's demand

has been kind of consolidating for for a

while because they were you know they're

going through that commercial real

estate deleveraging they had a lot of

weak domestic um indicators even though

their their output was still good uh in

terms of exports and things like that um

there were early signs that they might

be bottoming they might be stabil like

stabilizing and kind of going back up in

terms of of domestic consumption and so

it's not just the us and the spr that is

held down oil it's also you know China

as also one of the biggest consumers uh

what what's happening there and I think

that their their politics have gotten to

the point where support in the equity

Market support in the real estate market

are probably starting to take a higher

precedent um than they were 12 months

ago um and so my expectation is that

both the US and China uh probably are

going to be relatively constructive for

demand uh for for energy over the next

12 months um but I I don't necessarily

expect fireworks but it's just that

that's not something I I try necessarily

predict other than um I I I I would be a

buyer of dips um and I'm I'm

structurally pretty bullish on the

energy

space let's do the same thing for maybe

we can this can be sort of our mini

lightning round here where I just ask

you about a whole bunch of different

assets on a six to 12 month time Horizon

but what do you think about the dollar

which has been relatively U also range

bound here for the last couple of years

in between like kind of 100 to 108 sort

of level I know um Luke you've talked

about the dollar being lower as an

important lever for injecting liquidity

uh into the system where do you guys see

the dollar moving uh the next on like a

12mth Time Horizon lower in a uh orderly

manner my view would be sideways to down

so I I don't significant disagree with

that it'd be another fairly low

conviction I have pretty high conviction

that the the high we saw uh in recent

years is probably the high water Mark

we're going to see for a very long time

um a challenging thing is that the

dollar Index is so tied to the euro um

that you know that that that particular

currency pair weighs very very heavily

um so I I I have more interested on a

currency by currency basis like I think

I think some of the Latin American

currencies are you know less weak than

than people are maybe accustomed to uh

at the current time um so I think that I

think that the worst the dollar move is

probably behind us which should be

somewhat beneficial for all these

entities that have these dollar based

debts that are you know maybe the most

Dire Straits but that are kind of

teetering I I think a lot of them have

gotten through the worst of it hey

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maybe we can bucket these two together

but we just talked about gold breaking

out to new all-time highs Bitcoin as of

today sits at around I think just under

72,000 which is you know very near it's

it's uh it's recent all-time high um how

do you guys view gold and Bitcoin on a

12mon Time

Horizon a lot higher

both my view as well I I think um I

think as long as so we've been in like a

consolidating liquidity range for quite

a while my expectation is that over call

it 18 months um we break out of that um

you know watching this kind of gold

consolidation kind of it kept banging

its head around the all-time highs of

like you know 2,000 and change um you

know my view was I don't know when it's

going to break out but once it breaks

out I think it's going to have legs to

it um I think I think we're in the

middle of that move now um and I think

it's you know it's one of those things

you don't want to overthink it like it

can get near-term overbought and people

are GNA be like you know it's going to

correct and you know it absolutely might

but it's like it's it's been you know

it's been in a bare Market since like

2011 it's it's been in a consolidation

for three years um so you know I I do

expect a pretty significant run here um

for Bitcoin most of the indicators that

I tracks uh point to being fairly

midcycle in terms of the Bull Run uh um

and so I you know I still think the next

18 months look look favorable for the

asset again it it tracks Global

liquidity pretty well you know the

onchain indicators can you know show us

for example how much long-term holders

are selling into current strength

because even though obviously Bitcoin

Supply is constrained if the price goes

up you know 3x or 5x in a fairly short

period of time you generally see some of

those older coins start to come to

Market and start meeting that new demand

and we've seen some of that but so far

we've seen less of that in this cycle

than in Prior Cycles um and so I I still

think my expectation is there's room to

run both from the uh liquidity side

being fairly constructive so that that

should help demand and I still think

that there's there has to be a higher

price to unlock some of these older

coins to meet that demand um and so I

you know I would be surprised not to see

six figure Bitcoin over the next 18

months obviously anything's possible but

but I'm I'm bullish on both gold and

Bitcoin in that in that time frame yeah

so maybe to just dive one one layer

deeper here I'd be curious for the two

of you do do you see you know Bitcoin

and gold as being expressions of the

same trade I I heard Stanley Dr and

Miller gave a pretty interesting

framework in terms of how to think about

gold versus Bitcoin where you know one

environment where maybe currency

debasement is sort of the the core

underlying driver for both but in a high

growth environment maybe you prefer

Bitcoin as sort of this fastest horse

and in a stagflationary environment

maybe you'd rather hold gold where where

growth is a little bit more challenging

um and then uh so Lynn you just kind of

gave us our level here I I mean Luke I'd

be curious maybe if I could poker you to

say a little bit more than than higher

here like what are we expecting here in

terms of orders of magnit because this

is around the time right to it's that's

my read as well in that we're maybe you

know in inning five or something or five

or six maybe of this of this cycle and

this is around the time where the

increased calls for 500k Bitcoin sort of

come and annoying skeptical me kind of

like I don't know about that that that

was a little Rich for the next 18 months

so I would just love to get your sort of

sense of magnitude here about where we

where we end

up you know I think some of it depends

you know how how high depends on how

cute things get on the fiscal side um

and then there's a geopolitical overlay

that you have to think about

um I I

think I I am very fascinated

by gold rebe becoming an oil currency

like I think a lot of the Frameworks I

see on gold Focus strictly on real rates

still now we we started the show showing

that gold and real rates have broken

decisively

completely and for going on two

years and yet most people talking about

gold only talk about real rates

there's another and there's always been

another component to Gold it's oil it's

energy and

so to me and this goes for Bitcoin

too we are in this very unique period of

time or again the reserve currency

issuer um has a fiscal problem they need

negative real rates you cannot store

your surpluses in their debt and not

expect to lose money relative to oil

right so we have this problem of peak

cheap oil where we need higher and

higher oil

prices

to uh to to make sure that we continue

to bring on enough oil supplies to

offset the depletion rate in Shale which

is estimated still somewhere 20 30%

annually uh and which Saudi aramco just

said or the Saudi oil Minister said at

the end of December was 7% globally

right so you if the ramco guys right you

need 7even million barrels a day and

change more new online every year just

to stay

flat and you're only going to do that

given what's going on with the geology

of it with higher prices okay so oil

prices have to go higher to keep energy

supplies at a level where economic

growth can continue to pay the interest

on the debt and prevent the whole debt

edifice from

fall at the same time debt continues to

rise accelerate ated pressure by the

interest rate hikes at the FED elsewhere

around the world and the secularly

inflationary impacts we talked about

before and so as debt Rises and rates

rise and secular secularly inflationary

impulses rise the amount of the price of

oil that the world can afford before

blowing up the

debt is coming down we know 5% real

rates and or 5% excuse me tenure rates

in the US things start to get really

weird that that that the treasury market

starts to dysfunction that they have to

come in you know inject all liquidity so

you've got the world has been in this

I'm GNA try to scrap so we've got the

price

of it's backwards here anyway you get

the point we're in a a converg I'm

really enjoying these sort of balloon

animal

type feel like M and in 1990 um the

um you've got this reduced operating as

we're going up right so as you're going

along the debt the price of oil that the

world can afford is coming down the

price of oil we need to keep growing oil

supplies to support the debt keeps going

up and at some point and I think we

might already be past the point what

you'll start to see is the world say

okay the only way this makes sense is if

we keep oil range

bound at whatever range works you know

slowly but then we let the release valve

be gold the price of gold so the price

of gold relative to oil goes up now

that's interesting because the price of

gold relative to oil has nearly

quadrupled since 2008 since Putin began

basically buying lots of gold uh the oil

Market globally is 12 to 15 times the

size of the global gold market in annual

fiscal production dollar terms so you

should start to see as this problem of

we can't afford oil price X we need oil

price y to find more oil gets more acute

you should start to see more and more

Nations Reserve gold instead of bonds

which has been happening which should

continue to drive gold up relative to

oil secularly I think that is a secular

driver of gold that like three people

are talking about right now and I think

by the time this cycle is done gold will

have a different number number in front

of it it may have a different it may

have an additional zero on the back of

it and everyone will be talking about it

uh and I think Bitcoin

is as a new as an as the proof of work

as the expenditure of energy which is

still by most observers called a waste

and why Bitcoin will fail and it's

anti-environmental I think all those

people saying those things will be on

the other side saying it's not a flaw

it's a feature Bitcoin is a neutral

Reserve asset with an energy link more

volatility than gold more upside than

gold to what I just described over time

do I think it's gonna happen the next 18

months I don't could it sure but like I

don't care I'm unlevered um and and I

think that's important to highlight to

people like you need to stay on lever

because like these Cycles are going be

vable but I think that energy linked to

gold and Bitcoin is still so so

underappreciated in the context of the

combination of peak cheap energy and in

particular Peak cheap oil

and the debt load which already can't

afford Energy prices here and that's

only going to get worse as debt goes up

and rates go

up just one note on that so the energy

uh energy currency link is super

critical I would be curious why we

haven't seen why we haven't seen these

AI any AI energy linking demonizing type

articles they're I mean these h100s are

running on something presumably you know

and that's they're running on nuke power

right I mean you seen you've seen

Microsoft come out and buying talk about

buying a new a new nuclear power plant

Amazon just did spend I think $600

million to buy a nuclear power plant

like really no I miss that that's so

like yeah I mean all of a sudden like oh

nuclear like that went right away like

the Overton Windows shifted really fast

I ignore nuclear is good now and it like

I've always thought it's good but like

amongst the nuclear's bad crowd nuclear

suddenly good oh that's good I think

that's a positive that would be

absolutely absolutely yeah

all right last question for the two of

you here maybe we could just talk about

bonds here and where you see like let's

let's say year yield on let's say the

10year and the two-year ending this year

I'd be very curious because you know one

thing that I think going into this year

there were something like six maybe

seven uh rate cuts that were priced into

markets I think at the the time of

recording there are there are three and

I actually saw I saw guys like Larry

McDonald uh calling for maybe rate hikes

actually um is is what is needed here

and so I would just love to get a sense

of you know just this age-old sort of

perennial questions about are we getting

rate Cuts rate hikes how many if so and

where the yields on sort of the 10 and

twoyear end um maybe towards the end of

this year I I think the funny thing is

that because we are you know kind of

largely in fiscal dominance now I think

that the the the emphasis on the FED is

in many cases like backward looking that

the FED has been a bigger source for

markets for a long time um but as we

kind of enter this fiscal dominant

environment I'm increasingly less

interested in what the FED does around

the basis point margin uh and more

interested in what's happening with the

treasury market more more interest in

what's happening with the size of fiscal

deficits um and those kind of more

structural things um so to the extent

that the fed you know cut rates a little

bit um or if they even add some industry

rate hikes to it um it's not really the

answer in my view I think basically that

the large structural fiscal deficits are

a bigger factor and ironically if they

try to get down inflation by increasing

interest rates they're going to blow out

the fiscal deficit even more um and so

that that's that's the lever that's

different from the 70s but but closer to

the 40s um and so for me it's looking at

you know what are tax receipts going to

be like so for example now because 2023

assets were pretty good asset prices we

should expect decent tax receipts here

which ironically could narrow the

deficit a little bit which could give us

you know kind of a Nar like a a a

somewhat weaker performance in 2024 for

least at least some of these like say

mega cap assets um I think those factors

matter more I think also we've seen for

example some of the treasury decision

decisions to shorten the average

duration of their treasuries um have had

bigger effects on the market than what

the FED does in a given meeting so some

of these quarterly treasure releases

have been bigger factors than the FED

obviously during kind of acute liquidity

things like for example the early 2023

banking issue that was both a treasury

and fed uh issue together um but in

general I think that overall liquidity

overall fiscal is actually a bigger

Force than the Fed so I I don't really

have a firm view let's say a a minus

three Cuts or or plus a a couple hikes

that that range is largely um Irrelevant

for my investment decisions obviously if

you if we were to get major moves

outside of that range I would start to

care again um but as long as

expectations or or my expectations are

fairly somewhere in the middle I I think

that's not the biggest lever to be

focused on compared to what's happening

in fiscal compared to what's happening

in say supply and demand of oil um those

I think are the the bigger

forces I I agree with everything Lynn

just said and I I would just add briefly

you know I think one one of my best

relationships on the stre has has called

bonds a blood sport now like it's

it's like it's it's if you want to jump

in the ring and get bloodied up and kind

of you know like exert a lot of effort

for not a lot of progress like knock

yourself out there's a lot of ways that

can sort of you know we know from the

fall if the tenure goes to 5% it creates

problems and that those problems in

terms of Treasury dysfunction aren't

going to be allowed liquidity is

supplied okay so kind of there we go um

on the downside like they could cut yes

I think they probably have to cut

because of the fiscal situation and

there's still not I think that is still

a minority view that that's why they're

going to do it I don't think that's been

internalized uh amongst a number of

Market participants and then if you go

to things like the SLR exemption um you

know if ISTA gets their permanent

exemption on treasuries for the SLR well

now you're talking about a de facto uh

0% funding rate for the US banking

system to buy treasuries that are

yielding between five and 38 of the

short end or whatever they are and four

and a quarter or 4.4% at the long end

and so you know how many treasuries if

I'm a bank would I buy if I could fund

it zero and buy

4.2% um probably a lot right and so that

probably can keep if that is allowed

which I suspect eventually it will be um

the they could get yields to go down

right so you could could you make money

on bounds sure like like but I think the

key is on a real

basis you know if slash when that

happens like Bitcoin gold stocks

particularly more industrial stocks but

I think stocks broadly are going to be

orders of magnitude higher right so I

mean if you look across to me if you

look across a set of charts of S&P 500

over TLT long Bond

you can see boom it's like up and to the

right over the last two years uh pave

over TLT an industrial infrastructure

same chart gold over TLT same chart

Bitcoin over TLT is a little more vable

but kind of same chart more recently um

S&P Industrials over TLT like it's to me

the big trade is on a real basis the

only way the US government's debt which

again I pick on they are the reserve

Curren the issuer the only way that debt

is sustainable on a nominal basis is if

real rates are kept negative uh for a

very either very negative for a brief

period of time very negative or quite

negative for a sustained period of time

and and that's what I think the message

of those charts are and that's why you

know I think my friend's

characterization of bonds as Blood Sport

great yeah you can make some money in

bonds 10 year could go you know they

pass SLR exemptions and 10 year goes

from 44 to for great you make some money

whatever when they do that Gold's going

up way more than bonds and stocks and

Bitcoin Etc so it's

like yeah you know for me it's just

there's nothing I don't have that that

strong a view on sort of where rides go

because again Lynn has made crystal

clear I agree with her I don't know that

it matters that much one thing I would

add to that if if if a go Investor's

goal is to um offset an equity portfolio

so whether you're an institution or a

retail investor the obviously the 6040

stock Bond portfolio the Bonds are there

mainly to smooth out volatility in the

in the equity Market uh and that works

fairly well in monetary dominance um but

when you're in fiscal dominance

generally other asset classes tend to be

better at offsetting the equity so for

example um one like you can kind of

Imagine two two directional risks you're

worried about one is obviously recession

um that's where for example shorter

duration treasuries could be helpful

kind of cash equivalence or up up to the

maybe the 2-year or a little higher than

that uh kind of you know shorter end of

the curve uh basically protection

against just kind of earnings

disappointing and and all these things

like that on the other hand if you're

worried about um inflation reemerging

yields going up then owning things like

energy stocks for example or you know

direct oil exposure or gold or Bitcoin

um these are the types of assets that I

find more interesting to match with my

equities in this environment because the

entire 6040 port folio is kind of

designed around that structural

disinflation structural declining

interest rates and as we go to a new

period I I think these other assets

offset and kind of smooth out an equity

portfolio better than just long duration

bonds which is I kind of I think blood

Sports a good you know um phrasing for

it I kind of just I call it the two hard

pile I put Bonds in the two hard pile

because if if bond yields go up I

there's other classes asset classes that

I think would be more affected and if

bond yields go down as as Luke said I

mean i' I'd want to own things like gold

and Bitcoin I wouldn't want to own you

know whatever move I could get in that

long duration treasury yield there's

other assets that i' I'd probably want

to own and it also depends on what

reason it was for those moves uh and so

I I've just not been really using long

duration bonds as a portfolio segment

even though I am acutely aware of things

like recession risk or inflation risk I

just I find that other assets work work

better with the equities hello hello

listeners of on the margin I've got good

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see you out there actually there was a

great so I tweeted out that I was

interviewing you guys today and there

were anyone has any questions and there

were a bunch of great ones some of which

we've covered but here was here was just

an interesting one and maybe we can

close on this because I know we're in

our last couple minutes here but um if

you had to say which comes first

inflation going back over 5% or a

recession which of you which of those

would you say we get first my guess

would be inflation um the other way I've

been putting it is I I think recession

and no recession is now more sector

specific when when when you have this

big of a gap between fiscal and monetary

you can get sharply Divergent sector

performance so for example commercial

real estate's in a depression uh whereas

you know other areas are are in an

expansion right and so I I think that we

could see a rotation for example um we

are starting to see some weakness in the

labor market you know you're up from

3.4% of unemployment to 3.8 um you know

the margins um some of that's getting

weaker perhaps even as we see re

acceleration and some of the harder

stuff like manufacturing pmis um so I I

would have not super high conviction on

that because I think even if we do get a

recession it looks different when you're

pre- stimulating by $1.6 trillion dollar

in deficits I think you get you enter a

type of recession that looks like a

fiscally dominant recession so my view

is even somewhat divorced from the

business cycle even though you know

every two weeks I'm kind of trying to

aggressively map out you know whether

whether the econom is expanding or

Contracting um but I think that overall

there's when people ask about recession

they often think it's going to look like

Global financial crisis it's going to

look like Co it's G to be this big

disinflationary uh recession whereas my

expectation is it looks more like a 2001

recession or it looks more like you know

1970s uh recession there's different

magnitudes it can look like but I think

it looks more like there's other types

of recessions even if you were to get

one but yeah my answer would probably be

I I would expect higher inflation before

recession but not not super high

conviction if I can add add to that

that's a great Point L and and and you

know in terms of how things look

different um you know you have a

recession the last three recessions in

the US the deficit is risen by 600 800

and 1,200 basis points of GDP right so

we're running call it seven right now

the deficit in the recession goes to

133% of GDP 15 % of

GDP Co at 12 is I think a bit of a

oneoff but just for you know the math

19% of GDP so now let's take the covid

case off since it was a pandemic you

just sort of a 01 to you know 08 type

scenario you're looking at six to eight%

of GDP deficit added on top of all of

this uh 7% so you're looking at 13 to

15% of GDP

deficits at a time you know that

probably pushes the dollar up so

foreigners are going to be selling

treasuries to uh to finance uh their

current account defend the

currencies banks are going to be taking

reserving losses and they've been you

know encouraged regulated into buying

treasuries as their loan loss reserves

for the last 10 years so they in theory

would be selling at some point that

cycle and you quickly

go okay you could easily have net

supplies of treasuries needed to be

bought

15 to 20% of GDP which is on nearly

World War II levels which was highly

inflationary

um and in a world where we know they

know they're not going to let the

treasury market dysfunction for long so

to me I think there's a real possibility

that even if we got a

recession treasury yields would go up

and you would see what we see in

emerging markets in a recession which is

the price of stuff goes up right like we

I just saw an article two weeks ago um

in Egypt stocks are up 38% on the year

in local and they're down 13% in dollars

okay let's bring that to America the S&P

is whatever it's up I don't know 10% 4%

of the year I don't know uh what is it

in Bitcoin down what is it in Gold down

um so I think very much it's important

once you get into these fiscal

situations like just because we're the

us if we have a fiscal situation a debt

situation like an em maybe we get an

outcome of like a similar where stocks

go down in hard currencies but they go

up in the

dollar guys you both have been uh just

super super generous of your time here I

know we've got to wind down maybe just

to um give both uh plug both of you a

little bit you know Luke I think you've

been done such a good job listeners of

forest for the trees one know drawing

this connection in between the energy

and currency markets like you were just

light years head on that and Lynn you

can go back to interviews and

newsletters that you were putting out

back in 2020 talking about the shift

from monetary to fiscal dominance and uh

you also just released the book uh this

your first book uh broken money um which

is phenomenal so um guys obviously I'm

sure most of you will know uh Lyn and

Luke at this point you should follow

them subscribe to their work uh all that

stuff but uh Lyn and Luke what is the

best way for listeners um who aren't

current subscribers already or who

aren't following you what's the best way

to get more information on the

information that you put out

uh so people can check out linen.com uh

that's where I I post most of my

research and also they can check out

broken money on Amazon or or elsewhere

thanks for having us on I'm at fftt

dlc.com and uh luk growman on Twitter or

X

sorry um guys this was uh such a

pleasure thank you so much for coming on

we'll have to uh do it again

soon

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