54. MONEY | The Merge Is Here! CPI Print Release Schedule & More - Transcripts

September 09, 2022

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Transcript

Welcome Ladies and gentlemen, Degen's and degenerates to another episode of the Alfalfa podcast. We are for radically moderate entrepreneurs and

investors swimming

in the messy gray

ocean serving

up alpha in money, politics and life. We are nick, rabbani, eric, Johanson, steven, Cesaro and I am Arman Asadi. All links at alfalfa pod dot com, make sure to hit subscribe wherever you are listening or watching on youtube and follow us on the socials and most importantly, hop in our discord to join the community for the after party and more Alfalfa

are we recording? Cause I did, I did just log in there and see that it was pam, ping again and you know what, you know, I think this is, I think we're totally range bound here and the fact that I sold puts this morning and it is up, you know, another 6% since I sold those puts feels very good

right now.

Yeah. You know, I might, I might, I might just close down our podcast and trade or ring.

So what are we, what are we talking today? We might have potentially the largest week in crypto. We got a lot of things happening in the upcoming week. We gotta merge coming, we have a C. P. I print potentially the same day, if not the day before

the merge of crypto and

macro we have,

excuse me, what's the merge?

It's

eric's wedding night when you get to merge for the very first time and consummate

the wedding.

It's gonna be a double merge, merge of man and woman. It's going to be a rug doctor in the background.

You're

Gonna, you're gonna have, you're gonna be a day after the merge. I don't know how Hoffman's gonna make it to your wedding. I'd say 30% chance he makes it,

The crazy thing is like, um, like the merge date is uncertain right? Like the time and date is uncertain. So he's going to host a merge party. Like when is that? Like when is he gonna host the party? Like the merger could happen at like three in the morning

Eastern,

who's gonna come to that

party stand by? Um, okay, let's get into it. Should we do a little alfalfa round first?

Yeah. Okay. Why don't you guys go ahead.

I heard we do that. Yeah.

Okay. I'll start. Um, I closed out some shorter expiration puts, thank God I did it before. So recording today's Wednesdays at the 7th September seven. So close them out yesterday. Market pumped today. So I'm glad I got lucky

basically

and closed out some shorter expiration ones.

Yeah,

yeah, sure, sure, sure. Um, I do wish, I kind of would have used like uh, like shorted and RK instead of the market. I had done that before. I don't know why I didn't do it this time, but regardless. Um, it's done. So anyway, that was a movie of the week and uh, yeah, just watching waiting for the big, big super bowl event.

You're

gonna like this one, I, I didn't want to reveal it before because I didn't want to like blow up the cap of the uh, the, the vault. But uh, I've been using the familiar with squeeze.

Yeah,

yeah. I've been using the squeeze crab vault.

We are definitely crabbing. Yeah.

I mean the crab vault is up like 5% since July and we have not been crabbing. So

what it's like

for those of you out there, who don't know what the hell squeak, squeak squeak is a sort of options, derivatives sort of like a perpetual

each

Squared, you know, options fueled weird derivative that goes up massive when it goes up and goes down massive when it goes down, but you can't get liquidated. So it's kind of fun. But when you were on the long end of that you were paying, I think I checked today and the funding was like 120% uh, annualized. So yeah, so the crab vault is sort of automating a

delta

neutral strategy. Uh, It sounds expensive. Um, I don't have delta neutral is the right word, but it's, it's a hedge strategy. Well, you are effectively collecting that funding if you are writing the crab, you know, which is what you're doing. So

like how tight does that band have to be to be considered today? So today,

for example,

for

Example, um, they redo the hedge like every two days. So as long as the price doesn't move like 8.5% in the hedge period, the vault is profitable. It's a pretty big move.

Yeah,

it's a big move, you don't find that too often but but when you do have a pretty big catalyst coming up here,

that's probably why the funding so high. Right?

Yes. Although it has been close to this high for a while I think just due to the nature of how it works. But yeah, I do think people are also piling in on the the the YOLO leverage right now because we got a we got a thing coming up next week.

Wait, are you doing this in the small account or the big account?

What

do you mean the small account

using a lot of money in this?

No, no, I don't like to dump massive amounts of my bankroll into untested smart contract faults as a general rule. Um

And is the squeezes through? Dope X. Is that right?

No, it's through opine open. O. P. Y. En Opie. Opie. And I think it is, I think it's

open. I

think I think that's

who runs

it. Don't, don't quote me on that, but I'm pretty sure that's where it comes from. Um I think they're launching a bull and a bear one as well. They

have a long vault as well, right? Like like a squeak long.

No, they only have the crab open right now, but they are opening a long and a short one. So the short one is going to be like an interesting Strat if you want to just fade the market for a while, you know, for the next year or so. Um collect a little premium, we'll

talk about that in our next segment. Uh I'm excited to talk about that in the next segment and for that reason my my alfalfa round this week is gonna be another life alfalfa. Uh

I just

spent mustache on my face and I want to talk about that

you shaved the mustache.

So I think there's like there's a couple of things that I want to talk about with this like one um I've never had facial hair in my life and what I noticed is like something that like an ex ex ex ex girlfriend told me a long time ago when I used to like not care about how I dressed or anything and I thought like, well my character will speak for itself and you know like people will see like through the sweatpants or whatever and like she told me she's like, she informed me that like people are gonna see you for how you present yourself and this facial hair thing is very similar to that, like I'm noticing that I get treated differently with the mustache than without, you know like I have a little bit baby face here and when I had the mustache going, I noticed a couple of things like one if I stopped at like a four way intersection with the mustache on like Karen moms would defer to me like in Costco like I would be walking down the aisles and you know, people would like let me go first just about the mustache. You know, I'm back to being like baby, the

testosterone is like oozing from me like a sphere of testosterone around the world. So

I think there was something to that. I mean like the bottom line is, I don't see myself with a mustache long term. I like my face, I like to be able to see it but like I did notice that there was some alfalfa within the facial hair and it's like people treat you differently how you present yourself and the mustache is no different.

I feel terrible that we didn't even notice. I think we're just so nervous because Armand wasn't here, we don't want to screw this

up. So

you guys, you guys are both invited to the rehearsal dinner at my wedding. Rehearsal dinner is gonna be a cowboy themed rehearsal dinner party. I was gonna keep the mustache for that

event.

It's like is it not hot as balls in San Diego. It's like, it's like 95° in Wyoming. Like I was just getting like sweat stuck in my mustache. I just couldn't handle it anymore.

To shave off the mouth sweater for the

couldn't do it.

All right, okay, so what do we got here boys, let's set the stage. So we got merge coming next week. We have uh C. P. I print on september 13th. I believe we have each butting up against its 20 week moving average. Um In the long haul we have some midterms coming up. So I think we're gonna have a little chat about how we feel about this, what we think the general markets going. Um What are the, you know, what's the base case? Bull case, bear case. Um Yeah, steven. What you start, how you feeling about things?

Yeah, I mean look, I'm I'm still positioned long. Um I would like to say that I I front Ron Darius who is now projecting I saw a 30 35% chance of goldilocks in the fall. We talked about that a little bit more. Um Which is kind of the equivalent of a soft landing I guess. Um So I got out ahead of that in july bought, I thought I thought I was gonna round trip that whole trade the other day

all the way back down,

all the way back down. I was like, so me, I missed my missed my two K. Sell my hedge. Um But I'm I'm kind of in it for the tech now at least until next week.

So,

but I think I'm I think I'm

still

bullish short mid term. I don't know how much detail you want to go into here. Um But generalized thesis is that I I am greatly fading like extreme sentiment which I love to do. Um I think that we are going to get like some pretty aggressively downside cp. I Corps prints coming up. Um Last I checked the markets are pricing like 77% chance of a 75 dips hike. Uh Do

you think that matters as much as the, I think the inflation print matters more than than what the Fed might do in the following like two weeks after that.

But what the Fed is going to do is going to depend on the like if if core if cP I comes in you're over here with like a six handle You might get a zero or like a 25 hike right like but like 25 is a zero probability right now.

So just a quick data point.

We were not going to get a six mr shaking your head but if we did get a six you might get a zero or 25 that would be like a pretty big flashing like whoa guys, the economy is about to explode.

Type Cleveland Fed has some inflation now casting models. So right now they put the september excuse me. The august c. p. i. at 8.2

four headline

number. And that's forecasts only what six days of data. But um or I guess no I take that back it's six days of data after the full month. So we'll see how how how accurate this now casting is. But you know in in july we had this like Very steep fall off and inflation. It was something like, I don't know, 98, decrease in inflation.

Yeah, like there was it was the biggest drop off since november 20th which was also a pretty big drop off. And there were a couple other like subsets of the pc that were the lowest ever recorded in terms of like a you know, it was like a three month rolling average change to the downside. Right? So I mean that's a big deal. The other thing that I think is a possibility that I haven't heard a lot of people talking about yet is that we've been hearing about how the consumer is very, very strong, right? And that's true. Like there are massive amounts of savings right now. Like household savings I think are still like three trillion above where they were pre covid, like so the balance sheet is pretty strong. We keep hearing about how the labor market strong wages are up, right? That type of stuff is sticky. Like the wages are a lot stickier than the cost of something like gasoline for example. So we could get into a situation where you have like these inflationary pressures, they push wages up, right?

But then if cp eye drops off dramatically, those wages aren't gonna go down in the fall. But the cost of all this stuff may go down. So you can get into a situation where for a few months you have consumers with like dramatic increases in like real purchasing power. Um You could also see corporations continue to not see declines in real earnings because um The pricing power of corporations is still far outpacing the wages. I think like wages have been growing at like six or 7

percent,

but like some of the PP. I. Numbers some of the measures that caused their up like 11 12% some of them. So

and corporations are ahead earnings wise.

Yeah. That's why like if you look at corporate margins that like their like kind of like the highest they've ever been, and profits are basically the highest they've ever been. So I I see a lot of reason to be bullish, juxtaposed with a really negative sentiment juxtaposed with like I as far as I can tell, markets are still pretty hedged to the downside. Um So I just see like a bit of a symmetry there, especially with like the merged coming up because I am playing this trade like entirely via ethereum. Um You know, it's just just the best if you want to be risk on. I feel like that's the best way to be risk on. So that that that that's what I'm doing.

I mean what do you think about this thought that the C. P. I. When C. P. I. Is high, like over 56%. CPI volatility is also high. So you know we've been talking about how like this decrease is not gonna be linear, right? So and I don't think in this this next 12 to 18 month path that we're gonna have down to you know hopefully what people expect to be 2% inflation, it's not gonna be linear, right? It's gonna have these jumps ups and downs. And so I think one question I've been thinking about is what happens to the market when we have a month where inflation either stays flat or potentially spikes up for a month.

You know is the market gonna freak out? Um Is the Fed gonna freak out? And what happened? So I think I like your bull case, you know your starter of that bull case but I think that's almost guaranteed to happen. This is not gonna like decrease linearly and you have to expect that pop up. And then all of a sudden the question goes And we talked about this in previous episodes. The original question was when is inflation peaked? And then now we're gonna be like well when is it actually going to get down to 2% because it may not for a long time. Um

Dude I think you nailed it. I think you nailed it because Stephen is more of a trade or than any of the other co host. So like he's looking at a shorter term time arise and I think like in the near term I think we have gotten a little off side to the to the hedge side of the short side But like you know over a 12-month period I'm I'm like positive that we're still in a bearish environment. So I think steven's right like and and I'm looking the same thing like in client accounts like where do I, where do I just buy back in for like the midterm pump, you know it's like liquidity gets uh eased a little bit, whatever they can do, we can probably get into that a little deeper. But um I'm thinking like Stephen mentioned, the earnings Stephen mentioned uh uh here's another thing like supply chain disruption, this is this is part of Darius thing, supply chain disruption. Using the I. S. M. Manufacturing data, he said supply chain disruption has like sort of come back down to normalize levels quite a bit. So um you know inflation could be coming back down and directionally that's bullish obviously, but if it if it just lingers in the four or five range for a long time then obviously it's not bullish on a 12 month time horizon in the near term, that would signify a bullish move. So I agree with you.

I do I do think the the easiest parts of inflation going down have already, we were capturing those now like right releasing the spr to decrease gasoline prices. That was certainly a big decrease in in july number and then you know, I can, I can tell you eric like just from first hand like um I can tell that supply chains are using up like container costs have gone way down, haven't had any delays. Production delays have been minor if unless your factories in like a zero covid, you know area. But other than that like supply chain has been been, you know, pretty pretty

freely

open, which is good. So I do think that,

let me ask, let me ask a question back to Stephen then like if if we do see these little bullish catalysts come through in the very immediate term like are you are you thinking of that as sort of bear market over or you just thinking to play that as a short term pump just to be clear.

No, I'm not thinking bear market over and like to be clear like like a lot of these things work through on different time horizons, right? Like these rate hikes, they take a long time to work through the economy. Um And I think one of the big catalysts that could actually send us lower is actually some sort of breakdown in in the consumer, right? Something that actually does break down earnings, you know? But but like I feel like the markets to a large degree are able to digest these hikes eventually, once they sort of stabilize and there's like a little bit of predictability to them. Um I do think there's like an extremely high probability that we enter into a deflationary quarter or two. Either early next year or Q. Two of next year. Um So yeah I would be looking I mean I wasn't planning on like buying in july and then holding forever but I thought there was like a really really good opportunity to do a two X. Or three X over the next you know three or four or five months which is a pretty darn good return. Um So the plan is to probably pretty aggressively um take profits in october november. It's tricky like the seasonality on crypto is pretty wild like September is always a terrible month and in October is like I think the average return for Bitcoin in October is something absurd like 48% or 40%, it's like almost zero in in September.

And we were gonna do a whole episode on like the market in the midterms. What's the past data on midterms and on stock prices and we're not gonna do go too deep into the data but short to say is that you know markets are usually muted going into the midterms and then they typically do very well after the midterm. So you're maybe late october pump could could definitely happen maybe right after midterms and then that's that's a regardless of party by the way.

Yeah I mean my my I think I outlined my my base case I go I don't know if I can remember it was last week or the week before. Um but it was, it was before, it was before federal. My base case was that we get nuked by the fed and Jackson and I forgot the hedge. But um the base case was we get nuked in Jackson. I I buy the dip, we didn't dip low enough for me to buy so I didn't do that either. Well played. Um But uh we would, we would end up like going way up after that because I I thought that the combination of pc missing by quite a bit cP I down. Um And you know the incentives as as I saw them to sort of do particular things going into the election um plus the post election pump which we see a lot. I think that's like probably the biggest thing you can bet on like markets kind of just like certainty I think and they like not having open questions anymore is how you could interpret it. But all that to me like just made a good risk reward and that still is the current plan. If anything that plan has gotten better because as we've looked at some of the data um and from from 42 macro like they've, we saw them like dramatically hiked up the probability of like soft landing like we're in a case now where like the bull case the bear case and the sideways case I think we're like relatively equal probabilities. In fact I would say like the bear cases like the lower probability I would say you have a slightly higher sort of neutral case, a moderate like Goldilocks case.

And then the bear cases like the you know continued inflation is kind of low and that's like really the opposite of what sentiment is on twitter with everybody. Everybody thinks that the world is ending and they can see it and nobody else knows this and somehow this is gonna be the first time in the world actually new. So everybody's talking about how the world's gonna nuke and eric looks like he wants to say something

to always

ask what's

your time horizon because I feel like between even the three of us were not always talking about the same time horizon.

Well

he's talking about the next three months, essentially

the next three months. And like where I'm thinking is like um liquidity is going to be leaving over a longer term time horizon.

Talk about net liquidity for a bit?

Net liquidity is gonna be, is gonna be exiting on from the balance sheet. That lever is going to be uh pulling liquidity from the market. Uh

Why do you think that just curious.

Well that's what they've guided to. I'm taking their word for their guidance on the balance sheet side. Um What was the Treasury uh Treasury general account. I think Janet Yellen has sort of guided to, so then that leaves only one left, the reserve repo or the reverse repo and the reverse repo I think is like like Darius said it's like it's too compelling of an offer to to wind down like nobody's gonna uh choose the alternative which would be like short term bills when the reverse repos paying them higher.

So we we we talked about this in the in the text thread before this but essentially right now the three month T. Bills um are not providing as good of a yield. If you look at what the reverse repo facility will provide in three months. So when you make the duration, three months equal to the reverse repo overnight rate. Uh The there's like a half a percent difference and the reverse repo facility is risk free. So you know what the thesis is that as long as there's you know less return in T bills then you're not gonna pull that money out of money market accounts and and put it there or put it elsewhere in the market. But there could be a scenario where maybe we get some good economy numbers like more numbers come in and we see just people who have that money parked in money market accounts say I want to go lend it out to people I want to go invest it or I'm okay investing in longer term time horizons,

right? Banks might want to take longer duration bets, but I think it's it's the exact same logic. You would, you used to be a bull on the merge, you would say like, oh well this is gonna decrease selling pressure by X dollars over this time arise. And we're like, so is the balance sheet liquidity leaving? It's like it's gonna decrease liquidity by this amount of dollars over this time arrives. And it's like the exact same logic. So for me, I'm looking at those two things, I'm saying like well risk assets are going to go lower.

I think it's I think it's I think it's different logic because the merge is programmatically a drip. It's a long duration consistently predictive drip. The net liquidity equation which as you guys said is sort of fed balance sheet minus reverse repo minus Treasury General um is being held up right now by this sort of discrepancy in the the um you know short duration Treasury, the shortage and short duration treasuries. It's pushing the rate lower. So people are like as you said like why don't I just take the higher rate of the overnight, that's that's less risk. But the second the market has like a preference for duration all of a sudden like that demand doesn't necessarily have to change in a drip. Like there's trillions of dollars that in overnight could just decide they want longer duration, they want to take on more risk and then that number could change like super um dramatically and it's kind of wild that this is what we have to talk about but this is, this is sort of what the market is like. I I think rates are just a complete facade to be honest. Like I think this is the thing,

I think it's good from a micro perspective, like if you're trying to, you know, forecast businesses, you know, future cash flows, it's really important. I think it's it's the, it's way more important. But if we're talking about general markets and asset prices, the mountain,

but but to play devil's advocate to that or push back on it a little bit like your cash flows in terms of like how they manifest in like an earnings multiple, most earnings multiples are placed there, pressed out longer on the curve, right? Like either like a 10 year or 30 year depending on the the particular security and the Fed exerts very little influence over the longer duration, I would argue. Um you know, feel free to to disagree. But like yeah, I see a lot of uh I see a lot of Kabuki theater um when I look at stuff and and and to zoom way more out. I see trillions and trillions of dollars in liquidity and cash just sitting there on the sidelines, be it in checking consumer checking accounts or corporate accounts um or in these like money markets and I see a world where we are clearly going down the path of like printing and stimulus and it like if you if you don't see that? I think you're you're blind to it, right? So I I see just like this damn with a bunch of water on it that's like has a bunch of cracks in it. And I I realize it's a little dangerous to kind of get out in front and try to catch that knife because yeah I could get run over very very badly. Yeah.

But I think for for home gamers, I think the way we've been tracking it is you can look at the fed balance sheet and look at the change. You can obviously look at their notes saying they're gonna double that decrease. You can look at the U. S. General account balance on on the Treasury website and then you can look at the reverse repo facility balance and and watch the change day to day. Um You can also look at the

the

spread between you know, short term, you know duration T. Bills and what the overnight, what is it overnight, three months swap right for the reverse repo facility. So

nick I got a question for you. Like if we do believe they're gonna try to pump this market into midterm elections like and and if we've already agreed that the treasury general account is sort of where it's at um How and and the balance sheet has been sort of guided to how they're going to wind that down? Like how do you imagine they're going to increase liquidity leading into november, when when like if that is our thesis, like how do you, how do you imagine that? Because the levers don't work?

I'm not on this tin foil, like I mean I know you know Janet Yellen and uh their colleagues with uh you know chair Powell like they, you know, she was in his position, you know, just a few years ago so they obviously do talk but I don't necessarily see them um changing anything in the reverse repo facility to drain that. I think the Fed is going to still have tough talk, but I think what you're gonna see it is on the fiscal side, right? Like we already saw it with um student loan forgiveness, there's some fiscal relief going on. But I also think they kind of have the ammo, they need, I mean they've decreased um you know gasoline prices by emptying out the spr an and then they got a few bills passed. The inflation reduction act I believe was the most recent one. And so they now have some things to to go off of and luckily they have a job market that's still pretty, pretty healthy, you know, it's obviously declining, but like compared to pre covid levels it's in a very healthy place. So you got jobs um and and quite frankly they, you know, the democrats did not enshrine roe v wade into law via legislative action. And so now there's this battle, I think they have something to rally the troops for the fight against, um, to try to, you know, codify legalize abortion into, into law. So I think they have what they need, um, to go strong into the, to the midterm. So I don't know if they're gonna, uh, you know, necessarily pump liquidity in the next eight weeks, 8 to 10 weeks maybe.

I like what you mentioned there with the labor market because we focus so much on inflation and stuff. It's like, but I think the labor market is, is, uh, an area where they feel like they have runway to be like, okay, well we can just really tighten beyond expectations because like the labor market is so strong. A couple of things that I wanted to point out like this is just just me coming at you guys. It's not, uh, it's not like what I'm seeing from Darius or whatever, but it's like, yeah, I think I, I've learned to not fight the Fed and the Fed seems to be tightening right now. Um, you know, like we can argue on their other levers, but it just seems to me like the Fed's tightening and they want to bring everything sort of down. So I don't want to fight the Fed and then, um, when it comes to longer term buying. Like, I know Stephen's like thinking of like the three month move, but like when I'm thinking of the long term move, are we actually pivot to like a bull market again. Like what I would like to see is signs of true capitulation where everyone has like lost hope and faith and I and we're not there. You know like I want to see the pendulum shift so far to the other direction. Like I feel like you know we went bull market and now we're like we're obviously in a bear market and like the pendulum has swung the other way. I want to see this pendulum swing way far the other way too far. The other way where it's like oh well now I'm gonna buy

right and I kind of take some of Stephen's points and I kind of turned them on their head a little bit. Or at least I got I think of them from a different angle. So you mentioned that the consumer is healthy and you know, jobs are healthy too. So when I look at that, I don't think soft landing, I think the Fed has the room, they need to tighten things up the way they want to. And I do think they're gonna overcorrect because it is such a a lagging indicator. And because you know interest rates take a long time to affect the market, I do think we're gonna eventually see corporate earnings decrease and the e out of the pe ratio um will will go down and I do think we'll see lower lows in the market. I do think we're still in this longer run liquidity down cycle. And I don't think the Feds seize anything that that worries them at this point to to pivot and they seem all pretty unified. I mean, I don't know if you guys remember but like before covid, you know, there wasn't these like unanimous votes on interest rates between Fed governors, there was obviously like dissenting opinions when you would read the notes and now we have fully unanimous for the most part votes and we have a unanimous voice. They're coming out, you know, kind of like with planned notes and they're all on the same page. So I think it's pretty clear what direction we could be going on and um longer

term longer. I think we're echoing each other but and I'll go one step further. It's like you mentioned the E. And the pe like the numerator is gonna go down to like the multiple is gonna get fucking whacked when when this thing really it's going to

go. And I think we kind of agree with Stephen I think, I think short term we could most definitely see a pump post merge, a pump post post midterm elections but then the data will start to come to roost like earnings will will decrease liquidity will still continue to go down the economy, not, we're not even talking about the global economy will will start to deteriorate and uh I think you know on the east side, you could have people who bought into the trade, being like poke and be like this thing is not doing anything. I thought this was supposed to make number go up, but we know it's this long term compounding thing. It's not, you know, gonna go to 10-K in the first week. Can

I push back on this? Please fight the Fed people say this all the time and it kind of bothers me. Do you know how much money your theory and portfolio would have lost if you waited until the Feds started hiking to sell,

tell me you'd be

Down like 60

from the peak is what you're saying.

Yeah, like there is a point and the same is true of like the covid crash, like you would have been much richer if you anticipated getting out of the markets before it happened right. Like there is a large benefits to getting ahead of the ball. If you can write, I think people sometimes over glorify how easy it is to hop on these pivots and get on board right? And their memory is short because we went through what was like one of the easiest and longest sort of momentum bowl eras in history, but there's no guarantee that the future is going to look anything like that, right. And if you believe that inflation is going to be super volatile for example, You're not going to have like 12 months stretches where you can just like wait to just buy and just like ride the market up. It's just not gonna happen.

I mean my retort to yours is you know we've talked about we're not gonna follow interest rates, we're gonna follow that liquidity and if you would have been following that liquidity in november You would start to see the reverse repo facility. I mean even throughout whole 2021 really start to crank up and you would have saw net liquidity start to go down.

I am skeptical that net liquidity can be used as a leading indicator. It can be very difficult to be predicted. The market is sort of like from what I'm seeing. Crypto is front running. Like when I look at the net liquidity chart I see Bitcoin pumping like crazy before net liquidity went up. I see the Bitcoin crash happening before net liquidity goes down last summer. Same thing happens on the on the upside putting it on the down swing right? So I wish it was as easy as that. And I think that it's a worthwhile thing to look at. To sanity check yourself like it was interesting for example to to look at the S. And P relative to net liquidity like a couple of weeks ago right? And you could see like oh the SNP is way ahead of liquidity right now.

It's anticipating liquidity is going to go up. I don't agree with that so I can fade this, right? So I think it could be useful there, especially in trad find markets, but I worry that crypto is too good at front running um some of this stuff, so I, I think I prefer to take a step back from the data and like, like, like you, you notice a lot of the stuff I'm telling you is like I'm game theorizing like how humans are going to react in particular situations.

Yeah,

I'm trying to anticipate like what will happen as opposed to like this is the data because I feel like sometimes there's some data where you look at it and you're just always going to be like a month behind or two months behind. Like if that's all you're looking that, so I, I think it's a balancing act. I don't want to write it off like, um like too much, but I do, you know, I keep it at arm's length, right? And I, I also, I'm just sort of really skeptical that it's a given that the world is going to go to hell in a handbasket over the next year. Um not that old, but I'm old enough to have been through a lot of the world is ending moments and the

world never

really did end and when it did end, it was in two occasions, I can remember where nobody saw it coming and it just happened out of nowhere. I mean the GFC and Covid, right? Those were massive crashes

Like 9 11, also in there,

that was another one. But that was sort of like a V recovery, right? Because it was, it wasn't really necessarily systemic in the financial system. But yeah, so like I I am skeptical that everybody knows what's going to happen. We are going to all be in a disaster and you shouldn't buy anything because everything's going lower. I think like a good strategy if you're in eric's shoes, like if you do have like a long time horizon, well, you could always just by now and just just like hedge, like if things start looking ugly. Yeah, by some puts or something like that, I don't know how advanced people are out there, but I like that strategy. I like that strategy, especially with crypto you just buy when like that's a damn low price and I'm gonna execute some hedges when stuff starts looking a little sketch.

Can we talk about good eric?

I just, I had questions for steven and you kind of answered them for me, but like, they were all, they were all based on this idea of like, um like timing of course is everything and and and there's no way to do it properly, right? Like, so, so if you're gonna like, of course you don't fight the Fed because you want to front run the Fed. But then like, I would have tried to front run the Fed in like 2018, and then, like, also again in 2019, and it's like, it's just it's so hard to do because, like, there's no there's no really right answer either way, you do it. You know, you're the following the data or you're trying to front run the data, and it's like, you know, for the last 10 years, I was saying, like, well, sh it's overvalued, uh, crash is coming. And like, you know, it's like a boy who cried wolf situation, you know, like, and ultimately you're right, you know, and Jeremy Grantham is like, ultimately gonna be right. He's like, yeah, well, we're in for pain and he's like, well, sure enough, after 11 years later, we're in pain.

Yeah. I mean, the way I look at that as, like, a more of a longer term investor is if, over the course of my investing career, I would have got within 25 30% of the bottom and soul within 25 30% of the top, specifically when we're talking about crypto with so much volatility, like, life's not so bad in that, in that scenario. So even if you are a little, uh, you know, late, if if you have the right indicators that you believe in, that you have high conviction in, you know, it is obviously, it's impossible to predict everything, but they're still useful. And I don't think you really have to,

I mean, Ive hit like the 300 week, right, it's a like if you're a believer in this thing at all and you believe in the asymmetry of it, I just

kinda have to like

buy that number, you know, and if it goes lower than you you squeeze your butt and you just buy

more. No,

it's like,

so

that's why that's why I like the options trading stuff because it's at least enhanced against spot buying, you know, like I think I can, I don't need to time it perfectly as long as I can improve slightly against just I'll buy here, you know, like and and that's that's where I'm kind of landed,

can we talk a little bit about price specifically and maybe we can kind of roughly end up there. Um So I've been following, like I mentioned in one of our previous episodes, I follow the 20 week moving average, follow the 200 week moving average, kind of put those on the chart along with the volume profile. Um and one thing I've kind of picked up from Benjamin Cohen, I think he gets most things right um uh you know, he has shown that like for Bitcoin neath the 20 moving average is a good sign if we're in a bull market bear market, so we're currently below the 20 week, but um we butt up against it a few a little while ago and we dropped right back down after it and we're currently butting up against it now. And so my question to you guys is um is it a higher risk return

to

See if it goes above the 20 week? Moving average drops down to it, retests it and bounces off it is at that point at a higher risk return. You're obviously buying at a higher price, but is the risk much lower if it bounces off the 20 week. Um and

ideally

to the upside is what you're, what you're predicting, that you have higher conviction that it would bump to the upside um versus here where um you know, we're we're not too far off the 20 week moving average, maybe, I don't know, 5 10% I don't know the exact number. Um It could, you know, barely peek above it and drop right back down. So I don't know do you guys have thoughts on which is the better play there? I mean, Stephen you are you're playing with your voting with your money, but eric do you have any thoughts on that?

No, I think it's like, because because I'm not so much of a trader and I have, I'm already on record saying, I don't like look at the charts so much. So like I think it's a great question because for me, like, let's say we're in a long accumulation phase right where we're sort of like down sideways, mostly sideways, but slightly down, it's like at some point you do have to buy at some point you do and like and I don't I don't have that sort of like trigger price point inside me that says like at this target price I'm going to go all in you know like but but I do have a fundamental view on something like Eve we could use Bitcoin as well and like what I what I'll say is that like if Bitcoins at 19 K. Right now or if he's at 1600 like and I'm gonna sell puts at it at 1000 each puts it 1000 sell Bitcoin puts a 13 K. Like am I okay buying their like on a steep discount to where we're already discounted.

That

that to me is my way of of sort of like D. C. A. Ng in collecting premiums along the way if it's a long accumulation period maybe we hit it a time or two. And I it gets put to me and I own the now I own the physical and it's like I'm good with that. Like I just I don't I don't know like that's it's not my style to know that like over a long period of time like this is the the time to buy

like

if you want me

To talk specifically about the 20 week. Um I think it can be useful for like mean reversion plays like if you are maybe taking profit or getting an entry that you're waiting on or like adding to a position. I don't really think like I don't base a lot of trading around it because I think over a shorter duration there are like way better ways to get entries. Like I, I just like to look at price right? And over longer time horizons I think like the, the 200 week and 300 week, these kind of long duration things can be a useful thing for you if you aren't like super investment savvy. It does give you a useful barometer to to see like is this high or low price like um but yeah, like I

don't, I

don't, I don't consider it a lot. I know we rejected off of it and dumped down or we went above it. It's like, it looks like really obvious in hindsight when you look at the chart, but in in the moment it's always very difficult to make any predictions on that. And like with specifically right? Like we were talking about like eric was talking earlier about like what I want to see capitulation right? Like I look at the chart and the beginning of the year, we had $3500 E 35 78. We then proceeded to have 12 consecutive red candles in a row followed by an absolutely ridiculous like candle where we went from 14 28 to like sub nine in one week with the highest volume spike since like the absolute nuke last summer with three arrows and just sell just and, and, And we, we tapped off the 300 week and I just like look at all that and I'm like okay if I'm not gonna buy here, like where, where are you going to buy?

I mean we all did by their yeah, but if you have more cash sitting around now, I think that's, that's the question.

Well we have more cash sitting right now. Like here's the problem. A lot of people see that and they're like, okay, well I missed it. I'm gonna wait for a pullback and then we go to two K and then we pull back to like 15 and the fourteen's like 30% plus pull back and people are like, oh God, I don't know. It's like it's going to go to zero again. That was the, that was that, that wasn't the real bottom and then you don't buy again. Like you, you have to kind of like make your plan and then stick to it in the moment cause you're always gonna like your, your brain is always gonna make you do the wrong thing in the moment. Even if your plan was good three weeks ago, then like in the moment you're like, oh God you look at the chart, you get the numbers that's going down, it's like that. Whoa, Jack me in where the candles just going down just freaking out, you don't, you don't make a good decision. I

Do think if you had like price targets of like below 900 and you kind of are following like liquidity in the market as a way to like, you know, figure out when is a good time to buy. I think you do have to adjust them for what we've seen the BTC ratio and that we've seen take just a larger percentage of the total crypto market cap. So I think you do have to adjust your your price they're a little higher because it is taking up more market share of crypto liquidity.

Yeah. And look, I think the East BtC ratio is is pretty bullish for crypto because it tells me that like the entire market right now isn't just a risk on risk off Btc like thinking it's like there are market participants thinking, hmm there's some value here. There's some relative value here. There's something to be had here. Everybody just not not putting on basically like a leveraged Bitcoin trade, which I think is great and it shows like signs of life to me in the market, Some people will say, oh it's just PVP and money moving around in the last few participants you can get out and maybe that is true. But it's certainly better than uh the alternative case. I'm curious like how are you guys positioned going to the merge? Like are you pretty heavy or

you? I mean I I never, I still have my original bag, like I haven't sold anything from when I, when I bought in

I

Think in 2020, so I still have that, so um and I bought some around 900 and I had some additional cash, so I have that in the sidelines. Um just just sitting there and um I do think post, you know, kind of mid terms, I don't know if it's gonna be like at the end of the year or beginning next year, I do think there would be a better time to buy and if it's not, it's not like, you know, I kind of have a multi asset portfolio, it's not the only thing, so if it does run away, you know, no big deal, I'll put into something else, like another apartment complex or or something else or another real estate play. Um but yeah, if it does afford the opportunity, I like to do that also, you know, I run a few businesses and I need to keep cash around for those businesses so I have to actually play the actual economy and make sure there's there's buffer there. So um you know, I feel better, I feel nice having that that big cash kind of cushion right now, so like I think I'm gonna keep it there if the opportunity presents, put it all to work pretty quickly.

It's funny because I wanted to ask the exact same question to you guys because what I, what I'm noticing is the exact same thing, it's like uh you know, we do see correlation with like NASDAQ and crypto and whatever, but it's like you do see idiosyncrasies within those cohorts. So for me, the way I've been playing it sort of this entire time was like I want to be long the assets I like and short the assets I don't like and I have a long bias, I've already described that, you know, I'm no longer in client accounts, but like I'm more short than I've ever been Uh in my life. Um but it's also like how I'm doing that is what matters. It's like I'm short ship tech stocks that lose money hand over fist that are still trading at 10 times plus sales. I'm short coins that look similarly to that ship tech, you know, like with with like really inflationary economics with no no accrual mechanism on the way out while also longing ethos while also longing uh companies that have cash flows. So uh it's a bit more nuanced than just being like I'm short, I'm short index. Like so for me like you know that's how I'm playing it, it I feel like that's the way forward. But um you know that was my question to you guys because

it

like I'll say this straight up and this is something I said even six months ago, the, if you, if you look at the world in like a weighted probabilistic type of uh framework, it's hard, it's still so hard like there there's no right way to do this like everything seems uh plausible. Um it's difficult. Um I'm just going short ship that sucks and long stuff that's good, like I'm long teeth, I'm short ship tech and I'm short defi coins with no no cruel mechanism with no way out and that's been working for me for six months and that's going to continue working for me. I think that's the way I'm gonna play it.

Yeah and I think like what we've kind of learned as we kind of review more macro data that's coming out is like what Stephen said like the bull and the bear case almost have equal weightings, probabilities and you kinda just have to take the data as it comes and I think most importantly position yourself for both scenarios like be prepared for both, don't get caught offsides or unexpected. Um don't be blind to either scenario and just kind of pay attention and

like here's another question and this is interesting to me like how do you guys monitor your success during this bear market because I'm like uh Pretty flat, I'm pretty flat in 2022. Um and that to me is a success um to me, but it's you know, I wonder like

well you're crushing the benchmark because

I'm not just like YOLO short everything like I am, I am, I just do, I suck because like this was like the generational short opportunity of our lives and you know, I'm flat here and like that's cool or like how

you're not Stanley Druckenmiller reincarnated. So if that's your benchmark, you do suck. But yeah, I mean you're, you're ahead of the benchmark.

Yeah, I mean I kind of, I guess I'm the most druck because I just put one trade on and YOLO it with like most of my net worth and just watch it obsessively all

day. Yeah.

Um I don't know. I feel great. I feel pretty good about this year. I, I feel great about this year from an investing time horizon. I lost like seven figures and stupid hacks and stuff and defy so that was unfortunate would be like way up if it weren't for that. Um So I hate myself for that. But like I can like kind of hang my hat on trading, trading good. Um So that's, that's nice for the future I guess because I, I expect that skill to compound in the future and I'll get the money back. Um

I

wanted to ask you guys before, before I forget, are you both in the sell the news

camp.

Yes.

Yes, like a week after, roughly. I don't know plus or minus

and, and the way that's manifesting itself in my portfolios. I'm selling calls like I'm not gonna sell actual spot, like I'm gonna hold it like I, I don't want to like take a taxable gain on my long term holdings or whatever, I'm just gonna sell calls and like if I, if I get exercised good, if you know, whatever that, that's how I'm playing it. But I am a sell the news or for sure.

I think if my broader macro thesis plays out, I think you could get a scenario where we dump post merge and all the sell the news ores proclaimed victory and then we just like absolutely rip in like mid october late november and then Hoffman declares victory and then Hoffman gets annihilated in december january and then everybody said, and then

2020

24 I think anybody who has the ball, so just hold down for

actual movements.

I'm talking like, you know, pump to k, dump down to 13 12 and then ripped like three K plus by end of year type thing.

If we ripped a 3K plus by the end of the year, you

will have lost a lot of,

a

lot of money on the covered call stable

I guess.

But you'll be pretty usd rich so you'll be able to sleep well at night I guess.

Yeah, it's almost like my plan was working to perfection. If that, if that works, unless it goes to 10. Kay,

how're we doing on time here, are we supposed to be wrapping this? I guess so, so, so basic takeaways, I think if you're, if you think that inflation is gonna miss a lot, you're believer in a symmetry you like to fade sentiment and you think the Fed is is talking a little a little tough and you believe in politicians doing things to you know, then I think you can make a good argument for being a bull here and if you don't believe any of those things and you think that liquidity is going to keep draining, there's there's no reason to be in the markets.

Yeah. And I think if if you think inflation is going to be choppy on the way down and that's gonna spook markets and we're in this longer term liquidity down drain then and you're a longer term trader, you know, I think cash is okay here. Um so eric what do you do any other options that we missed between those

Two you guys nailed it? I forgot one little data point that I wanted to mention is that uh sentiment trader told me that we were three times more institutional put buying this week then 2008 and 2000

huge. That

I think it's like a feather in Stephen's cap.

But

I agree with both of you. I think I think that's it. Let's all

agree that nobody knows what's going to happen. And the biggest thing is to keep in mind that the long term thesis and and and manage your your worst case scenarios and and survive.

I'm pretty sure that like even $1600 is like still undervalued for where I see this asset going

in the long run. I I agree with you. I I fear in the bad scenario that we under to estimate how long the long run is and how painful the volatility will be along the way.

That's

not the case. But look back at an amazon dot com chart some time and think about what that might feel like and you know, kind of check your bullishness.

Let's just all make sure we're rich in 2024 2020

five. We're trying.

All right. All right guys. I think that's a good place to wrap it. Good job. Talk to you soon. Bye.

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