Can Bitcoin help you escape the global debt crisis?

Transcript

GM good morning welcome to the milk Road show The Daily crypto show where our updates are as rare as finding a Netflix show everyone agrees on I'm your host Jay Hamilton and today we are joined by Tyler Neville head of marketing and macro analyst for corente advisers now in today's episode we're talking about debt not your debt government debt sovereign debt we'll discuss how do you protect your money in a world where prices are constantly Rising currencies are losing value and the financial future is uncertain and all of this debt that we're creating is this a bubble that is going to pop at some point and why is that leading people towards Bitcoin and gold and other forms of

Reserve assets before we jump in are you subscribed to us on YouTube if you're not you're going to want to subscribe today because we're giving away free stuff if you subscribe before we hit 10,000 subscribers you could win our crypto investing masterclass valued at $500 it'll give you every everything you need to create a portfolio of your dreams Tyler welcome to the milk Road Show thanks for having me what an intro I loved it oh thank you I appreciate it I appreciate it very excited to have you Tyler before we jump into the current macro environment and talking about debt and where all this could be headed and how this could end can you just give us a little bit of background on corent advisers and how your firm was created

it sort of will help I think our listeners understand the way you and your fund look at markets yeah corente advisers is a macro hedge fund basically was started by a guy named Mark Hart who was most famous for shorting the subpro crisis in 2008 but Mark's whole framework is essentially going around the world finding the biggest imbalances in the world and making bets on you know asymmetric outcomes so you know the sub crisis was one then in 2010 he bought credit default swaps on European sovereign debt before that went to excuse my French and you know he was one of the First Investors macro hedge fund

investors in Bitcoin in like 2014 2015 has has kind of been on the front ends of a lot of like big macro themematic I call them the tectonic plates of the market so that's where uh it started but we find big supply and demand imbalances and try to make the best bet asymmetrically that get a outsize return fantastic so it would be fair to say that you and your partners and your firm very much view the market from a macro more long-term perspective more understanding the bigger moves that are going to lead us you know decades from now so with that perspective how would

you explain the current macro environment that we're in well just from a risk perspective what what a lot of funds have done they've really systematized the market and a lot of these risk adjusted returns and low volatility over time create these giant imbalances and and so the strategy of actually investing in Frontiers and growth has largely been neglected for the past 15 20 years so we're we're on you know we're of the of the view that eventually you know it's like death by a Thousand Cuts when you have risk adjusted returns over risk adjusted returns you end up cannibalizing your own returns over time and then these

opportunities like like Bitcoin per se which has absolutely crushed any other asset for the past 15 years people ignore them because they're mandated to have these like low return strategies so there's a lot of different ones out there but Bitcoin is one specifically we concentrate on so if we take 20 8 as a a real turning point in monetary policy and in the the way that debt is distributed can you sort of explain how sovereign debt changed post 2008 in developed markets Yeah so basically what happened was households had massively in

debt corporates were massively in debt and through QE the governments came in and took all of those you know debts off the balance sheet of the corporates and households and that's pretty much been the entire function of the market for the past 15 years is in one way or another they come up with a new acronym and they bail out certain parts of the market and this I mean it couldn't it's countless the amount of times it happens it happens in the money markets it happens in high yield it happens in mortgage back Securities and what it really is is just a massive dilution of of your fiat currency whether it's by monetary policy by the fed or by fiscal infrastructure plans and you know that's

largely the case now all that money that was on the the corporate balance sheet and household balance sheet is now transferred to the government balance sheet so if you you know from 2008 if you look at the total fed balance sheet it's just up and to the right parabolic so they've taken on that risk because they can money and you know essentially dilute your currency and so everybody in the world is calling you they think it's 2008 again they're they're calling for credit crises but the truth is is that they they can't let their governments go bankrupt they so they keep you know diluting it and what we're at the point now where I call it nominal GDP

targeting you know a lot of people call it nominal GDP targeting but you essentially have to issue debt to Stew growth and it's basically like a big con game where you shouldn't really buy bonds when the government has a 7% deficit but we do because we're the world's Reserve currency so but it's a slow dilution and it forces you out into different parts of the market so that's sort of the the backdrop of where we are on the Sovereign at right now okay and so two questions how do governments manage this debt crisis then what strategies do they take and maybe let's talk a little bit about nominal GDP

targeting because I that's an important concept to understand for where this conversation is going Nal GDP targeting essentially like you have these giant debts on government balance sheets now and to to service those debts at interest rates you need to Stew growth so you basically push money out into the economy by one of two ways maybe both ways one is monetary policy which is lowering interest rates and the other one is fiscal so you get together Congress gets together and decides on a giant infrastructure plan or the the chips act or you know any of these inflation reduction act and that money goes into the market and then it there's a multiplier effect so once that goes in

the market you know there's more buying and selling and GDP essentially Rises because of it and so that growth should theoretically satiate the the interest rate expense on the sovereign debt that's sort of the the market we've been in and everyone's calling for a blow up but you know the thing they're missing is you know sovereigns have the ability to print money and a lot of different levers to pull where corporates don't and so the backdrop is bad because when it gets to The Sovereign balance sheet you basically make the decision to annihilate the middle class it's the most simplified way of saying it because you're pushing money into the the higher eon of society and it's supposed to be a trickle down effect but the inflation inevitably kind of gets the middle and

lower classes that's where they get hit the hardest mhm mhm so I think the question is you the next question is like how does this all end and I know you don't have a crystal ball and you can't predict it but let's just talk about what are the impacts of this level of sovereign debt on our currency how how does this sovereign debt dilute our currency what does it look like for for us for regular people yeah you you see the market at alltime highs everyone you know sentiment is horrible on the ground but Market keeps rising and you you try to find assets that kind of protect your purchasing power and that dilution it's it's hidden in a simple you know we use

this simple way of thinking about a basket of goods so if you have a basket of goods that is a $100 and you have this giant fiscal infrastructure plan that pushes inflation up to say 4% per year that basket of goods at the end of the year is $104 but what's interesting is that we also have this kind of productivity boom going on because of AI and software and other types of productive things so the the opposite side of that is productivity if you have a $100 basket of goods and you have 4% productivity meaning that hundred Bas dollar basket of goods is now $96 at the end of the year so that difference between the

inflation 4% and the productivity 4% you have an % difference and in that difference if you're holding cash you're getting eaten up by an 8% tax on either side so 4% on inflation 4% on productivity which basically forces you to invest in the market or forces you to invest in something and this is why Bitcoin is really really interesting because it's the only thing there's there's less and less supply of and you clearly see it relative to you know fed balance sheet and a lot of other assets you know there's other ways to protect from the productivity gains which is you have to invest in produ protective productive

assets AI is is very productivity enhancing so if you own a company that really helps small businesses be more productive that's one way of doing it which you know it's largely why we see stocks Rising corporate profits are are at you know wides because of the productivity and the inflation's been coming down but so that that little mathematical example is kind of what you have to keep in mind in a giant fiscal uh backdrop where they're pushing money into the market via the fiscal mechanism of of plans and what what not and then on the monetary side you know as they lower rates you know that that inflation

number can go up a little bit higher as well because it allows you to borrow more money and and every time you borrow money to spend in the economy that's someone else's money to borrow and spend so it's that Flex of nature so this is why you know the backdrop you really it's hard to have it's crazy to say but it's hard to have a recession in that backdrop unless there's a credit problem in the market somewhere unless you lent to a sector of the market that the growth doesn't keep up so housing was 2008 right oil was like 2015 they over levered the oil companies and so now you know it's just largely pushed into all these different other parts of the

market and it seems to be if you look at credit spreads the growth is enough where they are paying off the debt so that's sort of where we're at but you know the best risk reward for us is something that has a finite Supply and as you keep diluting the currency and this is globally by the way this is not this is happening in all developed markets and and so Bitcoin becomes super interesting there because the supply keeps shrinking and then it has this convex payout at the end when you know you know was it 2020 2120 when there's no more bcoin left and you have just dilution of all sorts of currencies to pay these massive debts things get really

funky I love that you said the the year 2120 because that's that's a long way away just while we're we're talking about this current we've been in this current situation of quantitative easing BAS basically since 2008 we've been in these fouryear Cycles how long do you think that continues for forever I mean demographically we're basically in a wartime finance and this is the norm in history what's so funny to me is everyone is peeking over their shoulder for a credit crisis on The Sovereign balance sheets which could happen if there's a geopolitical event or war or something like that and inflation gets out of control but you know right now it's it's really hard to

to predict that what was the ra question sorry about that no no no I I think you're my my question was how long can this continue for you know can it go for a hundred years because last time we had this happen was basically postor War II and I believe it went for about 20 22 years before the Boomers basically provided us with the PO productivity lift to pull us out of the monetary cycle and more into regular business cycle so and am I correct in saying that we have been in this before and we've gotten out of it yeah yeah I think you know they they printed enough money paid off the debts and you had some productivity gains Etc and maybe that's what Ai and the promise of a lot of

these you this is 21st century uh technological Revolution it's possible to grow out of it but either way I think the governments have no other choice at this point the demographics are rolling over you have all these giant entitlements like Medicare Social Security you're not GNA take those away no it's just it's a matter of fact and not only that but then you know if you look out 10 years and the politicians change and our generation gets in office student loans and all these other outrageous debts will right probably be papered over or there' be some sort of you know tax they'll figure out an acronym to to forgive all that

stuff it's just the the nature of how these Generations play out so I think they'll keep doing it and in the end of the day like look at the wmar Republic they printed money they had wheelbarrows of cash when you know the goods were going up 100% per day who who is this the wart Republic yeah back in World War II you know Germany essentially had all these War debts from World War I and you know couldn't pay them so they just diluted their currency there there's a great book called um Lords of Finance the bankers who broke the World by leak Ahmed and he talks this is the norm throughout history is you you always go from public to private money and governments you know inevitably choose inflation as as the way out because it's

too hard to actually tighten your belt and kind of like strap in and do austerity so I think that's just the end result and what's going to happen is that gap between productivity and inflation grows and grows and then you you need storage of value it's it's why Gold's working it's why bitcoin's working it's why tech stocks are working it's the only thing that keeps you the growth rates above the inflation right so just to go back to you mentioned recession and that's a word that gets brought up prettyy much every day on this show and there's a lot of fear in a lot of people saying hey we are going to have a recession it's

inevitable it's coming and then there's also this other side of people who say it's not possible to have a recession because of all these monetary policies and this printing that's happened and what's your view on it I think you can you can definitely have a recession what's my view on it is if oil stays you know if they're pumping enough oil to keep the inflation at Bay then you won't have recession because if you keep having these giant infrastructure ples the thing that breaks everything is when oil spikes and credit spreads basically widen and when oil spikes treasury yields generally rise and that causes rever you know the

financing costs rise the cost of capital Rises so if you can keep inflation down which we have like what's interesting is the US is pumping more oil than we ever have before and you could honestly make the argument that there's enough oil reserves in Antarctica to satiate Global oil demand for like the next 15 years or something so they'll find more oil I think it's just a matter of like is there a conflict that destabilizes it in the Middle East is there that would lead to some sort of recession because then the financing costs rise and you have some credit Rumblings but other than that like it's kind of nuts to think about but you can keep printing in fact

if you lower rates you might even be able to pump more oil because the financing cost to pump oil and then the debt markets provide that and you know you have this other benefit because baby boomers are getting older and they're risk rers so they put their money in bonds and that allows financing costs you know it's this structural mandate for for older people to invest in bonds even though they're really certificates of confiscation like it's the dumbest bet ever like what and not only that but like the next 20 years what person who's a millennial or genzer is investing in a bond it is mindboggling like yeah that's why to me

everyone's like oh the stock market you know it can't go up anymore it's going to crash it's like the risk reward for buying a bond is like negligible one of my big problems is these guys who are just like you know they're 50-year-old you know Market gurus and they're like these young kids it's all about financial nihilism these days but they don't they take that in like a 10 to 15 year span as like they're investing in Bitcoin alt coins it's so bad but like that's been the norm throughout history is once the governments get corrupt you always go to the Frontiers it's why you know people left England and came to America to go you know settle the frontier markets

that's you're for you are forced to and there's first movers and like that's just the nature of how human nature is and then the incumbents that kind of Choke the the growth and put up guard rails and bureaucrat system so that they take all the growth of themselves they end up forcing people out into the Frontiers and they call it nihilism but it's really just it's a natural like evolution of what you would do if you're forced to so I think that's why Bitcoin and you know it's the rational explanation for why Bitcoin makes a l and you mentioned earlier in the show that essentially what we're doing is just annihilating the middle class and there's a great Charles Dickens quote

that you shared with us that I think portrays this very well can you share that with us yeah A Tale of Two Cities it says it was the best of times it was the worst of times and so you really I mean if you're not invested in these like stores of value or productivity enhancing assets you've largely fell behind and that's you know the middle and lower income you it's it's horrible but that's why Bitcoin is so powerful and and this there should be more of teaching and access for that because it's the norm throughout history for for this to happen is it's kind of like a paro's principle like you know 20% you end up centralizing all the assets and

power over long periods of time and you have to figure out kind of how to how to redistribute those but you know San Francisco is a perfect example of this where you have these you have a billionaire class and then the politics are so messed up that it kind of annihilates the middle class and firefighters and policemen and teachers they have to live like two and a half hours outside the city because it's so fre expensive but you know if you're Mark Zuckerberg or Mark Benny off you're taking it and so that's sort of what happens when you don't allow you know the market to reset and because the debts are so large that's why the Congress and the fed and the treasury

are all kind of In Cahoots together because they can't let it they can't let it fall apart or it would be you know depression Armageddon so the important thing to watch is um watch treasury yields if you have like a a super spike in treasury yields from some Global geopolitical event and real rates of Interest are rising meaning inflation is falling and treasury yields are rising you need to just get the hell out and stuff your money in cash but I think largely what you're going to see is there'll be negative real rates for Our Generation for the next 20 years as we work our way out of these Sovereign balance sheet

problems and as an investor and somebody listening to this show obviously everybody listening to the show holds Bitcoin so that's that's no nothing new to anybody here other than Bitcoin and perhaps gold as stores of value and I know you've mentioned tech stocks as well but what are the other assets that you would re recommend as a way to protect against this situation that we're in I mean th those are probably the most most interesting I would say you know another theme of ours like nuclear uranium is giant supply and demand imbalance and the one thing that governments are really scared of is after the Russia invasion and basically they had all control of you know the

that pipeline it freaked countries out and now that they're looking for a more decentralized energy base so it's not and you're seeing you know they just turned on Three Mile Island Again they're they restarted another nuclear power plant in Michigan so they want a more decentralized energy Supply not just oil natural gas they want nuclear as well and it just so happens no one dug up any uranium for the past freaking I don't know 15 years after the Fukushima disaster it's another way you could possibly play it in you know the Giant supply and demand in balances but there's lots of other things like when you're talking about like Frontier investing the amount of space stocks

there's gonna be giant infrastructure uh spend into space and you're you're starting to see like that will be I think the next Frontier and the the supply of space stocks is is very thin relative to the amount of potential money going in there so there lots of different theoretical ways you could play it but Bitcoin is the most fascinating to me because there's no Supply response there's always when stock markets rise there's always a Goldman Sachs or Morgan Stanley Banker that's ready to sell you you know more lithium or more uranium or more tech stocks and more bogus backs but you for

the first time ever you know you can't print more more Bitcoin and the convexity of the asset is just incredible meaning like it really if you have a massive Global money printing machine which we're seeing right now global M2 is rising if that Finds Its way into Bitcoin somehow as a reserve asset it really is one of the most interesting things I've ever seen in my lifetime and it's been you know it's continuously gone for 15 years and it's only getting stronger because the amount of dollars in the Legacy trafi system has just been pumped to Oblivion and when our the Next

Generation takes over God it's it's really a a mind-blowing thought where it's less taboo to us in fact you could see you know the Next Generation sell gold and and go into Bitcoin as a store of value so lots lots of very interesting things happening right now yeah yeah Tyler thank you so much for joining us today and walking us through your thoughts and laying this all out for us everybody listening in I want to know if you guys are curious about learning more about uranium or about space exploration that is not those are two assets classes we have not talked at all about but it's funny that you bring both of them up because I have been chatting offline with a few people so

let us know if you guys are interested in that and we'll bring a guest on Tyler really appreciate your time thanks so much for joining us we'd love to get you back on again at some point in the future maybe we do a Uranian episode with you perhaps yeah it sounds good whenever you guys need me I appreciate it Jay awesome man have a great day thanks so much for listening in everybody cheers as always if you liked today's episode please hit subscribe and make sure you follow us you don't miss out on the next one there's also a link in the description to our free five minute daily newsletter where we simplify crypto for you well making you laugh and if you're willing to step up your crypto investing game we're going to also leave a link for milk Road Pro you get access to our portfolio where

you can see exactly what we are buying this is your number one resource to help you invest successfully in crypto one final note this show is for educational purposes only and nothing we say is financial advice investing in crypto or any asset is risky and you should never invest more than you can afford to lose thanks so much for listening in my friends have a wicked awesome day