Crypto Collapse, AI’s Ascent, Tariff Trouble, & Venezuela’s Turning Point

0:28You're about to make a trade.

0:45This episode is brought to you by Indeed. You're ready to move your business forward, but first you need to find the right team. Start your search with Indeed Sponsored Jobs. It can help you reach qualified candidates fast, ensuring your listing is the first one they see. According to Indeed data, sponsored jobs are 90 % more likely to report a hire than non-sponsored jobs. See the results for yourself. Get a$75 sponsored job credit at Indeed.com slash podcast. Terms and conditions apply. I am a crypto investor. I know I have a trap door on my portfolio. And so once in a while, I'll be walking across the living room feeling beautiful about myself.

1:23And then, boom, a trap door opens and I have fallen into the basement of the house. If they got them out on the second floor, they would probably fall right two floors down. But what happened in the last 20 trading days, what I would call mini crash in crypto, and the aftermath, and where are we now? We have a flash crash. It did a lot of damage to the fabric of the market. What people don't understand about crypto is that the crypto investor doesn't play for 10%, 11%, 12 % returns. The crypto investor calls themselves DGENs. They want to turn 1 into 15. They trade a very volatile asset with a lot of leverage.

2:00We had a cascading effect where markets just literally evaporated and collapsed and then came bouncing back. Look at me, get the gun over here to your head. Are they going to win, yes or no? I think the gun. Boom. Welcome to Open Book. I am your host, Anthony Scaramucci. This episode was actually recorded a week ago. It is about all things markets. And I thought it would be interesting to drop it in our feed. It's with my dear friend, Mike Novogratz. Mike and I have a 30-year relationship dating back to Goldman Sachs. And I get so many questions related to market activity. I thought it would be neat to have some bonus segments here where we would be discussing markets with you guys.

2:44And of course, I'm looking for your feedback. So please share it with us. Enjoy the segment. I'm Anthony Scaramucci. And I'm Mike Novogratz. All right. So, Michael, we got a two-part show, aggressive market activity. First part of the show, we're going to talk about the macro, what's going on in the poly markets, rate cut, also the crypto debacle that you and I lived through the last 10 days. Right? Okay. Yeah. Sinister. Sinister. Felt like I was in the microwave a little bit too long. And then the second half, we're going to talk about AI. What's happening there? Are we in an AI bubble? It looks like OpenAI just received a$500 billion market capitalization in their latest round.

3:27So we'll talk about those two. Let's go to crypto markets right now. Polymarket has moved. We were in the 40s on a rate cut in terms of market sentiment about 10 days ago. Polymarket has now shifted that to just over 75%. You're a macro guru. Where are we, Mike? Yeah, listen, they're going to cut rates. uh williams came out on friday that was the signal for all of us to stop being so bearish and get bullish um you know he's very influential to the fed but that was certainly a signal uh and i think the smartest guys i i kind of talked to read it as such and it became a self-fulfilling uh move in the markets listen the unemployment rate you know 4.44 they said at 4.5 uh we're hiking.

4:18I mean, we're cutting and you're right there. Uh, there's not a day I, it goes by where I don't read another article about AI job destruction. Uh, you know, college youth unemployment are right out of college unemployment. College grad is now 11%. That's an all time high. Uh, and so I think it's going to be a real political issue. Uh, you know, come the midterms, it's going to pick up steam but this transition from ai you know from a non-ai world to an ai world and what are we going to do with these people that are losing their jobs is going to be a real issue and you're going to see i mean you also have this is the end of the pal era and so we probably get hassett as fed governor appointed sometime in the next you know 30 days And so, you know, that's dovish and dovish.

5:11And I think that's kicked the equity market, you know, back higher. And it's kind of saved crypto from its own, you know, troubles. And we can get into that in a second. Yeah, but I want to stay on this for a second because we have a lot of young viewers and listeners. There's a problem in the repo market. Okay, so just a minute on what the repo market is. and just for people to know, it's approximately$11.9 trillion. At least that's what the number was in 2024. It's slightly higher now. So what is the repo market, Mike? And what is the problem there? And are you worried about it? And should we be worried about it as market participants?

5:53So listen, the repo market is where financial institutions can borrow and lend treasuries. uh treasuries are seen as riskless risk-free instruments and so in lots of ways it's the risk-free uh market where people finance themselves uh if you want to be short you go out and borrow the security and sell it if you want to be long you can lend it out uh but it it it is one of the ways the fed creates liquidity um and you know what the fed did something really interesting recently where they're going to allow banks not to hold as much, they're going to allow banks not to hold as much cash as they did, right?

6:43You know, post, post of great financial crisis, we had huge requirements for banks to own this massive amount of cash. And so they're going to be able to lend out that cash and they're going to eject a ton more liquidity into the market real soon. Because, you know, people were borrowing a lot and all of a sudden the repo market got tight. You got a tight repo market. You get a constraint in liquidity. You get a constraint in liquidity and people are trying to sell. Guess what happens? Prices go lower, right? The market makers move the prices lower. Let's switch over to crypto, which you wanted to say something.

7:16That shift in the Fed, you know, I'm not a banking regulation expert, but allowing banks not to hold as much cash is a monstrous liquidity boom and that's coming and so i just think you're going to see rates getting cut more liquidity back into the space and and you know markets markets feeling good about listen trump doesn't want to get beaten up in the midterms and you know he he did did not do well in the, you know, these November elections. A lot of it was affordability. A lot of it's a state of the economy. So he's going to pay. He's going to do whatever he can to juice the economy. Okay.

8:01So Dovish Fed, Dovish Fed chairman Cumming, signal from the Fed last week that we're going to get a 25 basis point cut in December. You think there'll be more slack in the repo market, which fuels the liquidity. And where are we on QE? QT, QE, or where are we? Are we scanning the... I'm sorry? We left QT, right? All right. So let's just explain that briefly. Quantitative tightening is where the Fed has a very, very large balance sheet, and they start shrinking the balance sheet by selling those bonds back into the marketplace. So they're not doing that anymore. So would you say we're Q neutral or are we heading for quantitative easing?

8:49With all likelihood, we will be in quantitative easing at one point, right? We just have too big of a debt bubble to finance. And why the Fed is going to allow banks not to hold that much cash is so they can actually buy the treasury bills. The treasury bill is not the cash. There's just $38 trillion in debt and growing quickly. And so that's not going away. and so i think you're going to end up being in cute you know quantitative easing again like i'm not positive like weird things could happen inflation could collapse by itself but it doesn't feel that way right the fed was nervous about this december cut like half of them want to raise rent not raise rates but whole hold steady because you know you're seeing inflation tick up a little bit and and it's worrisome but you know then you got the other half saying you know, jobs are coming under stress and they're going to continue to come under stress.

9:58And I think the broader view is going to be, hey, we got to cut. You worried about inflation? I mean, by the way, I mean, when you don't get the numbers from the Bureau of Labor Statistics and they're blamed on the government shutdown, it's not a crisis, but it is a little bit confidence limiting, right? I don't see that as confidence boosting that they're not sharing the data yeah i think listen i think affordability is under stress like it feels more expensive in every every single strata of people i speak to if you're wealthy and you're used to being able to let's say you were the the modest wealthy in new york right you made a million dollars as a bond salesman uh you used to think i gotta i can do a vacation in saint bart's i can go skiing i can take my all of that stuff is so much more expensive than it used to be so at the high end everything's much more expensive my wife literally rented an airbnb in paris because she just couldn't get herself to pay the 4 000 euros for a normal hotel room dirt because it was like art week you know the the the even at the high end that stuff went way up well same things happening in the middle class what they used to think was their right is more expensive and and certainly in the working class uh so in every strata of society having the same life you did last year or two years ago feels more expensive that's inflation i mean what i mean there's a lot of things i love about this podcast but one of the things i love the most is that we don't have any brits on the podcast calling us for our bougie our v nouveau riche natures okay so we're we're whining about four thousand dollar euro rooms okay and uh so you know i love that that's classic american but let me ask you this question though you're donald trump you want a rate cut for sure you're going to fiscally stim going into the midterms you're gonna do anything you can to win the midterms so yeah i don't think he's got you know i think the fiscal stimulus is going to come from the fact that they're going to lose the they're going to lose the tariff case and when they lose the tariff case there's 300 billion dollars that goes right back to american businesses that's a huge let me test something on you get your reaction so i've i've looked at the thing obviously went to law school i feel like the court's going to split the baby and say listen we're going to give him an emergency treatment for the first six months or nine months of his administration and so therefore no rebates on what's been collected but he's got to go to the congress for future tariffs do you think that that's possible or do you think these guys that are buying these tariff claims right now at 10 cents on the dollar are going to go in into the money you know it's interesting neil katia who was the lawyer who argued yeah you know he's bringing the case he's before the supreme court now yeah he and he did a brilliant job you want to have fun watching a lawyer in his moment uh he's an advisory galaxy um and a good friend okay so let me step back for reviewers neil katia brought the case on behalf of the american people he has standing because he's an american taxpayer he brought it in the district court he won the case.

13:25He brought it in the appellate court. He won the case. The Trump Justice Department said, no problem, we're going to keep going. And they argued the case two weeks ago before the Supreme Court, the nine justices. And the court took the case early, Michael, and they promised a decision by the end of December. Okay. With that as a backdrop, tell us what he said. Eddie would be future lawyer. If you want to see a lawyer in his prime, go on YouTube and say, let me, let me watch Neil under questioning from these nine justices. Uh, it was funny. I asked him, I was like, Neil, that was, how did you pull that off?

14:05And he was like, you know, I spent time meditating, getting prepared. I did a whole lot of homework and he literally hired a, uh, an athletic performance coach to be ready. But it was one of the greatest performances I've ever seen out of the lawyer. And again, I don't know if they're going to win or not. Supreme Court's, you know. No, no, no, I got a guy. Look at me, look at me. Get the gun over here to your head on this. Are they going to win? Yes or no? I think the gun, boom. I think Trump's going to lose this case, but you might be right. They might split the baby some. I don't think they're going to, they're going to say it was all under emergency.

14:43No, right. They can't do it. It would be such a gross violation. Remember, they're all originalists in terms of their theory and the application of the law. They would really be disavowing 80 years of conservative jurisprudential thinking. So they can't do that. But I'm saying Roberts is so afraid of Trump that he may give him a half win here on the money. But we'll see. So that's going to be stimulating, right? If that happens, it's a huge stimulus. Right. But markets trade up on that. Markets expecting a win, Michael? Or what do you think the markets are? I don't think – the markets are funny because everything doesn't get baked in the way you think it's going to.

15:29The day it happens or the week it happens, people will be like, oh, my God. And I think it would be down and up, right? But I think it's a net positive. That's a lot of money. now it's bad for the bond market uh right it makes our deficit worse uh you know trump surprised everybody and best and surprised anyone everyone by how big uh that that tax collection was and it really is tax collection right i need to call it whatever you want that's why they're taxing without representation that's why they got a problem at the court and and so i think that's a big stimulus. It's a tax cut. Okay. So I know, because I am a crypto investor and I appreciate you bringing me into the world of crypto.

16:16I know I have a trap door on my portfolio. And so once in a while, I'll be walking across the living room, feeling beautiful about myself. And then boom, a trap door opens and I have fallen into the basement of the house. Thank God I'm out on the second floor. They would probably fall right two floors down. But what happened in the last, let's say 20 trading days uh will take us back to the october 10th what i would call mini crash in crypto and the aftermath and where are we now yeah so we had a flash crash and it did a lot of damage to the fabric of the market and it started really by you know at at Binance, they had an Oracle, which sets price, you know, misfunction some.

17:03And so they created a cascade where people were getting stopped out because there was the wrong price on one of these synthetic stable coins. That created dislocation in markets, which then in all the levered perpetual markets like hyperliquid, like Uniswap, you know, as prices went down, people started getting liquidated. And what people don't understand about crypto is that the crypto investor doesn't play for 10, 11, 12 % returns. The crypto investor calls themselves DGENs with pride. they want to turn one into 15 and so they trade a very volatile asset with a lot of leverage and it might be three times leverage 10 times and you can see it all on the screen and we had a just a cascading effect where markets just literally evaporated and collapsed and then came bouncing back um you know there was estimated even on hyper liquid uh that the market makers you know 30 of them went out of business i.e got zeroed and that was because you know perpetual futures are not normal futures uh the the genius that arthur hayes and his his group of people that put these things together came up with is as longs get liquidated, they're paired off against shorts.

18:50And so when something's falling really quickly, you could be short and you lose your short position. Well, if you're long on another exchange against that short position, you're shit out of luck. And that happened to a lot of market makers. And so we lost a lot of liquidity in the market. We lost a lot of retail punters who lost their stack. And what happens in crypto is after that group gets wiped out, it takes a while for Humpty Dumpty to get put back together again. Now they get new savings, they get new money, and that money starts flowing back into this kind of crypto casino. But these are speculators and it's a buyer beware mentality.

19:29these are not long-term investors um you don't go 70 times leverage or 10 times leverage even as a long-term investor you go it as a trader speculator right but the but the market has de-levered so you like the market better here given the leverage i actually to be fair thought we were going to hold at higher levels at 95 at 90 and and we went all the way to 80 80 was a maximum pain point yesterday or Friday, got to 180 on, 185 on XRP. We got to, you know, 125 on Solana, real pain points. And now we bounce up. We bounce because of the sped, but we're not out of the woods. I do think crypto will, Bitcoin will climb back towards a hundred by the end of the year, but there'll be sellers waiting there.

20:20We've done some medium-term damage to the psychology of the market. And Anthony, when I step back, there are three things that I think caused this. One, when we hit 100, it felt like victory. I put a freaking video out, congratulating the crypto community and give yourself a hug, drink a bottle of champagne, sell a little bit and buy your wife a present. Like what a great accomplishment that this community got together and created this asset class. And I think people felt I can sell something now. these hodlers for a long time. We had one$9 billion seller. To put that in perspective, that might be the single largest wire I've ever, well, certainly single we've ever sent, but like it's gotta be a top 10 wire in American history to wire$9 billion to one family.

21:13And that's one third of all of IBIT's flows of the year. So what you're seeing is as US wealth, right? The RIA channel, which is$50 trillion, is slowly moving to a zero weighting to a three to 4 % weighting, right? That's a lot of money. It was met with OG sellers. So that was part one, right? We had friends that sold and bought boats or sold, you know. Planes, boats, sports teams, pieces of them. Yep. Because there were so many concentrated positions. In the long run, that's healthy. In the short run, that's painful. Right. But that's not the only thing that happened. Crypto is going through a really positive transition, but it's a painful one.

21:56It's a transition from just being a story. We're the most important industry. We're really important. We're going to decentralize the world. We're going to, okay, we now have legislation, right? Genius Act, getting the next piece of legislation. It's time to show me the money. Like show me what crypto actually does. And so when you start saying, well, how do I make money on this stuff? It's a harder story. Some businesses are making money. Some businesses aren't making money. There's some token ecosystems that make common sense to an investor. And there's some that all feel like they're just association.

22:32And so as the story gets harder, people kind of lose interest a little bit. And I think that we're in that period. I am positive more traditional finance players are moving into the market. Everybody was just talking to a guy who was one of the biggest infrastructure providers. He said in the last two months, he signed nine new contracts with the Citibank type accounts to provide services. And he was excited, but he's like, but my existing business, he needed a safe loan, a safe note to stay afloat. And so he was like, it's so crazy. I've been building this for six years. I'm still negative. Yet I see the future.

23:20And I think we're in a transition period. I want to go to our economic dashboard, do a little bit of rapid fire with you. And so going higher, going lower, this is just really a short-term thing for this week. I'm going to say tariffs. We both believe that Trump will lose the tariff case. The Supreme Court may split the baby or you may see a$300 billion rebate out there. Right? I think that's fair to say, right? What about interest rates? Going lower. Yeah, long two-year notes. Stay long two-year notes. They're going to bring rates down to 2 % in the next 16 months. Okay. And what about inflation?

23:56Here to stay, or do you think we can tame that with productivity gains, or what's your thought there? I think inflation is going to creep higher. It'll creep higher. So you're going to have a little bit of a... Real rates are going to be negative then, right? Yeah. Okay. That's why I think gold and silver is... I don't think the gold market, the silver market, or the AI market's over. Okay. Too hot for the equity markets? They're going to cool off or equities are going higher because rates are going lower? Yeah, you know, it's interesting. I was talking to one of the world's best investors who had been pretty negative two months ago.

24:31And I called him and I said, why were people negative? They were negative for three reasons. They were negative because of this fear of the AI data center, circular, you know sam altman invest in oracle oracle invest in sam altman everyone invest in nvidia this been right that was one they were negative because howard marks who one of the great writers said hey whenever the stock market trades at 25 times 10 years later you make no money that money invested like it's it's it's not a good time to be invested everyone bought that story you know it felt nvidia hit five trillion there was there was a bunch of stuff that felt like oh this could be the bubble and we sold off some.

25:14The reality is I fundamentally believe AI is the most important technology of our lifetime. And this will be the largest bubble we ever see. We're not even close. Now I'll give you some data points that if you're already starting to look at 27 earnings, right? Cause we're finished 25, you know, these companies like Amazon and Microsoft, Google, meta they're not trading it 25 times they're trading 17 18 times uh and they're growing like crazy and so i think the market's all of a sudden not as expensive because earnings are growing so fast and so you're gonna and i've talked to like i was just had one of our largest investors he's like dude i'm buying uh and so the psychology hasn't shifted and you know you've got some market There'll be shift.

26:04You might be selling NVIDIA and buying Google or selling. You'll have different leading horses. But I don't think we have this wild overvalue everything. Okay, we're going to take a break. When we come back, we're going to discuss AI, the valuations there, the potential bubble, open AI, Grok, et cetera. We'll be right back after the break. Welcome back from the break. I'm Anthony Scaramucci. I'm Mike Novogratz. All right. So, Michael, we're back from the break, but AI is not breaking. There's no bubble popping in AI right now. You talked a little bit about this before we went to the break, but the bubble is expanding, but the fundamentals are also expanding, Michael.

26:47So talk about the addressable market. Talk about the flows that you're seeing in terms of profitability there. You know, listen, I do what most investors do. I call my smart friends who have better relationships with the guys at those companies than I do and do my own reading and homework. When you listen, I listened to a podcast that Satya, Microsoft CEO did. They are seeing such productivity increase. um there was one story that you know a hundred thousand dollars worth of uh the blackwell chips in in in one of his engineers hands can produce as much code as what it took to write windows in one year so yeah one guy plus chips is now windows in a year that was the entire company over multiple years and so you're seeing a productivity increase that we haven't seen before ever um in these places and they're they're waiting for power and they're waiting for places to plug their chips in and so it feels like there's still a backlog um listen there's going to be competition right you look at gemini 3 all of a sudden you're like wow and that i don't know who's going to win i do know the one thing that would worry me is if OpenAI starts coming under stress because that's the big borrower, right?

28:16And Sam's been the big leader in this stuff. And who knows in five years who's going to win this thing, right? You got it. But he has a$500 million market cap. It's a private company. But are you a buy, sell, or hold on OpenAI with a$500 billion market cap? I'm probably a... I think the market cap goes higher, but I don't want to play that one. I'd rather buy Google. He'll listen. Warren Buffett just bought Google. You rarely, you rarely lose following Warren Buffett. And I, and again, this is, I'm not smart enough to know if it's going to be Gemini or open AI. I really am not. But Google valuation feels, feels easier to swallow.

29:06um and again i it's it's so hard to tell uh and we're still early in this stuff you know i have a crazy story uh you know grok which also has its you know fan base uh came out with grokipedia and my buddy calls me he said my god this is gonna put out wikipedia and you know wikipedia in six months we'll have no employees you know how you know grokipedia is better and so he said put your name in there and see so i put my name in there and that four pages in there was a paragraph that was totally fictional and i was like it's crazy uh and unfortunately it had some bad accusations good was it good stuff no bad stuff i thought they were trying to tell me you had hair and you had like and i so i start talking to grok and saying hey you know i didn't i wasn't on the board of the new york stock exchange i didn't work at bank of new bank of america uh like some just factual things wrong uh you know i didn't postpone my hedge fund because of a terrible article in bloomberg about all these women complaining about me uh i was like and it turned out when mike bloomberg was running for president uh he had the company not mike Bloomberg the company had signed some NDAs um with uh you know with employees that had had had probably misbehaved and and that came out on the campaign trail and Bloomberg said hey this is a company you know and it was an awkward moment but there was an article about Mike Bloomberg that somehow became me and there was a hallucination and it was almost impossible to convinced it was interesting the entire crockopedia had references to everything except this one paragraph and they were like then i said well the reference well it was behind the paywall it must have disappeared your tweet it doesn't exist anymore you must have and it literally took calling the company and calling the war and it's all gone and they were they were great about it but it was 18 you know if i hadn't read it it could have been up there for for months uh and so we're early still these things do hallucinate talk about the machinery for a second because i feel and i hope i'm wrong about this because i like jensen long and i like nvidia and i do own nvidia so i want to be fully disclosed there but i feel like it's a little bit like cisco in 1999 where the valuation is reflecting what it has done so far but is it now completely saturated Because if you remember Cisco, who was making these switches to help us build Internet One, once all the switches were in place, the growth rate declined substantially for Cisco.

31:56It's still an amazing company, but it wasn't able to sustain that historic valuation that it received before the NASDAQ bubble crashed in 2000. Is NVIDIA like that or make the case for or against what I'm saying? Yeah, the law of large numbers makes it harder and harder, right? Um, yeah, yeah. Well, if they get this, if they get this ability to sell to China that Trump talked about on Friday, that's a big deal for him. And so we've got to follow that. But in everyone who's met him and I haven't says he's just a beast, you know, one of the greatest hardworking cultures and the whole culture and CEO.

32:37And so I think this is going to be the largest bubble of our lifetime. And I don't think that means, you know,$5 trillion might not be the top in NVIDIA. It might be$8 trillion. You know, like in 10 years time, will the company be worth$5 trillion? Probably not. But it doesn't mean we're not going to finish going up. So what is it worth in 10 years time? I don't know. I don't know. I just know when a company makes that much money making chips, the incentive for other companies to come up with a better chip is so high. You know, it's just it's hard to keep a monopoly. So we have both experienced this in our multiple decade careers on Wall Street.

33:20You get price compression in a name because the earnings slow down. And to your point in the law, big numbers, you know, you got to grow up. you got to grow a$5 trillion company by a trillion to have 20 % market capitalization growth. So it's not that sustainable. And then the multiple comes down and all of a sudden the company's worth less, even though it's still a great company. How many times have you seen that movie? Over and over. So, you know, it's interesting. I remember I was listening to Dan Sondheim, who's, you know, had one of the great runs, you know, of a generation for a while. right uh and he said in growth stocks if the second derivative of growth is positive stay long and when that second derivative of growth flattens get out right it's pretty intuitive way to think of things right it's hard for growth to keep going when you're that big right and so at one point you know the multiple comes down but again i keep wanting to come back why this is going to be so challenging is this is going to be the greatest bubble of our generation of our lifetime now not just generation right like and and the only ones we've really seen crypto has seen a couple bubbles but that's it's specific to our industry small smaller the overall crypto market is under four trillion i mean this is you know but but 99 was a real bubble remember 99 prices didn't come back until 2016 and we didn't really get the benefits of the internet until 2006.

35:01Six years, right? And so even before all the benefits of AI happened, we could hit a crazy valuation. I just don't know if we're there yet. I don't think we're there yet. And just again, I'm in a privileged position between my investors and the people I know in this community. In this last week, spoke to four of the smartest and best investors in the world. And they have really articulated why they think these stocks are not nearly bubble valuation. Okay, so we've got about two minutes to go. I'm going to add another category because this came up today. And I'm going to share some of the insight that I had because I'm still close to members of the Trump administration.

35:45Venezuela, it's not impossible that we have a regime change in Venezuela and we move to some sort of transitional government there, Michael. until they can establish free and fair elections. And that would mean that the U.S. and its companies would be reentering that very robust, very rich market. It's been 30 years of decimated activity in that country from communism. Would that change anything on the macro in terms of your view of oil, Latin America in general, South America? What's your thoughts on that? I think, listen, I think, you know, for the people of Venezuela's sake, I would pray it happens.

36:28That place needs capital in a really big, big way. It needs, like all countries need good governance, infrastructure and capital, right? So the capital helps build the infrastructure and Venezuela has really fallen apart. It's one of the saddest stories. I think in the short run, oil prices come under stress. It probably takes a while for that really to have a broader, lasting impact. But it's definitely negative oil. But mostly it's positive Venezuela. And it would be a win for Trump. You know, period. I invested five years ago in a Venezuela PE fund. One of the wealthy Venezuelans said, hey, I'm going to be careful.