The Everything Rally Is About to Begin | Joe Carlasare

25:05You think about this, if you're trying to spur adoption again, and I think your podcast talks about the idea behind getting broader adoption and you view that as a goal, right? Yes. Seeing somebody buy when there's massive FOMO and Bitcoin's ripping every day and you have massive gains and then having that person have to endure a 60, 70, 80 % drawdown psychologically is devastating. even if they have a smaller amount of money in it. I mean, I know plenty of people who they bought, you know, between say two and$5 ,000 of Bitcoin in 2017. And then they saw that, you know, if they're buying in November or December, they saw that get cut in half or down 70%.

25:48Psychologically, that's very difficult for people. And although we can preach as Bitcoiners, DCA, DCA, we know that's not what people are going to do. People are going to put the money in when it's fast moving, when there's momentum and they're going to take the money out when it keeps moving against them. So what I would rather see is more like equity performance on steroids, almost like NASDAQ performance on steroids, where you have 15, 20 % gains year over year consistently. Maybe you don't have the five or 10X moves, but you have consistent double digit returns. And when you have a drawdown, it's a 20-30 % digestion move where you attract buyers at lower prices and they come back in and then we off to the races.

26:31I mean, if you can break this cycle thesis, which the first step of that is, I think, putting in this low and making sure we don't go back to the 58K area, if you can break that cycle thesis that we have to pull back 70-80%, to me, that's going to mean Bitcoin trades better of the future. And I think it's going to be less of an incentive to try to gain tops. You know, the equity market, one of the reasons the equity market trades like how it does, Danny, is because the investors in VU or the S &P 500 index funds, they have been conditioned that, yes, you'll occasionally get a 10 to 15 to 20 % correction, but we will make new all-time highs within, you know, a month or two months or six months, whatever it is, right?

27:13So, you know, you saw that in april of this year you saw it the year before and during in april of 25 you see these very sharp downturns but then it rapidly goes right back up if bitcoin can start to trade like that man um the whole noise about it being too volatile or uh not something for regular investors i think it all changes i think it goes to a position where like bitcoin is seen more as a fundamental pillar of your portfolio yeah i i think to your point it really doesn't matter how much money you have in Bitcoin. And if you take that to sort of the logical extreme, I love grassroots adoption in Bitcoin.

27:50And last year I was in Kenya and we went to Kibera, which is the largest slum in Kenya. There's like a million people in this slum. They have very, very little. And there's an awesome little Bitcoin circular economy that's built there. There's like 60 merchants. And the idea of people getting onboarded to that kind of program, buying Bitcoin at the top, and then them losing half their net worth, which is a very small amount in Kabira, like is a very, very poor area. That's devastating. And if we want real grassroots adoption, that does need to stop at some point. And I remember when we first spoke, I think in Vegas, you were saying you like the idea of Bitcoin stair-stepping to a million dollars rather than these crazy moves up and down.

28:27Do you still think that's on the cards at all? Absolutely. I mean, here's the thing. The Bitcoin market, I think this dovetails really nicely with what we've been going through with this cycle thesis. Bitcoin, perhaps more than any other asset, I think it survives and thrives on narratives. And the narratives have changed, to be clear. If you're being honest, the narratives from the early days to now, they've changed. The narrative from peer-to-peer currency has changed, I think, now to more store of value. And I don't view that as a negative. The narratives of companies change. The narrative of nations change, the narratives of even religions change.

29:07I don't view the fact that narratives change as somehow being a negative. I think what you're going to look at is an alternative to sovereign debt as closer to a digital gold, but far more versatile and having far more utility and verifiability. I think Bitcoin will have a place in a portfolio. I think that will be very encouraging moving forward. The narrative that we have, that we have to have boom and bust cycles, although we will always have corrections and we'll have bold moves and consolidation moves, I think the boom and bust narrative may die. I think you may, at some point in the near, not too distant future, put it that way, not too distant future, I think you may have a period where Bitcoin, instead of having these boom and bust, it has more of a stable growth within corrections.

29:51But the secular story of it being the world's greatest store of value, that can survive and thrive. And it's only enhanced, right? If I'm going to present something into the store of value, one of the common knocks that I see from the Tradify people is, well, what kind of store of value loses 50 % in a year or 60%, right? Well, I would say gold, right? Gold's test. It is lots of giving, you know, look at gold at various different points. It's gone down 20, 30, 40%, even in recent history. So you always have those corrections, but you don't have it with the regularity that I think Bitcoin has. Bitcoin is far more regular.

30:27And to me, all that is is that's the volatility that's the angst of like a young child who is extremely volatile if you have little kids that's just a maturing asset okay but mature assets trade differently from immature assets so where where i draw the parallel with bitcoin is i think as bitcoin has more capital as bitcoin has more tools as bitcoin has you know ways where you can and i know of three three platforms where you can buy a mortgage with bitcoin as collateral right when when you have more of that versatility and integration in the traditional finance system, you have a less compelling reason to sell.

31:03When you can buy in any US regulated brokerage account, you can buy various derivatives to help protect your downside risk from holding Bitcoin, it's going to trade differently. And I think some of these things coming online with the ETF, which again, I know that we lose sight of this, but we're like a little over two years into the ETF era of Bitcoin. to me that's nothing it's absolutely nothing so for people to tell you they know with certainty how bitcoin is going to perform uh i have a lot of skepticism over that and i think that you will be surprised over the next five years all the different ways in which bitcoin is starting to adapt into looking very different from how it did in the early days i think things like the mortgages as well are really interesting like i if there was a mortgage with a bitcoin kicker where like I locked Bitcoin up, I would certainly take that.

31:55I think they don't exist in Australia at the moment. But that kind of changes the duration of the asset a little bit as well. Like if you're locking Bitcoin up on a 30-year mortgage, it changes your ability to sell at such tight intervals. Absolutely. Why do we have a lack of sellers even among very negative concerning economic news and inflation news and war and trade? Why do we have a lack of sellers in the equity market? Because a lot of that money's in 401k and retirement accounts where um you know people just say oh i can't really i can't it's one one one partner of mine he says he he looks at his retirement accounts as sort of like uh fake money like he doesn't even he doesn't even acknowledge it exists because he can't really tap into it and i think that's that's subconsciously like a lot of ways people in the united states and other um other countries that have access to 401k retirement type structures they just think of it's like it's there whatever uh i can't tap it i can't really get liquidity of it.

32:51I'm just going to leave it. And that's becoming the dominant philosophy, the dominant mindset that we're not just going to mess with it. I think that will increasingly be the dominant view towards Bitcoin. You get a little, you hang on to it. You don't mess with it. You don't try to time it. And once more and more people do that, you're exhausting supply. You're taking those coins out of circulation and you're leaving only new marginal buyers, very limited marginal sellers, unless, of course, you move the price up and then you move that price up and that will always unlock more supply. So it's always sort of going to be a balancing factor.

33:24But to me, I think there's going to be far more coins available for far more coins that are being huddled than are available for sale in the coming years. I mean, I do the same thing with my Bitcoin. I don't think of it as not real money, but I do have sort of a silo around it where I'm like, that's the last thing I touch. And that's something that I'm holding for a long time. But the more people we get thinking like that, the better. I have a question for you, though, because you said you don't think there's Bitcoin being sort of just a store of value is a negative and it has a place in a portfolio like I don't disagree with that I think you're right and I think that's how the world will view it but if Bitcoin doesn't become sort of like money as in it's used as store of value minimum exchange and unit account at some point in the future I think this is a long way off do you think it's failed in any way you wouldn't reuse a Bitcoin address so why does your phone broadcast the same identifier for life.

34:17Every SIM has a static ID and carriers, ad networks and bad actors all use it to track you. The big carriers have been caught selling that data over and over again. CAPE is America's privacy first mobile carrier. Their identifier rotation feature changes your ID every 24 hours so you look like a different subscriber every single day. And SIM swaps are off the table. Your number can't move without a 24-word phrase that only you hold. There's also no name at sign up, no social security number, and there's no profile to build on you. If you're a Bitcoiner in America, I honestly don't know why you'd use any other network.

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35:25So before you approve something, you can check it on the BitKey itself. The transaction, the address, or any account changes. It's a big difference. You're not just trusting what's on your phone. You're seeing it for yourself on the device. It's simple, secure self-custody without the stress. Go to bitkey.world today and use the code WBD to get 10 % off the new BitKey. That's bitkey.world and use the code WBD. I think it's interesting that we borrow a lot of this rhetoric about store of value, medium of exchange, unit of count, really from Aristotle. There's some similar philosophers of his era that talked about the different various attributes of money.

36:07And what I think is fascinating is that we're applying sort of this framework that it has to be all of the above. And I would argue that in the future, I'm not certain that that has to be the case. I don't really understand why a money can't be primarily the store of value, because if you think about it, from an emphasis standpoint, what matters more to you? What matters the most to people is their net worth overall, right? The fact that you don't have it liquid to be used for coffee every day, to me, although it somehow disintermediates the tangible nature of money, like, okay, I'm using this for a purchase.

36:48With technology, I think you're just going to see this seamless integration between all of these things. Like I'm aware of a company that is now letting you access payments for shares of VOO, the S &P 500 ETF. Like literally you can go buy a coffee and you can use a partial share of your VOO, right? I think you're going to see technological innovation blur the framework of medium exchange to the point where really there's no distinction between any asset that could be a store of value and also a medium of exchange. Now, to your point, is there some sort of drawback to it never becoming the dominant medium of exchange?

37:26I don't really think so. And the analogy I would use is the treasury market. You and I have talked at length about how important and integral treasuries are to the global system, right? I think there's not a single individual that's an economist in the world who would say that the treasury market is not one of the top, if not the top, global reserve asset, period, full stop. It's the whole backbone of our credit system, our banking system. It's the backbone of U.S. hegemony. The treasury market is massive, right? my question to you Danny is when was the last time you went and took a 30-year bond and used it to buy bread at the grocery store or used to buy a cup of coffee do you walk in with you know 10-year notes and say here here's my 10-year note I would like to buy a cup of coffee no you don't but its place is paramount among the reserve assets it's the highest quality liquid collateral that's accepted everywhere, you know, through banking systems.

38:27So to me, like the lack of payment systems that are tailored around Bitcoin, I think, you know, obviously you'd want something one day where that becomes a more dominant medium of exchange. I don't see any reason why that's not a good thing. I definitely would encourage that. I'm not negative on that. I just don't necessarily think that that needs to be a necessary condition for Bitcoin to have success. um you know i've i've i frequently quote it in spaces on twitter and i think it's the uh the single most prescient thing um that was said in the early bitcoin talk forums and i really mean that when how hal finney talks about his belief that the end game for bitcoin is to be high power money among between banks with banks issuing you know various different coins on the higher layers to me that makes way more sense i mean if you had a banking system that was built on the back of bitcoin as opposed to sovereign debt how it currently has i think the world would be a much better place i think there would be a lot more of a disincentive to do the types of malinvestment and you know too big to fail type public policies that we have uh than currently uh to me that i think that is key even if it wasn't even the dominant form even if they had a blend of treasuries gold and bitcoin i think you'd have a more stable banking system with that under the hood then we have to have all sovereign debt sovereign that's the only name in town i think private sector forces that would put a uh you know a curtail on the government excess saying like okay we have a choice between gold bitcoin and uh treasuries what what do we want to hold as a central banking institution as high quality uh collateral that would be positive okay rather than right now which you have compulsion, where they're almost forced.

40:12Many institutions are forced to hold treasuries by law, which to me, that's not as healthy of a system. I think the only sort of cancer to that is, from like an ideological perspective, does that mean that we don't really get the full benefit of permissionless freedom money? Because you're still, you have that as your sort of savings, your store of value, but you don't necessarily have that. You're still working within a permission system to actually interact with the economy. Well, this is where I differ okay from many bit corners i i don't i think the uh i don't mean to use a pejorative but i'll just i can't think of a different a crypto anarchist okay version of permissionless freedom money that we're not going to have any curtail or any laws that would be applicable to our financial transactions i think that is a fantasy i think it will never come to pass i think there will always be rules in place the question we should be asking ourselves is not a system of no rules.

41:09It's what rules make sense, what rules are authoritarian, what rules are far too pernicious in terms of undermining privacy and liberty considerations. What is the right balance of rules? I wrote a book recently that we will probably get into, where I try to explain this tension. There are real reasons why we would want to have some order and structure on financial transactions. Okay. Now I'm not at all defending the current regime because I think there are many problems with the current regime that we all know about. And we're all Bitcoiners because we care about trying to make something better.

41:45That being said, the idea of a laissez-faire where there's no restrictions whatsoever on financial transactions, I just don't think that's realistic. I think society on balance will reject that. And you'll have more of a situation where, well, maybe we don't want that much regulation. Maybe we don't want that much control. We need to have the pendulum swing far back in the favor of liberty and privacy and more of a, you know, I won't say freedom money, but a freer money, right? Probably just on the spectrum, you'd want it to be closer to the ideals of what, you know, I think a lot of the original intent of Bitcoin wants.

42:23And so from that perspective, do you think that Bitcoin essentially acts as like a check and balance in this new system? Yes, 100%. I mean, that, like, If you had a banking institution, okay, that, let's just imagine this with me. You had a banking institution where one of the major assets that it held is Bitcoin, okay, and it's not just all sovereign debt, then the notion of too big to fail radically changes. Okay, which, you know, Satoshi is creating Bitcoin in the wake of the financial crisis, right? When you chance around the break of second bailout of the banks, right? that I think most human beings look at that and say there's something wrong with that.

43:02If for a working system, if you have to have skin in the game, you can't just make a ton of risky bets and then get bailed out and parachute out with payments and bonuses and have no repercussions to your negative decision-making, your bad decision-making. I think if you had a banking system there that was built with some core of it being Bitcoin, there's a real practical you know consequence that comes from a bank going down right that bitcoin that had a run on it is gone you're not going to be able to bail that person out there's real consequence that no public policy maker can just tap a few keys and print more bitcoin uh so that that to me would encourage more prudent decision making at the commercial banking level which to be clear, like, you know, the nonfiction book that I've been writing is about Bitcoin in the credit markets and how that works.

43:58And to me, that's the most interesting discussion in Bitcoin today is like, how do you forecast credit markets in the future? You have the extreme of, there's going to be no credit, it's going to be Bitcoin only. Then you have sort of the more, I think, realistic perspective that you're going to always have some form of credit because credit is just a private arrangement between actors that is regulated, right? So like, how do you marry these to? What's the appropriate level of credit? How do you put a curb on excess credit that leads to volatility in markets that is not good? When crises happen, when there's liquidation events, it's always an asset liability mismatch.

44:31That's what it really is. That's the core of most crashes, asset liability mismatch. So how do we create more of a yin and the yang, more of a balance that is somehow curtailed by the inclusion of Bitcoin into the system so that people have more free market potential for how to store their capital, where to store it, what degrees, you know, what reliance you want to put on somebody. I mean, there's this whole debate right now, Danny, about like custody versus non-custody Bitcoin, et cetera. To me, Bitcoin succeeds so long as I have the choice. If I have the choice to be able to decide if I want a custody or not custody, to me, that's an infinitely better system than one in which I'm required to rely on custodians.

45:13Absolutely. I totally agree with that. And okay, I want to, I mean, first of all, I want to read this book. When is it going to be out? Well, it's a fiction book. I think we talked about it in the past, but I guess it is out. You can buy it right now on Amazon. By the way, if you have a Audible account, Audible Premium, or you have a Spotify Premium account, you can download it. It's got an audiobook. it is a bitcoin thriller it explores the tension between the law something i live every day and bitcoin i've tried to use a sort of a realistic plot to the extent you can make a realistic plot between how judges have i've experienced treated bitcoin some animosity i've seen towards bitcoin and i try to do it in a compelling way because i believe there have been a lot of great books written by very smart people about bitcoin explaining right but one of the great things about uh fiction that lets you play in the sandbox and actually communicate in a different level to people is that it lets you have people learn through the act of entertainment i mean i believe most people want to be entertained rather than sit down read a dry thousand year history of money and you know how how one uh island used uh giant large rocks as money i think they want to get immersed into a narrative.

46:32The example I always use is like The Big Short, right? The Big Short, I think, taught more about some of the issues with our economic system than a lot of other stories because you went and you went into the movie and there was all these funny stories and backdrop that was engaging and people learned a lot along the way, along a pretty interesting story. I tried to do that in a fiction setting and I hope I succeeded. I've gotten some great early reaction to it and uh it's called unconfiscatable you can pick it up on audible or amazon um right now and and uh highly recommend the audiobook because the guy that did the voiceover he's a professional voice actor he's fantastic he nailed all the characters uh so it's a good ride um yeah and uh i'm excited to hear what people think about it i was trying to trying to introduce bitcoin to a mainstream audience but i think if you're a bitcoiner like you'll love the book because there's so many references to a lot of the stuff we talk about in the same themes of you know, the individual versus the state and the government and non-governmental actors and how they have tension between the two.

47:33I love it. I've literally just ordered it while you were talking then. I've got the hardcover for the bookshelf, but I need the Kindle version when this is fully released. Absolutely. Okay. I want to go back to the very start of this conversation where we're talking about one of the catalysts for this move, at least from a narrative perspective, with what happened in the treasury market. Or what Scott Percent said, came out and said, do you want to explain what happened there? You'll do a better job than I will. Sure. Okay. So again, we'll start from the standpoint of narratives. Okay? Because again, as I told you, I think as I get older and more of a student of markets, I consider myself an evolving student of markets.

48:15I continue to have to remind myself is that it's not necessarily about the reality. It's about the perception of the reality. Perception of reality governs people's actions, okay? So, you know, Lynn Alden, who I love her work, she put out this, you know, sort of breakdown of common things you see about the treasury market and misnomers and is this yield curve control? Is this not yield curve control? Is this a QE, not QE? You know, all the different monikers. But at the end of the day, I think there was a message that was intended to be sent by Besant when he said we're going to double the size of the buybacks.

48:53But I want to make sure people understand as we sort of conflate things what we're actually talking about with the buybacks. Okay. So when people think about the treasury market, you or I, we may naturally think about like Bitcoin, right? The idea of one Bitcoin equals one Bitcoin, right? You know, if I have a Bitcoin, you have a Bitcoin for all intents and purposes, they're equal. that's not true in the treasury market, Danny. It's not. There are different tenors of treasuries. There are what's called on-the-run treasuries, off-the-run, right? Off-the-run treasuries are more illiquid. So just think about it like this.

49:28There are certain tranches of treasury market securities that are thinly traded, that because of when they were issued, at what time there was more of a variety of different tenors, there's more than less. Some don't have liquidity. as some of the other instruments. And when we talk about the treasury, we really talk about the treasury curve. You're familiar with the treasury curve, right? All the different durations. You've got the bills, notes, bonds, and yes, it's all government debt, right? But it's not really equal. You know, warehousing a 20-year is different than warehousing three-month bills.

50:05And for your audience to think about this, it's like, okay, if I have three-month bills, those are effectively cash. in three months, I'm going to get whatever the yield is plus the cash back. Okay. Now that's different if you're an institution, if you're housing that three month bill on your books, that's different from housing a 20 year, right? Cause you're still going to get paid with that 20 year, but you got to house that thing for decades, or maybe there's eight years left on it. And it was issued during the pandemic, you know, it was a note issued in 2020 yielding 0.4, 0.5%. and you've got X amount of years left on that particular security.

50:42So why does that matter? Well, the treasury market has the ability, and they have consistently had this ability, to manage their profile of debt however they see fit. So in other words, if they think that there are certain tenors or tranches of the treasury market that are thinly traded, that are not good for liquidity overall, they have the right, and they've done this repeatedly. They did this in the early 2000s and at other periods, to exercise a buyback. So they say, okay, we're going to take all these off-the-run treasuries that are thinly traded, and we're going to swap them. And then how do you make up the difference?

51:18Because unlike the Fed, as you know, and your listeners know, the Fed can just print money. The Fed can just go buy things, right? You know, tap the computer, ding, ding, ding, bought X amount of, you know, whatever we've engaged in QE. The treasury can't. Every single thing the treasury has to do has to come from an expenditure of the treasury mark, of the treasury, the TGA. And the way they do that is through either taxes, which we know they're running structural deficits, so they have to borrow, okay? Because the taxes don't make up the full outlay that the treasury market does, the expenditures the US government does.

51:51So they have to go borrow money from either the bills market or the short rate market, and then they take that borrowed money to swap out the longer-dated treasury. So they've had a buyback program for years now. It was instituted in 2023, I believe, And they said, well, we're going to double the size of it. So the idea is to improve liquidity. We're going to go buy more of a certain vintage or a certain tenor of these securities. Now, why does that matter? Well, it matters because I think from a market perspective, from a trader perspective, the message is clear and it's always the message and never changes, whatever it takes.

52:28I mean, this is why I frequently fade the treasury market doomers, because to me, I think the constant rule, the only rule that matters is whatever it takes. We'll do literally whatever it takes, including rewriting all the rules that we have to to make it work. So for me, like hearing the message of Vessit, we'll do up to 4 billion or more. What he's clearly saying is, look, if these rates get out of control, we're going to do what we need to do and improve liquidity. Now, to be clear, that is not yield curve control. That's very different from a yield curve control type approach where you just say, look, there's Japan style.

53:00There's going to be an infinite bid. We're not going to let the yields rise higher than a certain level. That may or may not be the policy of the United States at some point, but it's not today. We have done yield curve control in the past. I think we've done a whole variety of things. But really right now, I think what they're saying is we don't need to go that far. We don't need to fire that bullet in the gun at this point. What we can do is just say, look, to the extent there's illiquidity in certain tranches or tenors of the treasury market, we're just going to go buy those. We're going to take them off the books, we're going to swap them for bills, and that'll make it far easier for these institutions to hold.

53:36Because again, it's easier to hold short bills, because they're basically cash, than have duration risk with longer dated instruments. So if that's what it takes, we'll do it. Okay, I've got a ton of questions on that, but let's start with the swapping the older illiquid bonds for, like you say, the bills that are effectively cash. What does that actually do to the economy? If it has the perceived result, which is that there is a backstop between the treasury market and Besson's working with Warsh, and there's no need to fear any concerns about debt, if that is the perception, I think practically what it does is it puts a lid on yield.

54:13It puts a floor on the bond market, and it gives investors confidence to say, we don't really need to worry about a runaway 2022 style sell-off in the bond market. If that is the perception, right? Um, you know, Ben Bernanke, former chair of the federal reserve, he said, and again, we're talking about treasury here. So just be mindful of the difference, but he said, you know, the chief tool of the federal reserve chairman is to talk, right? His, his most powerful, one of his most powerful policy tools is to set expectations. Now we have a, we have a, a Fed chair now who's sort of raging against that, who's doesn't want to set forward guidance.

54:54in many ways he's deferring i think to the treasury secretary which is altogether fitting i think because you're in an era of fiscal dominance where fiscal deficits are uh perhaps the most important factor in the economy overall you know six to seven percent deficit gdp in that era whose voice is more impactful is it the treasury secretary or is it the fed chair i think that they're in a coordinated way sort of trying to say look the fed is going to take a backseat to treasury. We're going to let the voice of the treasury secretary speak more loudly and clearly about the intention of fiscal policy.

55:30And I think in terms of the economy, again, if you set a floor on the bond market, meaning a ceiling on the yields, to me, that's really positive. We'll see. I think that part of the reason you're dealing with high yields is you've got oil shocks, which continue to be pervasive longer than people expect. You've got massive capex coming from the hyperscalers, which is causing inflationary pressures. I mean, go talk to builders about raw commodities and the prices there. I mean, my wife and I are looking at building a house and we were talking to the builder and he's saying, look, every single raw component, the copper, et cetera, it's all going through the roof because the hyperscalers are gobbling everything up and all that puts upward pressure on yields.

56:16So the question is, can the policymakers, can they talk down the real inflationary pressures you're seeing in society just by talking? Is that going to be enough? We'll see. And I know you say it's not yield curve control, and I get that technically it's not. They're not saying at this price we're biased, but they're doing something a little more ambiguous, which is like, we'll step in when we see fit, essentially. Absolutely. Does it have the same impact as yield curve control? i mean that's that remains to be seen right like so so to me i think its intention is to have the same impact you know i gotta remember a i think folks don't appreciate it fully enough i certainly didn't used to until i studied it deeply how much confidence how big of a role confidence plays okay you can have a bank and the example is if you go read some of the uh some of the fallout even from recently, like 2023, Silicon Valley, right?

57:15On paper, there will be people that swear up and down to this day, Silicon Valley was entirely sound. And there were other banks that were entirely sound that didn't need to fail. And what happened? You had a rumor. You had a rumor be pushed by very prominent people, and it causes a bank run. Okay? It causes panic. When it causes panic, what that perception is, that their bank is somehow unsound, it takes hold and that perception can literally bring down an institution the same is true of governments the same to varying degrees right the same is true of companies uh you could have a company that on paper is is just humming along making a ton of money if there's a bad scandal that hits if there's negative you know press that hits if there's a scandal about you know a about light commercial right that company can can sink overnight because of that perception So to me, if you have confidence in Besson, if you have confidence in Warsh, that actually can move markets.

58:14And that confidence can have the practical result, which is to answer your question, of something akin to yield curve control. You know what also has the practical result of yield curve control? Actual yield curve control. We're going to do an infinite bid, right? But if you were trying to convince people to have confidence, you don't want to go to the extreme unless necessary, right? Unless they stop believing you, then, and we see this with the yen market, right? Like, I think it's amazing. If you follow like the Japanese yen market, right? The yen will sell off against the dollar. And all of a sudden, like on a random Sunday night or, you know, middle of the week, the Bank of Japan will come in and scare, put the fear of God into some of the traders.

58:58They'll just come in like a massive amount of defensive policy to defend a certain threshold. And then what do you see? You see the yen, you know, skyrocket against the dollar because the policymakers have intervened. That is not, I think, a isolated aberration. It's not a one-off, right? That's sort of what policymakers do. They try to keep this fragile system together through jawboning, through cajoling, through policies when they need to make the policies. And then they're always debating how much do we need to do? What's the minimal effective dosage, to borrow a medical term? minimal effective dosage we need to use in terms of central planning to get the desired outcome.

59:39So, and I think it's important to say, talk about the scale of this because it's gone from two to four billion, which is like a drop in the ocean when we talk about these kind of numbers. 100%. Yeah. And I think the Treasury General account has about a trillion dollars in it. Is that right? Something like that. Somewhere, yeah. And so the people have seen this happen and are starting to talk about like, this is the start of the next big print. And again, I know the Treasury can't print money, but saying this is kind of like the escalation point and eventually the fed might step in do you think that's overstating what's happening right now uh yeah i don't think it's anywhere near the next big trend i think it is mostly a narrative that has taken hold i think it was coincident with this other narrative that i think the 40 trillion dollar psychological debt you know it hit is it it it permeated i think it got some media traction it's a big round number people love big round numbers they're heated it's very easy it's 30 you know 38 trillion 37 trillion just isn't as impactful as 40 trillion right um and then i think you do have real inflationary pressures in society with the things we mentioned oil and trade and tariffs and capex build out uh so to me like i think it's a little bit overblown i don't think it's a big print i think it's sort of a cajole is like we're really not comfortable with rates in the high fours um or we're not really willing to accept that.

1:01:02But it's not a catastrophe. It's not like we're bearing down on 5.1 % tenure, which I think at 5 % is a real line in the sand. I mean, it has been consistent. I think if you were above 5%, you might actually see more overt policy action that was taken, but we're not there yet. So we'll see to be determined. I think the question right now for people is, can they talk down the yields? Can you get a bid on bonds right now just by the treasury secretary and we're talking and i also think coincidentally if you listen to jackson hole um i was playing around the speech i was looking at the left the text and i mean if you just looked at that speech and it's a fun exercise like you can ask an lln to do it like just take the text of the speech and without looking at any other indicator any other market pricing if a venture is given this speech what are the chances of a hike in the near future.

1:01:57And some of the LMs I was running through were like, oh, it's like 80, 90%, right? Well, the bond market says the chances of a hike right now are like a coin flow. It's like 50-50. That's telling, right? When you give a maximum hawkishness speech, because he went through sort of out of his way at Jackson Hole last Friday, as we're recording this on the 31st of August, Chair Warsh went out of his way to talk about how corporate profits are great, unemployment is low, We've got massive capex. We've got low signs of stress in the credit markets, basically painting all of the steps and saying, and we've got a bad inflation where it's running higher than the trend.

1:02:34He went through all the things you would say if you're trying to state the case for a hike and you have 50 % odds in the betting market. To me, that's really interesting because I think what he was trying to do is trying to talk up maximum hawkish so he could just hold. Because if you think about it, you and I can't borrow at the Fed funds rate. We have to rely on the private sector. So if the curve sells off and the curve actually, you know, has a steepening, you know, we have rates go higher. In some ways, that's already doing the practical effect of a hike without actually having to hike, which is significant, right?

1:03:08Like Trump was pounding the table for two years about how the Fed is behind the curve and should be cutting, it should be cutting. You know, I think he does a lot of Fed chairman that comes in really shortly into his tenure, he's hiking rates. I think the far better thing is to let the curve do the work for you. Let the curve, through talking it up, let it sell off and let yields rise. And then hopefully, by the election, post-election, you'll have let these inflationary forces abate. You'll get a 10-year back down into the lower fours, which if you come back down into the lower fours, I think they're perfectly happy with a 10-year sitting there.

1:03:42I don't think they care much about having to do more than that. That war speech kind of asked the question of who really dictates what the rates are. And like, he obviously gets to set them, but is he just listening to the bond market? Like, is the bond market a place you get the actual signal from? Absolutely. We've talked about this, like, you know, on other podcasts. And I think on one of the versions we did together, I think that the Federal Reserve mostly, you know, you hear this language, they're always behind the curve. Well, if you believe that they're behind the curve, by definition, you mean that they're sort of following uh uh wherever the wherever the private rate market is going the private rate market is is setting these rates and what i think is interesting about his whole thing about forward guidance is like he's like i don't want to give the market forward guidance well okay if you're not going to give the market forward guidance it's not like it's not going to still make prognostications on what you're going to do okay it might just be worse guesses right i mean it's just going to be more guessing, right?

1:04:41Think about this. The Fed has people that leave the Fed and know how their models work, knows how the Taylor rule works, knows the personalities. I mean, if you're at the highest level trading fixed income, you are able to forecast not only what the raw econometric models say, but also the personalities involved, also the politics of it, also all these factors. It's no different than betting on a sports game, right? If you go, at the highest levels and you're betting on NFL football games, right? They will say, well, how does this tackle match up against this running back? How does this quarterback match up in this arena, which is a dome versus an open field and there's going to be a cold weather on Sunday?

1:05:26They're going to match all those variables up and they're going to make a model as to what their probability forecast is. The same is true of the bond market dealing with huge amounts of money. They're going to make a forecast based on all the personalities, all the data, and all the knowledge that they have about how the Fed makes decisions. So the removal of order guidance, like that's going to somehow eliminate market conjecture as to what is going to happen, what's going to take place. To me, I don't, I think it's always going to be there. It's just a question of what information you want to give.

1:05:53Okay. So, so with this move by the treasury, I understand the, you don't think this sort of is the start of the big print. Is there anything that worries you about this move? Does it signify anything to you that concerns you? in the bond market in the economy in general but yes the bond market as well i think the economy looks great um i think the economy is is you know that's humming along you've got you know a second quarter gdi at 4.2 percent uh you've got corporate profits very strong 400 billion dollars corporate profits i mean i i think that you've got sticky higher inflation uh when we talked about this last time you know my view is for the rest of the decade you're gonna have stickier higher inflation closer to three than two i think you're going to have a yield curve that's constantly under uh some sort of stress i i will fade the narratives that we're going back to a two percent you know 10 year or three percent 10 year anytime soon i think you're stuck in a range um i think you've established sort of an equilibrium say between four and five and i think it's going to chop there for a long time i think you could chop there for the rest of the decade the next four years i don't expect there to be anywhere near the move that the bond bears are thinking that we're going to go to like 10%, you know, 10 year rates.

1:07:04I don't expect that. But I also think that the doves, the people that think we're going to go back down to the pre-COVID era, they're also crazy. I think you've established this equilibrium. I think that the most concerning thing, if you're looking at, you know, economic news, the biggest event last week was not Jackson Hole or Besant talking. It's really NVIDIA and NVIDIA earnings and the AI CapEx. And is there any slowing in sight of that because if that is finally cooling off and the capex associated with that was is truly going to be drying up that's going to be significant but you know to me i don't really see any of that i mean you there's even even manufacturing pmi about 55 i mean that's that's a killer number compared to where we've been in in recent years so very encouraging very positive.

1:07:53I think you can make a case that looking back, say, five years from now, we will say that the period from really 2022 to 2026, that was all this massive digestion of the higher interest rate environment. A lot of assets went nowhere. A lot of productive capacity was really struggling in the manufacturing sense just because we had to deal and react and respond to these rent rates. We had the shock of 2022, but we're seeing finally the green shoots come into the economy where we're adapting and we're able to overcome this. And you have this industrial revolution 2.0 with AI, which is going to have huge effects on our economy that we can barely feel.

1:08:34And to me, the consistent picture through all commodity markets is higher structural inflation. It doesn't mean runaway. It doesn't mean hyperinflation. It means higher structural inflation, again, closer to, you know, 3D, low 3s than 2%. And I don't think there's anything they can do about it. I think Warsh, by the way, I think he has basically resolved himself to that fact. I think he thinks no matter what we do or say, I can't get inflation back down 2 % because we're in a different era and there's too many inflationary forces that we're going to have to deal with from commodities and labor, et cetera, for the next, you know, 5, 10 years.

1:09:09so so for a takeaway joe is it is it like you're you're bearish on inflation bullish on the economy bullish on assets most bullish on bitcoin 100 yeah no i mean that that that's generally it um i got a break here in a little bit we're running a time on my end but uh but yeah i mean i that that's it i i find it very difficult for people to believe that any of these things really breaks hard for example like what would change my mind we're suddenly going to become fiscally prudent and engage in austerity not going to happen we're suddenly going to have a huge influx of housing that brings shelter costs down which is the main driver inflation i don't think that's going to happen i think people are locked into two percent uh houses for a long time in the future suddenly we're going to have a a massive amount of you know raw materials come into you know into circulation no no we're going to have refinery and and capacity issues for the coming uh future i i just think you're in this environment where it's not great, but it's very, there are pockets of greatness, right?

1:10:11There's pockets of really a lot of strikes. So with that, I think that's a good summary. All right, Joe, I love it. I always love talking to you. Thank you, man. And go out and buy Joe's book. I'm very excited to read this. I've got it on the way. But appreciate it, man. I'll speak to you soon. Absolutely. Take care.

1:10:39Thank you.