American Recession Watch, Extreme Wealth Gap, & Crypto Stalemate

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0:50This episode is brought to you by Indeed. Stop waiting around for the perfect candidate. Instead, use Indeed Sponsored Jobs to find the right people with the right skills fast. It's a simple way to make sure your listing is the first candidate C. According to Indeed data, Sponsored Jobs have four times more applicants than non-sponsored jobs. So go build your dream team today with Indeed. Get a$75 Sponsored Job Credit at Indeed.com slash podcast. Terms and conditions apply. The markets in the last few days went from just de-risking to now saying, oh, maybe it should price some chance of a recession.

1:26Oil is high. That will lead to higher fertilizer prices, higher food prices, higher plastic prices. And so there is a daisy chain of inflation that's headed our way. Most of the traders, including myself that I know have gone from a buy the dip mentality to a cover your short and then sell the rally mentality. So there's been a real shift in that mindset in the last five to seven days.

1:51Michael Novogratz:We're a month into the war. I don't know who's winning the war. Maybe you can tell me who's winning the war, but I feel like the U.S. consumer is losing the war. As we're looking for good stocks to buy or good securities or businesses, how much of the consumption is now being driven by that portion of the population? 50 % of the consumption is being driven by the top 10 % income earners. That's crazy. This is a very dangerous market right here. Welcome to All Things Markets. I'm Anthony Scaramucci. And I'm Mike Novogratz. All right, Mr. Novogratz, it's 4 p.m. The market's about to close here on Monday, March 30th.

2:29Michael Novogratz:A little bit of trivia for you, Michael, because 45 years ago, you're going to be able to tell me exactly where you were on March 30th, because this is the anniversary of the Reagan attempted assassination. So where were you, Michael? Because I know you remember. I was. I was literally home from school in 8724 Waterford Road, where my parents still live, in our living room, actually, our family room, whatever. And I was watching TV. I remember his bodyguard, his body man, was the father of one of the great wrestlers in Northern Virginia, a guy named Bob D. Prospero. Oh, wow. And Lydia was like a hero of mine.

3:14And his father was not there that day. And I think he wore that hard for a long, long time. Like, you know, it was his guy and he had the day off. Anyway, Reagan handled it like a champ. Al Haig, not so much. Al Haig, not so much. Yeah, well, he was going under anesthesia.

3:33Michael Novogratz:He looked up at the surgeon. He said, you know, I hope you guys are all Republicans. And the surgeon, who was a hard left Democrat, looked at him and said, you know, Mr. President, we're all Republicans today. And of course, he removed a bullet that was less than an inch away from the president's heart. And the president went on to serve two terms. And I do miss Ronald Reagan, which is why I'm bringing it up. But let's talk about our courts. You know, my first job was with Reagan at the Office of Management and Budget. I do remember that. And I do remember that was a time, as you've pointed out, where we were benchmarking our GDP to our governmental expenditures.

4:11Michael Novogratz:And we were pretty strict about it. We were really trying to keep our deficits down. Even though they looked high at that time, they weren't high, at least on a percentage of GDP. But let's talk about where we are right now, Michael. We're a month into the war. I feel like the U.S. consumer, I don't know who's winning the war. Maybe you can tell me who's winning the war. But I feel like the U.S. consumer is losing the war, meaning gas prices are up, mortgage rates are back up, stocks have been fluctuating, but generally down over the period of time of the war. How would you react to that statement?

4:48The war, there was hope that this could be a fast war like Venezuela, that we'd have regime change. And I think that quickly turned out false hope. And now we've got, you know, crude at$104 as we speak and, you know, Brent crude's at$120 or$118, whatever. And so oil is high. That will lead to higher fertilizers or prices, higher food prices, higher plastic prices. And so there is a daisy chain of inflation that's headed our way. Consumers have already slowed some, but I think the real slowdown is coming. I think the markets in the last few days went from just de-risking to now saying, oh, maybe it should price in some chance of a recession.

5:40And so you saw yield curve steepen, gold go up. when stocks went down, that was different than it had been the previous 10 days. The big tech stocks, the big data center plays, all the CapEx, which has been supporting GDP, is under some stress because credit spreads are wider, because energy prices are higher. And so the whole CapEx process, labor is up in those areas, is going to be more expensive per dollar. And so you're seeing the video's chart does not look great. Google's chart does not look great. Meta's chart does not look great. The Kospi, which had been the last winner because that's memory, right?

6:25That's where the memory chips are made. That's gotten its teeth kicked in the last two days. And so listen, we could have a bounce tomorrow because it's month end and there's a lot to buy to rebalance. But most of the traders, including myself that I know, have gone from a buy the dip mentality to a cover your short and then sell the rally mentality. So there's been a real shift in that mindset in the last, I'd say, five to seven days.

6:59Michael Novogratz:So speaking of shift, pre-war, prices seem to be trending down or at least going in the right direction. There seemed to be some bull market activity, right? The Dow was at 50 ,000. And if you and I were guessing on rates, as we've done in previous programming, we would have suggested that rates were likely to go lower, worse coming in, at least making one, targeting three cuts, maybe even by the end of the year. But today, I think it's very different, Michael. The Fed, You know, Powell obviously spoke at Harvard today. The quote was that rates are in a good place. You know, hiking now wouldn't bring down gas prices, so he's not going to do that.

7:43Michael Novogratz:But he is wary. I think the difference between the U.S. and in Europe is we have a dual mandate. This is a supply shock. It's going to drive prices up. We are going to have to live with higher inflation for a while. our Fed will not raise rates unless things get really bad. So they'll just stay. But it's going to be much harder for Worsh to come in and say, hey, guys, we got to be cutting. I got trouble. I got trouble in River City. Trouble, that's a T that rhymes with light. So Worsh is going to have to come in, calm the world, and slowly win over the Fed to, hey, when this thing turns, we can front run.

8:22And like in the pipeline, we've got some bad inflation prints coming, right? There's going to be ugly PPI and CPI prints coming. And so I had originally thought Worsh would come in and cut his first meeting just to pay homage to Trump. And then after that, he'd be, let's see what the world looks like. Now I think he'll come in and probably just have to keep things steady and not cut until until we get some semblance that the oil market has cracked and that this inflation, this supply shock inflation will come and go. We kind of know it will come and go. We just don't know the duration of it. Okay.

9:02Michael Novogratz:But under the theory of that dual mandate, one of the things that we were looking at in that mandate is employment. And employment numbers right now seem reasonably good, right? We've got an unemployment rate of 4.4%, but it feels like hiring is collapsing, particularly for white collar professionals. Am I wrong in saying that, Michael? And if I'm not wrong, how does that affect your macroeconomic adjustment? Yeah, no, I think you're going to see a lot of white collar layoffs. It's early to see when they all come through. So we've got a jobs number on Friday. All eyes will be on that. There's the jolts before then.

9:43You know, this Claude Code really didn't smash onto the consciousness of CEOs until about, I'd say, six to eight weeks ago. And so I think we're just going to be, we're just at the start of that process of saying, oh, I can replace this guy with an agent. But it's going to happen fast. Yeah.

10:05Michael Novogratz:Well, look, I mean, listen, I've been using it. I think that then I tell my staff, the better questions you ask, the better outcomes you're going to get. And you have to keep pushing the AI. And if you push the AI, it's incredible. Yeah, we all have to learn to be architects. Yeah, it's incredible what comes out of it. Yeah, no question. I mean, it's just incredible how much more productive and how thoughtful it can be in aiding us and making our decisions, or even just getting rid of emails that we don't want to have subscriptions to. Michael, there are 430 ,000 households in the country that are worth$30 million or more.

10:46Michael Novogratz:Is that a lot or a little to you? Let's not know the numbers, guys. So we have 350 million Americans, right? Divide that by 10 is 35 million. Divide that by 10 is three and a half million. so 1 % would be 3.5 million, right? So divide that by 10, you got 35, I'm sorry, 350 ,000. No, yeah, 350 ,000. And so it's one 10th of 1%. That feels about right. You're a one out of 1 ,000 person to own 30 million. Okay, well, what about the$100 million number? There's 74 ,000 households that have$100 million. I guess what I'm saying, these numbers are way... I mean, they're small on an overall relative percentage of the population, but that group of people is controlling a magnitude of wealth.

11:42A huge amount of wealth, a huge amount of consumption.

11:45Michael Novogratz:And is it where are you? You're a macroeconomic trader. I did two meetings today with different politicians. uh won a independent uh running for senate in montana uh sharp guy west pointer i actually think he has a shot at winning even though he's a you know an independent um and won a center left new york congressman and both conversations ended up heading towards the pitchforks both of these guys are centrists uh both worry about pitchforks on the right and pitchforks on the left uh you know aoc bernie uh mandami they have a story that resonates with people who don't feel like they're being listened to or they have enough money and you know trump had worked that story on the right though i think he's he's lost a lot of that support base um but it's the same thing.

12:47And as it gets worse, their voice gets more appealing. It's going to be harder and harder to keep the center to show an alternative. I think both parties are going to have to address that elephant in the room that, hey, there's inequality that's so high that it's bad for our democracy and we need to do something about it. And then what we do about it, right, the class of Republican and is ignore and cut taxes, cut regulation, let us grow out of it. Well, that just hasn't worked. The Democrat plan of redistribute the way they've been redistributed hasn't worked either. And so you'd like to hope that there's some fresh ideas.

13:32I personally think we're gonna have to move to a UBI world where just being an American citizen is the right to have some stability of life, just like being a Norwegian because they have the oil is, and that we're going to have to turn the recipients of that UBI from welfare queens into Americans to say, hey, that's just part of being in America. But I think we've got to be able to give it to people directly because they know how to spend it instead of shoving it through these big bureaucratic city and state and federal government bureaus that seem to waste it. But that's a big discussion, Anthony.

14:10that will be the discussion in politics 2026-2028. There's no other discussion that's going to be.

14:15Michael Novogratz:But to me, it's also an economic discussion because the constant, as we're looking for good stocks to buy or good securities or businesses, how much of the consumption is now being driven by that portion of the population. 50 % of the consumption is being driven by the top 10 % income earners. That's crazy. It's truly incredible. So I want to switch to another thing that's - That's why New York City is so on fire. Like - Right. Make a reservation to a restaurant. You can't get in on a Tuesday night. A Monday night, you can't get in. Well, you got to call me, Novogratz. You know, I know how to take care of all these maitre d's.

14:52Michael Novogratz:Okay, I'll get you in. You just get to give me a call. That's the difference between Italians and the rest of you people. Okay? I can get you in, Michael. Don't worry. All right? Exactly. Exactly. Okay? They call those Italian singles in my neighborhood, Mike. Let's go to another warning light on the economic dashboard that I'm worried about. I know you're worried about. Private credit is rocking, Michael. It gets shaky. Is it 2008 for private credit the way it was for banks and investment banks? Is this something that gets resolved? Is this something that Kevin Warsh... I think it's going to have to deal with.

15:28...waves on us for a while, but I don't think it blows up. And I don't think it blows up because people are not shy to put up gates. You've seen it at BlackRock. You've seen it at a bunch of places. And what that ends up usually doing is people sell liquid stuff to fund the money they need for private stuff. That there's not tremendous amount of leverage in these funds. The private credit funds aren't highly leveraged like the banks were back in 08. And so, but I think it weighs because as that private credits do worse, trying to raise new credit gets more difficult, right? You're in the market.

16:08There's a tremendous amount of credit that needs to be given on this data center world, right? All this giant CapEx plan that relies on credit. And so the lenders start getting more nervous. And so that slows the economy. I don't think it creates. Listen, I am full disclosure, I am short credit through IG swaps. And that's kind of a broader hedge because Galaxy is long with the credit markets needing to be open to fund our data centers. And so we want to keep that as part of our strategy. And so I've been watching it tick for tick. It hasn't exploded yet, but it's grinding higher. And, you know, we got to keep our eye on it.

16:47I don't think it becomes a four alarm fire right now. but you know being short the banks feels like a pretty easy trade in the stock market right you could be short something that you don't think is going to blow up the smithereens just because they're going to find earnings pressure uh or the perception that they're going to have trouble and you know they they don't trade great okay i just something i want to worry about this not

17:15Michael Novogratz:obviously not a political podcast but there's something that the president's doing that i think as traders, we'd have to look at and at least acknowledge and then discuss if there's any strategies around that. And that it seems like the president is coming up with market rallying rhetoric the last three or four Sundays. And so he goes to the back of the plane to Air Force One on the way back to DC, and he says some pretty favorable things. We have a new regime. He even called a regime change and a result of which we're going to be dealing with more secularist people in Iran and there'll be a peace process.

17:55Michael Novogratz:The market starts off rallying and then closes lower. People trading that, Michael, people ignoring that. I mean, I think what happens is when we're 30 days into war, people have de-risked their short S &Ps against other stuff. the market is always susceptible for a one to two and a half percent squeeze and they are bear market squeezes are brutally painful because they happen so fast you're like up oh shit uh and so yeah the president has certainly added volatility uh listen there's no one who i don't think there's not an american left or right if they're honest that doesn't want regime change.

18:39That old regime was horrible. I'm praying for regime change.

18:44Michael Novogratz:I want regime change and I wanted American troops out of harm's way. We've had two and a half decades of that, so I would prefer not to have that, but we're here now. There's still some discussion in Washington about the Clarity Act. You and I are more keenly focused on it, but the average person has more or less written that off. Bitcoin seems to be languishing here in the mid to high 60s. Yeah, there's a lot of anger at Brian Armstrong on Twitter for being self-righteous about holding the line. I'll say it again. I think Brian is right intellectually. My guess is he might have to fold in the end or compromise.

19:28I think it's a shame on the senators, both left and right that instead of actually deciding what's best for america they are too scared of both the crypto lobby and the banking lobby to make a decision so they keep saying you guys get in room and figure it out like i have i'm willing to wrestle like put put crypto and banking and let's fight it out like at one point they disagree so it's up to the senators to say hey this is going to be law but they really don't want to piss off coinbase and they don't want to and they're like it's almost like brian has a veto that's insane that's not the way lawmaking is supposed to work or quite frankly jamie diamond doesn't deserve a veto like again put him in a cage match if that's how we're going to decide things but this is it's gotten ridiculous period so is it is it holding back bitcoin or you think it's holding back crypto because listen it's not the end of it if it doesn't happen, but it sucks because we've got all of these institutions that are getting engaged anyway, that will accelerate their engagement, right?

20:35Donald Trump is just out at the FII conference. I was there says, Hey, we're going to be the Bitcoin capital of the world. I got it. I had left before his speech and I got a text from a reporter who had interviewed me. And I said, well, how's the speech? And she said, well, the one thing that's clear is he likes Bitcoin. he's insulted a few people but he really likes bitcoin you know uh this administration is bought in on crypto and so for them to fail with this market structure is terrible for them um right and so we'll see i think they'll put a lot of heat to try to get this thing done still i'm still a holdout that it's going to get done so what would that mean for the markets though

21:17Michael Novogratz:Michael, you think there'd be some short covering or you think it would be? Yeah, I think it brings more money into the system. Again, you get people are short, you have some short covering. I think it accelerates the stable coin world, the tokenization, the real world asset world. I mean, it's happening anyway. People are using the SEC's blanket kind of, hey, we're pro crypto and we're not going to, you know, we're not going to call you a non-security. I'm not going to call you a security if you're a crypto ecosystem. They're using that to kind of get reengaged, but it just solidifies it, right?

21:56Because it's pretty clear that Republicans won't win in 2026. It would take a miracle. 2028 is a long way off. I won't comment on that. But the momentum has definitely shifted away from where all the crypto bets got made. And so man, oh man, as a crypto CEO, it will feel a lot better if these new rules are codified into law. But then it's not just I'm begging on the SEC commissioner. We went from a horrible anti-crypto SEC commissioner, horrible for crypto, to a unbelievably pro-crypto SEC commissioner. Like that pendulum will go back and forth. That's why we need this law.

22:36Michael Novogratz:Michael, the strategy yield bearing security, it's right now roughly yielding 11.5%. And so you put money into strategy, our friend Michael Saylor's company, and you'll get four quarterly payments, dividend payments that are equivalent to roughly 11.5%, 11.25%. Given where rates are and given what happened to things like BlockFi. As long as Bitcoin holds its muster and strategy trades close to some small premium to Bitcoin or even at Bitcoin, but not at a huge discount. Michael will be able to keep paying that 11 percent and it feels like a good trade, but it's leverage on strategy. And so let's assume he did a ton of it.

23:28Right. There's less there's less cushion if Bitcoin goes down. Michael bases a lot of his belief on the fact that Bitcoin can go up and down, but it's on its way much, much higher. And the people that are buying into strategy have to have a belief that at least it's going to be here. Right. He's got a big cushion. I don't want to sound any alarms, but he's putting leverage on his company in a modest way. Right. It's a huge it's got a huge amount of crypto. and there's not that much of this perpetual that's been sold yet. But there'll be a time when he can't sell anymore unless he has a bigger corpus.

24:09Michael Novogratz:What is the big risk, Michael? Bitcoin with the 30 ,000, you would lose your principal on that security, yes? No, because it's... So Michael's done two things interesting. It's a perpetual. So your long strategy, right? You have no right to take the money back. I believe in this, the one we're talking about, he has the right not to pay the dividend if he doesn't want to. Now, if he doesn't pay the dividend, people are not going to like it that much. It'll trade at a discount. But he's got a ton of cushion on this thing. In all likelihood, you'll get your 11.5%. You're just selling a tail. And it's a pretty, you know, out-of-the-money tail you're selling.

24:53All right.