When’s the Fed Going to Pivot? with Itay Vinik

Transcript

foreign ation the title for today's episode are we at the end game now David and I are talking about macro gotta pop our heads up from everything that's going on in SBF FTX and uh look at the wider World here because I think there are some looming macro questions that face us as we are ending 2022 and going into 2023 with the perfect guest to talk about them but the big questions in my mind that I asked this uh macro analyst is it I guess I think has some fantastic perspectives on this how did we get here right like what's the history of of how we got here where are we now pinpoint us on the map when do we pivot when is this fed pivot

going to happen does Powell's next move and lastly is this the end I don't mean the end of all human civilization David I'm talking about like oh thank God the end the end of this um credit debt cycle that we seem to be in Ray dalio talks about this right you only get so many spins at this wheel before everything falls apart uh so who do we have on the episode and uh why why is this important yeah we have a macro commentator itai who has come in with a bunch of charts uh so if you are listening to the podcast you might actually want to go over to the YouTube because this will be a very chart heavy episode which we don't get very often uh here on the show at bank list but when we do everyone

loves it including myself and so itai has a just a long history of charts as in like it goes back the first part of the show is going to go back many decades but then as we progress throughout the show we're going to get no more and more up to modern times and be able to actually hopefully try to project what happens next and are we at the end of the road and Ryan this is the first week in a long time where we have a zero SBF related content and I'm just absolutely here for it I can't wait till we no longer have to say we don't have SPF content this week I thought it'll be the next step of the phase but yes um talking about macro today and it's refreshing to get back to some of these these bass Essentials David you know what's also refreshing is

talking about 2023 and where your health benefits are going to come from yeah yeah I mean it's it's a time for me for like kind of planning I always do that at the end of the year I'm like okay what what should I get in place for next year and uh health benefits one of those things that are very important for a lot of what people who are in web 3 and crypto because they're contractors they're maybe working for Dallas tell them a little bit about our friends and sponsors over at opolis yeah opolis is helping you the web 3 worker the crypto entrepreneur uh deal with all of your nation-state burdens while allowing you to do all of the things that you do best which is work and so famously uh being an independent worker either working for

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probably what six weeks ago or so itai where I was like okay I was like you know this space very well you have the charts and data to kind of tell a story could you come help the crypto community in the bankless community make sense of what's happening what got us here and where we are now so uh it's great to have you on Bank list and thanks in advance for your help in understanding these complicated subjects yeah no no problem and especially because you know you do have to have a pretty good understanding of history and um macro history in order to really understand how the current environment is being influenced by some of these

events that even took place 70 years ago can I ask you before we get into the questions of like um how did you learn this stuff like how do you get up to speed and get educated on understanding macro it just seems like there are so many different topics what's your story on how you got here yeah it's a great it's a great question I mean I started my career at UBS um being an analyst and really passionate about financial markets reading everything that I could and slowly putting the pieces together um after that I started a hedge fund a traded volatility so it was pretty important to understand how some of these events can influence the volatility regimes in the market

um so really it's 15 years of experience of just putting it together um and it just you know it adds up and knowledge gets compounded then you know when you understand these things and you connect the dots correctly it could be very rewarding so itai I know you have kind of a foot in crypto but also a foot out like you're not 100 all in crypto like you're also looking at other alternative Investments and macro in general um what's your sense of like Krypton what's kind of your experience in it give the bankless community uh some idea there yeah I mean I've I've dabbled in crypto um for a few years now um really um for our firm what we've done prior was crypto lending that now I

guess get it has a little bit of a bad uh of a bad rep uh plus um defy and delta neutral D5 really so I figured that the Arbitrage opportunities in crypto were quite a bit for taking you know they're rewarding you enough to not take direct price risk however we exited crypto lending in May after Terra Luna even though we had no exposure to Terra Luna I was just worried about systemic risk generally and I was thinking what kind of firm has too much leverage that we don't know about so even though we had exposure to blackfy and Gemini we actually exited both in May um wow by the way can you like uh DM me next time you get that spidey sense uh exactly that could be good to know yeah our exposure wasn't huge but we were

using block fi as kind of a cash substitute but then once Tierra Luna happened you know the the C5 Type of risk was High um but also B5 risk was high as we've seen with Terra Luna and you know I was just worried that players in the space even the bigger companies are just not managing risk correctly and we actually did crypto entirely and may as a result can you just maybe elaborate on what were the inputs to go into that decision was it like just your Spidey senses was it just experiencing contagion and other markets because I feel like I mean I don't have intrinsic details into like the whole state of the entire crypto industry and how we reacted to Terra Luna but I think from my limited scope of what I can see like most people were

turning either list willful blindness but no one wanted to believe that there was so much contagion so like can you talk about like what your experiences were and why you decided to make that move and I think the thing too David I don't know if this resonates with you but like is some people saw after Luna like that there would be Fallout and contagion but I feel like the FTX thing caught a lot of people by surprise like I thought all the damage had sort of started to work its way through the system right and then there was this other like secondary it was like a one-two combo punch and the second punch just hit us right in the gut yeah so to me first off I would make it clear that even though we did crypto lending we never did algorithmic stable coins just because we were worried that

they're not really backed by anything but the good faith of whatever VC is backing that particular project and I was thinking at the time that there's a lot more centralized risks in the crypto space than what a lot of people believed because when you're looking at all these different projects that are supposedly decentralized they're not really decentralized because there are backers across um and it's really fueled or was fueled by VC dollars um so as a result when we saw what happened to Terra Luna the decision was really this is this is kind of a new space there is no Central Bank which is kind of the point right but um there is no Central Bank so we don't

know who has too much leverage we don't know what kind of asset toxic ratios are out there into different firms and if there's a true shock event and a real stress test it's kind of impossible to know who's good who's the good player and who's the bat player so from an abundance of caution to to our investors we just decided to exit the space entirely focus on some of the other assets that we trade and um and wait and see um how it kind of plays out well well played sir one of the other questions I I have before we get into the charts one of the charts that you have is about consumer sentiment which uh is related to a number of things that we'll talk about

but as we go through these charts and as we kind of place ourselves in the macro context what's your sentiment are you scared are you optimistic like overall what's your vibe yeah I try not to um I try not to mix emotions with investing too much generally speaking so when I look at the environment as a whole our goal is to protect Capital during periods of volatility which we've done fairly well I think we've outperformed the s p by 16 or so percent um with with maybe a fraction of the volatility but really it's it's what is the market going to do is the market going to move in one specific way is diversification going to work because

what we've seen correlation is picked up with all asset classes right so um you know bonds crypto gold s p have all been one trade so diversification does not work so we we had we add to hedging when that happens so it's really not so much about sentiment but more about understanding the moves and reacting to them in a way that our goal is to make money regardless right well I think without uh further Ado let's go ahead and get into some of the charts because we all love charts here on Bank lists uh Italy you want to guide us through some of the charts what do you have up first yeah so first off um I thought we would start with a little bit of a history introduction to the to the general macro environment and

the the first question was how did we get here and I divided it into a few sections um really going back to World War II and ending in the current ERA and and it is all related so you know the broader the broader idea is that we have the Brentwood system that many of you probably know what it was uh in 1944 uh the the the winners of World War II really got together and decided to create a new monetary system for the world in which the US dollar was King and it was the central currency all the other currencies were pegged to the US dollar and then the US dollar had the ability to convert into gold

um however in the 1960s and 70s early 70s uh the U.S was abusing the system by running a large deficit for the Vietnam War and other social programs and Other Nations started asking for their gold back and um under that those those terms of that prior arrangement the U.S had to deliver the gold they didn't want to do so because they're running out of it so in 1971 Nixon just dropped us out of the gold standard into modern era began so the era we all know the Fiat era era of higher inflation that really all starts at that time in 1971.

um the 1970s were a period of stagflation so we've heard that term this year as well and I think it's very relevant um up until that point it was pretty much the conventional wisdom that high inflation can exist at the same time of a recession right because the recession has declining consumer demand and things of that sort so it tempers inflation but we've seen both inflation and a recession hitting us simultaneously in the 70s and the main reason for that is most likely supply side shocks in which even though demand is dropping Supply is Contracting even further and that's causing inflation at the same time so 1970s had a lot of oil price shocks and we've seen some similar things this

um last couple years post covid we've had a pretty big Supply squeeze causing a lot of inflation um so some you know some people have brought back to stagflationary um era so once that was over um we really got the volcker era um early 1980s Paul volcker decided he's going to do whatever it takes to stop inflation that was really the first time the FED stepped in to really combat inflation in a very aggressive manner he raised the federal fund rates to the double digits which we can't even imagine today what what that would look like right um so he really was able to crush inflation but it did cost a pretty heavy recession in the in the early 1980s um following that we had a pretty pretty

good decade up until 1987. the famous black Monday crash takes place and Alan Greenspan really introduces the idea of the fed put the FED reduces rates for the first time in response to the stock market and not the real economy which is really interesting um the real economy didn't even go through a recession in 1987 and we've had the biggest drop since 1929. so the FED didn't even wait for the real economy to be hit it reacted to the market that was really the defining moment that started the modern era in my opinion for this type of fed interventions um we can look at this chart actually as we as we continue to talk about the

history because what's interesting is that every single time that the FED reacts to one of these events the the trough is lower and then the high is lower as well because and itay I want to could you describe what we're looking at from a chart perspective for those who don't see it on YouTube so this is a global Central Bank policy rates so that thing you were just talking about that you know that volcker raised and Greenspan kind of dropped at the FED fund rates which is basically the Central Bank policy rate it's kind of the interest rate undergirding all other interest rates and I think what we see on the chart is from maybe 1970 all the way till now uh this the very Central Bank policy rates they all kind of

follow this blue line which is the US so everybody is following kind of the U.S monetary policy but then we also have uh the ECB that's Europe we have England bank of uh England we have Canada the Bank of Canada Bank of Japan so we have all of the major uh Western I guess Central Bank policy rates here in the chart uh is there anything else you'd point out in this chart uh no that's a that's a very good description um so what I would say is that the interesting part since those that that period of the early 1980s uh every time that the FED reacts with lower interest rates it's from a lower and lower place so in the 90s were interesting because we add one more thing to this mix in

1997 a very famous hedge fund that was started by Nobel Prize winners um actually the ones that discovered the black and Shoals options model blew up it was called ltcm long-term Capital Management and that was the first time when the FED literally bailed out a company in order to save the market oh really so when was this so this was earlier than 2008 where we saw a lot of that this is 1987. yeah so what was the rationale then too big to fail still yeah so they they basically put bets that exceeded one trillion dollars because there were a hundred to one leverage and they thought that they know how to hedge all the risk because they literally invented the options model that sounds so familiar yeah we've seen

some of that in crypto so you know that that has happened many times before right they were they were it was called the Midas formula like we were able to cancel out risk we can't lose um so that happened in 1997 the systemic risk was so great that they they bailed them out in 1997 and there was a big criticism of that saying that you know it creates a lot of moral hazard what prevents the bigger Wall Street Banks from doing the same thing knowing that the FED had bailed out a much smaller hedge fund and of course we all know that 11 years later that's exactly what happened um so this is what we're seeing on the chart here is just kind of each each cycle

I guess the the highs of the interest rate are lower are lower and the lows are also lower and it kind of looks like it drops down to like this bottom line which is which is the floor at zero and I don't even know didn't some of these Banks um go into kind of the negative territory I don't even know if we could see that on the yeah but the ECB in Japan did you see it right there um you know Japan still has somewhat of an you know now maybe not but they're they're still very close to zero so they're not at zero for some things and they also have other very extreme policies we're in the basement here like the graph is kind of breaking yeah the big takeaway here is that after the global financial crisis we've we've hit the zero Bound for the first time and

what do you do when you hit the zero bound and nothing works you have to go to something very unorthodox which was QE quantitative using which is a very fancy way of saying printing out a bunch of money so not only were the zero bound to start printing out a lot of money which which printing out a lot of money that says that's effectively going negative right like if you can't go negative on the interest rates you go negative by printing money it's kind of how we did go below that floor right in a way yeah in a way and and that was a really interesting and also very controversial experience experiment Ben Bernanke I think in 2012 was saying that he believed it was justified in order to trigger the wealth effect the idea that if people feel wealthier because the

stock market is rising then they're gonna there's gonna be more consumer spending um and then the real economy will go into a virtual cycle now that's never been proven to actually work by the way that was the theory yeah that seems kind of crazy just uh having you explain to me like that was the theory that seems nuts that was the theory um yeah show us some other charts here so what's the effect of all of this so this is really the this is really the fed's balance sheet going back to 1995. you can see it was pretty not a not a big deal just slowly grinding up but up until 2008 then the biggest experiment starts and what was interesting is every time they stopped the economy went into a crisis the economy became addicted to liquidity when qe1 was halted we got the

um flash crash into 2010 Q2 was halted we got the European debt crisis um and then etc etc to the point that when covet happened they went just crazy they were like okay we're just going to double the balance sheet in a year and okay so a couple of questions about this so on the chart for those that can't see we're starting around like 1995 and we're starting at what does this look like um half a uh you know 500 billion dollars or something like that these are trillions actually these are trillions okay so is this one trillion at the beginning 1999 something like that even less that probably three four hundred billion yeah uh okay so um and then now

we are like 2022 we are I don't know what eight eight trillion or so and a half nine trillion something something of that sort and you can see this is this is ascending and it very kind of like policy driven way where you get like these a thing happens and then you're gonna Spike up and then another thing it's not it's not doesn't look very organic like the charts I see in kind of crypto you know trading charts are like up down this is like a thing happens and then boom money spikes up but for people who are like confused about terms like balance sheet right this is effectively how much the Central Bank of the United States owes I guess right this is their liabilities they owe people and like like when we

say oh like what does that mean who do they who do they oh who does the U.S Central Bank 08 uh trillion dollars to so it's actually not that they owe it's actually kind of the other way around it's the U.S treasury that owes the fed money so what what happens is the Fed creates money out of thin air and then they use that to buy U.S treasuries and literally giving money to the US government so those treasuries that the FED holds is on their balance sheet are assets it's the U.S treasury that has that as a liability but it was assets that were literally created out of thin air because they have the ability to press a button create money use that money to just buy treasuries so it was the treasures the bond market the bond the price of bonds that were being

propped up by all of this QE that is correct the the interest it's it's actually works in two different ways one way is the US government gets a bunch more money that they can spend in all their social programs and Social Security and all the other things they have a deficit at because they obviously tax revenue is not enough to cover that and then the second thing is while buying long-term treasuries they're able to suppress long-term interest rates because bond interest rates and price are inversely correlated okay so we got a massively expanding balance sheet and um it's important to know at any time that the the I think the important point that we want to draw out of the slide for the

that etai brought up is that anytime that they don't do QE something in the world breaks and so the politicians their hands just feel forced because you know no one wants to be in charge of things that break uh and so they try and not break it and so they do more QE okay itai can you walk us through like just really quickly like all the things that broke because you talked about like the European markets broke so the the parts of the economy that broke weren't it wasn't even the United States economy it was like Parts small pockets of the global economy that would throw a fit right yes and and usually that happens because the dollar appreciates quite a bit when when we go into one of these um dollar drain periods and um the dollar Index increasing also correlates with with

with problems around the world but just generally speaking Yeah we had the 2010 flash crash the first hold of QE we had the European debt crisis 2011 the second time that happened um when qe3 was halted that was in 2018 was a very volatile year um I know into December I remember mnuchin was calling the heads of all the banks trying what what's going on um and then the FED resumed QE uh it actually did some repo activity before Kobe even happened to put liquidity back and then when kovitz started they had the perfect excuse to flood a ton of liquidity again into the system and this is exactly what makes 2022 so challenging is that now for the first time since the 1980s the FED has to deal with actual inflation so their hands are

kind of tied they don't have the ability to flood liquidity again the way they were able to do so since the global financial crisis and that's really the core of the problem you said that when's covet hit they had the perfect excuse to do more QE the way that you phrased it makes it seem like the FED is like dude when when can how can we do more QE like how can we get this done like that because it's it's been the easy solution right up until up until 2020 in 2021 really um there was I'll go back a little bit in 2008 2009 when this was first happening uh crypto wasn't really a thing and everybody was buying gold and then gold had this huge

bubble into 2011 and then kind of a kind of a crash and the reasoning behind that was all this money printing is going to cause a ton of inflation now guess what it didn't happen there was no inflation a Whole Decade was done with QE continuously happening acid prices were booming we're in this Goldilocks environment no inflation then we get covid something changes and we get inflation so the FED didn't even realize that kiwi was a problem because there were no you know there are no real world impact to it really inflation was just fine can we talk about that though no real world impact that they could measure in the dials that they were measuring I mean if

you could talk about like some of the recipients of this maybe I know you have a slide in here that talks about a show stock market returns right and this is interesting because all this money printing all of this QE um was good for a number of people uh people in the US people worldwide particularly if you held assets this could be stocks those could be um you know risk on assets it could be uh property it could be houses and uh maybe it'll get you to describe you know the chart here but you kind of said this word of like it it seemed to have no bad effects I may seemed to have some good effects which is asset price increase and maybe talk about that but like also there were some bad effects right is

this a story about wealth inequality as well and some of the kind of societal Fray fraying and uh Rippling that that happens when you're just like printing money it definitely it definitely is um but however there was no bad effect that the FED could measure so I will rephrase that as as far as that goes as far as they were concerned Banks were getting recapitalized asset prices were doing well and there was no real CPI inflation having said that I think that it's a sort of hidden tax because the QE period during the Goldilocks when CPI inflation was not High um really benefited asset prices in a way that if you if you're a wage earner

you're not your wage is not increasing nearly enough as the value of assets and most wealthy own assets which means that the wealth each got wealthier and the wealth Gap did increase during QE just as you mentioned right um but having said that we still didn't have real CPI inflation it was asset price inflation and that's really what QE did initially so what chart are we looking at here I mean this looks like an absolute uh run up on this on this blue line here it goes all the way to 1995 all the way to kind of present time so I think this is tracking like growth stocks this would be the nasda DAC 100 and that's the blue line and then there's a red line that kind of like uh it looks like it's pretty correlated

tightly correlated with it maybe you could describe the relationship and that is the Fed balance sheet what are we looking at here yeah so that's back to that you know eight eight some trillion dollar number of U.S treasury so it's really a measure of how much liquidity is getting pushed into the market in a way of money creation uh with quantitative easing and what you can see the response to covid um was so massive because the world was locked up and they thought that they needed to offset all that organic transactions that take place with just money printing so the initial reaction to covid was risk assets just went on a tear and you guys would know it too because crypto was one of the ones that was most impacted by 2020 money printing um and then really you can see that

periods where money printing is Contracting doesn't really have great returns for stock price uh for acid prices like Risk assets like the NASDAQ and in 2022 even such a small decline in the balance sheets has created a lot of pain um so you know would I say that markets are uh markets are somewhat addicted to this liquidity I am definitely in the opinion that they are because something very dramatic changed close to the global financial crisis when we got to that zero bound markets became a lot more dependent on federal credit and a lot less dependent on actual fundamentals all right so the market is like the words addicted and dependent and I'm just got this visual of like the

economy in some sort of hospital bed on some IV drip and every time the IV drip is healing to the patient just dies yeah I mean unfortunately when you get more and more debt in the system that that's kind of how it is because servicing that debt at some up until some point that is very positive right you want to start a business you're going to borrow some money and then you're gonna do some sales and then your business is going to grow because of the debt you took but at some point you get so much debt that it's becoming problematic you have to yeah it starts starts binding you back you need to you know it's really hurting your growth potential so the economy in my opinion has passed that stage which

is creating a lot of dragon growth right and and the Really the moment was the global financial crisis so let's just finish out this how did we get here story and uh let's zip through the next three charts and let like kind of uh sum it up so the the next one is this is the covid stimulus uh programs and so uh this is basically just showing the massive fiscal stimulus that was injected into the economies anything you want to say on this that was yeah you know people ask so how come in covet we got real inflation why did that happen we've been doing money printing since 0809 it's true the difference is that 2020 was really the first Global experiment in my opinion with helicopter

money call it as you want but people just had money dropped into them on them whether it was through stimulus checks whether it was through Unemployment Benefits and the economy was close so they didn't have the ability to really spend it um and that was different because we had money Printing and we had fiscal stimulus at the same time monetary and fiscal combined and that created real world inflation for the first time got it and then this this other piece the personal savings rate you see kind of the same effect of I guess stimulus and the post stimulus and this looks like you know you can literally see it yeah so what is this this is the first stimulus check this is the second and then in red you can see the credit card debt outstanding for the average consumer in the United States so what we

see now is that the savings rate is already lower than what it was pre-covered and credit card debt is in a new all-time high so if we do fall into a recession the consumer is not in good shape right now it's actually you can make the argument that they're actually worse off now than they were prior to getting all that stimulus do you think that the creation of the stimulus and the creation of the money created that outcome I think it's a mix of that plus some covet closures and other things like that where the economy was was closed up but you can make the argument that all this was short of for nothing because now the consumers in a worse off place and we are dealing with a big inflationary problem and we're also dealing with a huge debt problem okay all right so how did we get here we saw

how we got here right a whole bunch of money printing you kind of guided us it's really kind of that simple like we printed a whole lot of money uh for a whole lot of reasons this is M2 Supply that we're looking at is there anything you want to say about this and by the way what what is mm2 that that is a measure of money is that um savings accounts as well as base money yeah it's a broader it's a broader definition of money supply and one is the just the um just the actual Fiat money in circulation this is a broader definition including accounts and it's just staggering right there was a 40 increase in 2020 and 2021 in just money in circulation the total supply of money it'd be like I mean for people in crypto right it's like let's say Bitcoin next

year you remember that 21 million hardcap thing well for one year we're just going to increase the total supply of Bitcoin by say another 8 million you know how about we rounded up a 30 million Bitcoin we'll just do it one time 40 increase one year what does that do to like the Bitcoin like well probably uh it's a lot more drastic because it's a much more honest Market than kind of this markets because people would just get out of Bitcoin prices would drop like all sorts of chaos would ensue but that's effectively what we did here it's just a token issuance of USD coin by 40 boom hit you with that and now we're seeing all of the the after effects of this and so what are the

after effects of um how do we get here it feels like you know where is here uh is is is is kind of the next question but um right what we have is we have is inflation uh both CPI inflation asset price inflation rampant wealth inequality that's spilled over into our our politics and it's starting to fray the structure of of uh society and I think the big question now from a macro perspective is all right where are we now on this map right so um take us there yeah give us the punch line of like December 2022 going into 2023.

so the punchline is this um in my opinion the FED has realized that they've made a giant mistake they've realized that probably late 2021 and they are trying to reverse that mistake so they are doing a few things to do so they're doing the most aggressive interest rate increases since the 1980s right we've raised interest rates 75 basis points now I don't know how many meetings in a row we're approaching very restrictive monetary policy Financial conditions have deteriorated but more so one of the things that's less talked about they're doing money printing in reverse so they are destroying actively destroying around 100 billion dollars of USD every single month in order to literally

reduce the amount of USD circulation so they're doing the exact opposite for crypto people they're burning this is a burn mechanism like eip1559 for the FED though where are they getting that money so what they're doing is as they've printed the money if they purchased treasuries now they're doing the opposite as these treasuries mature the U.S treasury is sending them back to a principal and the interest and then they just click the delete button and they just take that money out of circulation tokenberry baby okay so who wait so who the government has less money now who has less money it's total Supply right yeah it's just the total Supply so the total supply of USD is is dropping okay all right okay and when you said they're

trying to undo their mistake you mean like sort of the mistaken Palace regime right you're not talking about like all the way back to kind of Nixon era like that mistake that happened in the 1970s and going on Fiat in the first place that's like that ship is already sale that's I don't think anybody in the FED is in is of that opinion okay um you know I do I do think that they are worried so you know it's it's a very difficult place to be they're really between a rock and a hard place because we're sitting on a huge debt burden I think it's around 130 debt to GDP and that's only with you know without counting for other types of liabilities then it could or or total that this is just government debt and

the problem is is that you cannot have this massive increase in interest rates while you have this much debt because you could hypothetically crush crush growth and we're already seeing real GDP estimates slowing down quite a bit into next year so that basically says that next year is going to be very challenging and the biggest mystery is um so I'm going to skip this is how how inflation is going to end up because inflation right now is just tying the fed's hands in a way that they can't respond to the events the way they did before they can't just go in and turn the money printer again they just can't do it because inflation's too high so what happens with inflation is really what's going to determine how 2023 is going to look like are isn't inflation

taming now that's kind of like like what we're seeing of ourselves well tell us what do you think yeah so next week we're going to get another CPI print November Sprint was a little bit lower than estimate but it was still into sevens right the you know one Prince doesn't mean that inflation is tamed um and yeah the market is highly driven by this the S P 500 when we say it's in the sevens that's if you take like the last 12 months right but if you take the current month and then you like project it forward and you annualize it forward it's actually at a much lower rate aren't we talking like you know two to four percent range something like this but that has a very high base effect to

it because you're taking the current level of inflation which still really hinders consumer spending um especially if we go into a recession we got some layoffs and things like that to me it's not it's not about the headline number that says important it's about the general interest rate environment that is still here because inflation is relatively elevated and there's two main reasons for this right first services are relatively sticky so energy has come down right um other Commodities are come down even shelters coming down a little bit but Services is much more difficult for it to come down especially quickly so if you think about it when wages go up or

when the price of certain Services go up how how often have you seen those prices come back down once they're adjusted upward yeah yeah I feel like that that's probably something important to hang on uh we're not going to go back to the era of like a three dollar Starbucks I don't know how much of Starbucks is I make my coffee at home I'm sorry for like five or six dollars but we're not going backwards to three dollars right so you're the point that you're making is like whatever the price is of our service industry products are are probably going to stay the same is that right with one exception right the one thing that could change is if we get Mass layoffs if we start getting Mass layoffs that's going to change the inflationary

picture because that that's going to be then inflation is probably really going to start going down okay yeah but that's bad because then we're in a recession that's what we don't want yeah but it's yeah yeah but we were most likely going to get it the question is how severe it's going to be that's really the the base cases we're going to get some sort of recession whether or not it's going to be shallower is going to be deep is really the question can I rephrase that and see if you like how I rephrase it so we're definitely on the path towards recession we're definitely having slower economic growth I think a bigger question a big question is like does that slower economic growth self refer to itself and become worse as a result as in like do we have slower growth because we have slower growth

because we have slower growth isn't like do we lay people off because they other people got laid off and does this recession recursive is it yeah like I think is that a fair question to ask that's a very fair question to ask and um you know we're we're talking about this yeah retail sales are still above trend from from last year but they're slowing down as well and many other factors um non-farm payroll to that point the jobs number is still holding up and that's really the key um driver of this of this of this economy in my opinion because what you've seen right now is we've gone into a good news bad news cycle so on Friday when we got a positive non-farm payroll uh hit uh Market sold off on that why

because they're worried that if the economy stays strong the FED is not going to slow down its interest rate increases so it's become a backwards world where every time we get any type of good economic news the market sells off immediately yeah that's insane I remember I remember growing up I was definitely far much more left than I am today growing up and I was and I was always just like pissed off that like there's this disconnect between the economy and the stock market like the Starbucks the economy is not the start the economy is not the stock market stock market's not the economy uh these things are supposed to reflect each other now it's actually the opposite as in these things are going against each other how insane is this it's it's it's absolutely insane uh but you know you understand the psychology

is everybody is it's baklovian right it's the it's it's it's the the bell and and the salivation and the dog we're addicted to liquidity right okay for 12 years plus I mean every time there was a dip you buy it you make money and it's very hard to change that behavior in a short period of time the uh the one other graph I'm wondering if you'll pull up for us on the uh where are we now kind of peace is a housing um yeah I think that's interesting that if that affects a lot of people and what I am stuck kind of um scratching my head about is like how are people millennial generation gen Z even how are they going to afford a home like how does this even

happen because we saw the last 10 years of asset price inflation we saw the charts it's like number go up on the house price and that was at least compensated because you could get like a pretty low mortgage that's right at least you could afford your your mortgage payment but now we have like rapidly increasing fixed price mortgages and asset prices for the houses really haven't gone that down very much tell us what are we looking at here yeah so on the right you can see the the mortgage rates which to your point mortgage rates are now at about seven percent which is just very high right we haven't seen that since before the global financial crisis but at the same time the housing prices have gone up a

lot or have gone up a lot in in the in the free money era and they haven't really come down that much and buyers can't afford they've basically stepped out of the market and you can see that here there's no sales sales are virtually at zero I've heard I've heard buyers can't sell because of or buyers can't buy because of obvious reasons prices are still too high and interest and mortgage rates are too high sellers also can't sell because they're locked into their super low low rates yeah right so they're they're fixed so the housing market is just Frozen it's just Landing it's a stalemate that's exactly that's exactly right so you know why would I why would I trade my three percent mortgage house to go in for almost the same price seven percent right I'm just not gonna do it

right yeah and I think the stalemate is going to continue until we start getting the unemployment numbers pick up so it all depends on the jobs Market if the jobs Market starts deteriorating right now the only sellers that you have is just organic let's say there's a divorce or there's a death or something like that then then you get us people selling but if you want to really see prices falling on mass you need the labor market to deteriorate if and when that happens people won't be able to pay their mortgages and then prices will start plunging so I feel like we're in this um in between uh phase of things right and maybe you could kind of sum up the section of like um like where are we now it feels like we're not quite in recession but we're

headed towards there um we've got some more work to do on inflation that's an untold story um we have all of the last like I guess you know 10 to 15 years Vasa price inflation and um you know money and money printing to deal with as well um what's kind of like the what's kind of the Outlook going into 2023 uh and I know a lot depends on kind of the next section we're going to get to which is uh what's Powell gonna do the FED pivot but like as we're looking down the barrel of 2023 is like a recession completely imminent like what do you think is going to happen What trajectory are we on right now

I actually think so and I will tell you one of the main reasons is that monetary policy acts with a lag people tend to not get that as much um you know we're having all these interest rate increases and we're like okay we continue with all our lives and it's all normal but one of the things for you to consider for example is just like we have our housing situation and people don't want to switch into a higher mortgage higher rate mortgage we have a lot of corporations that borrowed a ton of money during the Easy Money era at very low rates as well so S P 500 companies is an example or just publicly traded companies to the tune of about six and a half trillion dollars which is a massive number that's coming due next year and

we'll need to get refinanced into the higher rates so they don't have the option of just not selling because they don't have a fixed 30-year mortgage during the bond market when those Bonds mature the low coupon they have to recycle it to a higher coupon and I think that's going to be one of the most difficult things and that's when I think the jobs are going to start getting lost because the increase in debt services for all these corporations will force them to lay off some people and that's why I think monetary policy works in the lag and that's why it takes time until you really see all the effects of these things okay so that sounds like you think of a session right is going to happen next year I'm I'm curious how deep you think this will go and I'm also curious because as David

was saying economy stock market is different what do asset prices do during this time so how deep is this recession how bad is it going to be yeah and then what do asset prices do so first off um the FED pivot again um the market doesn't believe we're going to get that much help from the FED right now even though markets have rallied over the last month or two in hopes of this markets meeting uh stock market what you're seeing here is the Dot Plot each dot represents what a member of the fomc thinks interest rates are going to be in different time intervals and then the white is what the market thinks so the market is looking for four percent rates to last at least until 2024.

which is pretty restrictive so the market does not believe at this time that the FED can go back to easy monetary policy and I think that's going to definitely impact um what kind of recession we're going to get the market does believe right now that we're going to get a pivot around June so either a Slowdown or starting to cut rates this is what called the FED funds Futures Market is expecting some some sort of a pivot around middle of next year and then to your point what will markets do and what is the answer to that question so here you can actually see um the two different scenarios there's been a few cases 1995 98 and

2019 when the FED cut rates and it actually saved the economy from going into a recession it was actually able to stop the recession markets were very positive a year later in the 1989-2001 2007 the rate Cuts did not stop the recession it was too late and a year later markets were substantially lower so the answer is is the Fed pivot going to help well it depends 50 50. it looks like we had three instances for yes and three no we got three three three instances that the rate Cuts saved us from a recession and three instances that they did they didn't wow wow flip a coin I guess then you have to look then you have to

look and make the Assumption well are we going to get a recession or not and that's going to answer kind of your your question it's the end game and and the scenarios that we have um before we get there he died uh we got a break we're gonna talk to our sponsors but we are um queuing up the last part of this which is I think the big question in my mind which is um are you sure we get another round of this like at some point the Merry-Go-Round has to stop and there's the question of like is this the last loop around is this the end game scenario we're going to ask you after the break before we do we want to thank the sponsors that made this episode possible in all of my years in crypto I have never been hacked scammed or lost

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solidity while adopting the improvements made by the rust tooling ecosystem letting the fuel development environment go beyond the limitations of the evm if you want to learn more there's a link in the show notes to see how you can get involved with a fuel Network the layer 2 era is upon us ethereum's layer 2 ecosystem is growing every day and we need layer 2 Bridges to be fast and efficient in order to live a layer 2 life across is the fastest cheapest this and most secure crosstrain Bridge with a cross you don't have to worry about high fees or long wait times assets are bridged and available for use almost instantaneously across his bridges are powered by uma's optimistic Oracle to securely transfer tokens between layer twos and ethereum across its critical ecosystem infrastructure and across V2 has just launched their new version focuses on higher Capital efficiency

layer 2 to layer 2 transfers and a brand new chain with polygon all while prioritizing high security and low fees you can be a part of a cross's story by joining their Discord and using a cross for all of your layer 2 transferring needs so go to across.to to quickly and securely Bridge your assets between ethereum optimism polygon arbitrum or Boba Networks and we are back with etai who's going to answer some very big questions for us at least propose his answers uh and Italy I want to ask you this next uh because we're going to go into the last part of your of your slides of your charts here um the so this is hap this question has come up to me in a number of macro podcasts uh about similar subject matters like oh the feds you know we're

at the end of the line and we're at the end of the sidewalk the game's up uh but some people always propose like well maybe the game's not up like maybe we get to go and do this one more time and to me like I'm relatively young in the in these markets world this is this is all still like relatively new to me on the grand scheme of things but for me to say like learn about like okay the entire thing head hangs on the fed's policies like the entire stock market the s p is just tracking the balance sheet if everyone knows that can we really get one more go out of it because then we're all just playing the same game like oh we're all just gonna make money and lose money together but we're all playing the same trade great is that

that seems insane we're all playing the liquidity trade and even more so you know when when asset prices rise you see a decoration right then it appears that everything is doing its own thing however when risk assets fall correlations tend to pick up to one I would tell you you could put a plot a chart of Bitcoin U.S treasuries gold Euro USD right S P 500 Germany's Dax Japanese Nikkei for 2022 you can add multiple more asset classes to this chart to this list they're all

going to be doing exactly the same thing with different varying degrees of volatility based on what asset price of it what asset class it is everything has been one trade okay so wait so what you're saying is that does it matter what you put as the numerator Bitcoin pick your asset housing like whatever it's the denominator that matters that and everyone is like oh I'm so bullish on my particular numerator of choice but like the real trade is like no you've traded the denominator you trade the value of the US dollar that's right your trade liquidity and you can see that the best performing asset in the world this year was actually US dollars so when I was getting into investing when was this 2016 2017 like put my you know five

thousand dollars in Robin Hood uh I was like learning about like the markets like oh like I'm going to be bullish on this company because of like it's got this message opportunity like they're like these fundamentals are better like you're telling me like everyone who's playing that game of like picking stocks or like you know managing their portfolio well I feel like we're all just a bunch of chumps and this is like freaking stocks could could work right and actually it works a lot better in a period like this because right now fundamentals of individual companies matter a whole lot more than during a period where the FED is just lifting the index I would even argue you can look at passive versus active investing and you would see that active investing that has

been getting a lot of you know bad rep recently because oh indexing beats everything and whatever indexing beats everything when the FED prints money right it's obvious it just floats all you know floats all boats prior to the GFC active investing and even hedge fund performance was better than the indexing and then this year as well you're seeing hedge funds for the first time in a while really beating the market sorry prior to the GFC a great financial collapse very financial crisis yeah crisis okay cool cool okay so just to reiterate that you're saying when it's when it's easy money times low interest rates QE you're saying that like indexing doesn't really matter um but then when we flip that around and

we make hard money more restrictive policy higher interest rates that's when being a fundamentals driven investor who's Savvy who's actually playing markets the way that I was told that markets are supposed to be played that's when that actually matters and which actually kind of makes sense because like interest rates like where's that line like uh when the tide goes out we'll see who's not wearing any swim trunks and so like what is the Fed when when there's zero percent interest rates they're just pushing water up the beach but now but until no one it doesn't really matter what fundamentals are but now now the waters Act actually coming out so now it actually really does matter what fundamentals are it matters it matters how you control

your leverage right because everybody underwrote this one percent interest rate type of type of assumption and now it's five six seven right they have a much bigger debt load to pay whether it's in real estate whether it's in corporate financing so if you are if you were prudent if you didn't over lever yourself if you knew how to manage risk you know you this is a great opportunity for these companies because all their competitors that don't know how to do that are just going to collapse getting wrecked and that's what we're seeing in crypto what's interesting is the root of all of this when when um the FED started to change policy well that's when we saw a Terra Luna collapse and that's where we saw the contagion of like in crypto guess who's falling it's all of the risk Seekers who were

celebrated I mean etai these people were treated like gods for the last not fail could not fail gods for the last two years and it's been so infuriating for uh people who have focused on fundamentals my co-host being one of them all right he was doing the right thing uh and um like Risk seeking was all the rage and now these these groups are being completely wiped out of this Market they're getting completely wrecked right now and the people who did have good risk processes intake in place it did not go margin long on crypto uh did not go down kind of the stream of um all of these assets

that don't have any fundamentals didn't go into nft crazy jpeg world all in and buy the board ape at the top um these people are doing well and everybody else is kind of getting wrecked and this is all the same trade it's all one trade it's all drone power at the end of the day what he decides to do with the the money printer yes yeah I mean you know it it even goes much further back I I wrote my thesis long long ago about financial Bubbles and the behavior human behavior is always the same you know in the um You probably heard of Isaac Newton right what people don't know about Isaac Newton is that during his time there was a very famous bubble that was called the

south sea bubble where um this company was claiming to bring the wealth of the American continent back to England and everybody was going crazy because the new world was the thing everybody knew that there's all these riches in the new world and it's going to be worth all this money so he bought into the south sea Company stock saw the price just explode and it kept going up and up and up and he was like well I'm just going to take my profits and get out which he did and then it kept going up and he saw all his friends getting richer and he couldn't he couldn't deal with the fomo and he bought again at the top just to see the whole thing collapse and lose literally 90 of its value and later he says you know I can understand the works of heavenly bodies but I don't understand

the action of men look at this I want to emphasize this probably top five top ten list anyone would make of the smartest human beings ever Isaac Newton is on that list smartest human being ever and he gets messed up by these types types of emotional roller coaster markets he loses if the smartest human being in history gets wrecked by these Martin who are you why why are you trading against the FED itai have you read the book devil take the hindmost yes right book uh this that that part was a chapter in this book and what the devil take the hindmost book is it's like a history of financial Bubbles and like if you just if you aren't not going

to read the highly recommend that book by the way to all bankless listeners there's not very many books that I recommend but there's like a list of 10 of them in the bank list Discord for it was a question that somebody in the Discord asked what are your books that that book is in my top 10 books and the thing that I learned in this history of financial levels which goes back hundreds of years hundreds of years is that humans make Financial bubbles it's not some like thing that we discovered we didn't discover this Shiny Rock in the ground and create a financial bubble around it we didn't do this financial engineering it's human fomo that always triggers these Financial Bubbles and the best thing about that book is that like it's this crazy cast of characters of people you already know throughout history like like smart people like Isaac Newton

and other like very famous people that you totally know who all get caught up in financial bubbles no matter who they are or what their background was or how smart they are they all get caught up in financial bubbles no people can't help it so if you feel bad about your mistakes this cycle go read that book yeah exactly yeah fear and greet never change right maybe maybe uh human beings are the true denominator the layer zero that's the that's the denominator the layers beneath the denominator we all want to get rich by doing the minimal amount of work possible right so so can you help us answer this question as we kind of um uh like summarize this and knock you know conclude of is this the

end game is the big question right because there's this macro story about how many shots do we get at this and yeah you've presented that um interest rate slide at the very beginning where floating at the bottom we're at zero percent can we go any lower um talk about oh I love the that by the way talk about these possible outcomes that we could see and then let us know do we have another ride around the Merry-Go-Round or just the sidewalk end here as they were saying and can we anticipate something even worse happening uh that is like much more uh severe than kind of a you know sort of the typical standard recession that people are saying might happen yeah so let's cover this um with a little bit of probability

chart to it so yeah we've gone to the zero bound however the good news is we've just shot up way back above the zero line we're actually at the highest interest rate environment since back in the uh 2000s and we're probably gonna top out around five percent that actually gives the FED Firepower to cut back down if rates go lower um but this is really the old debate between Keynesian school of thought and this Austrian School of thought which is more uh on the restrictive side the Austrian says well this is how the money printing game comes to an end we hit this inflationary period and we have to restructure debt so what is really the end game is the end game going to be

some kind of debt forgiveness restructuring of the US dollar restructuring of you know another Brent Woods in which we we create a Commodities back currency there's a lot of different possibilities but I don't think we're there quite yet um the good news is that the banking system is a lot healthier than it was in 2008-2009 because all these years of QE really recapitalized a lot of the banks and we don't really have these wild lending practices in especially housing and things that are really high ticket that could crash the economy another good thing is that home equity is high so most people's debt to equity ratio in homes that could really collapse the

economy is healthy so those are all the good the good factors now we know the bad factors we discuss them quite a bit so that's why there's these three type of scenarios scenario number one is it's really a softish landing we we don't really have a real Obsession it's more like slow economic growth the jobs Market doesn't really fall apart companies are able to hold on hold on we go through a period of flatish growth inflation calms down fed is able to cut rates back to two three percent not really zero we go back to Goldilocks we go back to a healthy period fed doesn't come back to money Printing and things will kind of heal out organically because things will grow that's sort of the optimistic scenario this is the scenario in which the FED wins that's a scenario which the FED wins that's the

scenario that a lot of people in the market believe and every time that we hear talks about a Fed pivot or things like that the stock market celebrates that because people want to believe in that they tend to be naturally optimistic the softest Landing is the Opium take yeah yeah so then there is the hard Landing which is a tough recession but not necessarily A catastrophic one we think that's the base case primarily because we don't know how much Leverage is really out there in Shadow lending we have an idea we know that monetary policy works in the lag and we do believe that job losses are going to come and they're very likely to come because corporations once the wave of refinancing happens they will lay off

people in order to offset the decrease in their earnings once that happens it will probably cause lower housing prices housing is a very strong fundamental factor of the economy less purchasing of you know furniture and all this kind of stuff um similarly consumer spending 70 of the US economy once people lose jobs they can't spend as much that's created it's actually a down cycle so there's a lot of negative feedback loops that could trigger in this scenario which is why we call it the most likely scenario now why is it not a catastrophic scenario um it's really the banking system and systemic risk if systemic risk doesn't trigger and we don't get Lehman and we don't get things

of that nature because banks are supposedly healthier we don't know what we don't know right but if there is no debt crisis it's eventually probably going to work itself out and after a period of recession inflation will come down and will start growing again potentially from from a better place that's if there's no systemic risk if there's no like FDX hanging out there that's right but if there is an FTX hanging out there then we veered more towards catastrophic yes so the catastrophic Landing is potentially the the end game that will require real restructuring of things and this scenario imagine a Bank of America or I'm just giving an example obviously I'm not saying Bank of America is going to go down under but

like a Wells Fargo Bank of America JPMorgan Chase that's probably Wells Fargo right David we like to click on it Deutsche Bank a numera like it could very well start internationally actually more likely it's going to start internationally if it does particularly Deutsche Bank credit Swiss all that kind of stuff um systemic risk Bank runs you know no money in the ATM like bail-ins this kind of stuff uh if that spreads across the West and at the same time inflation stays elevated maybe because of supply side shocks so imagine you know commodity prices the war in Ukraine expands like different things that can cause supply-side shock tied to Fed hands from being able to ease too much into this type of

condition that is the catastrophic scenario but we assign a lower probability to that I have people in their lifetime living like right now in general have we experienced anything that you would label as catastrophic was 2008 catastrophic or do we have to go all the way back to like the 19 you know 20s late 1920s and early 30s to to label something catastrophic what's the difference between hard Landing catastrophic if you could bring us back to kind of life experience I think 2008 was hard Landing because at the end of the day the catastrophic was avoided Lehman did collapse but inflation was not a problem the Fed was able to bail out the banks um prevent the systemic risk there was systemic risk it did have the potential of deteriorating to the point of

catastrophic but it did not um I think you have to go back to I mean we do have it in other countries we can see Greece in 2010 or um other places you know uh in in more modern history but I think for the West you really have to go back to 1929 in order to to Envision what catastrophic means the 25 chance of something worse than 08 uh not not liking those odds uh maybe this is uh opium copium but uh we were talking earlier about how the economy and the stock market is inversed and so is it is it opium to think that like if we get something catastrophic like an away moment we'll just turn on the money printer and be good again yeah in a way that's one of the

arguments that says that if we do get that it will end up being bullish net net because regardless of the inflationary environment the FED will have no choice to step in this is so um what is this bullish for asset prices though right not necessarily like because like how much did we just get even more wealth inequality and that's a question I have like that's the thing that the fed's not measuring right but we see it we see the ripples in our society and the fraying of our politics and like how much more wealth inequality can a society really sustain before it breaks and starts still populist leaders that you know turn Weimer Republic into the into kind of the next thing after it um that's the risk yeah that's that's

definitely a political risk I know Ray dalio touches a lot on this as well in the New World Order this is definitely this is definitely reminisce of some of those some of those periods kind of late Empire type of debates but I I don't disagree uh but it's beyond my my ability to predict the future political and geopolitics um implications for this okay so go ahead I was just going to say 75 probability that we get another round at this I think so uh with a 50 probability of a hard Landing that's not catastrophic how and you said like okay it'll just play itself out over time we'll have a recessionary period we'll just deal with

it it'll be hard we'll have to cut down our spending but find how long like one to five years how what's what's in a recessionary period like typically shorter I mean honestly it's less than 18 months but the implication of it is is you know that's the trough but then the recovery it depends what kind of recovery you get right that's going to be hard to predict recovery could be v-shaped it could be slow um and obviously there's the scenario no one wants to talk about which is Japan which is just anemic growth for decades following a top um I think a lot of it has to do with demographics as well so one of the reasons that I don't subscribe into permanently High inflation is because I

just don't think we have the population to support it it's not the 60s and 70s we don't have an insane amount of Boomers coming out and starting to buy houses and all that we skip this slide we can talk about the yield curve if we have time at the end because that's a very that's a very good tool to predict future recession which is very much inverted which is implying uh we're going to get a recession very soon but if we go into this chart what you can see here is the age wave and H wave is the percentage of the labor force ages 16 to 34. it's a very good predictor of inflation because that's the age in which you're getting your first real job with a real paycheck you're getting married you may have to do first kid or so and

you may buy your first home all the things I just described are massively inflationary right when they happen on Mass kids are inflationary kids are inflationary buying homes yeah imagine imagine what goes into starting a family right buying a car and buying a home like I don't think I've ever seen a chart like this so this red line is the age wave you're saying and we sort of it definitely peaked in the kind of the the 70s the late 70s I guess early 80s when U.S inflation peaked so we've seen a very tight correlation between the percentage of population in that age group and the inflationary Trend and as you well know the U.S birth rate is around 1.8

um which is below replacement of 2.1 even with immigration it's barely just what we're looking at is the the Baby Boomers basically Coming of Age becoming 16 to 34 and that's right in the 80s that's and then and then it falls off from there all the way like to kind of like almost like lows and you can see that also with the age wave in the 10-year 10-year yield so this is why I believe this inflation is really just a monetary phenomenon it's not an organic phenomenon if it was the the 80s and 70s it wasn't really because of printing it was an organic phenomenon of a lot of people coming to age at the same time and all grasping for resources at the exact same time which causes organic inflation we don't have that now we have monetary inflation what about the meme of the covid baby my sister had a

coveted baby uh I've seen a bunch of coveted babies in my life a lot of people had covered babies what about that it's it's not if you look at it statistically the birth rate is still low because it's not it's it's not that it's not that massive I mean on a on a relative basis though the US is substantially better than the EU and Japan the EU birth rate is really low um but don't remember exactly that I think it's around 1.4 maybe 1.5 so it's far below replacement rate in Japan it's far below replacement rate and net net I think long term you need people in order to drive inflation because if you literally have less people than replacement rate over time you're going to have less demand for the same housing inventory and cars and all those things I've always wanted to do an entire

episode David on demographics actually because um in China is actually in a worse place in the US too which is there's some countervailing uh you know points there if their demographics are kind of kind of weak yet you know anyway it's it's very interesting you tell you uh touch on this but uh since somebody in the uh YouTube chat asked the question I would like for you to go back to it a question from Dan uh fun fact I do actually watch the chat can immigration compensate the lack of Boomers I mean it it can to a point but immigration also has slowed down and it's also a political issue right so if you look at the EU for example that's exactly what they try to do they try to open their borders to a lot of immigration because of their population Decline and it caused a lot of social

Rift within their societies and it caused for example in Italy we just had um populists right get voted in in Sweden we had the same thing so even though it can in theory it's very different than can will the society actually accept it particularly the times are tough and everyone is like talking about ways to split the pie all right so this all this sounds like good news yeah yeah so yeah so so net net this is why I believe that inflation will eventually subside If the Fed really start stops um all the money intervention where right now that they are so that's why I believe this is one of the reasons I don't think we're going to reach the end game just yet because

this is really helpful we're going around again yeah full Market Round Two ability well I'm thinking like 2024 2025 is when I'm planning my bull market I don't know yeah I think it's going to be sooner than that because the second the market sniffs it out the market usually prices these things out six to 12 months before the reality actually even happens so what are you doing like how are you thinking about this so Market continues to go down for a while but then starts to turn in 2023 I think the turn happens in 23. yeah if you ask me I think around mid 23 um potentially is when when things happen uh we've been in a bear market now since for a year

um usually bear markets don't last more than 18 months it all kind of lines up but it really depends how severe things get the base case is they don't get that severe um even even if even in a tough recessionary environment I mean you know stocks could go 20 lower from here um but nonetheless you know that that would put it in within an average you know 40 decline type is not is not crazy for a recessionary bear Market mid 2023 and David if Krypto has front run that by six months then we already bought them yeah I just want to say Ryan you're running out of time to get your three-digit ether brother down

[Laughter] well okay one last question for you you tied to kind of because you you brought up uh Ray dalio and you got some charts on here about um the dollar which is always like um when we talk about uh is it the end do we get one last cycle one last shot at this or no um you know Dalia talks about when Empires kind of fall the last thing they sort of lose is reserve currency status yes and um how's the dollar looking from a reserve currency status perspective right now is it weaker is it stronger and like how do you forecast that moving into

um you know the next couple of years or like you know 10 years we can probably spend two hours talking just about this um I'll try to make it brief um you know dollar is still strong as far as Global Reserve currency because a lot of the lending that takes place um is in US Dollars and it's a self-fulfilling kind of loop so imagine even a company drilling off the coast of Norway potentially doing business with the UK is going to do it in dollars and borrow money in dollars so it's a self-fulfilling Loop sixty percent of Foreign Exchange reserves are still US dollars but those numbers have declined slowly over time and I think one of the risks to the dollar as a reserve currency is literally what we're seeing

right now with Russia and Ukraine it's an example right Russia doesn't like it at all China doesn't like it um the more sanctions the West puts on countries like this the more incentivized they are to find workarounds around the US dollars a global Reserve currency um and typically when when these Reserve currency status is lost it's very rare that it's like you know it's Monday the dollar is the reserve currency Tuesday okay it's not it's a very gradual process that might take decades so you won't even realize that it's happening while it's happening that's the most likely outcome there will be more and more use of other things over time until at some point the dollar is always going to be important but is it going to be the only currency we're transacting with probably not

all I'm hearing maybe I want to be hearing this is that we have enough Runway to do this all one more time why do you only want one more David what happens after that one at least so I can sell the top next time it's um and the US is in a relatively very good place relatively to the rest of the world you know we're talking about all these potential and negative implications but the rest of the world is much worse right China's worst Japan is worth worse the e was worse so it's kind of the the cleanest dirty shirt syndrome yeah where where do you go and it's still the US is still the most stable the political system is still

considered very stable um property rights very well respected the probability of balance is virtually very you know with the exception of uh I don't know if you know about the 1933 order to take all the gold away oh we've heard about that earlier we talked about that a few times so with the exception of that which I think would probably not happen again well there's not going to be a 2023 take your take your crypto take your order coin yeah I mean there is there's precedent for that right but it's um it's unlikely and that you know if that happens the US government risks its status as the state of Haven where when things get tough money from the rest of the world literally flows to the U.S

typically because we got good property rights yeah yeah this has been great I mean I feel like you just did a bang-up job answering these four questions how did we get here where are we now when do we pivot and is this the end um thank you for this and um you know is there any anything you'd sort of leave folks with like should we yeah what's your kind of advice how would you how would you summarize this if somebody's like okay itai what should I do as a result of all of this how can they prepare yeah it's a it's a it's a it's a great question um I would say that the go-to advice is always increase your productivity

make sure that especially during a recession you save more you invest more so you have the dry power in order to do it when things really go on sale you don't over leverage yourself you don't go into debts that you can't afford and during a high during a period of high interest rates you don't want to be exposed to these type of debts that you have to pay massive amounts for so first take control of your own personal finances especially during these periods that you see them as an opportunity rather than a challenge increasing your productivity sure sounds a lot like building to that's what I hear Ryan this is time to put heads down building heads down building

um you know a lot of times recessions are a good time to go back to school and things like that if it's more difficult to find a job make yourself more competitive makes yourself more appealing um when coming out of it there's going to be a lot of opportunities typically out of you know the recovery out of recessions is usually one of the best periods to take advantage of opportunities Utah this has been absolutely fantastic you're a wealth of information uh my friend we're so glad we had you uh on this episode um I guess last question for you before before I thank you but um are these slides publicly available anywhere is there a link that we can include in the show notes um they're actually our internal they're an internal company secret slides okay so it's our asset management team slides

we typically don't share it it's just for our internal uh research okay thank you so much for putting them together yeah we appreciate it where can folks find out more about you and uh about what you're doing at uh equi yeah equity.com is a good place to start um we do have a pretty substantial wait list right now I think it's over 2 000 people trying to get access to the platform however we are going to have it um reduce the minimum and open it to a much wider amount of people in 2023 and the whole idea is how do we how are we able to invest in a way that's not correlated to all this craziness and how can we maintain the value of our money money and we've been able to do just that this year despite all the all the

volatility so well that sounds real nice right about now so thank you for sharing that we'll include a link in the show notes uh where you can sign up for the wait list and find out more about that um itai thank you so much for joining us we appreciate you no problem because it was my pleasure bankless Nation as always gotta let you know at the end of the show none of this was Financial advice we really don't know exactly what's going to happen next year or in the future and of course gotta remind you that crypto is risky eth is risky Bitcoin is but some are the macro markets uh you could definitely lose what you put in but we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bank list Journey thanks a lot