Lawrence Lepard & James Lavish | Swan Signal Live | EP 121

what's up stats fans welcome to Swan signal live we got another great episode for you today I am your host Sam Callahan lead Analyst at Swan uh today we have uh two regulars we got James lavish and Lawrence Lepard but before that I want to tell you about Pacific Bitcoin which is the the conference that swamp puts on uh October 5th and 6th in beautiful Santa Monica um if you didn't go last year you missed out it was one of the best conferences of the year uh just a great atmosphere fun great speakers um it's a chance to meet your favorite bitcoiners and some of the smartest people in the investing World in person and so check out Pacific Bitcoin at pacificbitcoin.com uh you can use the promo code signal to get 21 off your purchase if you hit that QR code right there uh so let's before um you know we get into it I also want to just bring up one thing about Swan uh which is Swan private uh if you go to swan.com private we service High net worth individuals for all their needs so check out swan.com private today so let's get into the show we got Lawrence and James we're going to talk about all the things uh welcome gentlemen welcome Sam nice to meet you thanks for having us man yeah yeah so um I was just talking to Larry you know I just got back from Italy uh for the last two weeks we were kind of talking about Rome we were talking about Florence and the one thing that I was just flabbergasted by was how they built these buildings hundreds and hundreds of years ago just intricate beautiful and they're still standing today and I get back to America and look at these like cardboard boxes and I'm like oh what happened here and obviously I think about the money um and so when you look at the state of the money today of the debt system of of the currencies I mean what are your guys thoughts right now when you think about the fiscal situation because let's just start there it's a you know I'm laughing but it's not funny um the the system we're built on is uh it's we're so over levered right now and all the cracks are starting to show and so you know we we've seen the the markets melt up we've seen just money pour into risk assets and I don't trust it Sam I I feel like I've been in this game long enough to know that you've got to be you've got to watch out for that uh that that Black Swan That You Don't See but you get these Spidey scents and I'm sure Larry's felt this a number of times before in his career where you're just like there's just too many signs out there that something could break and and The Leverage in the system is not only the trigger but it's also just that weight that'll that'll bring everything down that you just have to be aware of yeah yeah this whole system is so broken it's such a sick joke I mean Fiat is basically failing as as we speak and it reminds me of a pilot reminds me very much of you know when you get into if you're flying IFR and you lose control of the plane you know what you tend to do is you want to pull back on the stick and that tightens up the spiral makes it worse and you only crash faster and you know the what the FED has done what Powell has done is he pulled back on the stick by putting interest rates up as high as they've gone and you know you're watching U.S interest expense just go parabolic right and I mean this is this is it folks I mean we're in the end game here um you know it's it's obviously going to take a little time to play out it doesn't happen in days but but it's happening I mean there's there's no going back at this stage yeah so for people to understand me and we we've borrowed another trillion dollars since the beginning of June okay so we're our debt is up over 20 or it's up over 36.5 trillion dollars or sorry 32 and a half trillion dollars we the treasury just expects you know they they just put out that they expect to borrow wait for it 1.86 trillion dollars in the second half of 2023. that's after borrowing 1.3 trillion in the first half so if that was by the way that was three or four hundred higher than what they projected as as recently as three or four months ago so that's right it's getting worse and worse right yeah and like you said just a second ago Larry you know we're we're on we're on track to pay about a trillion dollars on interest on our debt this year right a trillion dollars yeah which which is basically larger than the the U.S uh defense budget 800 range so that's right that's right I mean look at look at that parabolic rate right I mean that yeah how do you how does this end well I mean I think even like uh somebody who's not a sophisticated investor who's not educating the markets can look at that interest expense and just say a trillion dollars like that doesn't make sense and it seems like the credit the rating agencies did say that you know Fitch came out and downgraded uh the government debt and had a lot of people um kind of wondering um is is this going to be payable in the future like is this actually a sustainable path and um this is the projection that I pulled from one of James recent newsletters but it's it just looks at the debt held by the public going out to 2090 over its 600 percent uh debt GDP I mean how how could they not expect it to get downgraded this the best part about this this chart right here and you know uh hat tip to Lynn Alden who was the first one to to find it but this was actually uh this was published by the treasury and it was in a report it was a it was a it was in the state of the treasury report and uh it's basically a love letter uh hate letter to Congress saying and you know this is the path Ron and it was that was not my subtitle that was their subtitle to the report an unsustainable fiscal path and they know it they absolutely know it and they're trying to get Congress to look TR the treasury they're the bank account they're the banker they're like um you know they're they're like the the money manager who's trying to get the rock star to stop spending so much money he's going to be broke that's what they're that's who they are and they just have to keep issuing debt in order to pay for everything that Congress has agreed to uh to buy to purchase and so you know they understand that this is this is just not mathematically sustainable and so that's that was their report and uh and it it it's just incredible how we are you know and then that what you just said Sam about pitch taking notice well Fitch got on board with the s p basically the s p downgraded the the U.S debt back in 2011 is that correct uh Larry and so yeah and so what happened there is they they saw what happened the great financial crisis right so the s p Watts what happened the great financial crisis they watched all these Banks they watched the FED step in and expand the money supply and they and they and they knew that this this issue of the debt ceiling is not going away and so every single time that we bump up against the debt issue the the debt ceiling it becomes a political football between the two parties they both you know they both are raising the debt ceiling they don't care but they're trying to trick the other one into making a mistake that would cost them votes with their own constituency there it is you know so every single time we bump up against the ceiling we raise it it's a it's a big it's a farce that we even have a ceiling but it's supposed it's supposed to be there to keep us fiscally responsible obviously we're not and so we keep raising it so what just happened with Fitch well Fitch said we did it again this spring we were we bumped up against that debt ceiling again it got so bad that we got down to like 30 billion dollars which they spend before we have our first cup of coffee in the morning and they were and they were and they were they were in almost panic mode and they said okay we've got to raise a debt ceiling or else we default and they're not going to hard to fall no country who issues debt in their own currency with the hard default they'll just print more money and monetize it right they'll buy their own debt and make it like it's it's Monopoly money and so what we what Fitch is saying is that there's a high probability that we get bump up against this debt ceiling again and we do default we have a technical default and what everybody says and I hear everybody in the internet and all the experts on Twitter say oh but it's no big deal it's not really a real fall it's just a technical default everybody gets paid but you're not thinking through what happens on the other side of that trade if you're a major Institutional Investor okay and you've got a hundred you know you've got 100 million dollars worth of bonds that are coming you are a billion dollars of bonds that are coming due and they're not paid well you may have borrowed against that you may be using it as some sort of collateral to some other trade you may be expecting that cash to settle another investment you may be making private Investments and have sent money and expect this money to come to you in order to pay that and when it just doesn't show up for a couple weeks it's a massive problem and if you go back to 1979 when this happened and Larry you may remember this it was before my investing time but it was a disaster the treasury wasn't set up to send money instantly and fix this problem right and so they have to physically put checks in in the mail to send out to investors because Congress took too long they settled their difference at the last minute they had a technical default they made everybody whole but it was a mess for weeks there and then spreads blew out because of it it's not a non-event and I'm sick of hearing everybody's saying it's a non-event it's not a non-event this is a major deal when we trip that debt ceiling and we and we default even if it's a technical default it's a problem it's a problem for investors it's a problem for the US debt it puts a big Spotlight on the fact that we are incredibly fiscally irresponsible I'm going to get off my soapbox now well I think that's right I think the important thing is that the world is watching all of this very carefully you know and as an example you've got a brics currency you know meeting coming up on August 22nd in South Africa and you know who knows what they're going to say but they might say that you know they're looking for alternatives to the dollar and that you know there's been talk that maybe gold will be one of them and so on and so forth so you know the entire world watches the way that we behave and and and we're behaving incredibly responsibly and yet we have to because you can't taper a Ponzi as Max Kaiser points out and so although Powell is trying to do the impossible which is calm down the monetary excess which you know they they started when they printed 42 percent of the money supply in a two-year time frame he's not going to succeed at it he has to fail or if he wants to make the dollar money good he has to completely crater the leveraged economy that we live in today and and we'll have something that'll look like the 1930s and of course we know that won't happen so so really the only issue is you know we're now we're now bouncing up against the deflationary guardrail M2 is is shrinking for the first time in a long long time but things are starting to break and we saw Silicon Valley Bank break and you know if if they wanted to have real capitalism what they would have done was you know they would have followed the black letter law that was laid down and Dodd-Frank that says those wealthy depositors and Venture capitalists at Silicon Valley Bank they should take a haircut on their deposits because the managers of that bank up you know they bought they bought low yield long duration Securities that are deeply underwater and so what needed to happen if we wanted real capitalism is they needed to let Silicon Valley Bank fail and let those depositors get a haircut because that's what the law said they should have done in fact what they did do of course because they knew there would be contagion they knew the entire system would come unglued is they came in with a btfp and they bailed them out and they effectively whether you call it QE or you controller printing it doesn't really matter the fact of the matter is they did what they've been doing since 1987 which is to say they bailed out the irresponsible and as a result of that you know and then they put it all back in the can and now everything's supposed to be good we're supposed to go forward stock market's going to Rally it's all great but here's the issue here's the issue it's going to happen again and when it does we've seen it over and over I can cite 20 instances of where when the rubber meets the road the FED fulfills its initial good guideline when it was set up in 1913 it was meant to be a lender of Last Resort and it didn't take them but three years and that's what they became in 1916 they funded World War One by printing money and they weren't supposed to and guess what they've been doing it ever since then over a hundred years of you know when the when the rubber meets the road they will print the money which is why James and myself and I know you too Sam are just so absolutely comfortable that monetary debasement is inevitable it's just inevitable the only issue is you know which way I mean as I like to say they're driving a clown car on an icy Road and they bounce off of two different guardrails you know massive inflation and massive deflation and they're steering the car look in the rear view mirror yeah that too yeah right but other than that it's all good other than that they're Geniuses they've got 300 400 phds who work at the Federal Reserve the Federal Reserve Governors make 400 000 a year and they get to front run the rest of us like my classmate from Harvard Business School did you know the guy who was running the Dallas fed I'm forgetting his name now but Robert Kaplan Kaplan exactly you know and trade the S P 500 and of course he lost his job over that but you know that's just uh that's par for the course and you know the rest of us plebs you know we have to we have to deal with this money that they're you know effing around with 24 7 for all of our lives and it they've hurt innumerable people and innumerable families people losing their homes people getting over leverage just all kinds of things I mean this is this is a criminal system that is incredibly unfair to people throughout the entire world and it's why it's absolutely essential in my view that we've got to fix the money to fix the world yeah so you brought up the the bank term funding program of how they kind of came in with these emergency programs right when the system started to get shaky once again but you said this is just like 1987 and I think you're referring to the fed put you know you put on by Greenspan and I wanted to ask you yeah I always say like it all started with Greenspan and people my age like look at me like I'm crazy like they don't even know yeah he was the original Mr Big Stuff I mean I I call him patient zero I call I call uh Bernanke the super spreader because he came along he came along with a helicopter speech but yeah I remember it very clearly I was I started my business career in 1982 or three and it was 87 and I was in California and I was a venture capitalist and I was you know I had a personal account and I was trading stocks in it and I was massively short because you could see just how overvalued everything was at the time and the crash of you know the dollar was getting hammered and and you could see that and um you know the stock market dropped 20 some odd percent in the space of a couple of days and um and I made a lot of money on that personally I mean the scale was quite small because I didn't have a lot of money but I made percentage-wise a good return and and of course a couple days later you know they they came up the it was announced that the Greenspan was setting up something called the president's working group on financial markets which later uh colloquially became called you know the the plunge Protection Team and of course the treasury secretary Greenspan you know several of the big Bankers Etc they were all put on this board um and it was a precursor to The Exchange stabilization fund which the FED ran but but basically you know what it said was they weren't going to let this happen anymore um that you know they viewed you know massive moves in markets could damage the position of the government and therefore the government was going to start becoming an active participant in the markets and this is why you know at critical junctures the government will buy the s p Futures to prevent certain technical levels from getting taken out or they'll sell short the gold you know gold prices because you know their technical levels they don't want to see it go through and and we've we've lived under this regime since that time since 1987 I mean and by the way the exchange stabilization fund which started off as you know 20 30 40 billion almost a joke it's now up to 600 billion dollars it's run by the New York fed and they operate in every single Market out there and there are a number of executive orders that we've read over the years there's a great site that documents all this called gatta gata.org which is gold antitrustaactioncommittee.org guys who run are fabulous guys but you know there have been all kinds of executive orders that basically say that the president has the right the president treasury secretary have the right to intervene in markets if they think it's in the nation's best interest yeah and guess what they do 24 7 right yes so then right so Flash Forward from the 87 they put the put they placed the put in place right they were those where it would kind of solidify they don't worry we have you back there they put the safety net under the market right and then Flash Forward to 1998 and you've got the two Geniuses who who started uh who came up with the we came up with blast Scholl's model right and uh and that was the the option pricing model and they started long-term Capital Management these guys were shorting volatility basically in a time when the Russian Ruble uh came unhinged and we had a market collapse of of you know in the interest rate volatility spiked and it blew these guys up well what happened they they were they were so they were so indebted they were so levered they were leveraged somewhere around a hundred to one right Larry they had about a billion dollars of of AUM and they had a hundred billion dollars of of Investments that we could that we know of and they had counterparty risk everywhere so Goldman Sachs went into the New York fed and and banged the table and said we're gonna all collapse well we're gonna take everybody down with us unless you save us and so even though even though the FED didn't give them money they brokered a deal for the other investment Banks to save them and that's where really solidified and that was great I remember it was August 98 I remember like it was yesterday again my PA went up 100 in a month on all my shorts and as you pointed out Goldman Sachs went in there bear Stearns didn't play as you remember which is why they were assassinated later right um and uh and you know they they came back and it was it was very clear the fix was in and thank God I covered my shorts because the market went the market went on an enormous tear and you know I thought 98 might have been the top of the.com bubble and as we know we were only getting warmed up you know 99 and 2000 were two of the nuttiest years in the financial markets I've ever seen yeah that was the original there's the original use of the put really were they yeah and and it just continues it continues and continues I mean obviously 2008 was a you know a famous example of it and 2019 was an example March of 2020 was a famous example I mean basically the US Government Bond Market went no bid you know and and Powell had to pretend he was um um draghi and say whatever it'll take and you know and it's interesting you know behind the scenes we find out in each of these events that literally trillions of dollars that are put out there I mean the we put three trillion dollars on the FED balance sheet in 2008 but at one point Bernie Sanders did an foia uh request and he found out that at one point in time that the FED had 20 trillion dollars of swap lines out in the 2008 crisis I mean they just flooded the system with money and with each of these it gets bigger right so in 08 we went from a trillion to 3 trillion over the course of three or four years with qe123 Etc you know in 2020 we went from you know three and change to nine in the space of what nine months I mean it's just it's nuts I mean and the next one will be you know 20 trillion and this is this is my point this is the point about exponential growth and I think the average human mind just doesn't fully grok exponential growth in the way things can compound and the way that once lines start to go very vertical you know the second derivative becomes extremely high and and the system is unstable it's going to explode um you know and I've got some examples of that I don't know if Sam you want me to give you a stadium example or not but yeah I love that example go for it this is um I'm borrowing this none of my ideas are original by the way I borrowed damn near everything I've got I'm following this one yeah it was a gold guy in in Switzerland um I just find this amazing so imagine a football stadium right and every minute one drop of water is added to the stadium and every minute the number of drops you add doubles I did the math on this and I think I think it comes out accurately I could be a little wrong but the it makes the general Point even if it's slightly off the general point is correct so it goes from one to two to four to eight to sixteen drops you say how long would it take to fill this Stadium you think you know a day a month a year no it would take 50 minutes to fill the stadium which is amazingly short but the more interesting thing is they get look at How It Ends um it's hard to understand how full the stadium would be after 45 minutes you ask people how full is it after 45 minutes and people might think well it's pretty damn full because you're getting near the end no at 45 minutes the stadium is only seven percent full okay so in the last five minutes the stadium goes from being seven percent full to being a hundred percent full that's that's what they what we mean when we say you know I went bankrupt slowly and then suddenly all at once yeah I mean the compounding of of the math in these situations you just people don't understand it and so when this happens and I you know we can get into what I think is the timing on it all when this happens people are going to be absolutely shocked and there's a great Weimar chart that shows the volatility and how it happens we're still in the early days I mean I my outside goal for when this outside Target when this happened is going to happen before 2032 no doubt in my mind probably it's going to happen late 2020 8 or 29 that's that's kind of my estimate but you know when they have to reverse the one we're in right now you know the FED balance sheet is going to double again and inflation's Gonna Roar again and the price levels are going to go up again and gasoline is going to be ten dollars plus again and you know I don't know what they'll do to try and get all that under control but they'll do something and then maybe there'll be a downward impulse but but you can kind of see where we're going here monetize debt and then to your again to your point there Larry one of uh Jeff Booth's favorite um examples is how many folds of a piece of paper does it take to get to the Moon from here right it's it's 42 folds okay so that's fine but if you think about it you're at fold 40 you're only a quarter of the way there right right 41 you're halfway 42 you're there right boom Done Right same same idea the human mind doesn't really understand exponential functions very well yeah look let's look at uh one chart to kind of show this this is the debt held by the Fed that's gone pretty exponential over the last couple of years I think that's what you're talking about Larry yeah that's exactly right yeah we know we know what's going to eventually happen when things hit the fan they're going to Resort back to what they've always been doing which is what James has said they're going to start monetizing the debt yeah okay so look in 2011 where they look at that look at that that Spike and then compare it right so you compare it to the next Spike right I mean come on yeah and so you look at this chart and you know Fitch just downgraded the the US debt but then you have treasury secretary Janet Yellen which is another culprit in this whole debacle but she goes out and says they're completely flawed it's an entirely unwarranted downgrade and then you have former treasury secretary uh Larry Summers come out and says that the idea of you know the risk of a default on U.S treasuries is absurd and I don't think that Fitch has any new insights and he basically disagreed with the whole thing it's pretty rich coming from those two people but the right matter is they keep spending they keep spending that's right well and the thing is is that it's not not inconsequential it's not if you're an investor you don't get paid you know on something you're expecting it's supposedly a zero risk asset like this is this is supposedly the risk-free rate is you know it's the it's the U.S treasury it's the risk-free rate and we're not you you can't assume that you cannot assume that you will get paid on time every single bond that you own you just can't I I mean you know I wouldn't own long duration treasuries I own some short ones but that's just because I can expect that we're not going to hit the debt ceiling tomorrow or this next month you know but I don't know what's going to happen in five years seven years 20 years 30 30 years you know and then they'd talk about 50-year bonds no way man no way zero percent probability that I'll be buying one of those so yeah The credibility of all these people Sam to your last comment I mean it's just in the toilet and I mean why anyone listens or pays attention to anything these people have to say it's just it's it's beyond absurd to me but you know we still have a system that you know used to trust the Wall Street Journal in the New York Times and the and the government and so on and so forth and you know the rest of us are sitting here forced with that that old decision of who are you going to trust me or Your Lying Eyes you know and and um you know I'm I'm trusting My Lying Eyes so yeah it reminds me of uh Argentina issue like a hundred year yeah how'd that work out I mean it yeah by the way I mean I think Argentina has defaulted three or four times I mean the process of defaulting right now as we all can see um and I'm curious James is beyond this I'm sure he agrees with me I think Japan is in a lot of trouble I mean they might be the first to go right yeah they are there and they're in serious trouble they already own so for for your listeners who haven't been paying attention to the situation in Japan Sam the uh you know what we have now is they've been they've been doing something called yield curve control in in on their bonds right so you look at the 10-year treasury it's kind of The Benchmark Bond it's the it's the bogey right so they they're trying to hold interest rates down because they're in a they have a different they have a completely different economy they're they're a net exporter you know they have a different demographic much older uh retiree system but what they've been doing is they've been holding interest rates down to try to they're trying to inflate things they're trying to get inflation up in order to pay down past debt I mean they need more inflation okay so by what by what they do is they go in they buy bonds they buy the 10-year bonds to keep it and last year they kept that 25 basis points and then there was just too much pressure you saw that the the the Yen was exploding versus the dollar meaning that it was it was imploding actually the so as the Yen goes up it's actually an inverse quote on on FX and that's bad for the end it's number Yen per dollar and so as that was happening they the the bank of Japan they were selling U.S treasuries to get dollars to sell to buy yen in order to hold the Yen from going too far outside of bounds while they're buying their own debt so the bank of Japan is buying their own debt right and they're and they're just they're monetizing they're monetizing it got to the point where they had to re they had to step back and say okay no we're not gonna hold it 25 basis points anymore we're going to let it go to 50 basis points well why because the U.S treasury is trading at four percent and they're trading at 25 basis points people are selling the the Japanese bonds at jgbs in order to buy treasuries because you're getting a better yield here and there's a lot of pressure and that pressure is that they need a release valve right the investors need that that kind of pressure builds up and the release valve was the Yen and so then this past month they surprised the market again and said okay well 50 basis points is where we're going to hold it kind of that's the target but the absolute most we're going to let it go to is 100 basis points one percent okay and so what happened it immediately shot up right and so it blew up through 60 basis points 65 basis points and the bank of Japan had to do an emergency emergency buying uh you know A Bank buy um the treasury by so they were in there buying their jgbs again and it's to the point now where the Japan owns more than 50 percent of all outstanding Japanese government bonds they they own the the bank of the central bank that is basically issuing these bonds owns more of them than anybody else I mean that's just nuts to me but it's going to continue like this just like Larry said until it doesn't and it breaks and the loss of confidence goes high enough that it's gone that's it it's over so I don't know when that happens but I am worried for them yeah but and they are in a different demographics they have different levers to pull than we do here in the United States however we have the you know we're we're fortunate enough to be part of a system that's got the global cons Global Reserve asset and the global Reserve currency and so but they're not so what happens from here I don't know I agree with you Larry it's it's a it's a race between them and the e in the in the Euro breaking up I don't know which one goes first yeah they're both of them Max Max Kaiser was uh similar in the last episode he was like just watch Japan watch Japan obviously their debt to GDP is the highest in the world um over 250 percent right 200 250 so they couldn't let the uh you know their their yields rise so they kind of capped it down just because they wanted to Spur inflation to help inflate it away but also to keep the interest expense down I'm on that massive mountain of debt but now it's creeping up but also Japan's inflation is at a 42-year high you know it's actually creeping up there um so that's not a problem I mean they weren't that exporters and they still are but not by as much and their energy costs eat them alone Japan doesn't have any natural energy on their own that's an advantage we have over them we actually they did they did they restart that reactor because they're they're I mean that's the the other issue I don't know yeah they have to import they have to import Natural Gas so how does that um how does that affect like the U.S treasury market uh James like if you could break down maybe the connection of why Japan raising that limit up to one percent now like what are the Dynamics there where that actually impact the U.S treasury market because I think obviously our listeners would be interested to know that yeah it's called interest rate parity right and so when you have two interest rates and you're you're looking at the similar bonds a 10-year U.S treasury and the 10-year jgb right where are they trading where are the yields well if the U.S treasury is yielding four percent and the jgb is yielding a half a percent well what people do is they will sell jgbs get Yen sell Yen buy US Dollars and buy the treasury and then they come into some sort of parity on on the Futures and what happens is the the currency Futures to hedge that trade out they go to a spot where they go to parity right and so but there's pressure on on the jgbs to be sold in order to meet the pressure of the the yield because they're searching for yield they need yield and so we'll go they will go elsewhere for that yield and so they kind of balance they kind of balance each other so if you look at the move of the spread between the U.S treasury and the jgb 10 years okay if you look at that spread you can chart it against the the spread between the US dollar and the Yen and they track almost perfectly and that's called interest rate Arbitrage and interest rate parity but what James alluding to is also said another way is um the Yen has been the currency that's been used for the for the carry trade right it's been the the cheapest currency to borrow in the world for you know 20 years and so a lot of you know and and by the way when we look at liquidity it's not just the FED you've got to look at you know World liquidity prestonfish had a great chart that so you know the FED is tightening but the rest of the world's printing like crazy especially China by the way and so you know Global M2 is growing in spite of the FED being tight but but the point is if people are borrowing and cheap Yen and using that as part of the carry trade if suddenly that cost of borrow goes from zero what it which is what it used to be then it went to 50 bips on the first move and now it's at 65 maybe on its way to one at the margin admittedly they're all still small numbers but at the margin that makes that borrowing more expensive and so people are going to do less of it and so it's going to restrict liquidity yeah there's a lot a lot of hedge funds to do that and so what they're doing is they're shorting that that 10-year Treasury and then and getting Yen for that and then using that Yen they're borrowing the Yen at that rate so go ahead Larry sorry yeah no it's so it's so the point the point is Sam that that what's going on over there is kind of a warning sign that you know maybe they can't continue playing this game and I you know the reason they've been able to play people ask me often to say how come you know how come Japan hasn't hyperinflated how about them being able to get away with this and it's just because they have such a net asset Surplus you know in terms of external things they could sell whereas of course the US has a huge deficit and Luke groman does a great job of pointing that out but they also are net exporters you know they have they have enormous cash flow coming in because they sell more than they buy even though they buy all their energy and then as a people there are a bunch of Savers they're not like us they're not heavily in debt and so they they buy their own debt so all of those things are good for them and have allowed them to play this role up until this point in time but all of those things I think are starting to head in the other direction and that has an implication for for liquidity throughout the world and we're in it who knows how long it takes you know but we are absolutely in this this like yeah Larry said we're in the end game the end game could take a long time you know you don't know how long how many sets it's going to take to to finish the you know the The Wimbledon final or how how many overtimes it's going to take but we're in it and it's just a question of when that when that last you know straw breaks we're definitely in it I mean uh the cre I mean my partner did some great work and he showed how um you know half the U.S banks half the small Regional U.S banks are effectively bankrupt as a result of the cre problem you know I've got comparables that show you know malls that like the mall in the middle of Connecticut you know 10 years ago was valued at you know 100 million dollars that recently sold for six and a half million bucks I mean this is yeah probably the Amazon effect right I mean getting a mall in a small area it doesn't work anymore but but the point is that there is a you know what James and I are alluding to here is that you know a bunch of years of fake money and free money has completely and utterly distorted this financial system it has so been out of whack compared to what it normally used to be when I first started in this business as to be unrecognizable and those who say oh well we corrected it in 2022 let's buy the dip you know the the five by five year swaps going back to 2.75 it's all going to be good they're out of their minds yeah they're trying to front runs I mean this does not end well you know so and the point is and yeah and you know the cre situation they're they're everybody's got their eyes on that and they're watching for these for for you know the owners just walk away from these non-recourse loans and hand the keys back to the banks the banks are saddled with these half empty offices that are now worth of fraction of what they were when they when they you know loaned money against them now they've got the this impaired asset on their books I'm you know you can get it go into uh you can go into listings now and you see some of these uh commercial listings that they're not even pretending that they're going to try to sell them for office space or lease them for office space anymore they're saying they can be converted to Apartments now they're showing them as apartments and it's like you can see that those are you know it was a it was a uh a little what the cubicle Farms you can see it's a cubicle farm and they're trying to rent it out as an apartment you know and there's no there's there's no grocery store around you know there's there's no gas station around and you're like how are people going to live here you know so it's it's it that is a problem and but I don't think that's really the canary in the gold mine because everybody's here's the scary thing is that people's attention is on that and they're still worried about it what are we not seeing like who's out there who's impaired that we're not not seeing we just saw yellow collapse one of the largest truckers in the nation right the long distance Trucking line right well was that impactful yeah 30 000 people are going to lose their jobs it's impactful to the economy however what's interesting about it is that that's the kind of thing with it that that just gets swallowed by the competition so that's not that you know as far as an impact the economy probably not that big of a deal what's out there that's going to be a big deal who's over levered that it's going to have a contagion effect and not just Banks what you know it could be an insurance company it could be a massive Investment Bank you know it could be a massive investor it could be we don't know what it is but what's out there because the system is so levered that when something breaks it's going to impact others I do it's not necessarily what's out there in the private sector because this is a sovereign credit bubble it's a sovereign debt crisis what's amazing to me is if you look at the charts of the U.S fiscal deficit here we are at near full employment with a theoretically healthy economy and we're running you know enormous deficits I mean and if you look at what happened in 2000 and you look at what happened in 2008 you know I mean and you can see it recently the journal had an article on it last day or so where they talked about how basically tax revenues are down 10 11 12 and expenses are up 10 or 11 12 and that's in an okay economy and it's going in the wrong direction so you know take more yellows and take more layoffs and take more take a real slow down in the economy you know and then all your transfer payments go up your food stamps go up your welfare goes up everything else and you know continue on the spending ways that we've been continuing on and you know the us is going to be running a you know a two plus trillion dollar deficit headed to three or four for a long damn time I mean here it is here's the I think the these are the numbers that they gave us is that correct James yeah these are from the CBO that they're reap they were repurposed um but yeah this is uh I think I got this from the Peterson uh Foundation but the exactly and and this is this is kind of optimistic you know that's I think it's very worse than those yeah that's the scary part is this is optimistic nobody they did not expect to be paying 970 billion dollars on interest expenses here right not even like right and now you've got you've got over 40 percent of the debt due and that is is maturing in the next two years ah so that's going to be issue that what if it's if it's right now yielding one and a half percent on average it's going to be yielding over four percent on average yeah so so here's a scenario how it unfolds the 10-year goes to five percent you know the one year and the two-year go to six or seven percent you know um the federal def the federal deficit you know blows out to north of 2 trillion on its way to three or four you know interest expense on the federal debt it you know starts to approach 1.5 or higher you know I mean it's it's it's a death spiral the more they run a deficit the more they've got to borrow the more the bond market continues to fail because there aren't enough buyers for those bonds and this is the death spiral that you know James coined this term right the the more the bond market starts to fail the more interest rates go higher the higher the interest rates go as as we all know the you know the government made the enormous mistake of not terming out a lot of their debt when there's an enormous maturity wall in the next two or three years they've got you know eight trillion dollars of that rolling over maybe more and so that's all got to be done at the short rate which is now five three yeah imagine that's six or seven right I mean and and you can see I mean this is the airplane that's that's auguring in and you know pulling back on the on the elevator is what's making the spin you know is making the auguring in tighter because interest rates go higher costs go higher more bond gets sold blah blah blah it's a dust spiral I mean it's to me you know and at some point in time you know enough participants start to realize holy you know there's there's no way they're going to get out of this thing unless they print like to you know to a level that's just beyond absurd and therefore I've got to get into some money that's not you know that's not tied to the government and and that's you know the two choices are gold and Bitcoin and and that's why you know to me the clue that this is going on I mean real interest rates have gone up over 500 basis points in the last year and change right I mean that should have destroyed gold I mean would have gone from 1950 to 1600 but it didn't it's right at 1950 it's within six percent of its all-time high that should have destroyed Bitcoin and yet Bitcoin went from fifteen thousand to Thirty thousands the best performing asset this year it's up I guess it's 28 29 now but it's up 75 year to date why because those two asset classes can smell what's coming they know that the big print is ultimately coming it doesn't matter what the hell the FED says it doesn't even matter what the economic statistics are right I loved uh Nat's recent interview with sailor where he basically said yeah I don't even look at that macroeconomic stuff because all these numbers are made up they're total yeah yeah I mean we got 40 unemployment they're telling me it's going up from 3-0 to 3-2 it's like give me a break even I had to laugh out loud I mean the point's a good one I mean James and I were sitting there watching every little wiggle in these numbers and the numbers are all just made up they're all made you know look sound money assets are going to absolutely soar as this problem unfolds and the only question is what time and what what rate yeah and it doesn't and and it doesn't really you know necessitate a a massive print yet for that to occur right because like we we've talked about and Sam you and I talked about this last week is the there's three options that they have basically on the table you can that the Congress can they can issue uh austerity which is cut spending what are they going to cut they're going to cut entitlements are they going to cut defense I mean they are already up against the wall they can't cut the interest rate expense so the interest expense so they're and that's political suicide so they're they're not going to cut anything right neither side wants to they're trying to trick the other side into doing that to lose votes they're not going to do it that's number one number two you know they could raise taxes but Larry you know that this I mean raising taxes only yeah it winds up stifling productivity in the long run you get the same spot and it doesn't help GDP and it doesn't help tax revenue it doesn't help your deficits so that's number two number three what what they could they could issue debt against it and just grow the debt of course that's what they're going to do or really what what the answer is number three is allow for long-term High structural inflation hide it from everybody lie about it don't let people know how much the inflation really is but then inflation creates GDP nominal growth right that that allows for tax base to grow and pay down lately you know former debt with cheaper dollars cheaper future dollars that's their only that's their only choice now and that they're not scored I mean they're going right they've got to get our score up to a big number they know it and and you know look and that's why you made one sent me you said well they can't they can't reduce the interest cost well actually they can um because what's going to happen is Paul's going to be forced to take rates back to zero yeah yeah yeah you know and and again print money so they're going to have they are going to be forced he's going to be Burns I mean he wants to be you know um but if he if he continues that he's going to be you know Benjamin strong and put us into a Great Depression so he's not gonna be he's going to be burnt he's going to have to Pivot he's going to have to print money and the reason he's going to do it is because the alternative is the system blowing up yeah and so at least that'll bring the interest cost down you know for the federal government because you know they'll be free money in turn of course what will happen is M2 will continue to grow and and ultimately they'll have to resort to QE because interest rates will continue to go up and so their balance sheet will have to expand so we're still in deficit regardless of the interest that's right we've got we've got 180 trillion dollars of of unfunded liabilities yeah that's on top of all of it so I mean I'm laughing it's not funny it's not funny no it's it's actually quite sad but I'm reading Neil Howe's most recent book on the fourth turning it's saying he's claiming it's here and he claims his timing is it's 28 to 32 which I totally agree with but I find hysterical about it though you know there you go what I find hysterical about is you can't figure out what the subject is he's like it's going to be a big crisis and I don't know what it's revolving around in the past they've always revolved around Wars and I'm kind of like dude it's staring you right in the Goddamn face I mean you know this is not a tough call right he's noticed a couple of our of our uh debt threads recently and he's he's jumped on there so oh has he oh that's interesting so maybe he's getting wise to it I mean he works at Hedgehog you would think they might bring him up to speed on it yeah Keith is not the brightest Keith definitely is in our is in our camp here yeah yeah out of the Bitcoin camp but he's on he's in he's in the uh yeah they'll all get there yeah but they're running these diff deficits and um huge deficits and we're not even in a recession yet you know but we are starting to see kind of signs and cracks we have for a while now I think these things just take time but you know what do you guys see in the next six months because you say they'll have to cut rates they'll have to print and I agree but at the same time they're not going to do that unless things are really bad very quickly I think what they're missing is the lag effect I mean we went to an event with uh BJ Victor who was the guy who did uh the trucking truckers protest up in Toronto and he gave us a great data point and they they truck a lot he trucks a lot of products that get brought in the United States to turn into corrugated paper boxes so it's a great leading indicator for uh sales in the United States my partner David Foley figured this out and talked him through talked through it he said that in the last couple couple of months demand has literally fallen off a cliff like down 90 percent wow and that this generally percentages a a serious downturn also if you look at the 210 spread same story I mean my my opinion is sometime in the next six months this economy is going to hit the wall so freaking hard people are going to be stunned yeah they're going to be absolutely stunned at how quickly everything turned and then the stock market's going to go down and by the way that's going to take tax receipts down and then people are going to start worrying about the jobs and they're going to cut back on their spending then all this credit card debt they've taken out is going to become a bigger problem suddenly inflation is going to seem like a thing of the past and the whole issue is going to be how do we prevent the economy from collapsing and and that'll become the narrative so so Sam whether you know I happen to think that'll happen within six months my partner is more conservative he thinks it'll be within a year and a half and that may be true but you know I mean I've always I always kind of think it's right around the corner and I've been I've been wrong and early many times but the point is it's coming it's definitely coming the the economy is going to hit the freaking wall yeah so pull up that chart again of that two-year 10-year spread right so this for everybody this is a this is the the two the the 10-year yield Minister two-year yield and what it shows that the 10-year yield is a lot lower than the two-year yield which means that people expect investors expect for uh rates to come down which means they expect a contraction if you look at those gray bars that's where the that's where those recessions are and you can see where it turns negative where this this spread turns negative it takes about six months to 18 months to for it to play out and then you get your recession and that and that happens every time if you have you ever seen that chart that I put up uh about the unemployment have you ever seen that one Sam where the unemployment you know we we keep hearing the FED talk about what well employment's strong employment's strong employment strong it's not there's no signs of recession there's no signs of recession what happens is employment ticks up just barely and then once you hit the recession it spikes it goes straight up through there it goes absolutely parabolic that's when you get your unemployment after recession starts and it happens every single time so everybody everybody you know listening to Powell and hearing him talk about how employment's still strong it doesn't matter it's going to take up just a little bit and then it happens all at once where you have massive layoffs all at once now I don't know if this happens because we have a credit event or if it's just a watershed moment where the economy just finally rolls over but I'm with I'm with Larry um you know by and large that we're going to have this happen somewhere in the next six to 12 months and it's it's just it's just reality you have this lag effect of raising these rates so rapidly from zero from from 25 basis points up over to five and a half percent on the on the FED funds rate like you can't do that in in a year and not expect there to be some sort of lag effect on that and that's where we're starting to see things like a company like yellow just dissolve because they they got over levered and that interest rate risk they were exposed to they got they got hammered on or like the Silicon Valley Bank where they were exposed to interest rate risk they didn't hedge it and they got blown up though things like that are happening they're going to continue to happen I don't know what credit event we we see but I I you know I believe that there is a significant chance that we have some sort of credit event because of that lag effect of that interest rate we just like sailor I'm unbelievably bullish for for really three reasons one we're going to have a we're going to have something happen that's going to force them to change policy and go in the other direction two we've got to having coming up and three we've got you know the the Bitcoin ETFs coming sometime within six to nine months which are going to unleash enormous amount of demand into a very tiny market and so I just don't see how we're not at Bitcoin between 100 and 400 000 sometime within the next two years I mean I just don't see it to me it's it's statistically impossible yeah I was gonna happen yeah you're uh you're referring to that that great sailor interview on coin stories I think last week and he said he's so bullish and that's what I was going to ask you guys because you know if if you look at these these macro indicators and these these yeah terribly bearish right yeah yeah but I'm wondering like yeah there might be a correlation to one event but there are these developments happening in Bitcoin that are bullish like there's a lot of building going on oh yeah a lot of institutional adoption um and then could this be the time do you guys think where you could see you know things start to break down but Bitcoin kind of sees through it all because I've always kind of viewed it as a hedge on the on the existing system and Bitcoin is just a function of the environment it's in and if everybody's starting to get worried about the debt situation things that bitcoiners and gold uh Advocates have talked about for many years do you think that Bitcoin can kind of break away from other I think Bitcoin and gold are going to separate them and I think if we had a March 20 if in March of 20 when that happened Bitcoin went down gold went down everything went down because we had a correlation you have a puke everything goes correlate correlates very briefly until they came in with with you know the draghi you know whatever it takes statement and then of course the gold went up 100 two days in a row um I'm not even sure we get the down on this one I mean I think they are all I think Bitcoin and gold already smell what's coming and so as a result you know whether this comes immediately or in the 12 months doesn't really matter I think they're both bullish you know as a result of that when it comes and when the FED reverses when when they clearly are you know are done quote unquote these things are going to take off like scalded dogs I mean it's it's going to be something like what did you say it's called the dogs it's called the docs you haven't heard that phrase I've heard I just can't believe you pulled it out of your hat yeah it's awesome we should we we need to we need to end on that Larry you and I have a general Partners meeting yeah thank you Sam for having us on your show it's always a pleasure you guys are doing such great work and you and that it's all good stuff awesome yeah you guys uh you guys enjoy your meeting thanks for coming on the show always a pleasure have to have you back on again um I like to leave on a bullish note so you guys just go enjoy your meeting and keep building over at the Bitcoin opportunity fund I appreciate you guys coming on thanks Sam take care man thank you Sam and uh thanks for listening uh everybody who tuned in uh this is Swan signal live we're gonna start doing this every week live shows I'm gonna have all these kind of guests on uh trending topics big names so keep tuning in um to Swan signal live and make sure to check out Pacific Bitcoin again promo code signal to get 21 off your ticket October 5th and 6th in Santa Monica thanks for listening everyone [Applause] [Music] [Music]

Channel: Swan Bitcoin

Views: 13,837

Keywords: Bitcoin, economics, macroeconomics, investing, cryptocurrency, swan bitcoin, swanbitcoin, bitcoin price, buy bitcoin, bitcoin news, bitcoin today, bitcoin price prediction, Swan Bitcoin, bitcoin swan, crypto news, crypto news today, crypto, bitcoin macro analysis, macro bitcoin, bitcoin analysis, btc, inflation, finance, hard money, bitcoin standard, saving, markets, financial education, bitcoin portfolio, bitcoin investing, bitcoin live, crypto today, Lawrence Lepard, James Lavish

Id: g803HsECGAs

Length: 57min 0sec (3420 seconds)

Published: Wed Aug 09 2023