How to Digest the Fed Rate Cut ft. Cem Karsan

27:00We continue to go down that path, and this is not a political commentary. We will get more of what we've had, which is increasing inequality here in the developed world, right? It will control inflation. You will get growth without inflation, but that's because essentially jobs will continue to flow to wherever the water is the lowest, wherever the cost is the cheapest. That's how things work. And so the question is, are we prioritizing median outcomes in the developed world? Are we prioritizing maximizing GDP? And we have moved from a period of maximizing GDP to maximizing median outcomes and an attempt to put Americans, not just America, Americans first.

27:41And I think that is, no matter how you feel about politics, that's what populism is and that's where we are. The question is, are we willing to move away from that, which again would be short-term positive globally and probably to both sides. So there's a deal to be made if we're willing to be short-sighted. meaning five, 10 years. Most people don't think that's a short period of time. But in the grand scheme of things, it is. And as it relates to China and the US and global hegemony, it definitely is. Yeah. And these are obviously enormously complicated issues. By the way, I just had a little bit of a system disclosure there.

28:17If there's a problem with my audio, Brian ping me and we'll recorrect it. So as we tee this up, you know, and we talk about this sort of the balance of forces, Obviously, these are very complex issues. How do you find the trend line here when you weight the probabilities of these various contributing factors to the overall macro outlook that you have? Obviously, we're in this period right now between election and inauguration. Lots of things about to change. Talk a little bit about what your overall view is for 2025 and how you weight those factors. So we've talked about this before, but you really need to be able to think about different time periods.

29:03I don't think people think enough about time. You mentioned the voting machine and the weighing machine, right? The idea here that macro, and by the way, people would throw that word around macro all the time. Like macro, there's a lot of different parts to macro. There are liquidity factors in macro, like global liquidity, Federal Reserve policy, the U.S. Treasury policy, FX pricing. Those things actually really matter in a more median term, call it six-month, one-year, multi-year period. But the other global things, like the really long-term things like we're talking about, is there a deal between China and the U.S.?

29:44Are we going to have normalization of trade? Those things really matter over a decade. Those are much bigger, longer term macro things. And those really, depending on which ones you're looking at, what macro factor you're looking at, they have a little to no factor that plays into a one week, two week, one month, two month, three month outcome for markets, right? In the short term, think three, six months, even a year timeframe, it really is just a function of supply and demand. And again, macro liquidity does affect supply and demand, but the biggest flows on a day-to-day basis have nothing to do with macro.

30:23They have to do with structural effects, which we've talked about in the options markets, re-leveraging, rebalancing effects from money in the market, broad money supply and availability of liquidity, how momentum and how capital markets are increasing liquidity in the market or decreasing liquidity in the market. These are the things that are part of the machine that is the market. And that machinery operates completely devoid of anything that has to do with opinions. It has much more to do with liquidity and structural flows. And so when you're measuring and trying to decide, make a prediction on where things are going, you have to overlay distributions of different timeframes.

31:08And those things are affected by different factors in different ways. But in the very short time, if we're talking from now to January or now to March, right, we are really, really thinking about, one, what's happening with the structural flows going into the end of the year? How are those playing out? What are those done to me or are likely to – what has that done to momentum and investment flows? How is that likely to unwind once those flows are gone? what's happening to volatility, what's likely to happen with the vol supply and the positioning in those markets as we move forward to how our market is likely to move, what's happening to interest rates, what's happening to inflation, what's happening to the global flow of money, and how's that likely to change?

31:53That's why the Federal Reserve was so big yesterday. These are the things that are really going to drive the movement in markets over the short to medium term, meaning, you know, month, three months. And, you know, once we start moving into a six, nine month, one year period, you start, other things start to matter. What's fiscal policy like? What is that policy going to look like? What's that immigration policy going to look like? How's that going to affect inflation? You know, how are these kind of secondary factors that are not kind of where the rubber meets the road in terms of interest rates themselves, but these factors that are going to influence those factors?

32:34How are those changing? What's happening with tariffs? Is there going to be a dead balance? These things that we're talking about start to matter on a more one-year plus timeframe. But so that's when you start to have to draw probabilities of those outcomes. And then what will those outcomes mean for liquidity? But at the end of the day, it all comes back to liquidity. If you're looking at markets, it all comes back to who, how is this going to affect supply? And how is this going to affect demand in the marketplace. And if you watch that on a detailed basis, on a day-to-day, week-to-week, month-to-month basis, and you draw probabilities to that, at the end of the day, you'll get your answer of where the market's going.

33:15Well, there it is. You just heard it. That little soundbite right there. That is the signature Jim Carson issue where you talk about liquidity flows and positioning and its impact on the shorter term price action in markets. Yeah. I mean, it's actually quite simple at the base level. It doesn't mean it's simple to predict or it's simple to do all of this, but the simple idea is there are buyers and sellers. There's about a net of$75 billion a day. Sometimes it's higher, sometimes it's lower. That affects the net positioning in the markets. What percent of that, how much of that supply and how much that demand equals out to that net?

33:56Is it going to be a net short? Is it going to be a net long? So how do we get there? So there's really a mathematical calculation here that you can do if you can get a sense of what those flows are. Now, you can't get 100%, but if you can get 50 % of those, it gives you a nice keyhole into what's happening on the other side of the door as opposed to just sitting on the other door trying to understand what may or may not be happening based on price action. Yeah, and once you can sort of capture the swing factor, the idea is that then you then have the ability to extrapolate where these sort of mathematically necessary rebalancing is going to happen.

34:32So let's talk a little bit about that. What's your summation right now as we head into the end of December for where that positioning is going to land? So we've been very clear that there's massive amount of bond and charm, positive flows that have been supportive of markets, a lot of vol supply going into holidays, you know, starting in early November after the relief that from the election, everybody was long ball because what was high was the election ball and everything behind it was low. So now the problem with that is that that doesn't last forever, right? At some point, you get that vol compression, the vol and charm flows come, and then that desopics, which is where all that positioning was, comes off.

35:18And that's a large amount of flows. Now we have this rebalancing, this releveraging effect, again, which we talked about January 1st, which is still sitting out there, which will continue to be supportive of markets. But that doesn't mean markets have to go up. And actually, and this is the important part, if you know 50 % equation, but you don't really, it's hard to measure sentiment and animal spirits and positioning and other areas of the market. If you don't know that, you can get a better sense of that by looking at what you know. I think of it as a litmus test, right? If you have 50 % of the flows and you're not sure what the other 50 % are, but you're confident about what you have, then you can learn a lot about the other 50 % through what's happening through price, right?

36:00What's happening in the market. So relative to the strength of the demand that we're seeing in the demand side of the equation, how much other supply is there? And the market's been very, very weak in the context of before even yesterday. And I was very public about this prior to the decline yesterday. But we really had been seeing a very weak week and a half, two weeks in the context of the strongest time to be bullish. We were kind of sitting up at the highs, kind of kept pushing them and pulling back. But that type of price action tells you a ton in the context of massive demand, right? So that's what made us come out actually about a week ago and be like, look, we're dragging along the top.

36:45We should be seeing much more strength and push here given how bullish and how strong the flows are during this period. Warning sign, be careful. And vol is increasing, right? As we expected, the vol would start to increase before we got to January, which is when we're calling for a decline initially. So we really put out a big warning sign up there, and that was the clue. And then at a Fed meeting, which is a big, important moment, you get that catalyst. And on an options expiration, there's lots of open interest, and you can get some real volatility. That said, this should continue to be a stair step down now.

37:22I know that didn't feel like a big stare, but sure enough, here we are back up today because of these positive flows still being in the market into the end of the year. Now, this should accelerate after January 1st, January 2nd, and we believe this will be a continued step down once these positive flows, which have been very supportive underneath the hood of market. So it would not be a surprise if we get a 10 % plus top to bottom decline here. Again, we're only down 2.5 % from the top. So it's not going to be a straight line. And again, it will be stair steps. But that is because there are structural forces underneath the market supporting it.

38:01So this is actually a very, very weak market. That news was very negative. The underlying news that led to that we've been talking about is very negative, which is part of why we've called for this decline coming in January before. So really think of this as a warning shot that we had. And these are opportunities to kind of scale out of markets. which have been incredibly hot all year and are really, really flagging here, given how much positive flows are into the end of the year. Yeah. And by and by the way, let me give you the exact quote. I'm looking it up on the screen right now. If we talk about being positive, still trailing 12 month basis, we're still up nearly 24 percent on the S &P 500 year to date.

38:41I mean, it's almost the same because we're at the end here, but 24.2 percent right now on my screen. So to your point about the overall directionality and then this recent fade here, here's a question about skew on the pricing in the derivatives market that comes from David V. Hello, Ash and Jem. Jem, do you still see S &P put options reasonably priced for short-term market pullback due to funds end-of-year risk rebalancing? No. And when you say still, I haven't seen it cheap for a while. So I'm not sure if there's a reference there to a prior time. I still think that vol is cheap. And I think people confuse vol being cheap relative to a lot less cheap than it was, by the way, a day or so ago.

39:29But I still think vol in general is cheap. But what I've been calling for, what would be very clear to people is buying a longer dated calls. We were saying that for about a month. So, you know, we said, look, it's bottoming. The ball has gotten to a 10 or, or below vol in the, you know, out of the money calls, 10, 10 to 20 Delta calls in the back. Those are too cheap. So it's a time to do stock replacement or to buy calls hedged. And you could lean long until you get that sign that things are not looking good, which we kind of, again, put out there as like, hey, things are not looking good. And when you do that, the way this works is you buy those calls and you sell stock delta neutral.

40:09That is a long volatility trade. People think, well, they're out of the money calls. How are you protecting your downside? Because at the end of the day, you are short stock. And that call, which is cheap, will hedge that stock. If you go higher, you'll get more deltas as you go higher because of gamma. But as you go down, you are just net short. So you get convexity. Now, you don't get the kind of convexity you do on a put, right? You buy a five delta put, you have a 20 to one leverage, right? If that thing really goes in the money. But a call, you can hedge a 50 delta call and have your 50, your flat delta exposure go to 100 delta, right?

40:49That's still volatility, right? And that's still a convexity that you can have on that position. Those calls get really cheap on rallies because people start saying, OK, I'll write these calls against my stock position. I don't want to sell my stock, et cetera. And the volatility on them gets too low, essentially. And those are a real opportunity when that happens because usually when you get to that point, if the market does continue higher, then you get market up, ball up, which is what we were starting to see at the end, which also is generally a good sign that we're getting to the end as well.

41:20So we've been very adamant and, again, made money for about a month with volatility going up without the market really going up much or going down at all by being long calls back in the curve. And the benefit of that, too, now is as we've gone lower, having hedged those calls, we've now made a ton of money as the calls barely moved into a big down move with volatility going up, and we've just been short stock. So that's the way to play it. It's not to buy put. Skew is actually very high in the back of the curve. It has been high for some time. That's actually also a warning sign that a decline is coming because people are trying to buy puts and hedge, hedge their positions.

41:56There's an over demand at a high vol, relatively high vol, relative to these calls. And that's been a warning sign as well. This market's likely going to continue to decline. And Jim, I know that explanation gets a little bit technical for a lot of folks, but is that just an ultimately a function of the fact that you've had this kind of performance in the equity markets? Everybody's long and there has to be a hedge on that. And that is what just happens. as a mechanical necessity of hedging those long equity positions. Yes, there's always skew in the marketplace because of what you said, because the world is long.

42:33You have to have skew. It's like an insurance contract, right? Insurance will always trade for a premium. Nobody's going to sell you insurance for negative expected value because they're taking risk in order, you know, this is not a normal distribution of outcomes, right? And they have to manage that risk. That's what's called risk premia. Yes, there's massive risk premia in the markets. And it's one of the biggest carry trades in the world. I mean, to give you a sense at a 20 % out of the money put three months out, probably trades at a 40 ball, right? You know, while the call trades at a 15 ball, it is somewhere 1 % out of the money.

43:13You can own one, sell the other, and be short stock. And that is, the market goes nowhere. You make a ton of money. The market goes down as long as that out of the money put doesn't go in the money. You're not only short stock, but you're collecting this massive premium. And the call in theory is cheap enough that if you rally at some point, it tends to go higher. So it's an incredibly profitable trade. Think of it as a carry trade, just like you would yen, lira, or any other carry trade. These are structural things that are a function of bigger issues. that doesn't mean there's not a tail. It's not a free launch.

43:47And so this is the biggest carry trade in the world, which is SKU. It's the biggest carry trade in the world because it's hedging the biggest thing in the world, which is long exposure, exposure to everything. We're all long. We're long of where you sleep, you breathe, you own a home, you work a job, you own equities, you own whatever you own. You're long. And the only way you can hedge it is by finding somebody that charge you a risk premium and give you a hedge. And that makes everybody say, well, why would I ever buy that? It's so expensive because it's the only thing, literally the only thing that when the world blows up will protect you because everybody else is also short that tail.

44:24Yeah. And of course, the however is where the price comes. When you talk about no such thing as a free launch, I guess the challenge is people trying to conceptualize this and get their heads around it, right? It's this idea that you get a free launch every day, day after day after day. And then one day the bill comes due in the form of the repricing, the unwind of the carry. Yes, but there are ways to do it better. And there are actually ways to do it at little to no cost. And that is when the calls get cheap, don't go buy the skew. Don't go buy the put. You can buy volatility. It may be less convex.

45:00It's still convex. And you can go buy the ad-lomony call, which is cheaper, not just cheap. Those actually have an expected value about EBA. There's no premium net charge for that. And you can buy that and sell stock, which is not short skew per se, right? It's long the call, short stock. And that is the closest thing to an edge in the ball market for being long ball. Again, you only want to do it once those things get cheap enough, but that's the way to actually do it on a best risk-adjusted basis. Won't give you the same convexity, mind you. It's not the home run lottery ticket, but it is a much better expected return and does get you convexity still.

45:46And that's a pretty good summary of what it is that you do. That's it. It's that simple. Just buy calls, sell stock. No, it's, uh, there is, uh, that is, that is a part of, uh, of a much bigger nuanced, uh, volatility world that we, that we, uh, that we live in. But, um, I will say, as we mentioned before, the options markets are, if you become a student of those markets, you get a much bigger picture on how the whole machine works because you're no longer looking at things in two dimensions. You're looking at it in three to four dimensions. And you can see that data in real time. It sounds like it's a very futuristic, crazy thing, but it's just a very much more precise, a data-rich data set and framework with which to think about the world and all assets.

46:37Yeah. And by the way, the complexity there, of course, is in the timing, the sizing, and the pricing. Absolutely. Okay. Here's a question from DK who says, Hi, Jim. Big fan and follower. Love your market framework. Very tactical question. Do you see these oversold conditions leading to new highs before end of year? I don't. Pretty simple. No, I do see I did see a bounce coming this morning. It should be a bounce that that lasts a day or two. I think into the end of the year, you'd still have support. So yeah, we could go sideways, maybe even bounce a little bit more. But we're not going to new highs from here until after, in my opinion, until after we get a little bit more, not a little bit more, a decent amount more downside.

47:26That'll probably accelerate after December 31st. I would say Jan 3rd to 6th, that window, I would be very, very, we could circle those dates. They've been moving forward, given the price action and what we're seeing in supply and demand, but I would see an acceleration down. Again, that doesn't mean the world is ending. It doesn't mean that it's a crash. It doesn't mean you should go buy puts, which are expensive. It means that you should be tactically looking to short and find ways to buy a cheaper ball on the call side when possible to get short against it as well. Here's another question from Frank.

48:01Jim, can you explain the path you see in the bond market to see a potential growth scare next year You're slowing down this recent move in the 10-year as most people have finally moved out of recession camp, or do you think it blows by 5 % first as inflation remains entrenched? This gets back to some of those macro questions. Stagflation. We've been calling for it for some time. I think we are heading more and more to a point where structural inflation is going to take a bite out of demand as well. and that structural inflation will keep inching higher, even unfortunately into a decline. I think if we do go into that long spoken about recession, which I don't think is likely because we're running a really hot demand push economy, much like the 1960s and 70s, I think we are likely going to continue to see a relatively sticky inflation in the context of that as well.

49:01So the truth is not two-dimensional. Everybody has thought about inflation in cyclical terms. When you talk to most people, even bond traders from the last 40 years, everybody thinks and talks about 10-year bonds and inflation in the context of, are we entering recession or are we not? The cyclical factors are the ongoing factors that happen in all cycles. But we have gone from a very structurally secular deflationary environment with all the globalization and low interest rates, et cetera, to a structurally inflationary environment on the back of populism, protectionism, higher interest rates, et cetera.

49:37And so now that really changes the inflationary outlook. It makes it really hard to pull down inflation. Actually, what that ultimately means is that the inflation is the thing that slows the economy. And so that is a stagflationary environment. We're there, in my opinion, for the next decade on and off. It doesn't mean interest rates will come down at periods and that we won't see some lower inflation relative to, as we've seen, right? Deflation came down from much higher levels. But here we go again, secularly pushing higher. And so we just expect a long-term 10-plus year structural March higher inflation with big rallies and big drops.

50:20But the trend is higher, and that's a problem for the stock market broadly over this period as well as obviously the bond market. We talked about this a little bit before. We talked about this in terms of structural macro terms. I know we're shifting hats here a little bit, but it's, I think, an interesting point where you sort of made this reference to the idea that we've gotten growth without inflation and what the cost has been in exporting some of those jobs, a significant number of those jobs, is that you have an increase in inequality here at home. Here's a question, which is, to what extent does automation and AI play into these?

51:02Because this is something that really just hasn't yet been fully priced into market. I know you've seen some of the trades with tech stocks going ever higher than the ones that have the best exposure to it. But the sort of structural systemic question of what happens when you have this total factor productivity, decreasing costs, increasing productivity as a consequence of AI and automation is just beginning to be seen in markets in terms of the capacity for production. About timeframes, you know, this is not, by the way, the first. Everybody thinks that the new technology is a step function relative to the past.

51:41We thought that with the wheel, I think, when the wheel was invented, right? Like, you know, progress is always happening now. The speed, I think people give too little credit to the speed and acceleration of progress being a function of money supply. Part of the reason we've had a technological boom in the last 30 years is because interest rates have gone from 20 to zero. So more recently, that's driven a venture capital boom. It's what's driven inequality, right? That's what's driven inequality. We've been sending money to capital. But if you send money to capital, what happens? Capital is all incentives.

52:24Capital has one incentive, to make profit. How do they make profit? Two ways. Either find a lower means of production, which creates globalization, or they come up with technological innovations, right, to push them forward. And not only do they do that to lower their costs, but they do it, it becomes an ecosystem where companies are creating more technology to lower the cost to provide these services to other corporations. Capital markets drive innovation. What happened to the Mesozoic era? We put more oxygen in the environment. There was more oxygen in the environment. What happened? The dinosaurs just got really big.

53:01I mean, it's simple, right? You give enough money into corporations and over 40 years, you not only see massive inequality, but you see technological progress and globalization. That's what we've seen. And that's structurally very deflationary. But what happens when that inequality gets so big? Well, at some point, people say, well, wait a second. You know, love the technological innovation, but I need to feed my kids, right? And then we take money from capital and we send it to labor. We send it to people. That's a demand push economy. It's not a supply-side economic model, and that's inflationary because the velocity of money when you send it to individuals is one.

53:38When you send it to corporations, it is zero. And so that inflation ultimately raises interest rates, takes money from capital, and slows technological progress, unwinds globalization. And this happens over decades. This is what's coming. This is where we're heading. And we've been talking about this for years. It continues to walk down this path. Now, when this happens, that takes money from venture, that takes money from corporations, particularly growth companies who don't have revenue to continue to create technological innovation. So you tell me, you know, Amazon, Uber, Tesla, all these companies didn't make money for 20 years.

54:16How do they make money for 20 years? How do they develop these amazing technologies? How do they change our lives? They did it on the back of 0 % interest rates. We've had no other period of time where you could not make money for 20 years as a corporation. And simply based on eyeballs or interest, get money again and again to take over the market. That's great. It's wonderful. It's capital markets at their best. But that drives massive inequality. And so if we stop doing that, how is that next corporation that wants to that next AI company or whatever company it is, how are they going to not make money for 20 years?

54:51They can't. They have to make money now. or they don't have funding. And so that makes it a lot harder to grow technology and it also takes away from globalization. It also compresses margins. At the end of the day, we're at record margins still. Why is that? Because of globalization, because of technology, because of cheap interest rates. Those margins compress as interest rates go higher. This is really poor for equity markets and really particularly poor for growth and technological innovation. So I would argue that, you know, much like we always do, we look at the trajectory we are on and we look forward.

55:29We say, oh, well, we're going to keep going in this direction because that's where we're going. I think the key to doing this right is to think about what are the inputs to that trajectory because things don't always continue in the straight line. Yeah, and even if the overall directionality remains the same, the rate of change decreases perhaps dramatically at the margin. We're always going to get technological innovation. I'm not saying that we're going to zero and that we're no longer going to grow or create new ideas or evolve. That's been the case. Progress is the one constant in life. But we grow at different rates and in different ways.

56:04And those sometimes can be dramatic changes in trajectory. Yeah, it can be very difficult to see because decades-long time horizons to human eyes can look like they're unfolding on a geological timescale, even though they're not. There's the idea of the way that we perceive things, something that's been in place for 20 years feels like forever to us, right? It's been a 40-year cycle. 40 years since 1982 when interest rates peaked and then we opened up to China. We went from a demand-side economic model to a supply-side model in every single way. 40 years. 40 years is two generations. Very few people will look past 40 years.

56:45Have you ever seen a trading product come to you and you say, this is my 100-year track record? Every model, everything that's been dealt, every economic, all of Wall Street and wealth advisory is 60-40. Why? Is it because 60-40 wasn't an idea that people had before 40 years? No, it didn't work prior to 40 years ago. It literally did not work. In 68 to 82, equities lost 65 % of their value in real terms, while the bond market lost more than that. It not only didn't work, you lost all your money if you did 60-40, if you did it for the 15 years prior to the last 40 years. But nobody looks at that.

57:20Nobody cares about that because the whole system is built to profit from what has happened. Because 40 years is essentially forever. And that's what's a big contributor to these cycles. Everything, the pendulum swings and there's a momentum factor and it goes all one way. And then everybody starts to say, oh, wait a second. This was a real long-term, long, long-term trend. This was a generational thing. And so I think Particularly in wealth advisory In capital markets People have really lost sight Of how much of a contributor Interest rates going from 20 to 0 Secularly over 40 years And that globalization Everything else that was part of that Has had to do with The performance of assets I think once you unwind And you start saying Wait a second What if interest rates go higher Seems like a crazy thing By the way whenever I say that People are like How can we do that?

58:15We have so much debt. We couldn't possibly, you know, interest rates couldn't go higher. What happens if they do? I'm here to tell you it is exactly the opposite of what we've seen the last four years. So interesting. There is your big idea for the week, thinking about these things across different time horizons. Hesh, what a great and interesting point. I want to end on this just because it's one final question that's interesting. Maybe we can talk a little bit and tie this into the longer term trends. But here's one from Mr. Hunayan, who says, where do you see Bitcoin going? What is your opinion for new investors coming into Bitcoin for long term investment?

58:57Bitcoin holding its chin up above 100K now, despite some downward momentum over the last 24, 36 hours. Bitcoin is and will continue to move towards being millennial on down gold. What do I mean by that? Gold maintains its value as a function of people's belief that it is worth something. It's about confidence, right? And if you understand the history of Bitcoin, the reason that it exists is because generationally, millennials on down, who were labor, have suffered due to monetary policy. We've seen massive inequality because of monetary policy. For 40 years, labor in the United States, particularly the youth who have represented labor, have dramatically underperformed.

59:56They're at 40 % or now 45 % of the wealth creation and household formation that baby boomers were at at this time in their life cycle. They've been living with mom and dad in the basement, trying to get out, trying to buy a home, unable to start a family. That's real. So that's what's driving the populism because they're now coming to political dominance. And that populism and that policy, whether Trump or Bernie Sanders, right, is where we're going for the next 15 years. Look to millennials. Look to millennials on down and give them what they want because they're going to invest in what they want because that's what's going to succeed in the next four years.

1:00:36Bitcoin is a representation of that. They grew up in this 40 years of technological development we just talked about, right? I thought that technology can solve all of our problems. And our chief problem was inequality and monetary policy. So Bitcoin was created by this generation to solve this inequality problem through technology. It's a perfect solution. And in the meantime, this generation has been underperforming dramatically. And they're looking for convex ways. This whole YOLO mentality is because they need to catch up. They feel desperate. And the only way they can do that is take more risk.

1:01:15So this is the embodiment of that generation. And if we are going to get inflation, where do you think people are going to store their money as a store of love? Do you think millennials on down are going to store it in gold or Bitcoin? So it's not that gold won't do well in inflation period, but I think Bitcoin participates in that way. There are other factors. We have deglobalization, which you already talked about happening too. If that continues, people need to get money out of these other countries. And Bitcoin is the perfect way to do that. So there are multiple trends, right? Not just inflation, and it's a store of wealth, but millennial demand and increasing money flowing to millennials who will have more money, who will then invest in Bitcoin.

1:01:59Paired with the deglobalization, the need to get money out of emerging markets and other parts of the world into a more stable place. That is what's driving the super cycle. And the thing about an asset like Bitcoin is it's a confidence gain. Same thing with gold, by the way. This is not an indictment. People, if they believe in it, it will be true. It has gained enough scale. And it has a sponsor in the sense of the biggest growing group that is getting money that is politically dominant to back it. Now, to be clear, that's a decade-long thing. But at the end of the day, we have to ask ourselves, because there's no true sponsor to Bitcoin, meaning a government or a source of power that is somehow centralized, think the U.S.

1:02:52government with the dollar, right, or, you know, other assets. At the end of the day, does it threaten things like the exorbitant privilege of the U.S. dollar? Does it threaten, you know, power structures large? Yes, that's what it was built to do. And so at some point, you have to ask yourself, are those entities going to continue in the long term? I remind Trump and part of the reason it's rallied so much lately is the big threat to Bitcoin is government intervention. Much like the U.S. unpinned itself from gold, right? Because it didn't want to be tethered by something. The reason we have the exorbitant privilege of the U.S.

1:03:31dollar is because Nixon untethered us from gold. Does the U.S. government want to be re-tethered by something like Bitcoin? And the answer is no, it doesn't. And power structures ultimately will not allow these things to exist in the long term. That doesn't mean the next 10 years Bitcoin won't continue, maybe 15. We're talking about long term cycles. So you have to be bullish. You have to be long of Bitcoin. It's not going to be secular. It's going to be volatile. The most volatile asset in 68 to 82 was gold. It was also the most positive asset. So it's going to be a very volatile ride. There'll be big, big dislocations along the way.

1:04:09But you have to be bullish of both gold and Bitcoin with the understanding that if regulatory oversight starts to take hold on Bitcoin, which again, I don't see happening anytime soon, meaning decade plus, that is going to be very, very bad for Bitcoin for quite some time after this is done. Think of it almost like gold. And there's also this question of the timing and processional effects, where if Bitcoin is allowed in these early years to get that growth path forward, if it scales, it becomes much more difficult, I think, to restrain, just from a purely technological perspective, that if this is not something that gets strangled in the crib, it seems to me, at least, that it gets a kind of toehold that becomes very difficult technologically to disintermediate.

1:05:00Yeah, the only way you really could is by massive regulatory changes. You know, yes, the U.S. government, being the biggest economy in the world, could relegate it to backwaters. That's the threat. And the second Trump and Elon got voted in the office, that threat came off the table for at least four years. That's why you're seeing a dramatic rally. Pair that with the inflationary, structural inflationary forces that come along with Trump and that were in broadly for the decade is part of why you've seen this. massive uh reignition of the ass yeah and i guess in democracies that becomes harder to do when you have broad-based ownership of an asset right that's right that's right at the end of the day it threatens the power of global powers that's why it was created and you have to ask yourself in the long run in the long run uh will power allow that to happen the history of not just humankind, but animal kind says no.

1:05:59But those are long, long timeframes, not decades. Jim, I don't know the answer to any of those questions, but I'm always continually impressed by your ability to shift gears from talking about the most market micro mechanics into these bigger picture questions. It's one of the reasons why we, and I know our viewers and listeners, enjoy having you on Real Vision so very much. Very kind. I enjoy it. I have a passion for it. And there's a lot, this world is very interesting. So the more we can dive in and think deeply about these things, the better for all of us. This is truly what moves everything.

1:06:38It's less about qualitative, more about thinking about incentives and reactions in the big picture. So thank you. Kind words. Happy to be here. Thanks, Ash. Jim Carson, always a pleasure. Thank you for joining us. Thank you for watching. Thank you for listening. Have a great day, everybody.

1:07:17So within this, we have parties. you can choose the VIP track and then you might be on a boat party and you're doing something else and going for a dinner there or meeting people in different venues and bars so there's lots going on it's like a mad treasure hunt I like the idea of just hanging out with you guys drinking a rum or a glass of champagne and putting the world to rights and just really celebrating you as our members and our community and it's a thank you for that as well it'll be an incredible event

1:07:52listen get your tickets quick before they sell out this is the event you've been waiting for come and join us for the crypto gathering we will have an absolute blast

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