Bubble, Crash, Stagflation, Reset Unveiled

Transcript

Intro

I think we have the largest open Ponzi game when it comes to to Micro Strategy. It's just an open Ponzi game. Everybody needs to pile into to him to to to the to the stock and then he can take on some more debt and he buys more Bitcoin and he doesn't expect it to to decline. And then if I get, you know, what what I'm talking about with the 120 and then the Dixie, I can promise you Bitcoin is going to take a beating. And if you see a the largest bubble in the world, the NASDAQ, you know, declining by 85% which it did into the 2001 bubble after that, which is a smaller bubble to, you know, than what we had today. Well, Bitcoin is going to have a really really bad day, a bad period. And then that means that, you know, Micro Strategy is going to

have that. So, I I think it's the largest um house of cards you have you we have seen in a long time. And if if that starts to unwind what you just said there, well, it's going to be really really bad for people who thinks that can just hold on to it. [Music] [Applause] Hi everybody, my name is Paul and welcome back to Reinvent Money, a show about money and power. Most of my guests expect a market crash. And today's guest expects that too. But he see he still sees plenty of upside before the mother of all bubbles will burst. And I'm happy to welcome Henrik Zeber to the show.

He's a macroeconomist at Swiss Block to discuss this uh interesting topic. Hi Rink. Welcome. >> Thank you very much, Paul, for having me on today. >> Yeah, first time on the show. Um, I've been following you for a while and and you have some interesting um, views, especially when it comes to timing the market. Like I've I've had a lot of um, bears on the show. People are were quite um, uh, somber and pessimistic about where markets are going and they expect lots of crashes to take place. You're also in the long run bearish, but in in the short run, you still see this market develop much more. Um, for example, stock markets in the US, but especially uh, basically across the world. real estate markets, crypto markets. Um, so

first question is uh why do you think prices are are going to get higher u much more over the next few months? >> Well, firstly because we don't have the uh the economies not breaking down to the point where we get a crash and and this is what people needs to understand is that a crash doesn't come out of of thin air. It actually comes out of a uh you know situation where the uh the environment in the economy is getting toxic and then you'll see that all of a sudden the you start to yeah you have the deterioration in the economy and you have the situation amongst the consumers and then you'll see that all of a sudden the the economy starts to run backwards because uh pe businesses will start to lay off people and we simply don't see

Why the stock and crypto markets will go up further first

those signals just yet. We don't see it in the uh in the yields. We don't see it in the yield spreads. We don't see it in initial claims. Uh so even though we have a lot of structural issues uh you know there is a structural pole in the in in this in in the in the ship here the Titanic has hit the iceberg but it's just not sinking just yet. That's simply the difference. I mean people think that you know hit the iceberg and you go straight down. You know the situation is that the music is still playing and you can still get a drink at the bar and people really do not and actually you said that a lot of people expecting the crash. I can tell you most people actually think that oh this is just over you know that that that going to be a

crash because why would you have that now? Now the tariff thing is kind of landed and you know there's not the the the the worries that we had. So I think I actually meet a lot of people thinks that I'm just crazy when I talk about crash. So I think the um the situation will be that uh the market always trying to make you know uh the most people look foolish and uh I think right now we're in the situation where we're probably going to see more upside uh because the economy is still okay strong. you get liquidity now coming in from central banks from around the world and uh and the federal is also going to has kind of pivoted already and and is signaling also that they want to support but I'm not I don't think we so far away in terms of time I think it's it's more of

the last move and if you look look back to 1989 where you had the the last move in the nicke market you actually saw that within the last few months you had some extreme uh rallies or gains in in the stock market and we are in that phase. You can simply take the chart of the nicke and see how it first, you know, had a kind of an angle and then it kind of increased and then, you know, it went so sort of straight up. Um, we we we do have the largest bubble ever. There's no doubt about that. I mean, you can just do the market capitalization, GDP and so on and you can put crypto on top of it and you can put the housing market. So, everything is set for a crash and we're going set for the largest crash we have. Yeah. I think you

and I will, you know, ever see. But um we're not there simply and there's much more upside and the liquidity part of it and the FOMO part will drive a lot still before we get to the point and we need to get everybody over on the other side of the so to speak on of the fence and say well you know all is all is good and we'll just continue up because the Fed has got our back and we don't have that sentiment yet. It's always the Fed's got our back. when I start to get those comments to my bearish outlooks, then I'll say, "Oh, Henrik, then I know that's we're getting close. We're not there yet." So, we simply need to see more upside.

>> Yeah, maybe it's also my own bias or bubble uh in in which I in which I uh interview people uh where most people are bearish. But you probably as an uh as an investment manager, you you talk to all sorts of people and also I guess a lot of uh fund managers and and pension funds perhaps who still think uh everything looks fine. >> Oh, yeah. Yeah. you have yeah majority of those I I speak to as are you know think that things are fine now and why would we worry about things and if you say that you know prices are a bit high and you have the you look to various ratios they'll just say yeah but you know maybe they don't apply any longer and maybe it's because actually the US market is now so much bigger you know compared to the rest of the world so

they kind of put the the card in front of the horse and try to turn the the the narrative around instead of just you know concluding what is the most obvious thing is yes we have a ma massive bubble but bubble you know, um the market can stay rational longer than you can stay solvent. So that's why I'm absolutely not shorting the market at this point. I think it's going to be quite a ride higher and uh and driven by FOMO, driven by, you know, greed. Uh and but again, the the the the rational investor, the the the Warren Buffett, you know, is is, you know, pulling some or taking some chips off the table and saying, I I've seen enough. uh and he's got he's up to 30% I think in terms of uh of of cash in in his on his

>> record amount of cash he holds right so amount of cash he clearly expects a correction then or he just can't find any >> uh interesting opportunities in the markets right now but correct >> like some of these people you talk to they do they they do agree that valuations are are extremely high but they say look this time is different and and maybe these models don't work anymore because there's just still a lot of other money that has yet to flow into markets or that they they find the reasons to um >> to talk about the metrics >> AI will help it you know they'll talk about crypto they'll talk about stable coins they'll talk about you know liquidity the Fed will not allow it the Trump will not allow it and all these I mean I love this about allowing it you know which which

>> which uh president would ever allow it to to see anything um you know decline or crash >> yeah because does the Fed have that kind of power. I mean, of course, the Fed, they have bazookas, they have a balance sheet, but can they um do do anything about a potential collapse? Of of of course, you know, the the Fed can can will try to do something, but the only the only thing they can do is try to to uh to loosen financial conditions and, you know, support with with liquidity. And the thing is, we've gotten used to that liquidity can solve everything uh for for the last many years. and and every time we had a problem we just poured some more liquidity on it then then things were

We’re now in an inflationary regime

fine for a period but the the problem is that that has changed that is actually the one thing that is different this time around which is that we have seen a uh seismic shift in the inflation regime so since 1981 we have had a deflationary regime which means that yields were going down no matter what we try to do you know we could throw them out throw money out the window and you know yields were just still going lower inflation was going lower And then we had the COVID situation and the central banks came out and they stimulated the out of things uh with um uh yeah just to to get things started they thought but again it was actually a supply crisis.

You know many a lot of people had to go home because they couldn't go to the you know where they worked and which means that this supply chains actually started to break down and then you give everybody a a paycheck an extra you know you know fiscal stimulus and you lower the interest rates and everybody had a lot of money in their hands. So what do you do when you get a lot of money in your hands? You spend it into a supply crisis, supply chain crisis. I mean supply and demand, you know, supply is is is diminishing and demand is rising. What do you get? Inflation. And all of a sudden, and the Fed were not really on top of that because they did not expect inflation to go up to 9%. I can promise you. And then they all of a sudden, oh,

now we need to be all hawkish on things. And then they start to be very hawkish on things and they are now again into the very big policy mistake here. So So things are as they normally are. And um I think we are um we will have some more time. They will try to do this again. The problem is just that and that's the point actually of what I was talking to to here is that this time around they actually managed to bring inflation out. And if you look at it in a very long time uh long-term time scale here, you can actually see that there is a shift in the 10-year yields in terms of momentum. It's something it's a chart I brought up quite uh quite often. And if you look at that on a three-month basis, you can see that shift has only happened

three times, four times since 1920s. We have a shift now which is remarkable. Doesn't mean inflation will go up from here because inflation always goes in a trend but you know ups and downs and it goes down in a trend like ups and downs. But the shift is to now that we have a change in the regime coming from a deflationary downward pressure on inflation and yields to an upward pressure. And what happens then if the Fed comes out one more time and pumps money into the system is that they will get what our parents and grandparents that knew knew that if you pump inflation yes I mean that's when the 16 and 70s and the 70s they knew that I mean if you pump money into the system

you're going to get inflation but we've just been taught that it you know inflation is something we are now on top of guess what it's here again it's the ghost the genie is out it's so clear it's out that's all Jeff gone Black also said that well now he's starting to short bonds. I think it's a little early. Let's be clear on that because I don't think yields will go straight up from here. Actually, on the contrary, I think they're going to decline first. But you are seeing a new inflationary regime and that is the problem. And that means that the tools of the Fed will become impotent. They won't be able to just use it. They won't be able to get the try to stimulate and get the trickle down effect. So there will be and and that's the problem for the Fed because

for quite some time they have been able to at least somehow create a trickle down effect. So what what do I mean by that? If they lower yields they'll see that more money will flow into the markets uh and then you'll see that the asset prices are pump you know are moving up and people feel more wealthy and they'll start to spend money and they can get sort of that. We saw the 2008, we saw it also somewhat later, but we could also see that there was a declining or diminishing return on these uh on these pumps of this this kind of uh trying to stimulate in that manner.

The problem is simply now that this will this will turn against them. So if they try that now, it will turn against them and they're going to create inflation. They may create an an initial bounce in the market, but what there's one thing the market does not like that's inflation. We saw that into 2022. So, if I'm right on what I'm sitting at what I'm saying here, then you're going to see the Fed coming out thinking inflation is under control. We just got the same kind of, you know, let's just pump money. But, you know, remember they gave Banani a Nobel Prize for reinventing money printing. It's the most stupidest thing I've ever seen in my life. But, they did that. Uh, so so now we have this, you know, uh, modern monetary theory which apparently can save everything uh, from, you know, all crashes. The problem is it's all about

the real economy and the real economy is Mrs. Jensen here in Denmark. I don't know what they called in in in Amsterdam or >> Holland Johnson. Yeah. U and and especially about Mr. Johnson in Mrs. Johnson in in the US where they need to spend they need to consume and if they don't and if they see inflation that's going to you know put consumption under pressure which will be the problem. So you have a situation where the Fed is going to do the same thing. I can promise you they're going to come out, but that's going to be the problem. And that's going to be the problem that potentially can can trigger a stagflationary default uh stlflationary phase. So, I think you're going to see a recession being set off by a deflationary deflationary bust, which

means the bubble bursts and you'll see markets crashing and so on and the Fed will kind of say, yeah, they'll try to do certain things, but then they eventually have to come in big time because they will see, oh, this is going to end bad. And already now I know people talk about inflation. Again I don't understand where people get this from because really you look at the business cycle. Look at when you have an economy that is declining inflation goes down. >> Yeah. But earlier you said there there is inflation the genies out of the bottle and the inflation um >> secular secular and cyclical. That's that's where you need to we need to understand there is something that is called a secular and there's something that's called a cyclical nature of the inflation. cyclical can be more you know the next few months or year two years

Secular vs cyclical inflation

but there's on in terms of the long time frame so this is where I'm talking about we all know that in the 70s the inflation was high and then it was has been low coming down for quite some time now for the last uh 40 years but if you look back from the after the second world war inflation was actually very low there and it went up into the 70s so this is the this is the secular moves and the long time but then on that you have the small moves and the thing is we need to distin distinguish between the short-term and the long term. Short-term cyclical I think we have a down move. Secularly on the long time frame I think we have an up move. I hope that makes sense or how that >> Yeah. Okay. Because in the long in the

long run we need inflation because there's just too much debt. I mean I don't need inflation but >> the system uh needs inflation in order to um stay alive. >> Yes. I mean but I I think the >> you need somewhat of an you know inflation. You don't need five 7% but you need and and this about 2% you know people think that that's something that's you know something that's been calculated. It's not. So whether it's 2% or 2.3% or 2.7% is actually not a problem. It's around those levels. It's fine. That's what people can adapt to and and adapt to over the years. We don't like we don't like five six 10%.

That that's bad. And we don't like negative uh uh inflation. Um so so the problem is not right now that's not that's not the problem with inflation around 2.7%. It's it's it's like it's a sorry an academic kind of discussion that it has to be at 2% and we are now doing whatever we can to push it down to two from 2.7. That is honestly as I see it the hubris of the central bank. They think they are micromanaging inflation here uh and trying to push it down at a time where you actually see that the whole economy the whole economy being the consumer is under considerable pressure downward I mean you know we have >> because inflation is much higher for like other than uh the CPI real

inflation what people actually experience in supermarkets is much higher than that the two or 3% that central banks uh uh focus on >> yeah but but more like it's been the lifted the level has been lifted and that's where again you have the stock and you have the flow and the stock level it means the inflation level has been raised so to speak right and that's everything has been more has become more expensive over the last five years correct >> but right now the inflationary pressures are actually to the downward and you don't >> so that's that's why you expect the fed also to grass to cut heavily over the next few months so next next rate uh decision will be later this month >> yeah so you expect a heavy cut >> well I don't expect a heavy cut. I think

I think we are um unfortunately we have a Fed here that that was talking about a strong economy. Uh even though my my business model was telling me that we were seeing an economy that was deteriorating and then came you know was it August 3rd and you had the uh you had the revisions on the non-farm payrolls and all of a sudden it looks like you had almost a zero growth in on farm payrolls in May, June and July they said it was plus 73,000. I'll have to see those numbers, you know, by the end of it. But you have a huge revisions on the non-farm payrolls, which means that you actually have an economy right now that is at 2.7% inflation uh CPI and you have that is hardly, you know, creating any jobs.

That's not a strong economy. Would you not would you expect that to happen in in you know the fed fund rates at the four and a half percent probably not especially not when you see that you know the consumers are under so much pressure and you can see that I think it's 15.6% 6% of the US population who have difficulties in just getting food on the table. That is significant and and that is I I don't understand. You see the consumer sentiment. Paul was asked about that in a in a presser after FOMC. you know what is it that the consumer does not understand and actually I think it's power who doesn't understand that the real economy is about the consumer and that they they also need to understand inflation is something that actually follows the business cycle which means that if infl unemployment

starts to move up in inflation would not be a problem not at this point you know stackflation can come but that's something they need to >> yeah for later yeah so what do you expect the trajectory to be for for the feds fed funds rate this year and next year where are we going to >> oh I Well, I'd like to ask answer this on Friday when we see the number the next NFP number coming out here. Um I and again those they those are also kind of random as we can see the re the revisions coming out as they are so big but um yeah I would think that they're going to do 25 basis point I think I have to say that but they they could also I think there is going to be a some kind of either disappointment or a uh or

Impact of Fed rate cuts

a shock to the market from the FOMC and it may be that it could be they come out and do something more which actually could shock the market but they actually understand oh we are far behind the curve at this time and then they come and do something. They did 50 basis point cut also in 2007 in September. Um not my base case at this point because I think this simply think that they are a little too um rigid but uh but would it be right to actually start growing faster than they do? Yeah. So I think they are trying to do it with 25 basis points. I think they're going to be forced to actually do it more aggressively as they come down uh into later this year and early next year.

>> Yeah. and and will that then provide uh ammunition for stock markets and crypto markets to to stay uh in bubble territory or is that not really um of any impact? >> No, but you know obviously again it's like is it the short term or the long term but you always if you look at it you're going to see that when the Fed starts to uh to to cut rates you it's normally there where you see the stock market topping out doesn't mean it'll top immediately. I think actually there'll be a very very bullish effect on it to the short-term run. You're going to see as it's running up really fast, but then there will be the more wise people in the market will start to think, hey, this is probably not a good thing if the Fed starts to cut rates because that might mean that the economy

isn't proper >> and then it's not just about liquidity. And people have to understand, I mean, everybody says, "Yeah, but if they just if they we just get liquidity, markets can stay high." No, they cannot. And you can just look to 2007 2001 also when this business cycle turn rolls over when the economy is getting into a recession which is about business cycles. It's about the real economy then the Fed can cut and cut whatever they like and want and they can see M2 moving up and still you'll see the market crash and crash a lot. So >> yeah, >> liquidity cannot save the day. That's what I'm trying.

>> Yeah, you can bring a a horse to the to the river but um you can't force it to drink, right? Yeah. So um your your thesis is that over the next few months we'll still have um uh the bubble and that you can profit from that. It's it's purely based on on market dynamics and and not so much uh based on what the Fed is going to do. It's it's the momentum is there at the moment. Uh and and people will probably um uh make sure price will go up even further. But it's it's sort of if I understand you correctly not necessarily related to what the Fed's going to do next or maybe temporarily it could go because of that a little bit higher.

It's it's at this point it's um not something you are are are that interested in. >> It's always about you know to a certain degree about liquidity. So there's always why would prices go up and then it'll have a you know there will be a lot of variables that will explain us why it will they will go up right. So so obviously liquidity everything else being equal you'll see the liquidity extra liquidity will be positive. Yes the expectation the anticipation of liquidity will be very positive and that's also especially what is driving crypto market. That's actually actually the only thing that really drives the crypto market. So I think you are going to see that it has a positive effect but it's not the same as you know there there's also the the opposite which is the negative effect from the the real

economy the real economy which is not thriving at this point. Absolutely not. And and that's why so so the reason why I think you're going to see markets moving up is we're simply not done with this cycle. the the economy is not as I said earlier we're not seeing the deterioration we're not seeing the economy rolls over and that means for as long as it doesn't do that you'll see that the the continuous flow of liquidity can push markets higher people think okay we don't lose our jobs everything is fine we can invest money and that you know things will just and it's a self propelling kind of you know cycle so would it be not is it from fundamentals perspective a good idea no it's not I mean you just look at the price earnings and look at the market capitalization GDP and so on in extreme

bubble, but it doesn't mean it it doesn't mean it ends here. And I have 75 7,500 or maybe even 8,200 around those levels for for the S&P. So, you have quite a distance you can go into the last phase. And again, I want to remind people >> of the uh of the 1989 uh bubble in in uh in Japan because that's that's similar to what we have now also on the housing market. >> Yeah, we're talking about the end of the cycle. Afterwards, we can talk a bit about what's going to happen next. But so, you're saying S&P can go up. Uh it's now 6,400. So it it can easily go up with another 40% or so, 30%. Um Bitcoin is now at around $111,000. Uh what's your price range for Bitcoin in this in this final stage of the bubble?

Henrik’s short term forecast for Bitcoin and Ethereum

>> I I see at least uh 140,000 in actually in this next move we're going to see. I think it's going to come pretty soon and then I think you're going to see somewhat of a pullback but I think it it probably going to find a top somewhere around 165 to 170,000 maybe 175,000 in that area. Um and that's not again too far out. Uh we're talking about something that can happen really quick into the final phase of things. So so I I I just want to caution people on on this that the Bitcoin is just going to go up up and up. It's not. uh it is a risk asset and it's a very volatile risk asset >> and Ethereum it's now around $4,360.

>> Yeah, I think Ethereum actually has such a long way to go still and uh got a target around 17,000 on that and not in a straight line but uh but it's just the ratio to what we see with Bitcoin. You'll normally see also especially when the the alts phase or the the Ethereum phase we're in now that the ratio will improve quite a lot and there is a level that says that we can get to around 0.12ish on the um on that Ethereum ratio and that means that Ethereum should go to around 17,000. So I think we have, as I said, we have quite some distance to cover still before we get to the top.

But that's not the same as it's going to last for a year because we have to understand that when things are moving in in in crypto and into the final phase of a bubble, it can be very very fast. And it's really about watching for one thing and that's the dollar. The dollar is the one thing that I'm keeping keeping an eye on in terms of when that makes it bottom. I think uh it's about to f time to find the uh the exit port. >> Yeah. Yeah. Could you elaborate on that? Because people of course when things go wrong they there's a flight to safety and traditionally like in 2008 or 2020 people would run to the dollar and uh that's something you would you're going to see uh again you think >> yeah 100%. I mean this about that the I mean in January everybody was so bullish

Why the dollar is important

the dollar and talking about every capital was just flowing into the US because US was the new digital arrow whatever it was but but people had all these narratives now it's like oh but the dollar now because the US place in the world is now is breaking down and you know all these things that's not the case the majority of of debt in the world is in the US in US dollars and if we're going to see somewhat of a a crisis that I suggest here unfold you're going to see that all this debt will need to settled or not all of it but debt will have to be settled in the dollar in dollars. That means there will be a huge demand for dollars for a certain time and there will be also be a flight to safety because whatever you got to say it's it's the cleanest shirt

is still the dollar. I mean I I'm not going to keep my money in anything you know yang or anything like that. Uh I'm I probably not even going to keep it in in the euro in euro because we will also probably see some you know asymmetric kind of difficulties in in Europe as well. So I think the the dollar is still the cleanest shirt even though it's um it's getting quite nasty at this point and uh and dirty. Yeah. So I think it's uh it's just a matter of of of relativeness to to other you know other currencies and and that's why I think it will be a dollar's game into the deflationary bust as I see it >> and most uh people say indeed the US stocks are over overvalued at least the

US stocks explained

people I talked to you already made the nuance that like a lot of mainstream fund managers still think their the stock market looks fine but it's mostly the magnificent companies that are overvalued, right? There's a lot of small stocks, I guess, with relatively uh okay multiple still >> actually I think there are a lot of tech stocks at this point here that that small stocks tech stocks that actually have great fundamentals at this point. But you're right. Yes, it's a mostly the the fang stocks um that that extremely stretch at this point. uh and and uh to the degree also where it's simply you know creating the whole skew the whole you know distortion of of of the stock market. So that's why we see that we

have the largest tech bubble ever, but it's of course in a few stocks. And Nvidia like I don't know how much it takes up. This is 10% of the S&P. I think the value now of Nvidia is just crazy. 450,000 times ups for the over the last 10 years. It's unbelievable. So of course it there will but right now yes I think there are some certain uh stocks that could actually do quite okay into the last phase here and uh and I think you then see going to see that they will then have a final decline also. some of those actually and that there could be some good opportunities there but unfortunately in a crash the largest crash uh the largest bubble uh the crash of that I I think you're going to see all equities unfortunately in taking a beating uh in that in that uh phase.

>> Yeah. Earlier you said the dollar is something you look for as um as as a signal. Uh if it starts strengthening again that could be a bad sign. Um, what are other what are potential triggers for the bubble to eventually pop? Uh, let's say in a few months, what are the other things you're looking for? What could be a trigger? So, I don't think there was going to be a one trigger. I I mean, that's always what people look for. So, when I always asked them, what is the what was the trigger in October 2007? And people say the the the subprime crisis and I'm saying that, you know, it wasn't really coming out at that point. It was coming out later. So the thing is that you you you you will see that it's the um environment that becomes toxic toxic and the environment the toxic environment is

What are the triggers that will pop the bubble

by high yields high interest rates as we see right now and it's becoming difficult for people actually to make ends meet which means that the banks are starting to see problem because they'll start to see people defaulting or not being able to pay you know do you and that's what you can see you can just check that on the on the credit card delinquencies and so on that clearly shows the direction of that so and then that will create some issues down the road and then there'll be some businesses that has the same and that will create build you know larger problems for for for banks and so on so forth. So it's about what is going to get make the the snowball roll and it's really u a lot of things at the same time. So I don't think it's going to be one signal but of course we need to see

some stress in the financial system. We need to see credit spreads uh starting to to rise. Uh we need to see the short-term yield starting to to decline and if they do that then I think it's we closing in on that time. don't see that we actually starting to see a decline in yield the short-term yields. I just noticed I just looked into that this morning here and I start to see the the one-year government yield and uh so on so forth. they start to break some levels and uh there's a nice neckline actually that it's breaking and uh that could be the first sign of things starting to unfold but we need to see a little more and uh and that is a and and yeah the dollar and everybody's so bearish the dollar I'm extremely bullish the dollar not right here I need to see

it a little lower but I'll be so bullish the dollar going into the final phase and uh I don't think people really understand what what what you know that the the wrecking ball the dollar wrecking ball is going to come out again Yeah, in in Holland, the regulators are actually quite worried about uh crypto. Now, crypto eventually could also uh bring down the system because it's become so sizable. >> An earlier survey I saw from ING Bank said that in the age group between 18 and 54, uh onethird of of all duties of that's in that age group had crypto and people owning crypto, half of their money was actually put into crypto. So it's becoming uh uh bigger and bigger.

Can a crypto bust bring down the general market?

Um do you also see that same risk if could crypto bring down uh the stock market for example and usher in a a complete bust of this mother of all bubbles that we're currently in? >> So I think it's going to be the dollar that brings down crypto that brings down you know uh and stock markets. Again, it'll be about the dollar is everything is about the dollar and the dollar is going to top bottom out and I think we're going to see a top in that which will go uh all the way to around 117 120 on the Dixie. So, it's a quite a distance we got to cover there. Uh and if I'm right on that, you know, everything was is going to be crushed and I think unfortunately I mean we have had bubbles so many times before in history. We have had the South Seed

bubble. We have had the uh we have had the p sorry the tulip tulip um the tulip crisis also the tulip bubble. We have had the railway bubble. We have had the uh you know the bubble in 1920s the 2000 bubble and so on and so forth. We have had so many bubbles and the thing is simply that uh when it burst uh you're going to see that a lot of people will have been dragged into it because of crowd dynamics because of oh this time is different this is now the new and you got to be in it. Unfortunately, this time we have seen a lot of support for crypto and it's been around for quite a long quite long because of the easy money policy. So, it has had around 10 years of you know runtime here and people start to believe oh this is now

so you know in you know it's it's part of the financial system now. I don't think it is. I I think there's going to be out of the thousands and thousands of crypto projects you have that you're going to see that a um that it's only going to be a very few of those that are going to to make it uh and become the next Amazon or the next whatever it's going to be Google or something like that. But even those at you know back in the days were also crushed into that into a phase where where everything was declining. So I think you you will have a few of the crypto projects but it's not going to be as cryptocurrencies.

So back to your question, yes, I think a lot of investors now are actually piling on something which they don't really understand and that they buy at ridiculously high prices because nobody understands which one is really the the big one that you you should hold on to and 99% of them is going to crash and and you know evaporate maybe also disappear. Uh so I think a lot of people can actually lose a lot of money and if that's the case in then in Holland I fear it's the same in a lot of places around the world maybe even so more so in the US where we also see in the US administrations trying to push people into to crypto on their retirement funds which I think is yeah lunacy honestly.

So I think we're going to see uh this having widespread problems into a lot of you know homes and uh uh yeah families getting really hit hard by this and I I can only say I can only send out a warning here and saying I think you know people need to think uh this is a bubble just like what they said that's why I tried to mention the different bubbles here we've seen over time and we will see it come crashing down and you're going to lose money if you are not you know uh yeah if you don't find a way to to stay on the sidelines for some time at least. because of course there can be some good projects in the longer run but but it's not going to be all of them.

>> No, but you work at Swiss Blog as a chief economist. Um it's that's a crypto wealth um advising firm, right? So >> what do you advise your customers at the moment and when it comes to crypto knowing that at some point it will uh correct heavily. >> See we have a a fantastic framework I have to say it's not me who developed it. There are some quite good strong uh you know developers there and uh people have been through the whole crypto actually was in on the very beginning of the crypto uh phase here or period and uh the framework is actually quite remarkable remarkable because it's been able to actually outperform Bitcoin just think about that so it actually takes you in and out of the market uh on on bitcoin and also understands when you

need to get you know into altcoins and so on uh and uh we just follow that. That's what we tell our clients also. So we tell them simply you know we know that there'll be large declines and crashes even and we but we also know that we need to listen to to the framework and and that's what we do and uh so so that's also what that's what we tell them. We tell them that you know there will probably be some you know volatility at some point but as long as we stay true to the signals from the framework we we have a good belief in that we can actually weather this storm that's going to come on that. So so that's how we say that. So the framework is now still long but recognizes when when uh you need to sell the positions for your customers.

>> It's recognizing yeah when when Bitcoin is moving in and out and whether it's a Bitcoin phase whether it's an Ethereum phase or whatever or it's an altcoin phase. So first whether or not to be in crypto or not that's really by given by by bitcoin and then you know and then when that is attracted enough capital then we will move into some of the other phases and that's also what it tells us and it also tell us and you now you need to get out. So yeah, it is actually doing that and that's that's that's quite remarkable and then it's quite strong. So so that's what we tell them. We tell them to stay on their toes, understand that, you know, this is a uh there is a limited time for this, but it's also to to let themselves support of uh by by the framework and uh and be

ready to move in and out as uh as it tells us. >> And how do you look at strategy formerly known as Micro Strategy? Uh they have a shitload of bitcoins. could could uh once Bitcoin starts sliding and Micro Strategy has to uh start selling Bitcoin in order to fulfill uh redemptions to their finance um partners like how do you see that play out at some point then when when when things start crashing? See, now you jump to an assumption that it has to drop it has to drop below 70,000 I think or something like that before. Um, >> but you said like in an earlier podcast I think you mentioned Bitcoin would go to 16 or 17,000 or so.

Strategy’s strategy and the great crypto bust

>> Yeah, that would be a good day. Uh, I think it goes lower than that anyway. Yeah. So, but you're right. I actually think I think I think we have the largest open Ponzi game when it comes to to micro strategy. It's just an open pony pon game. everybody needs to pile into to him to to to the to the stock and then he can take on some more debt and he buys more Bitcoin and he doesn't expect it to to decline and then if I get you know what what I'm talking about with the 120 on the Dixie I can promise you Bitcoin is going to take a beating and if you see a the largest bubble in the world the NASDAQ you know declining by 85% which it did into the 2001 bubble after that which is a smaller bubble to you know than what we have today well

Bitcoin is going to have a really really bad day, a bad period and then that means that you know micro strategy is going to have that. So I I think it's the largest um house of cards you have you we have seen in a long time and if if that starts to unwind what you just said there well it's going to be really can just hold on to it. I mean I still see the case where it becomes so devastating uh on a societal level that the lawmakers have to jump in and simply do something about this and say well we have to confine this and you can't we can't have this again and I don't see a a world in the future where they if if we get that kind of monetary reset that I think we're going to see that any

lawmaker actually actually wants to to to have you know kind of you know sideshows going on with bitcoins and other cryptos. that you can just spend as and use as uh as currencies. It normally was forbidden actually to to to to create new currencies and all of a sudden you have something here just popping out of thin air and you have it all over without having you know what is really the regulation behind that. So I think I think there's going to be a lot of unwinding if this happens and I think micro micro strategy is just a colossals on um on on clay feet here. I think it can be really start to crumble if the Bitcoin starts to decline. And uh and I'm not saying if, I'm saying when.

>> Well, governance and banks have have done such a bad job managing our monetary system that it it makes total sense that that the markets come up with their alternatives, right? Whether it's Bitcoin, Ethereum, Ripple, gold, whatever. Um but I agree with you that maybe um it's become so big uh that it will have devastating consequence for a lot of people if it uh if it breaks down. But of course at the moment the US is the crypto capital of the world. So I don't expect anything coming from the from the White House or or Washington when it comes to uh uh coming up with consumer protection there.

>> No me neither honestly not at this point. Uh I think I think there will need to be a lot of uh fallouts and I I'm I I I fear actually for some of those fallouts because if people have been told that they need to get into something and that just crashes into a deflationary bust uh who where are they going to turn their anger to you know so so I think I honestly think it's not a um uh it's a it's a bad situation also just for for people and society. So, so if uh we'll have to see how it all develops.

If if we're going to get stackflation, which I think they because of the what the Fed could could come out and do after when we see the deflationary bust, then I think you're going to see that the only re the only solution to that will be some kind of a monetary reset where you recreate or you reestablish sound money. And to me, sound money is about, you know, is gold you have behind there. It's about gold. Uh it's about you know having you know show me yours and I'll show you mine and then we'll look at the pile of gold we have and then say you know talking like countries here and say okay we need to settle you know in a kind of a basket currency or world new world currency or something like that which may have a digital element to it not Bitcoin but but a

The monetary reset and sound money like gold

digital element to it which means it's the checks of balances that will be by by a blockchain a ledger kind of thing that will then make sure that you can actually make exchanges across the world with that currency. See that would be something. I mean if you kind then you could have the like Netherlands and Denmark and all we could then peg our currency euro now but Denmark could then peg our currency to that and the euro could peg its to to this world currency and then you can have the you could actually trade through that with you know world with with with people around the world in in in a base in a on a basis also where you you know the the ownership of whatever is going bought and sold is going to be also sorted by the the ledger and the blockchain. I I

could definitely see that but but but it will have something of of to go with the gold will have some some uh something to do with that that whole uh monetary reset and at that point there will not be room for a lot of other cryptocurrencies. There will be room for crypto digital projects where the blockchain is going to be uh the solution to something which creates real value in the real world but not this speculation this rampant speculation we have going on right now. >> But it's interesting because you are part of a crypto firm. So in a way you also advocate for people to own crypto but at the same time you're you don't really see a future for for cryptocurrencies more for like blockchain solutions but not so much for cryptocurrencies after the bust

>> and that's how do I defend that >> well doesn't make much sense in my mind then right >> well I mean you can you can be part of many thing you know you can be part of of businesses where you know that you for some time you're going to see a decline in it and there's going to be some you know some kind of I mean I think gold and silver also going to have a a decline into into the bust and uh and you can say well as long as you you see that there is a technology behind it that is important and that's what we can focus on for the future for now I mean the the crypto landscape has been developing over for for so many years and you there are also the ones that Peter shifts and the likes and just

saying oh I just do not recognize it I just don't want to look at it I don't recognize it and meanwhile people have been making money and we have to understand it's a zero sum game I understand that but but it's a but It's it's it's been part of the crypto part of the financial world for such a long time. If I if I just disconnected from that and say, "Hey, I don't want to have anything to do with it. I rather dive into it and try to understand it, which is what I think I do now." And then I have the, you know, also the the macro side which tells me that well probably this is a a bubble and it's a probably going to to end badly, but it doesn't mean that it's there isn't something for the future there like with the internet.

I mean I could also have been part of a webwan or pets.com back in the days and because I thought the internet could be something of a great you know thing for the future and I want to get that kind of understanding but you could see that you know the the the future did not hold a good you know uh situation for web or pets pets.com but there were lots of other uh businesses that actually did well on the internet and the internet is defining the world today so I think you you do you disconnecting from it and just saying I don't want to be part of it is not the right way and That's that's why I dive into it. But, you know, I I'll say it as it is. I mean, whiff or don Dogecoin and so on, they are me. No technology. It's just uh it's

just it's just a joke. And uh >> most of those projects are are are jokes and scams. I uh I must agree with that. Um can you explain again why why a strong dollar is is so um difficult uh for for most markets at the moment? And so we see the dollar go up. Um how come so many uh borrowers for example get into trouble? Is it because we have the euro dollar system where a lot of debt is in in dollar but a lot of people that uh own that have those debts actually get other currencies and they will have difficulties refinancing or could you explain a little bit more why a strong dollar is is going to wreak havoc on markets?

Why a strong dollar would lead to the bust

First of all, because if you have 60 70% of the the the the debt in the world denominated in dollars, then when the dollar moves up, it's like, you know, everybody's being short the dollar. So, so it's a problem people having debt in dollars and that's the most debt in the world. And everybody will then see that the, you know, the just to maintain the dollar debt will be something that is a difficulty. And then if you have to start you know uh restructuring your debt because you know your business is collapsing or something like that well then it'll become a problem because you have to demand more dollars and then the dollar goes up even further and it'll be a negative spiral. Then other businesses will come into trouble and countries will come in trouble and you'll see that then they will have to also demand

dollars to get you know that that that settled and maybe they'll have to sell gold or sell something bitcoins or whatever to actually come up with the liquidity and that that's the problem. That's why dollar is a you know it's really um it's underlying everything. Yes, the euro dollar system is uh is like a conveyor belt and it's uh making sure that we are all connected to the dollar somehow and if the dollar strengthened you know then then it's going to be bad a bad day for the world. >> Yeah, you mentioned gold. We've seen in previous uh crisis that gold gold also is hit and then recovers again. Uh this time of course uh we have a lot of debt in the world much more than previous crisis. So it's still difficult for me to wrap my head around the thought that people would fly to uh would flee to

The role of gold

debt as a safe haven even though most of their debt is unsustainable. looking at the western nations and their high debt to GDP ratios like for example I can imagine uh people buying uh French government bonds uh knowing that France might well need a IMF bailout as a safe haven but but um explain to me what what's gold role here is first we have the the bubble the bust and then a stlation that's that's basically the trajectory you just described how is go gold going to perform during that um trajectory >> well you said into the 2007 um situation you had that gold started to decline as it uh as we saw the uh the the dollar shortage the liquidity shortage started to play out that was in March of 2008

you had the bare stern situation and then and really that started to you know push the dominoes and you saw gold actually declining by 35% 33% from March of 2008 and until September October 2008 and uh and then you know when the Fed came in with the the bazooka as well then you saw something the gold had putting in a big bottom and starting to to r to rally and you had big strong rally into 2011 and then you had another problem which was uh then the European situation and then you had gold was came under pressure again and so on so forth but what I think is going to happen again is that exactly the same you're going to see that it will not be about investing I think people said like but where will I then see the money flow to remember first of all if everybody goes

for the exit you know first of all in crypto it'll be really big problem you'll see that you know the first one might get the one 110 110,000 for Bitcoin. The next one might get 109,000, but it's going to go down really, you know, rapidly as as demand for for money or for liquidity steps in. The same with gold. I mean, yeah, everybody's buying up gold now. The central banks and so on are doing that because they know that in a long time frame, especially in in Asia, they they understand that this is I mean, this can't go on. We need our monetary system and it's going to end with with gold at some point. Um and but but the thing is there will be a lot of players act and actors out there who will need liquidity and by the end of the day that is actually why you hold

gold in in many instances into a into a crisis is because it's kind of a guarantee that you can you'll get your you know liquidity that you need it it's you know if you hold gold you have liquidity so so that is the uh that is why I think gold will will decline because it'll actually perform its finest duty which is to supply liquidity into a deflationary bust. for for the many institutions that are going to need that and in the countries and so on so forth. I think that is the going to be the driver. But is it a fundamental thing? No, it's not. It's again about the cyclical and the fundamental thing. I think if you look fundamentally on gold, it's going to be, you know, I see it into the 2030s going up to 35,000 easily. uh and and that's because they are going to print a heck

out a lot of money more money to this and uh you know prices are going to rise and and gold is an inflation hedge over the long time frame um so so you are going to see gold is going to rise as inflation starts to go up that ladder or start to rise as I I said but in the shorter time frame and this is what people need to understand is that it can actually pull back quite strongly into a deflationary situation and silver pulled back by 60 60% into the same period that I said before there. So it it actually drops really quickly because it's liquidity. But of course again uh if you can m if you can sustain that and you think it's okay well then it's all fine.

Um there is simply that phase where Dixie is going to be everything as I see it because of the uh yeah the liquidity shortage that will be when the when the floor opens up in a deflationary bust. >> It's difficult to to trade that I guess. I mean, for you as a as an expert, you're on you're looking at the charts the whole day, but like for an average Joe who perhaps has a bit of a spread portfolio with some shares, they they own their own house, they have maybe some some money in a bank and some crypto, some gold. Uh based on based on your analysis, would you advise an average Joe to then if I summarize for the next few months, ride the wave, then sell everything uh stay in cash for for for a bit and then go back into the market or is is that even actionable for

for most people who have a who have a job who cannot um spend the whole time behind their screens or should like for example with when it comes to gold I hold as an insurance I don't trade it so I just keep it and I know it can go down um for maybe for a year two years But in the end it will go up again especially given the high indebtness across the world and the bazookas that will eventually be shot at at the market. So would it make sense for an average Joe to to trade that then? Um >> absolutely. I I I don't I don't think that the average Joe should trade this. But I I I just want us, you know, point out that what what we could see. And again, it's better to know what's ahead than to be surprised by it. So if you're

saying I, you know, I'm fine with that. I'm fine with that. is actually declining because I'm not going to need the money in that time frame. Great. And and that of course is uh then then I would you know support what you're saying and say okay then you know probably it'll be about but but it's just getting a little stretched here. Gold I just want to say also it's been a little stretched here on the narrative of inflation's coming which I don't think it is. So but but anyway yes to your question as I said 35,000 an ounce uh compared to what we see today it's like 10 times up. I don't think that's an ex uh you know uh to exaggerate actually I think that is very very plausible compared to the extremity in terms of the cash that has been injected to the to the monetary system

over the last many many years and we need to need to see that. So so I think that if people are saying I just want to stay safe and I want to get through this and I don't I'm not going to need the liquidity because that is this that is the point. If you say I m might need the liquidity at some point in this phase here because you know I don't know what happens to my house or I need to do something well then I'm not sure I want to hold gold but if I can say with this 25% of my assets I will not need well then you may not you know you don't need to sell it then you probably can say well I'm just buy more if things are starting to decline. So I I look at that like that.

>> Yeah. So we're about to wrap up but just for me to un just to make sure I understand it also for the viewers that basically to summarize the different phases. So we first have the FOMO momentum it will last a few more months and we will see exponentially higher prices in in um especially in in in stock markets and crypto markets. So people could anticipate uh to that then we would have a a basically um a meltup. it will then come crashing down like big time. Um talking about 1929 uh.com style also like 70% down whatever we see markets going down. So no bazookas would help against that. So the Feds and other central banks will probably >> probably help to begin with. Remember

Summarizing the different phases: bubble, bust, stagflation, reset

there's always a short time frame where people say, "Oh, now now the help is here. The assistance coming in, but then you find out that they are actually, you know, pouring gasoline on the fire instead of water and then you find out, wow, that's the problem, right?" Because that's that would be the the the kind of met you know the analogy for what they can do with they pump more money into that system. >> Yeah. So the the bubble phase is a few more months. How long is the um the deflation or deflationary phase with markets going down and and and also consumer prices uh sort of stabilizing a little bit?

>> I don't think the deflationary phase is going to be so long. I I I I honestly think it can be quite short and I'm starting to think maybe it has something to do also with the the time frame of when the next Fed chairman comes in in May of 2006. So 26 sorry 26. uh that that person coming in and and maybe we could see some kind of a shift there. I don't know depends on when we see the top on the stock market also. But I don't think the deflationary phase can be, you know, needs to be so so long time wise again. I think things actually can downfall rather quick and there's also sometimes you see that the time the market takes to go up and if I'm again suggesting that we could see this Eiffel Tower kind of top, you could also see it

coming down just as fast. And I think at some point when we reach certain levels the Fed is going to panic and think okay now we we we have seen enough and they come with their gasoline junk uh can and try to to extinguish the fire with that and then we're going to see something more. So I think you the the deflationary phase is going to be rather short six n months maybe and then you're going to see but it takes for the Fed actually to start daring to do it. The problem is already now as we see that there are deflationary pressures on the economy. You see the stock see the the labor market is not great and still the Fed is hesitant. I mean it's >> so it will take it will take something for them to be convinced and say oh we

actually can do this and when they then do it I think then you're going to see a bounce in the market but then you then the next phase this stlflationary phase I that I see they can unleash is is going to be longer because there's no easy fix to that. There's no easy fix to a stlationary phase. No, because what what could be a fix then? >> That's the monetary reset. That's where you simply say, okay, we need to understand now that inflation write down debt and write down some debt. Of course, that needs to be done. We'll need to establish that make sure that people understand we will not just print money and all of a sudden they you know they will they'll wipe out a lot of debt also on the on the on the yeah on the US uh balance sheets and so on. And then

things will start to to unfold from there. But and they will also run you will see the negative yield uh real rates that's for some time you see inflation will be higher than what the yields will be and that means that you'll have real uh negative uh real rates actually and that means that you're going to see inflation actually also eating some of this. It'll be all of these factors are going to play into it. So so it's going to take some time for it all to to unwind. uh the deflationary phase is going to be I think it's going to be aggressive and fast and then the Fed comes in and then the next few phases is are going to be the ones that will be more devastating.

Deflation is not fun. >> No. And and the deflation or the the bust phase you say six to nine months but that's also when the Fed will dramatically and all central banks across the world will dramatically lower rates go back to to to ZER basically or NERP and maybe negative negative interest rates and they will double triple their their balance sheets. We we'll have to see how far they get on that. Uh because again I still have that uh we we saw probably we saw the the bottom of of of of uh yields back in 2020. It seems like that. So I think you are not going to see the yields are pushing all the way down there. They probably want to do it uh try to push down as much but I think inflation could could show it ugly face

faster and that's why it's not going to be just the same thing. the the the days of the the the the free lunch is over. It's not just going to be something like that. They don't they just kick it all in and then you know everything will be fine. I think they really fast will see okay this can actually lead to inflation and they'll start to be and they start to uh to understand that that that that can become a problem because if inflation starts to set in in a time where you have the economy is also rolling over which is that inflation then a lot of people are going to be not very content with this with with everything you have to you lose your job your your your your stock portfolio if you have any is is down and and you see prices on the groceries going up I mean

not So, so that that nobody will actually uh no no administration would >> But that will be very difficult water to navigate for central banks with high inflation but also no growth. I mean there's no good choice then. >> But but but imagine imagine central banks are not demigods. Just imagine I mean it's something that everybody knew just knew 30 40 50 years ago. But but over the last 10 20 years we all of a sudden thought oh banani the great uh whatever now the great That was Greenspan. That green span the green the great maestro, right? And he was just magically because he came from high yields kind of levels and you could just lower rates and we could liquid.

>> Yeah. He was in a good time at that point. Well, and then you have the the one the the poor folks there like Paul right now who sits with the the the bucket of right? >> So, it's it's it's not going to be fun uh for for those and they are not demigods and they cannot just magically create wealth. wealth cannot be created from uh from monetary policies. >> Yeah. Final question because that's something I always uh struggle with like to what extent can the central banks also control the long end of the of the curve because like if you look at 30 year the France 30 years just at a record high I believe or haven't hasn't been this high in a long time. The US of course also has um high 30 year 30-year yields. um people that want to lend to

How powerful are central banks when it comes to yield control?

governments uh knowing that they're all basically uh insolvent and can can never repay the debt uh are are not willing I guess to um to keep on on lending uh to them for for for low rates. So I expect these yields to go up. But you you say you expect yields to go down but also the those types of yields or more like on the on the short end. And can central banks actually influence the the long end of the curve? >> They they can but then they have to do all you know operation twists and whatever they call it and they start need to start buying up of those uh of the long bonds. So they they can suppress it. Of course they cannot do it with rate cuts and that's a misunderstanding. So I saw a lot of

>> they need some kind of that. Yeah, what kind of you know they have all these uh tricks up their sleeves and in terms of what they can do but so so they can yes that's that's the question that is the answer but not with rate cuts that will help the the short end but even the short end is something that is also set by the markets which people need to understand and the Fed will more or less follow what they see on the 2-year yield. So the the thing is they the uh the the the Fed and the central banks can have some power of that on that but will in in a world where inflation will start to move up will be left with very limited tools and and I think that is the uh realization a lot of people need to get to at some point.

>> Great. Well I found I found it very interesting uh Eric to talk to you about all these matters. Uh I think we've covered quite some ground here. Um, anything else you'd like to add? Yeah, I want to say I mean I I don't want to sound like a a boomer or whatever you call it and uh something that just see I'm actually very very positive in terms of what the human you know uh you know what we can do as humans and in terms of you know technology advances and so on like all these things. I think we're just making the same mistakes over and over and that means that even though I think things are pretty dire right now and in terms of what we see in the stock market and in uh in the financial markets I think that we will come through this it will

Outro

be tough uh and there will be some you know a lot of pain unfortunately but we'll get through this and there will be fantastic you know uh future there will be AI is going to transform the world in a manner in you know we we can't even you know understand at this point and and and that is going to be fantastic for our children and our grandchildren. But there will be some pain ahead and please do not just fall into this that crypto is going to solve everything and Bitcoin is going to solve everything. It is not. So, um I want to say that. >> Okay. Well, thanks so much Henrik for making time available and uh hopefully we can do this again uh maybe after the the crash, maybe every time we we finish a phase. So, the crash, the bust and then we can catch up or ideally just

before so people can can prepare. But um thanks so much. >> Thank you Paul. >> Yeah and I put put in the show notes where people can find you. It's on on X you're quite active and and of course a Swiss blog. >> Yes, exactly. And also Substack. There's also one at Henrik Seber on Substack as well. >> Perfect. We'll add it too. Thanks Henrik. >> Thank you very much. Have a good day. >> Bye. Bye-bye.