How the Oil Shock Is Flipping the Macro Playbook | Felix Jauvin

Transcript

Feelings, please. How are you, buddy? Welcome to the program, brother. >> guys. Good to see you. >> Thank you for coming. Dude, you guys Thanks for having us. Spanking them out. >> grinding over here. This is crazy. I get tired after like two of these, and you guys are just here all day. >> in person. I know. I got the I was I was uh interviewing Raoul today. I'm finally with somebody the same height like I thought as well. Yeah, yeah, yeah. Did you um did you bear pill Raoul? Because he's been very, very bullish in [laughter] the last 4 months, and I it's just hard it's just hard. Yeah, no. Honestly, we didn't even talk too much about crypto price. We talked a little bit about the macro situation. Nice. I don't I think he sees it pretty similar to me. It's like obviously oil is a big story right now,

what's going on there. And you know, it's on it's on a knife's edge right now which way it goes, right? Like >> Yeah. Yeah. Yeah. I saw Yeah. I saw today Iran is charging $2 million for safe passage through the Strait of Hormuz. Damn. To be I I've I haven't seen many headlines today. I've been too busy, but that is I mean it like yeah, it's it's spicy. I don't know. Um I don't like $100 oil right now, right? Like Yeah. at that price, you're mostly worried about the inflation effects of that and how the central bank reacts to that sort of thing.

Um But if you get to 150 bucks, you start to talk about demand destruction and like >> Yeah. you know, you look at any major oil shock, save for basically like the 2022 one. We entered a recession pretty quickly afterwards cuz it just like you know, oil oil's a derivative of or it's an input into basically everything, right? So, you know, if you have that go up, people start to react to that and change change their consumption habits differently. So, it just has this whole sequence of effects. So, yeah, it's dicey. It it it it is. And I've been watching some of your shows, and you kind of have been uh developing this thesis that's kind of opposite to dollar or fiat debasement, where there was kind of this trade that was put on with gold and you know,

copper and silver and uranium and then all the way across to you know, cryptos had it first, and you're kind of flipping that now and saying like there might be a lot of positioning that's offside, too much into this dollar debasement concept in a more recessionary environment, oil's going up, DXY's kind of starting to go up again. Is this still something that you're kind of uh pretty firm on? How are you thinking about this kind of anti-dollar debasement >> [laughter] >> Um or rebasing. The thing to think and remember about currencies is that it's always a relative game. You're always comparing one currency against the other.

Um And this was like the whole debasement trade that was going on for many months there. It was It really It's funny. It took hold after the move in the dollar lower. And it was just chopping around sideways, and that's when everybody got all excited about debasement. And I was somewhat sympathetic to it cuz it's like look, you know, if if you look at the DXY, right? It's a basket of other currencies, mostly the euro and like the yen. So, it could be that they're all just getting debased at the same time, and the DXY wouldn't really reflect that cuz they're just all getting debased. Um But basically what it is is that whenever bad things happen in the world, everybody needs dollars. Like everybody's everybody's uh the shortages in dollars happen really quickly cuz every a lot of things are

derivative of it, right? Like, you know, oil gets settled in dollars. Countries all over the place have US debt, and you know, if they if they, you know, need to to shore up their own financial positions um you know, they need to sell their US debt, and to sell their US debt means they're buying dollars basically. That is the other side of that trade. So, you see this right whenever bad things happen, people need dollars. And then you add on the fact that okay, if this bad thing that's happening is, you know, an oil shock, that's mostly focused on like the Strait of Hormuz, most of the flows that come out of there, it's it's going to Asian markets, it's going to European markets.

Almost nothing goes to the US. The US is actually largely energy independent, so it doesn't affect them as much. So, that oil shock that we're seeing, it's it's going to affect the Asian economies a lot quicker Yeah. and the European markets a lot quicker than the US. So then, circling back to that composition of the DXY, right? If most of it is euro and yen, and they're getting whacked way quicker and harder than the US, that means a weaker economy for them, that means a weaker currency for them, and then relatively, it's a stronger dollar. So, it's just like a Yeah, I see what you It's just like a rate differential thing. Um you know, on on one side, yeah, I think people are getting a little too far over this season the whole debasement thing cuz of

what gold was doing. Um in reality, it's just mostly like Chinese central banks and stuff that were buying gold like mad. Um And so, you just had that whole narrative get offside there Yeah. >> into something where those those two uh two flows in the opposite direction, and then I was just like okay, this is not good cuz everybody's all in on gold right now. And then pretty quickly, we've seen yeah, retrace like 30%. Yeah. >> [laughter] >> Yeah. Very quickly, which is like surprisingly shocking for an asset of that size. Yeah. Trillions of dollars being wiped out on a day-by-day basis.

>> I I had you know, I was saying I'm pretty bearish precious metals here. I didn't think it'd go down 30%. No, right? At least not in like what, like a week and a half or two weeks, [laughter] right? So So, you know, with that being said, like, you know, gold's back down I was just checking the price, 4,400 today, 4,420. It and it retraced so much from that that high point that it had. Like I guess try you know, help us make sense of this. Like, does it still have a long way to go? You said it was maybe not expecting to to go down that much, but I I'm just curious if you think that most of the DXY and and and this, you know, dollar rise is attributable to the war, if that does peter out in the next couple of weeks, maybe couple of months,

you know, is that why we're seeing most most of this because of that uncertainty, or do you think that this is sort of the uh the entrance or the initialization of a cyclical trend where we're going to start to see more of these things that lead to a rise in the dollar? Um no, I don't think my base case is still dollar weakness if what was holding before the war continues. >> Okay. Yeah, so it's you know, it's a short maybe three to four months thing. Of course, if yeah, if the whole war resolves itself, I would probably go back to leaning towards the dollar going lower and and you know, game on on the whole gold thing.

Um But yeah, you know, I think there's also some weird technical market structure stuff going on. Like, some people are speculating that some of the Middle Eastern countries are selling their gold positions to shore up their finances. You know, if think about Dubai, right? Like, that whole economy was built on people coming there and spending a bunch of money and tax haven thing, and now everybody's gone. Like, that's a pretty big chunk of their revenue out. It probably makes sense for them to shore up into something a bit more liquid in the meantime. So, there's there's parts of that, but um you know, the the big stories at hand, I think I think it's continuing, which is that we we had globalization, and that led to like structurally stronger dollar. Um because the the other side of that equation is is

the whole trade deficit thing that tariffs are going after, which is that uh other countries make a bunch of stuff, comes it into the US. The US pays for that with dollars, that goes out to the rest of the world. Um and it's led to that like multi-decade strength. So, if we go back to where we were in February, and we reverse all this stuff, yeah, I'd probably go back to leaning towards uh dollar bearishness. So, it's just a countertrend kind of thing, I think. What are your views on the state of crypto right now? Uh it's uh sitting around you know, Bitcoin's at 70, hype is obviously quite strong. Uh a lot of others, not so much.

Uh there's kind of an AI trade emerging with Tao and BitTensor. Um but really not a whole lot of action. I mean, it's kind of what you'd expect if you're a 4-year cycle follower or at least part of that. Um you know, you would maybe anticipate that we have six more months of finding our our base and then going from there, but people are saying it's going to be shorter this time because the bull market was different, this bear market's going to be different. I don't know. What are the structural things that you need to see to be constructive on on on Bitcoin? Um and what's your current view?

Um yeah. I I initially was pretty hesitant of this idea of a 4-year cycle repeating again, and so far I look pretty wrong on that. For now. For now. But I do think I do think underlying that, you know, it's there is a certain degree of just dispersion and maturation in the market. I you know, I think I think for now I was wrong on that, but I think where my beliefs lie is that we will see this further dispersion in terms of the winners and losers. And the winners that you talked about like hype are starting to show themselves, and the the coins that are having trouble making a case for themselves are going to continue to bleed lower.

And so, maybe it's just more so what it looks like is these these these projects, these protocols and like Bitcoin that have something useful to themselves will continue to either not go down as much during the quote-unquote 4-year cycle, or start to really detach higher from the stuff that's a bit lost. So, that's the way I think about it. Um Bitcoin itself is I think just in a a little bit of a rough patch in terms of a narrative Yeah. >> for a few reasons. Like, suddenly, you know, the past few months gold was outperforming like crazy. So, it's like oh man, well like if gold's going up and Bitcoin isn't going up, what's going on there? I thought this was a better version of gold. Um then there was the whole proxy of, you

know, it's just like a high beta long duration asset. But then it's like oh wait, Nasdaq's going higher every day, but Bitcoin wasn't. Everything >> [laughter] >> And then you had I don't know, like the whole quantum fears of it related to it. It's it's just like You know, it's just >> Or sailor, right? >> Yeah, or or it's just like yeah, it's just a it's just just a sailor flywheel. Yeah, yeah, yeah. Um I don't know. I think this is probably just the type of stuff we talk about when it's not really going anywhere for a while and like eventually I think it'll it'll go higher again and then we'll we'll come up with some new sexy narrative for it, but I mean at the base case like there's some fundamental important uses for Bitcoin whether it's you're in an

emergent country that is being oppressed and you want to leave that country. It's really hard to leave that country with gold bars. It's really hard to leave that country with the financial assets there cuz of what the banks there. So, there's still those, you know, evergreen narratives that are really important to Bitcoin that won't go away. They're just Yeah, I would say they're they're still super strong. So, I don't know. It's just it's just a bit of like there's not there's not too much going on and we're all just like grasping at straws and trying to like net out the narratives and figure out the hell we're doing. >> Pivoting to AI. >> Yeah, yeah, yeah. Yeah, there's that Yeah, there's that whole narrative.

Yeah, like maybe it's just all along crypto was meant for AI agents and I I do see the case. I think there's a bit of like hindsight bias there, but I think it's also valid. Um so, maybe my opinion is somewhere in the middle between the two. What what do you what do you do and like volatility's low and like there isn't a whole lot happening in the market like do you try to grasp at straws? Do you find that distracting? Like how do you try to >> [laughter] >> I mean yeah, I mean I'm a I'm a macro trader. So, I just go where the vol is. I go where the where there's the big plays and so I don't know like even on my podcast for guys people are kind of like oh, why the hell aren't you talking about Bitcoin right now? It's like

there's there's not much to say. Like I I I have a perma bag of of Bitcoin and it sits there, but there's there's no reason for myself and what I do or what I'm interested in to yeah, try to grasp at this thing that's just kind of chopping around endlessly. Yeah. Um once it's exciting again I'll I'll start to pay a lot more attention to it, but for now it's just kind of just waiting out and there's a lot more interesting things to do right now. And and such as like VXY and putting on a trade there. Yeah, like metals or I was yeah, all over the place in like different commodities leading into Iran.

Yeah, same. I'm in I'm underwater on uranium. Am I going to get out of this trade or >> [laughter] >> how long's it going to take that? I got taxes to pay in a month. That that was my message. So, I was I was in a lot of what I would say was just like the idea of like a economic re-acceleration thesis. Right. Like the copper and the >> Yeah, copper is like probably >> and Yeah, I'd say copper's like the best representation of it. And as soon as the war hit and we saw oil at 100 I was like well, that idea isn't valid. Like you just can't get economic re-acceleration when oil doubles in a month. You just can't. So, I was like all right, I'm going to take this all off. It's just like it's wrong.

Um I'm sure. Yeah, so so so I'm I'm just I'm a huge dollar bull. Like that's just my biggest thing. >> I know, I know. It's not helping. [laughter] It's not helping. Yeah, so I think maybe Yeah, you need to hope on oil normalizing I think for the for the idea that >> Yes. cuz again, copper is a core part. Like people call it Dr. Copper in macro cuz it's like a it's a it diagnoses the health of the economy at the time is what the price of copper is doing and it's it's not doing well right now. So, it's like yeah, economy's not so hot. Yeah. Yeah, you need you need this whole Middle Eastern thing to sort itself out. We're we're like two months out from the new Fed chair. Mhm. Just curious how you're reacting to that, what, you know, we should expect.

>> you you can be Like yeah, like what do you what are you thinking from Kevin Warsh? How how do you Like anything going into it that that you're planning on putting on or what do you think is going to be the result coming out of it? Um yeah, there's a lot of hysteria around Kevin Warsh. I think people look at one side of his policies and ignore the other side of of what's potentially coming. So, the first side that people are in hysterics about is this whole you know, he was a huge hawk in 2007 into the Great Recession. He wanted to hike into basically the situation we have right now and obviously that was not a good call. Um and he's been a huge critic of of QE and central bank policy of like huge balance sheets and that sort of thing. So,

all that stuff is sort of valid and people look at that on its own and say oh, like this is going to be terrible for Bitcoin or risk assets or what have you, but they don't look at the other side of the equation which is that look, they Warsh and and you know, Fed Governor Steven Mnuchin that whole cohort and and Scott Bessent they want to deregulate commercial banks to move a lot of activity from the Fed being the only game in town in in credit markets or or however you want to define it into actually getting commercial banks ripping again like they were pre-08. Cuz after 08 yeah, we had to course correct a little bit for sure. Like those banks were doing a little too degenerate of stuff. But I I think they went too far

because for the last decade or so there's been like no commercial bank lending. Um so, they want to deregulate and and find a better sweet spot and get those corporate bank get the credit sector rolling again. And I I think that that'll that'll offset the marginal hawkishness of what the Fed is doing on the balance sheet. So, I think it's actually one, I think it's a really good thing. I think if people were objective with their principles and not just talking their book, they would see that there's like you know, there's there's a whole cottage cottage industry of people who criticize the idea of QE and say it's bad and it creates wealth inequality and it does, but then you have a guy that shows up and says, hey, let's try to reverse that. Everybody freaks out.

>> [laughter] >> It's like And I think I think some I think you can I think you can tow the line and get to a good spot if if you really get commercial banks going again. Um I I that's like the core part of the economy, you know? So, I think it's just this like return to where we were before. So, I'm I'm not putting on any too like specific trades or anything related to that other than just not being in hysterics about it. So, what does your portfolio look like now more or less? Uh a lot Do you have more cash than you would you you previously had or Yeah, definitely a lot more cash.

Um I yeah, positioned for dollar higher in a few different like, you know, I think the I think the euro So, the euro's priced for rate hikes right now which I think is kind of insane. That's insane. Yeah, because like they're they're one of the countries the most exposed to >> to the whole oil Exactly. >> Yeah, yeah. So, like if it's going to if a recession's going to hit because of oil demand destruction, it's going to hit there first. So, you know, why why is ECB pressing in that many hikes? >> Yeah, why why would they hike into a recession? Yeah, and it's because they're a single mandate central bank.

Their their only mandate is inflation. They don't have like a unemployment one like the Fed does. So, they're kind of forced into it, but yeah, it's priced into the curve right now, but I I don't really see it being realized. So, what that looks like in currency for like cuz currencies reflect the like future path of of interest rates like interest rate differentials. Um so, I think you have this interesting opportunity where the euro is overvalued relative to what's going to happen. >> like seeming strong relative to the other world's currencies that may cut. Yeah.

You know, so they'll hike and they'll go up, but that's not going to happen. You're saying short the euro. Exactly. Yeah, which is just a way to show dollar strength. Like it's again, it's all always relative. So, stuff like that super like short bond like long end bonds, um US bonds. Um no, yeah, no gold or precious metals, no commodities. Do you own any hyperloop stock? I I have before, not currently. I just like I love hyperloop. I I want it's literally just for like weird personal finance reasons of like having moved a lot of my capital into like my traditional brokerage right now and just like not having easy and yeah, maybe there's like there's that's like a hyperloop, but I just I don't want to get in front of that. Yeah. So, if if I had the right amount to like

just the degree amount that I have that I'd be able to put into it is not meaningful enough right now just because of literally personal. So, I love how I would own it if I was organized with my stuff better right now. I think it's I think it's an awesome protocol. Any other cryptos or just Bitcoin? Uh I feel like angel investment stuff. Yeah, so so I mean that's my main thing. It's just like I'm way too much of a trader to be patient for in for investing. So, I force myself into something that I have to hold. >> [laughter] >> And some of them go to zero, but at least it gives me exposure to this industry that I'm working in.

Um so, that's that's the main Yeah, it's like Bitcoin and then some angel stuff and then like yeah, the vast majority for me it's in my like intera- interactive brokers brokerage account. Um but I feel like I do need to start moving some more back because now I can trade all these chat by perps. I've moved a lot back. Yeah. >> Well, I've >> [laughter] >> I've moved a lot out and haven't moved it quite back yet, but I'm kind of in a similar you know, place as you. I've I've moved a lot out and it's kind of >> Yeah. Yeah, it feels it feels cozy. It does it feels real. >> [laughter] >> Yeah. Yeah. But now it's like I can oh I can I can trade oil perps. Now like that's awesome. Like I I was actually I was an early user of of

Aussie because they had FX perps. Currency perp and I cuz like trading currencies in in either like on brokerages is either you have to trade the futures of them and then you have to do with like lot size and stuff and it's just like unless you're slinging like a billion dollars, it's like kind of a nightmare to manage the lot size of it or you have to do like options trades on those futures which is also not that ideal either. Whereas these form factors of like a perp is incredible because you can just you can just yeah, punt it. And so, like I love I love perps.

This guy just loves gambling. Yeah, [laughter] for sure. Every asset class, every venue. >> Yeah, I'm a I'm every I'm everywhere. Yeah, I know. Well, Felix, man, thanks for joining us. I'm sure you're slammed here. Obviously you guys are putting on a great conference. you, yeah. think I think folks have been excited about this. It's been in the midst of this bear market. There's a lot you know, there's this institutional bull market going on. There's a lot of adoption happening. Prices haven't yet caught up or you know, to be determined how or when, but I think you know, the energy in the air here is is is not that of a deep deep bear. So >> It's kind of crazy it's yeah, so this is the this is our most like this is the most tickets we've ever sold for any of our conferences and it's like at a time

during a traditional bear. It's kind of weird. >> Yeah, it is weird. It's packed here it's busier than last year. It's it's kind of crazy you know, you hear people talk about the whole institutional is all excited and retail is depressed and you know, you never know if people are just kind of saying that because they need to. >> Yeah, of course. >> But then I show I I show up here and I'm like okay, that's actually legit. It's kind of crazy. Yeah. >> [laughter] >> But it's cool to see and it's it's awesome that you guys are here. This is great and Good to meet you in person and yeah. >> Yeah, likewise. [laughter] Yeah. Fellow Canadian. Wildly overdue. Yeah, seriously.