Currencies From Digital to Physical

0:00People are going to lose their minds. This is a moment in history unlike anything humanity has gone through. It's a very different world for humans to come. Take a step back and see the broad picture, which is the way all these technologies are interlinked. Because this is all about exponentiality, and humans can't think in exponential terms. How consequential do you want to say machine intelligence is? It's almost certainly as consequential as writing. How long did writing take to disseminate through the human population? You know, hundreds, thousands of years. And we're dealing with it now on a scale of months.

0:33But in this kind of world, you're compounding 100 % growth every year, and the numbers become astronomical. AI is going to spot patterns in the world that were just completely invisible to us. Even if you think that the AI and the robots are your demise, you might as well bloody invest in them and make some money out of it. If not, you're just going to be angry man shaking your fists at the clouds.

1:09Welcome to the Real Vision Daily Briefing. It's Friday, November 10, 2023. I'm Ash Bennington. Today is Veterans Day in the United States. So the Real Vision Daily Briefing team has put together this great piece highlighting some of the best conversations we have on our Real Vision pro tier. Our first clip is from the pro tier and is Ram Alawalia and Jim Bianco talking about the proposed Bitcoin spot ETF and whether or not it's already priced in to the price of Bitcoin. Take a look. Let's dive in. Obviously, we've got some significant action on 10-year yield. Treasuries in general got a hot print on GDP last week.

1:47Guys, how do you think about this big picture 50 ,000-foot view? Jim, let's start with you. The story of the year has been that the economy continues to surprise to the upside. It does better than everybody thinks. The calls that a recession is around the corner have not proven to be correct. And there's little, in my mind, little evidence right now that that recession is going to materialize. Federal Reserve has stopped raising rates, or at least strongly hinted that they're going to do that. They said that they're OK with the market doing the work of the Fed. And that's exactly what's been happening as we've seen the 10-year yield push up over 5 % last week and get up above 4.9 % this week.

2:32So trend in interest rates is going to continue higher, I believe. I'd be happy to explain that out. And that kind of is ground zero for the entire TradFi universe. What stocks have done, they had a 10 % correction as of Friday's closed for the first time since 2022. Well, you know, the Russell 2000 actually closed below its 2022 low. It's now 28 % off of its December 21 peak. All of that's being driven by interest rates. The housing market is being affected by it. The commercial real estate market and cap rates are being affected by it. So that higher rate scenario that we have really just filters into everything.

3:18Yeah, 10 % correction, but NASDAQ is up 22 % year to date. So get your head around that, everybody. Ram, what are your thoughts, big picture? Sure. So first off, yeah, look, I'd agree. The economy is slowing down from 120 miles per hour towards more 60 miles per hour. I'll give you a statistic. Last year on this time, you had year-over-year payments spend growth of about 8 % to 9%. Now you're around 4.5%, which is what you saw in the 2017 to 2019. So the economy is slowing down, however. It's like watching an ice cube melt. And the reason why the consumer has been resilient, of course, is because of the turning out of mortgage debt, as well as the turning out of corporate credit.

4:00However, higher rates are slowing down activity. You can see that in the housing sector. You can see that when you look at auto purchases or Tesla's earnings. and I do believe we'll continue to see that gradual slowdown over time. It's also been offset partially by the so-called Inflation Reduction Act, which is actually adding stimulus and adding fiscal spending, and the CHIPS Act. And so you're seeing a resurgence of manufacturing. You've seen an uptrend in that. But yet in other parts of the economy, for example, home furnishings, look at Ethan Allen, they're declining, they're shrinking. So there's certain mixed effects that are out there.

4:42From a market's perspective, I would say markets are skittish. At the top of August, as you know, we had an underweight call due to the fact that PE ratio had expanded four points without a commensurate rise in earnings. Now we've seen a significant correction. Risk aversion overall has increased. The number one metric to look at, of course, is the 10-year which is the appropriate rate to discount long duration tech stocks. And I believe the second thing to look at is Apple's earnings, which are coming out this Thursday. See, I think there are two factors at work. One is rates, higher rates changes everything.

5:22And the Fed model is being tested right now. And the Fed model is punishing stocks. But the second is Apple, right? Apple is experiencing year-over-year revenue declines. It's a mature business, and it's finding hard to grow earnings. So I think that's a factor that's weighing on the markets as well. Yeah, slight deceleration in earnings across the board this quarter. Let's bring it back here to what we're here to talk about, which, of course, is the nexus between macro and crypto. Bitcoin year-to-date up over 100%, Ethereum up about 50 % year-to-date. Obviously, Bitcoin is significantly outperforming.

5:56What's the thesis, Jim, for how you blend together macro and crypto with the context and the backdrop that you've just framed these markets in? Well, I think the big story in crypto, at least recently, when it comes to TradFi macrospace, is the spot Bitcoin ETF. I think it's 100 % chance that you're going to get one. I think all we're really quibbling about is the day you're going to get one. And you also have to be concerned with the dynamics of how you get one. And what I mean by the dynamics is look back last month when the ETH futures ETFs were all approved. The SEC approved all nine of them on the same day and all nine of them rolled out on the same day.

6:42There is a gigantic first mover advantage in ETFs. Everybody knows that the SEC knows it and the SEC doesn't want to be accused of favoritism. They're not going to approve the grayscale conversion first or the BlackRock first. I believe they're going to approve all of them on the same day when it happens. And then all of them are going to roll out on the same day as a Bitcoin spot ETF. And then we'll let the market decide which one, two or three of them will survive and which of the other ones will kind of fall by the wayside. Now that I've said that, let me just go into a heterodox opinion for you, some out-of-the-box opinion.

7:27If this was a trad fi market, and I said, look, there's 100 % chance that this is going to happen, I would look at the day that they are approved as the biggest sell the news story of the second half of 2023. Because the entire Bitcoin ETF should be in the price right now. It's happening just when. It's not going to not happen. It's just when it's going to happen. And I don't think that all the talk about the Maxi Port story about$14 billion,$18 billion,$19 billion over the next one, two, or three years, or was that Galaxy Digital, excuse me, that put out that report, that that's all probably true, but that should be in the price at this point.

8:15So I worry that if this is going to act like a trad fi market at all, in other words, it'd be efficient like a trad fi market, that what will happen when the real approval comes, not just yet another bogus story, is you'll have a couple of day rally and then that's it. And then the price will kind of meander sideways to lower for some period of time. You know, I tend to look at if you want a quick example of that. I remember 2012 when Facebook came public, it was going to be the biggest IPO in human history. And it was coming public at twenty eight dollars. And basically, I remember being on on CNBC with Maria Braderomo.

9:03And that's why. So what day does it hit 100 is what she was based. She basically, not if it's going to go to 100, what days are going to hit 100? All right. It did. It did. You know, about three years later, four years later, hit 100. But first, it went to 11. First, you lost two thirds of your money and then everything played out the way you thought it was going to. And that's what I fear with the Spot Bitcoin ETF, that some similar pattern might play out first before you get all of the upside that everybody thinks it's going to come from it. We're going to take a quick break and be right back with more of the day's top analysis on the Real Vision daily briefing.

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10:44All right, Rob, similar framework for you. Is this price totally priced in right now into Bitcoin? I don't believe it. I appreciate that take, though. And look, I think in Jim's defense, you look at the 2017 Bitcoin futures rollout, that was the top of the Bitcoin market. Let me come back to that in a moment. Let me frame it up this way. I believe the demise of FTX and Genesis in Q4 of last year, that put in the floor for the market. Anyone that didn't have conviction sold, and that put Bitcoin into long-term holder. So much of the first half of this rally, I believe, was technically driven. It's a non-consensus view, but people who had conviction.

11:23Then the Bitcoin ETF narrative started to come online. It got a bit ahead of itself in June, July. We had an intermediate top. The liquidity in the market's still low, though. I would also say that when these ETFs fundamentally are finally approved, we want to reassess with the data at that point in time. There's a world of difference between today and the data we have at this time. So we should discount, I would say, what our views are today. I believe ultimately it's going to come down to the technical demand. How effective is BlackRock at engaging their sales force? I do think it'll turn on those factors.

12:02And if they're not effective at that initially, and there's a good reason to believe they're not, then I think Jim is correct that that could be intermediate top. There could be correction, but that would be an opportunity to leg back in into that, if that were to play out. So let me ask you this, Rom. Is Jim's assumption correct that it's 100 % certainty that we are going to get spot Bitcoin ETFs, or do you quibble with that as well? I'm in the, I never say anything's 100 % certain, except for death taxes, and Disney will churn out endless Star Wars movies. But I'll give it a 99.99 with a trailing bar to that.

12:40I believe that's the case. We'll see an ETF, yes. Our second clip comes from the Pro Macro Insider Talk series on Real Vision. This is Raoul, Julian Brigden, and Harry Melandry talking about the BOJ and the yen. Take a look. Harry, I want to ask you a couple of questions, which is in your wheelhouse. Firstly, how does the bond buybacks work that the Treasury are going to do? What is that about? And the other one is, what is your view on what the BOJ did? You're our central bank watcher here. I do watch central banks, although BOJ is a little less transparent than some for me. But I'll give you my two cents worth and you can work out whether it's one cents worth or three cents worth.

13:23So first of all, the Treasury buyback is a cleanup operation. And what it's addressing is the deterioration in liquidity you've seen in U.S. Treasury markets. That is a symptom of bear markets in bonds, the absence of carry in the bond markets. None of the leverage players want to play. There's nothing to make. And just the general deterioration across the board on the amount of capital you want to apply to making markets on bonds. So what they do is when you've got off the runs that are trading like something proverbial, you can get them from a client and you can put them back into the treasury at the end of the month via the buyback.

14:05And so it gives you a, limits your risk as a market maker on buying back illiquid paper. And so it's basically, if there's not enough demand for this stuff, the off the runs, for those people who don't understand, they're not the benchmark bonds. So it's the stuff that's been offed because it's now six and a half years long and whatever, it doesn't really fit your benchmarks. So they start trading illiquidly, and this is trying to mock up all of that stuff. Exactly. Clean it up for the market makers and give them an out. So you don't have to like, otherwise you'd bid back. Is that net liquidity positive?

14:48So yes, it makes... Feels like QE, not QE, right? Not really. I wouldn't put it into the same basket as QE. I'd say it's market management and it optimizes the liquidity in the market for market makers. so it's now if you if a customer comes in and says i'm going to give you a you know a billion dollars worth of some off-the-run bond rather than bidding back 10 basis points and praying you don't get hit you might be you might bid back six basis points because you can give it to the fed at the end of the month and clean up your position without losing god knows how much money and burning up god knows how much capital so that's now i would say one thing which is i'm always like trying to read a little below, you know, a little between the lines.

15:34And the bottom line here, it's not a manipulative thing. It's not that. It's not. Your conspiracy theory shouldn't be applied yet. But it is a liquidity issue. And, you know, we've got this accumulation of liquidity issues. People are losing money. People are widening spreads. And that's probably because financial conditions might be a little tighter than people think. And we've got that record position in the carry trade versus futures, which is the hedge fund trying to provide liquidity to the market. I think so, yeah. I mean, we talk about this in MI2. And what I generally say is, it's not so much the hedge fund.

16:18The hedge funds are picking up pennies that are left behind by real money. But you've got to ask why it was that real money chose to switch out of owning cash bonds to owning futures. And I would argue it's because they're economizing on cash resources they use to put those positions on. We've all come across asset managers who did swaps rather than cash bonds so they could leverage their positions better. I won't even talk about where those asset managers might be because it might out them. um i think that that same uh we're seeing the same thing in futures that real money managers are giving away some money to take the position in futures rather than cash because they're cash constrained and why would they be cash constrained well when was the last ipo you saw if you had um uh private equity you haven't had a liquidity event for three years and you've had and essentially you've had margin calls right exactly everyone forgets pe is the gift that can keep taking um and and so the same theme is there for the japan situation um there was a point where we everyone was borrowing money from japan because it was negative rates they were giving you money to borrow how often does that happen um that's unwinding and like well with dolly n is it i don't I mean, he's going to unwind it slowly, but Ueda is very, very cautious.

17:51Absolutely. Every sense that we have. And very cognizant, well, we think of what anything that they do in Japan does to global fixed income. The last thing he wants to be accused of is upsetting the treasury market or something. We're going to take another quick break and be right back with more of the day's top analysis on the Real Vision daily briefing.

18:18So what are they doing? Are they going to intervene in dollar-yen? Are they just going to let yields rise and the yen keep going? Julian. Well, it shouldn't. I mean, look, we have this debate. The dog's going to be - We have this debate. We have this debate. For everybody right now. It looks to me that they've screwed it, right? That Dolly, that Moff coming out and saying we're not doing anything, combined with a... They're smart people. I know, but with slightly less exciting BOJ. I mean, it moved. You look at JGB yields, those moved actually, but it was slightly less exciting than it expected, right?

18:58So you get this big move up in Dolly N. Look, I agree with you. They're not stupid by any stretch of the imagination, but I think they're a bit gun-shy. It feels like, as Harry was saying, There's a sub-narrative that we're not listening to. And the Bank of Japan have been brilliant because they've actually, and the Ministry of Finance, they've actually led all the central banks and nobody listened and everybody followed their path, right? And they've gone to yield curve control, had it for a while, blah, blah, blah. And we both think that's probably like Yieldsware. What are they doing now when they're letting their currency depreciate so rapidly and then letting bond yields rise?

19:40What is it? What equilibrium are they trying to get to here that we don't understand why? I don't think there is. I think at the moment they're actually in a little bit of a difficult situation. I mean, I think, look, we've discussed this as part of the sort of bifurcation of the world again, back into a sort of Cold War state, right, with friends and enemies. Japan is definitively a friend. And so you want a slightly cheap yen to encourage investment back into Japan, right? Because it's got to be one of the tech platforms for the West. But you don't want it to be too weak that you encourage capital flight because that deprives you of the money that you need to build a factory.

20:28It's going from 100 to 150. I know, mate. I think they're in a little bit of an issue here, because I think if Ueda had his way, he would just walk away from negative interest rates and he would walk away from YCC. But he's... But why? This is my question, is why? Because he don't... Okay, my understanding of him... What's that, Julian? is like, Eelke of control was to keep interest rates below the level of GDP growth. So GDP growth in Japan has been about, whatever it was, 50 basis points over a period of time. So you keep it below that, whatever trend rate of GDP. Either GDP growth has changed in Japan, and maybe that's what we don't realize.

21:19But they've been very kind of optimal in how they manage this, much like the US was in the 40s and 50s. And they ratcheted up yield curve control to a different level. So I think this is, Julian was talking about this work we as a firm did, Julian did, on the global savings and whether there's enough savings. I would argue that what you're seeing in Japan is what happens when you run out of savings. So we're seeing here the case study of the end of YCC, and actually there just aren't the resources in Japan to meet the requirements. So they're trying to balance three different problems all at the same time.

22:04Each individual one is caustic for them. So one of them is that they've got domestic inflation. They want to encourage wage inflation, but not cost of living inflation. That's a difficult balancing act. Another one is they have regional banks that are on the edge of bankruptcy all the time. And if rates go up too much, the regional banks are no longer solvent because their collateral is bonds, same as the regional banks in the US. And then finally, you have all that accumulation of savings that they built up in the 90s. What if it's gone? What if they don't have the savings resources to do this onshoring and meet the requirements?

22:42Then you need GDP growth. I mean, it all comes down to GDP growth. Is there enough economic activity to pay the interest rates on the debt? There's no more than that. I think they also need to keep the capital they've got in the country and not going around the world. So they've got to find some way of motivating. So this is an attempt to dismantle YCC without breaking everything. And it's going to be an amazing balancing act because what if the currency just slips and slides 20 big figures? How would you stop that? I mean, sorry, I've pontificated. Really, this is a question to you guys. Manuel, for example, says, how does the yen keep depreciating in the face of potentially higher domestic yields?

23:28Shouldn't JPY be along at these levels? Yeah, I don't know. I used the chart pattern, and I've been following this pattern for almost a decade. And I said at some point, Dolly N goes to 200. And I still stick with that. My first target was 150 and 140. and we got there, still think it goes to 200, maybe 250, maybe even more. I don't know what that means. And so I'm going to get my head around it. I think it means you're supposed to be booking a flight because you won't be able to get on one for as long as you can book out and then keep going back there because it's an amazing country. Look, mate, it's been a great call.

24:05I mean, it's very...

24:10I don't know what it means. When I get a chart that looks so outlandish, I try to think, what must it be to be true? What must the conditions be for that to be true? Yeah, I mean... Maybe it's Harry's idea there's no savings left or that we reach the dollar kind of hyper bull market endgame where it sucks in everything. I don't know. I don't know. Thanks for joining us on the Real Vision Daily Briefing. Have a great weekend. people are going to lose their minds this is a moment in history unlike anything humanity's gone through it's a very different world for humans to come take a step back and see the broad picture which is the way all these technologies are interlinked because this is all about exponentiality and humans can't think in exponential terms how consequential do you want to say machine intelligence is it's almost certainly as consequential as writing how long did writing tape to disseminate through the human population, you know, hundreds, thousands of years.

25:12And we're dealing with it now on a scale of months. But in this kind of world, you're compounding 100 % growth every year, and the numbers become astronomical. AI is going to spot patterns in the world that were just completely invisible to us. Even if you think that the AI and the robots are your demise, you might as well bloody invest in them and make some money out of it. If not, You're just going to be angry man shaking your fists at the clouds.

26:04And the great thing is that in addition to crypto, Plus500 gives you access to a wide range of instruments, S &P 500, NASDAQ, gas, and much more. Explore equity indices, energy, metals, forex, and beyond. With a simple and intuitive platform, you could trade anytime, anywhere. Experience the fast, accessible futures trading you've been waiting for with Plus500. With over 20 years of experience, Plus500 is your gateway to the markets. Visit us.plus500.com to learn more. Trading in futures involves the risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500. It's trading with a plus.