James Lavish: The Most Important Macro Concept Right Now That Most People Are Missing
Summary
Macro Liquidity: Detailed discussion of the Treasury General Account, bank reserves, and repo dynamics, highlighting how the shutdown-driven TGA build tightened financial conditions.
Fed Policy: View that the Fed is trapped between inflation and employment, likely ending QT and gradually adding reserves, with any liquidity wave not to be confused with real prosperity.
Dollar Debasement: Strong case that persistent deficits and balance-sheet expansion debase the currency, pushing nominal asset prices higher; invest for debasement, not the narrative.
Bitcoin: High-conviction, long-term pitch for Bitcoin as a non-debasable hard asset and base-layer monetary asset accessible in fractions, beneficial even to lower-income savers.
Gold: Bullish framing as gold hits highs, with central bank demand and reserve-asset substitution from Treasuries supporting prices amid global uncertainty.
Hard Assets: Preference to stay positioned in hard assets—Bitcoin, gold, and select real estate with pricing power—as structural hedges against inflation and currency degradation.
AI: Long-term transformative theme, but near-term valuations look stretched and concentrated in mega-caps, creating drawdown risk amplified by ETF flows.
Risks: Watch for credit events (CRE and subprime auto stress) and liquidity shocks that can force broad selloffs where correlations go to one; hedging is prudent.
Transcript
Why is there inflation? There's inflation because it's necessary. It's necessary to keep this whole system going. And you know, we live in a system of debt, borrowing, and leverage. And we've got to keep it going. And that's just the the bottom line. And it's going to keep going until it doesn't. James Lavish, founder and co-managing partner of the Bitcoin opportunity fund, director at Strive and author of the popular financial substack, the informationist. It is so wonderful to welcome you back to the show. Great to see you again, James. It's been way too long. >> Well, it's good to be here, Julia. Always fun to talk to you. So, thank you for having me. >> I know. And the last time we had you was late last year, so I can't believe it's almost been a year since we've had you. And um you are one of these guests that our audience absolutely loves. So I apologize that it's been so long. I don't want to let that happen again. But since it has been about a year, James, >> it's probably been my fault. It's I've just I've been a little bit busy. That's for sure. Launching and all that. >> Yeah. And also in high demand, too. But since it's been a year, let's start um where we always start. James, big picture macro view, where we are today as it relates to the economy and the markets. What's been on your radar lately? what are you paying attention to and more of your outlook and as you know James you can take all the time you need to set the table when it comes to that big picture macro view. >> Well I mean you know uh big picture recently people have been on kind of on edge in the markets trying to figure out a few things. Um, first of all, you know, we started out in in this late summer and going into the fall just trying to figure out where the Fed was, what what what they're thinking and that really drives the liquidity of the markets um and uh you know access to capital and so that has been that's been on everybody's mind and uh and you know as we come into the fall you have uh a Fed that is battling like two different um opposing levers. that they're supposed to be or opposing uh mandates that they're supposed to be overseeing. And so, you know, for your listeners who don't know what those mandates are, it's stable pricing and full employment. And stable pricing is the, you know, the 2% inflation rate. And they're trying to get inflation down to 2%. And they're having a hard time doing it. Uh earlier in the year, they were they were kind of blaming the Trump tariffs for causing uh like that that the uplift in prices. um and uh you know that that kind of persistent inflation and now they're realizing that that's not really the case that that inflation's just kind of stuck here somewhere around 3% give it, you know, up up a quarter% or down a quarter percent from there. It's just kind of been stuck there. we saw it come down from that. It it spiked up when when the Fed, you know, printed $5 trillion and uh you know that that money went into the market via a lot of QE and then they uh the government sent people checks and uh and there was a lot of spending and then you had supply chain issues. So prices spiked up nine, you know, percent on average. I mean, we've seen our we all seen our the prices of in the whatever it is that that you have uh in your uh in your monthly budget, but call it health insurance, car insurance, house insurance, you know, your groceries have gone through the roofs. Everybody's been kind of frustrated about that. The Fed knows it. Um and um so prices spiked to nine, like up 9%. Now the the inflation's down to about 3%. It's just kind of held steady there. You could see it come down. It's just kind of held steady around 3% continued inflation. It's been persistent. At the same time, you're now seeing the jobs market kind of um get tripped up here a little bit. And you saw about a million jobs were were taken out of the equation that that the uh the BLS had had originally the Bureau of Labor Statistics had originally reported at the end of uh Biden's term all the way into the beginning of of Trump's and they had to revise those numbers down. And so, you know, it's a it there's some frustration around that. How good is the data? How badly is the data lagging? How much is the Fed lagging the data and now you've got the Fed battling these two different mandates? They've got the stable pricing and they've got the the full employment. We don't know what full employment is. It's just a kind of the you know check the the temperature of the of the country. Let's see where it is. But, you know, um it's what we're what they're really afraid of, what everybody's concerned about is are we entering a period of stagflation where prices continue to rise and the economy rolls over. So, that's kind of been on everybody's mind. And right as all that happens and and the Fed comes into um into the fall and lowers rates, we have a government shutdown. So that government shutdown has now kind of taken liquidity out of the markets. You you know the the what happens is the the Treasury continues to issue debt and draw money out of the markets um draw it out of reserves, bank reserves and you know they can't spend it. It just goes into their checking account. It sits there. So that's kind of been this overarching issue that people have been watching and wondering when it's going to be resolved. Apparently, it's going to be resolved today with the House meeting. We'll see. Um the Senate has already passed a continuing resolution to get them get the government up and running again, but you know, and apparently that the the House is going to follow suit, but you never know. Um so I'll I'll believe it when I see it in the headlines and and it's actually done. But that's kind of just big picture what's been going on. At the same time, you had the markets rip to all-time highs and kind of kind of stay there. Um, and you've had gold rip to all-time highs and back off a little bit, but it has been strong. It continues to be strong. And uh, and that tells you that there's a few things going on. You know, it's trading at about $4,200 per ounce today. And, um, that's telling you a number of things about not just the economy, but about foreign central banks and foreign entities, what they want to own. And is it and is it US treasuries? Is that is that the global reserve asset or are they starting to turn to gold and how much of that gold pricing has to do with uncertainty in the markets of everything I just talked about. So that's kind of that's kind of the big picture where we've been for the last few months and where we at where we're at today. >> Yeah. Just so folks know, James and I are talking on Wednesday, November 12th. It is 2:12 p.m. Eastern time and there is um going to be a vote supposedly there will be a vote underway in the House um on whether or not we will end the government shutdown. But this conversation will still be relevant even if even if um that does happen um based on what we're talking about. >> I want to explore something with you. You wrote a great piece in your Substack, the informationist about a concept most people have never heard of, which is the Treasury General Account. Yet you call it potentially one of the most important macro concepts right now. And I know in that piece you also did talk about like the government shutdown too. I I guess like maybe exacerbating things, but could you explain the TGA, why it's so important um this kind of like government checking account, if you will, why it matters more than most Fed policy decisions. >> Yeah. So, um when you hear when you heard uh Fed Chair Powell last week or two weeks ago now talk about um you know, where bank reserves are and liquidity and all that, they they you know, he admitted he said, "Look, um we're going to lower rates. I can't I can't guarantee we're going to continue lowering rates, but we're we're we're concerned. You we're we're not concerned yet. The bank reserves are still ample um on their measures, but they're getting to a point where they think they're going to have to start adding liquidity. Okay. So, what is he talking about? Well, one of the main issues that has been out there is that uh the like I said the the Treasury look the United States runs there. We're running multi- trillion dollar deficits. We we spend so much money that we need to borrow more to spend to to just pay down the maturity of other debt. Like when when debt matures, we don't have money to pay, you know, to give to those investors. we have to issue more debt, you know, to to um to pay down that old debt. Okay? So, why does that matter? It matters because the the Treasury continues to float bonds. Okay? And as they as they're selling these bonds, they're getting cash and then they get that cash and they have to put it into their checking accounts called the Treasury General Account. And that's where they that's where they write the checks, wire the money, send the money to all the people that they employ and all of the agreements they have with contractors like defense contractors uh to build um you know whether it's def whether it's um items for defense whether it's airplanes or submarines or whatever it may be aircraft carriers or much smaller items um that that's where that money comes from. It comes out of that checking account. So they the Treasury issues bonds, they get cash, they put that cash in the Treasury checking account, the Treasury General account, and then they use a Treasury general account to spend the money. So what has happened? Well, for over 30 days now, the government's been closed. So they haven't been able to spend out of that checking account. And so why does that matter? Well, it matters because they're they have a target every single quarter. they have a target of where that general account should be and sometimes they'll let it build up and sometimes they'll spend it down. Okay. So, the exact opposite happened back in June of 2023 when we had the government shutdown and the government shutdown where they they I'm sorry when not the government shutdown the uh the debt sealing crisis when we the the government was still operating yet we couldn't issue any more debt. Okay. So, here we have a government shutdown. we can't spend money out of the that treasury check checking account, the Treasury general account. Back then, we had we had a debt sealing crisis where we couldn't issue any more debt. So, we had to spend all the money out of the the general checking account, the general account, the the Treasury checking account in order to pay the bills, right? So, back then, they were they were paying paying paying paying. You said that you saw the debt just stayed constant because they couldn't issue any more debt, but the general account was drawn all the way down. Okay? So, that money went into the market during that time and they were not drawing capital out yet. They were not they were not issuing more debt and uh and taking money out of the capital markets. It was it was that that in and of itself was an injection of liquidity. So they weren't taking money out, but they were putting money in. Okay. Now the exact opposite is happening now. So now the government shut down. They can't write checks, but they continue to issue debt because that's what they're on. They're still they stay they stay on target and they keep issuing the debt because they know they're going to need this money to eventually make up for all those uh fees and expenses and uh paychecks that they've just been on hold for the last month. and and and change. They know that. So, they're building up the the general account. And in doing that, you've got money that's stuck there. Their target is $850 billion. And right now, it's running just under a trillion dollars in there. So, they've got just under a trillion dollars that's just sitting in that in that account. That that tells you that there's over $150 billion sitting there that's waiting to be spent and that people are waiting for it. there. Um, you know, I've got my brother-in-law is uh he works for the government here in Nevada and he hasn't been paid. Uh, he works in in intelligence and, you know, he's uh he's a necessary personnel and he works in in in defense, but he he has not been paid in, you know, in weeks and weeks and weeks and weeks and weeks. So that's uh that's just one of the examples of >> you know he's not able to do things that he would normally do whether it's investing or buying uh certain things or going on trips or whatever that that's you know it it puts a a crimp on that or it forces him to use credit cards to do that. So that's kind of just one of the examples of of the the issue that it's causing. And so that that general account, it's so important because as you as you know it it's just locked up. That means there's less liquidity out there. Remember the Treasury is still issuing bonds. It's still issuing debt. And so it's the liquidity is coming out of the system, but it's not going back in right now. And that has weighed on it a little bit. >> This episode is brought to you by VANX Rare Earth and Strategic Metals ETF. Ticker symbol REM MX. Rare Earths are the hidden backbone of modern technology and defense, powering everything from smartphones and electric vehicles to fighter jets and wind turbines. Van Ec recognized this early, launching the rare earth and strategic metals ETF, ticker symbol REMX, 15 years ago, well before supply chain security became a global priority. Today, China dominates the production and refining capacity of rare earths, creating real challenges for global supply chain security, as these materials are essential for technological innovation, clean energy, and national security. That's why countries all around the world are racing to build their own supply chains and reduce reliance on China. As this global shift continues, investment in the rare earth ecosystem is growing rapidly. From mining to advanced manufacturing, investors can gain access to this powerful trend through REMX. Visit vanck.com/remx Juliia to learn more. Just to like recap, as you point out, the bank reserves are the lifeblood of the financial system. And when the TGA when the TGA goes up, bank reserves go down, financial conditions tighten. TGA goes down, bank reserves go up, financial conditions ease. Um, and that massive amount just under one trillion um is because of that shutdown effect. So if we let's say we get through the shutdown and um they have some sort of >> I guess a continuing resolution or something. Um what do you think happens? Like what does that mean for the economy right now? Because I know liquidity is super important. So like I guess where are we today? Where could we be headed? How are you thinking about it from more of the economic outlook? >> Yeah, I mean, well, one of the things that people have been they've been concerned about and that uh Powell said is that the those reserves are coming the bank reserves are coming down and part of that is because the TGA like we just talked about. Um it's because the the Treasury is still issuing debt and that that's drawing down reserves. Um as money come out comes out of reserves to to buy that debt. some of it. I mean, some some of that comes out of um foreign entities and hedge funds and all that stuff, but um you know, that's part of it. But when that money comes back in, you know, when the when the government gets up and running and this money starts getting being spent, then those reserves kind of shore up a little bit. The issue that people have been talking about recently, you've you've heard on maybe on Twitter, um, is that people are concerned that we're going to get into a 2019 style uh, lockup in the in the overnight borrowing market. Okay, what do I mean by that? And this is something that I'm still not um not I'm wary of. I'm not not raising alarm bells but making you know making it making people aware of it that this is a possibility and the Fed is well aware of it too. So what am I talking about? Back in 2019 there was there was something called the uh it was it was a repo crisis. It was called the repo crisis. Okay. >> And this is before this is before we had lockdowns in 2020. You'll remember this in 2019 September 2019. Uh the repo markets locked up. What do I mean? Well, the repo markets are where banks and financial firms lend to each other and they do that by having they they have collateral and that collateral is US treasuries. So, if I'm a if I'm a hedge fund and I need, you know, short-term liquidity to meet a margin call or something like that that I know is going to be cleaned up in a day or two, what I might do is instead of selling things, I might take my treasuries and loan them to JP Morgan and JP Morgan gives me cash. So, I actually I'm borrowing cash using those treasuries collateral and I'll pay them an overnight rate for that. And that rate is basically back then in 2019 it was libore plus a spread. Okay. So and that spread would be um you know it it it would be a little bit above the fed funds rate. Okay. Basically just to keep it very simple for everybody. Back then though, what happened is you had this convergence of factors that created a crisis of liquidity and a shortage of dollars. So what happened was the Treasury came out with a larger quarterly refunding announcement like they they were going to need they're going to issue more debt than people expected than banks expected and investors expected. That was number one. Number two is September and all these companies had to make their their tax payments. So they drew down cash reserves and uh and cash balances out of their treasuries to send to the US Treasury. And so that money came out of their accounts which drew down reserves. And then the third thing is you had uh currency issues and overnight overseas you had a demand for dollars that weren't that were not being met. So all these things kind of came together in 2019. Then overnight the the cost to borrow dollars in the United States for overnight spiked all the way up intraday to above 9%. Which was just insane like with the the borrowing rate should have been down you know um a fraction of that and it just it it tripled overnight. And so um and the markets pretty much locked up. The Fed nearly panicked. Well they did panic. They stopped QT like immediately and within almost within hours they turned around and started getting QE meaning they started um they started injecting liquidity into the markets by buying T bills themselves and short-term uh treasuries themselves and that put money into the markets and so people will say well they they were saying well is this QE and then and the Fed said absolutely not this is absolutely not QE it's not QE but if If you go back and you look at the balance sheet of the Fed, you'll see that all along the way from the great financial crisis, they were contracting. So all the the bonds and and mortgage back securities, they were taking off. This is called QT, quantitative tighting. When the Fed sells their their treasuries and mortgage backs into into the market, their balance sheet comes down the assets they hold. And then you get to 2019 and it starts to tick back up again. you get these this little hump in the uh in the this QE style hump of them buying back $400 billion worth of treasuries and then they never sold them back out because they turned around and boom an absolute bazooka of liquidity from the Fed during the the 2020 crisis and they took in another $5 trillion. So that's a long way of saying that they were really worried that that so what happened though back then is that the bank reserves fell to a point that was a percentage of GDP or a percentage of total bank assets that made them not ample anymore. And so now the now that that that measure if you look at GDP is somewhere around 8 to 10% they're they're they start to get nervous right so back then they fell to I think it was 7.7% of GDP today they're under 10%. The bank reserves are under 10% of GDP. So it starts to get them they like they're on notice. They're not nervous yet because it takes a while for the bank reserves to draw down. They're not nervous yet, but they're on notice. So, what was their response? Their response was, "We're stopping QT in December." That's the first step. We're going to stop QT because bank reserves are falling to a level that we're starting to take notice. Not really worried yet. And then at the end of the month in October, you had a few things happen again where you had the the government shut down, the bank reserves fell, dollars were in shortage, and the sofa rate started to tick up again. It didn't take off like it did. So, I'm sorry, let me back up. The sofa rate replaced >> replace the new that's the new overnight rate. Okay, >> so the sofa rate now is the new overright overnight rate. It started to tick up and you're seeing it start to pick up gradually here and it on average per night it's been ticking up. Now, it's come back down a little bit, but it's been ticking up, and that's what's been um concerning people and concerning investors and saying, "Uhoh, are we going to have another 2019 style um meltdown in the credit markets and overnight lending market because of, you know, a shortage of dollars and this and the sofa rate." And so, that's that's kind of what people are looking at now. got up just the uh you know um right at the end of the month there was $50 billion that was borrowed overnight at the end of the month which was like whoa that that's that was not normal and um and I'm going to send you a chart so you can put this up when uh you know we're talking about this but you can see here unless I can actually >> share yeah you can share your screen >> you can see here that getting toward like the end of se September, beginning of October, this is the amount of of uh borrowing that financial firms are doing overnight. They're which is that that repo, right? The repo market where they're they're using their treasuries to or you know to borrow dollars. Well, it started getting a little bit here. You started saying, "Uh oh, it's starting to get active here." And then boom, one night on a Friday night on uh on October 31st, it exploded. And a bunch of this happened in this in the um the afternoon session where it was like a scramble for dollars. So at the same time, you had these this is the spread between the sofur and fed funds or the uh theeer which is the overnight rate. So the blue line. So, but you could see here that the spread exploded too. It was, you know, 36 basis points over what the Fed funds rate was. This is what banks are charging each other and financial firms are charging each other for that that short-term overnight lending. Boom. Exploded up and people are like, uhoh, is there a problem? Is somebody imploding? Is there a crisis? Is there a liquidity crisis? What's going on? Well, I think we've all figured out that the problem is the Treasury General account has, you know, $150 billion sitting in it that has not been put out back in the market and everybody's waiting for the the the government to reopen. Well, it's so it's kind of and that end of month window dressing happens with financial firms because they have leverage ratios they have to meet and they have to make sure that they're that they are um that the statements they put out and the reports they put out are in line with expectations. So sometimes they add they need more dollars in their account and they and and fewer treasuries and so they'll do this where they they're you know back here they'll borrow a whole bunch and because there was so much that was needed well the f the the the ones who had the cash said well you have to pay up for that and so they started lending them at higher rates which is kind of what happened at the end month end and since then it's calmed down. However, do notice that even though it's calmed down, it hasn't come back down to the normal, you know, 10, it hasn't come back down to the normal like right on the Fed funds rate or a little bit less because there you're you you know, you're you're you're using a collateral. So, it's it's like a it's a riskless um offer for for somebody to give you dollars for these treasuries. You you have their treasuries. if they walk away, well, you've got full coverage and you're, you know, with a treasure. You're not going to lose money on that. But you'll notice here that it is still it it's still in this uptick here that it hasn't completely subsided. And I think part of that has to do with the fact that going back to your original question, you've got all this money sitting there idle in this Treasury General account that's not being used. it's fewer dollars out there in the system and that's been um you know that that's kind of been uh it's contracting the liquidity out there. >> This is so fascinating, James, and I love love the charts. Um question for you. You mentioned um >> the Fed and um I guess ending QT. What about doing QE again? Well, so in his statement, um Powell said, "Look, we we realize that the banks are going to start needing liquidity. It's just a natural phenomenon of a of a um an inflationary environment that we live in. GDP rises, nominal GDP rises, and so um you need more reserves in the banks for that velocity of capital that's moving around the system. They know that." And so what he said was we're we understand that we're going to, you know, we we we are at a point where in the not tooistant future, I'm paraphrasing, but this is the essence of it. In the not too distant future, we're going to have to start adding reserves back. Well, everybody said, "Oh my god, that's QE. That's QE. That's QE." It's not quite QE yet. It will be added liquidity, though. And whether they take that back out of the system is very unlikely to me. So in essence, yeah, it's QE, but it's not the fire hose that we saw in either 2008 of a trillion dollars or in 2020 of $5 trillion. It's not that yet. I would say it's more like a steady, it'll start as a trickle and maybe a steady stream of liquidity. You know, you know, billions of dollars a month, but not hundreds of billions. you know, it's going to be a little bit different. Now, that all of that is taken off the table if we have some sort of credit event, which we could see. And the reason we could see that is you just saw today that commercial real estate uh loans, the the default rate is um has spiked to basically an all-time high since the great financial crisis. And I'm not sure if it's even above that now. I saw a headline before I jumped in here, but they're rising rapidly. And so you saw uh two uh basically two auto related companies, financial companies go bust in the last number of weeks. Uh you're seeing >> Yeah. First brands >> default. >> Yeah. >> Yeah. Exactly. And them and uh and the one >> is itricolor. The one down in near the border. That's right. in Texas, you know, subprime lending basically. Um, now what's what's important about that is that you're also seeing subprime defaults on the rise for autos. >> Yeah. I saw a headline before we got on. Yeah. From Bloomberg, right? >> And so that's that's a concern is how strained are consumers, which gets us into the next part of the conversation. all feeds back again to the Fed and there and what Powell was saying in his press conference which was we understand that we basically have a K-shaped economy. Well, what does he mean by that? It means that you know as we get a the recovery in this in this um you know since the 2020 crisis and and since the the Fed has been lowering rates the recovery is K-shaped meaning that you have a demographic that's topheavy say the top 10% that has been doing quite well um even though there's been high inflation and the reason for that is asset inflation. So you've got consumer inflation asset inflation. And the asset inflation mean your the price of your house is going up, the price of your gold is going up, the price of your stocks are going up. You know, you've got this asset inflation where you're benefiting from inflation at a much faster rate than you're then, you know, you're being hurt by the consumer inflation because consumer inflation is not as big of a percentage of your either assets or income. The lower demographic on the other hand has been struggling and they've been struggling to make ends meet because you know you see it every day in in posts on on Instagram or Twitter that how are how am I supposed to make it if I can't pay my rent if I can't pay my job my I can't pay uh gas for my car to get to my job or the insurance on my car or my health insurance or my house insurance or you know or I I can't uh pay for the all the groceries. you're seeing this in the lower demographic has really been struggling and you know that this is true because the the default rate on credit cards is rising with the lower demographic and the younger demographic and uh and you know the usage of credit is rising rapidly and so um that is a concern and so the Fed is trying to weigh this out and say well if we lower rates is that going to help the lower the the lower demographic or Not. How is that going to help them if it if we have stagflation and long-term rates stay high? Because it's not going to lower their credit card rates or their mortgage rates, which means it's not going to lower their uh their rent rate because everything's keyed off the 10-year Treasury. So if the 10-year Treasury remains high because if expectations of inflation remain remain high then you know what happened just like what happened back when Biden was um you know about to end his term and the Fed turned around and lowered rates by 50 basis points. Well, what happened? The 10-year rose by 50 basis points. So why did that happen? Because people said you you're you're lowering rates now and what while inflation is still above 3%, it's three and a half%. You're crazy. You the inflation's going to rage. So the 10-year Treasury yield went higher as people sold 10-year treasuries saying, "I need more protection against inflation. I need a higher yield." And so that's uh that's kind of um what the worry is here. Do I lower rates? Do I inject liquidity? You know, if I'm POW, how do I get out of this? And the answer is he doesn't. He's trapped. He's absolutely trapped. We are we are running massive deficits. The Treasury needs him to lower rates so they can lower the the coupon that they're paying every year on this $ 38 trillion of debt that we've amassed. And you know, and when you do that, it's inflationary. Both those things are inflationary. And so lower rates and continued deficits, which is what we get back to on, you know, this fiscal driven economy that we live in. And so that's kind of uh that's kind of the worry there is that you're you've got this K-shaped recovery where you know if you look at if you look at uh the the consumer and uh and you look at actually the the two different demographics and I posted about this recently and I'll bring up the poster so you can see it but the two different demographics and just how stark it a a a difference it's been for the wealthiest the wealthiest demographic versus the uh the the less wealthy. And here's the so here's the net wealth of the the top 1%. >> Oh wow. >> Since 1990 versus the bottom 50%. You'd say, well bottom 50% hasn't done that bad. Look at how big this white space is here compared to this one. It's done actually pretty well. But remember this is the top 1%. >> Okay? >> So when you do out the math, you know the top 1% here the here are the metrics. So per capita the top 1% per per person went from 1.8 million of net wealth to 15.5 million for a $13.6 million gain. That's an 8x multiple. The bottom 50% remember they're sharing all of that, right? They're sharing all of all the bottom 50% they have 50% of people sharing this. So according to the the demographics and the and the um and the cons and the census from back in 1990 the bottom 50% on average had $5700. By the end of the by the end of 25 2020 25 uh sorry 2025 they had $25,000 for a $19,000 gain. So, they made 4x. They they they've gained 4x in um wealth, half of what the the top 1% did. So, it's just getting worse. And that's really the concern here is that we've got this, you know, separation of wealth that's occurring because of the way that our economy is driven and the debt driven economy that if you don't own assets that you're being left behind, which gets all the way back to everything that we talk about every day and preach on owning gold, owning Bitcoin. I prefer Bitcoin, you know, long term. Um, and this is what I write about in the informationist every week is just how and why you should be owning assets and and explaining and different all the different things that are going on in the economy for people understand that and it's why we launched the Bitcoin Opportunity Fund. You know, David Foley, my partner and I are we are extremely confident. I have I have super high conviction in Bitcoin as an asset and as a base layer for an economy that we need. And so and it can help the the smallest and the and the and the lowest demographic. If you can just put away any money and you can buy a fraction 1/100 millionth of a Bitcoin to start, you know, it's just there's there's something there for you to buy that cannot be debased. And that's why we that's why we did this is that we really believe in this system and in Bitcoin in the in the future. So >> yeah, I want to quote something that you wrote um because you said when you flood the system with dollars through the Fed balance sheet expansion, through TGA draw downs or both, each dollar becomes worth less. Nominal prices rise not because assets are fundamentally more valuable, but because the measuring stick is shrinking. Gold doesn't go up because gold doesn't go up in dollar terms because gold changed the dollar fell. Bitcoin doesn't rally because Bitcoin changed the dollar got debased. Real estate doesn't appreciate because the house improved. The currency deteriorated. This is why I stay positioned in hard assets. Bitcoin, gold, real estate with pricing power. Not because I'm bullish on the economy, but because I'm bearish on the currency. The TJ drawdown is coming. It's mathematically inevitable. the government has to spend. When that happen when it happens, especially if it coincides with the Fed balance sheet expansion, the liquidity wave will be substantial. Don't mistake liquidity for prosperity position for de debasement, not the narrative. If you're like me, you will buy hard assets and hold them forever. I think that's such an interesting point, James, because I think a lot of times people think liquidity, they think it might be a good thing, like prosperity, if you will, but you're talking about like the debasement of the currency, the dollar. >> Yeah. And you know, one of the things that that confuses people is that, you know, I ask any of your normal friends that are not neck deep in this stuff and talk about inflation. I do it all the I say, "Well, what do you think inflation should be? Like, what should the inflation rate be?" And they say, "Well, I think it's about like 2%. That's good." And it makes you because if you don't have 2%, then people will hoard their money and then it'll grind the economy to a halt because they won't spend and buy things. And they've been brainwashed into really truly believing that inflation is normal and not understanding that with technology, we should have deflation. We should be getting everything for for less. >> And wasn't 2% just like a random number like someone came up with? Did it come out of like New Zealand or something? it it happened. Well, some people talk about it it matches the the rate that uh of of gold extraction, but really, you know, the the best explanation I've I've uh studied or heard is that the New Zealand bank came out with it in the '9s and everybody just gravitated to it. Now, why would it be 2%. It's a good question. If inflation is 5%. You're going to feel that because in in just two years your your spending your your purchasing power is down by 10% if your if your wage hasn't kept up you know so in 5 years it's down 25%. Everybody felt it in CO the official reading for inflation during CO is that from 2020 to 2025 you lost 25% of your purchasing power. Now, you and I know that that's probably that's probably understated. >> Wait, can you repeat that one more time? How much purchasing power have we lost >> from 2020 to 2025? You lost 25% of your purchasing power. >> That's how much inflation was. >> Yeah. >> And that's the official number. So now think about it. Let's go back to first principles. Why do we have inflation? Well, we should have deflation. Let's start there with with, you know, when I was a kid, I'm a little bit older than you, but when I was a kid, I used to go into Tower Records or Strawberries to go buy a CD and it was like 12 to $15 for nine or 10 or 11 songs at most if they had a, you know, a second LP on there. And now for that 12 or $15, I've got a phone that $ 122 or $15 a month, I can get millions and millions and millions of songs at my fingertips at any time from any artist I want. Basically, that's deflation. Photos. I used to go and buy, you know, a roll of 20 24 photos on a on a actual piece of film, you know, like a roll of film that you put in a camera and that was it. That's all you got. Then you had to take that film and go down to the They didn't do >> Oh, man. There's so much nostalgia in this. I remember Photoshop. Yeah. >> Yeah. You had to spend money to get them made and get them printed and >> it was fun to open them and flip through them and see how they came out and >> Yeah. You remember that? So, but that's now you can I can take I can take 24 photos in like just holding the button down in, you know, in a second or two. It was like it's crazy. Or all the video you can take with that and the video cameras. You remember the old like home video cameras that people had at weddings and and you know, baby showers. You everybody's got iPhones now or or you know their Samsungs or whatever. That's deflation. You should everything should be going down in price. Why are they going Why is it going up? Well, you could say, "Well, there's more technology in there. It costs more to make the chips." All like, "Yeah, but okay." But if you're making the same technology year after year after year, it should be going down in price. Everything that we that we innovate on should be going down in price and because it's getting better for less. You're you're you're all this technology and innovation makes it easier to make these things for fewer people. le like less you know um labor and materials and all that. But anyways, but on the flip side of that, now let's talk about why we have inflation. Well, we have inflation because we have an expansion of the money supply. Basic terms, the money supply has been expanding at somewhere around 7.1% since 1971. What happened? Well, what happened is we got off the gold standard. We had the Nixon shock who said, "We're officially off the gold standard. can't turn in your US dollars for gold anymore. Sorry, but trust us, you have the full faith of US government that backs this US dollar. And then you got all these countries to agree to it. And so, um, the US dollar is the the the world reserve currency. Okay. So, put that aside. So, now we have this dollar that there's nothing it's attached to anymore. So what do we do? Well, we run deficits. We run deficits and we borrow money. We keep borrowing money every single year. And in doing that and with the way the bank works, you expand the money supply. So the money supply has been expanding at that rate, 7.1% since 1971. That's one measure. You know, I've seen others 6.8, 7.3, somewhere in there. So as the money supply expands and it goes after these goods, it you know um the the goods that are that that are hard assets, you know, things like gold, now Bitcoin, you know, when you have a house, you know, the houses aren't appreciating in value. They're going they're the the dollar that's being bought with is the depreciating in value. There's just more and more and more of them chasing after that that house. So that's kind of what's going on. And why do they need this? Why? So, let's get down to the first principle of why they need this. Well, we need inflation because of that deficit. We've got $38 trillion of debt. So, what if you look at just that and you start pulling it apart, you say, "Well, what's the solution?" Well, the the problem is we'll use big numbers and just round numbers here. They they're changing from year to year, but this is about what we're talking about. The US government spends about $7 trillion a year. The problem is we only take in about $5 trillion in taxes. So it's a ne negative of $2 trillion. All right. So you say, well, we can just cut spending. There's a few problems with that. Number one, structurally it's very difficult to cut because the vast majority of that 7 trillion or of the five trillion that you make, the vast majority of that is taken up with social security, Medicare, Medicaid, and defense spending. And then the last piece is interest on your debt. Okay? So that already takes up all that 5 trillion. And so even if you cut out every single other program, every single other discretionary expense that's not signed into legislation, you're still probably running a deficit. That's number one. Number two, it's just very unp it's unpolitically um like it's it's unpalatable for politicians to cut expenses because they have to serve their demographics. So we're which we're witnessing it right now that the the Democrats want to spend ungodly amounts of money to shore up their demographic. Whether it's an extra trillion dollars for, you know, illegal aliens because they need those votes or it's just wasteful spending for demographics that, you know, that they're going to get either political donations or just their vote from. It's not just the Democrats either. It's both parties. the deficit the the debt rises under both parties. Make that clear. But nobody wants to cut spending. It's political suicide. So the second thing you do and it just doesn't happen. We the cutting doesn't doesn't happen. You saw what happened when when uh when the Doge Commission was created and the spending was cut on just either fraudulent or just ridiculous uh packages and programs. Man, people got violently angry about that because they didn't want their programs cut. So, it's just unpopular politically, so they don't want to do it. Now, they try to trick each other into doing it, but it it it's hard. So, it doesn't happen. The second thing that you could do is you can raise taxes. Well, raising taxes might sound great, but as you've seen in different uh European countries and the Nordic countries, you raise taxes on the rich, you wind up having rich flee your country. And so that's one thing. The second thing that happens though is if you're in a country like America, you have innovation that gets stifled because you have companies that stop spending on research and development, expanding product, you know, productive uh product lines or um you know, attractive product lines um profitable. They that means they're spending less money. They're they're hiring fewer people uh and you know, their their productivity goes down. And ultimately what happens is you raise rates, you get to a a you know a level that you're you're you're receiving in your tax base and then that level kind of starts to to turn over though because even though your rates are higher, you're you're charging higher rates on productivity that's declining and so you get into a worse spot. It's not a it's not a good thing to have raise your taxes on u on companies and small companies especially. Um, so you wind up in a worse spot. And the third thing you can do is you could just revalue your debt. You can default, which is what we saw Germany made um, you know, Greece do basically. And you've seen countries do this where they, you know, you've seen emerging markets do this all the time where they they just default on their debt. Well, when you do that though, that means that you're not able to issue debt in your own currency going forward. You're in the penalty box, at least for a while. And so, um, if you're a country that issues debt that's denominated in your own currency, you would never default. You would never hard default. What would you do instead? You just print money and buy your own debt. We're watching Japan do it. Ad nauseium. They're the largest owner of their own debt, the Japanese central bank. And so that's what you do is what you wind up doing is you print money and you debase the currency. Now what happens when you print money and you expand the money supply? Well, your your GDP goes up nominally. So it just goes up in more dollars. So you issue debt in 2025 and you know in 2030 that debt if or let's say you issue debt in 2020 right and in 2025 you're using dollars that are 25% cheaper to pay down that debt. So there's more dollars out there. So by debasing the currency, you can pay down the debt easier or manage it easier so it does it's not rising so rapidly on you. So that's kind of that's kind of the the ma that's that's the great game plan that they have. And so when you go back to your your question of why is there inflation? There's inflation because it's necessary. It's necessary to keep this whole system going. And you know, we live in a system of debt, borrowing, and leverage, and we've got to keep it going. And that's just the the bottom line. And it's going to keep going until it doesn't. >> Yeah. James, um, it's always great having you on. Let me ask you one final question. Um, and there I wish I had more time because I have even more questions for you. What is the risk for you right now that's maybe keeping you up at night? doesn't have to actually be keeping you up at night, but it's not getting up enough attention. >> Well, the one that is starting to get a little bit more attention is look, I think the AI is going to be transformative. I think it's going to be massive. I think it's going to be um it's it's going to be tremendous and it's it's going to evolve into something that we can't even imagine right now. I do think that I do think that these companies that are that are uh involved in in the AI um you know revolution uh they've gotten they they're they've their their prices in their stocks have risen so rapidly and so much that it concerns me that it's gotten ahead of itself a little bit. Do I think it's going to crash and do I think that it's it's all fluff and it's just, you know, it's not real and it's a, you know, like a it's like a 1999 tech bubble. No, I don't think it's that. I think it's more that it might have it might be a little bit ahead of itself. And that concerns me that if there's a draw down, it'll just take everything down with it, at least for a small period of time, a short period of time. Um, you know, I don't worry. And um even though the economy is K-shaped right now, you know, even you still you go out and restaurants are full, you know, people are going out to concerts, they're going out to games, they're going out to sporting events. It's not like it's stopping. You know, you're not you're not feeling like you did back in um the great financial crisis uh when when the economy kind of ground to a halt. It was almost depression. You're not feeling that. So, I'm not worried about that quite yet. I'm more worried that we just have some sort of shock in the system and that the stuff has gotten ahead of itself a little bit. Now, again, ultimately, I think it's going to be it's transformative and there's a there all these companies should do very well. But the reason that that it concerns me is that, you know, you've got a handful of companies that make up about a third of the S&P. So, there's two things there. If you have a cascading event where all of these are being sold off, what happens is because of ETFs, you have so many ETFs that people own rather than the individual stocks, they just start selling ETFs and then the whole like everything's drawn down with it. And so you kind of have a an unexpected market shock from that. Do I think it's going to happen? No, I don't. I don't. I think it's, you know, a coin flip on whether or not we have a draw down. And it's a lower probability that we have a a massive draw down. I mean, like I'm not talking about 25 30%. That's massive. I wouldn't I'm not expecting that. However, there's a risk of that out there, I think. And because of that, because of the the way that the market is structured, with all the leverage that we have that we talked about and with the the structure of how these these companies are owned through ETFs, there is a possibility that we have that we have a sharp draw down. And when that happens, everything correlates to one. Doesn't matter what you own. Even if you own gold, it's going to it's going to go down with it because investment managers sell what they can, not what they want to. And that ends up being whatever is on in front of them. And so um I my hedge fund while we you know while the Bitcoin opportunity fund remains com fully exposed to Bitcoin the Bitcoin treasury companies and other stuff we also have uh some insurance on the portfolio just in case something there's there's some sort of market shock because we haven't seen one in a while. Um, and I think that some of the some of the the new entrance into this world, they have not seen what I'm talking about in a 2008, 2001, 1999, 1998, you know, that style 1989, 1987. They haven't seen these draw downs that happen so quickly. So, um, but, uh, I still remain super optimistic and if that does happen, I think it's a great opportunity because nothing will stop the the reality of the way the system is structured and the need for con just constant liquidity, expansion of liquidity and money supply and debasement of currency, which means own assets, they're just going to continue going up. James Lavish, founder and co-managing partner at the Bitcoin Opportunity Fund, director at Strive and author of the informationist on Substack. So wonderful having you back on the show. Really appreciate you sharing all of your insights, your knowledge, your wisdom, helping us all learn and get better and explore these ideas. Really appreciate you taking the time. Thanks again, James. >> Well, it's great to be here, Julia. I look forward to the next time. Thank you. >> Likewise. We'll have to do this in 2026 and catch up. Thanks again. And here.
James Lavish: The Most Important Macro Concept Right Now That Most People Are Missing
Summary
Transcript
Why is there inflation? There's inflation because it's necessary. It's necessary to keep this whole system going. And you know, we live in a system of debt, borrowing, and leverage. And we've got to keep it going. And that's just the the bottom line. And it's going to keep going until it doesn't. James Lavish, founder and co-managing partner of the Bitcoin opportunity fund, director at Strive and author of the popular financial substack, the informationist. It is so wonderful to welcome you back to the show. Great to see you again, James. It's been way too long. >> Well, it's good to be here, Julia. Always fun to talk to you. So, thank you for having me. >> I know. And the last time we had you was late last year, so I can't believe it's almost been a year since we've had you. And um you are one of these guests that our audience absolutely loves. So I apologize that it's been so long. I don't want to let that happen again. But since it has been about a year, James, >> it's probably been my fault. It's I've just I've been a little bit busy. That's for sure. Launching and all that. >> Yeah. And also in high demand, too. But since it's been a year, let's start um where we always start. James, big picture macro view, where we are today as it relates to the economy and the markets. What's been on your radar lately? what are you paying attention to and more of your outlook and as you know James you can take all the time you need to set the table when it comes to that big picture macro view. >> Well I mean you know uh big picture recently people have been on kind of on edge in the markets trying to figure out a few things. Um, first of all, you know, we started out in in this late summer and going into the fall just trying to figure out where the Fed was, what what what they're thinking and that really drives the liquidity of the markets um and uh you know access to capital and so that has been that's been on everybody's mind and uh and you know as we come into the fall you have uh a Fed that is battling like two different um opposing levers. that they're supposed to be or opposing uh mandates that they're supposed to be overseeing. And so, you know, for your listeners who don't know what those mandates are, it's stable pricing and full employment. And stable pricing is the, you know, the 2% inflation rate. And they're trying to get inflation down to 2%. And they're having a hard time doing it. Uh earlier in the year, they were they were kind of blaming the Trump tariffs for causing uh like that that the uplift in prices. um and uh you know that that kind of persistent inflation and now they're realizing that that's not really the case that that inflation's just kind of stuck here somewhere around 3% give it, you know, up up a quarter% or down a quarter percent from there. It's just kind of been stuck there. we saw it come down from that. It it spiked up when when the Fed, you know, printed $5 trillion and uh you know that that money went into the market via a lot of QE and then they uh the government sent people checks and uh and there was a lot of spending and then you had supply chain issues. So prices spiked up nine, you know, percent on average. I mean, we've seen our we all seen our the prices of in the whatever it is that that you have uh in your uh in your monthly budget, but call it health insurance, car insurance, house insurance, you know, your groceries have gone through the roofs. Everybody's been kind of frustrated about that. The Fed knows it. Um and um so prices spiked to nine, like up 9%. Now the the inflation's down to about 3%. It's just kind of held steady there. You could see it come down. It's just kind of held steady around 3% continued inflation. It's been persistent. At the same time, you're now seeing the jobs market kind of um get tripped up here a little bit. And you saw about a million jobs were were taken out of the equation that that the uh the BLS had had originally the Bureau of Labor Statistics had originally reported at the end of uh Biden's term all the way into the beginning of of Trump's and they had to revise those numbers down. And so, you know, it's a it there's some frustration around that. How good is the data? How badly is the data lagging? How much is the Fed lagging the data and now you've got the Fed battling these two different mandates? They've got the stable pricing and they've got the the full employment. We don't know what full employment is. It's just a kind of the you know check the the temperature of the of the country. Let's see where it is. But, you know, um it's what we're what they're really afraid of, what everybody's concerned about is are we entering a period of stagflation where prices continue to rise and the economy rolls over. So, that's kind of been on everybody's mind. And right as all that happens and and the Fed comes into um into the fall and lowers rates, we have a government shutdown. So that government shutdown has now kind of taken liquidity out of the markets. You you know the the what happens is the the Treasury continues to issue debt and draw money out of the markets um draw it out of reserves, bank reserves and you know they can't spend it. It just goes into their checking account. It sits there. So that's kind of been this overarching issue that people have been watching and wondering when it's going to be resolved. Apparently, it's going to be resolved today with the House meeting. We'll see. Um the Senate has already passed a continuing resolution to get them get the government up and running again, but you know, and apparently that the the House is going to follow suit, but you never know. Um so I'll I'll believe it when I see it in the headlines and and it's actually done. But that's kind of just big picture what's been going on. At the same time, you had the markets rip to all-time highs and kind of kind of stay there. Um, and you've had gold rip to all-time highs and back off a little bit, but it has been strong. It continues to be strong. And uh, and that tells you that there's a few things going on. You know, it's trading at about $4,200 per ounce today. And, um, that's telling you a number of things about not just the economy, but about foreign central banks and foreign entities, what they want to own. And is it and is it US treasuries? Is that is that the global reserve asset or are they starting to turn to gold and how much of that gold pricing has to do with uncertainty in the markets of everything I just talked about. So that's kind of that's kind of the big picture where we've been for the last few months and where we at where we're at today. >> Yeah. Just so folks know, James and I are talking on Wednesday, November 12th. It is 2:12 p.m. Eastern time and there is um going to be a vote supposedly there will be a vote underway in the House um on whether or not we will end the government shutdown. But this conversation will still be relevant even if even if um that does happen um based on what we're talking about. >> I want to explore something with you. You wrote a great piece in your Substack, the informationist about a concept most people have never heard of, which is the Treasury General Account. Yet you call it potentially one of the most important macro concepts right now. And I know in that piece you also did talk about like the government shutdown too. I I guess like maybe exacerbating things, but could you explain the TGA, why it's so important um this kind of like government checking account, if you will, why it matters more than most Fed policy decisions. >> Yeah. So, um when you hear when you heard uh Fed Chair Powell last week or two weeks ago now talk about um you know, where bank reserves are and liquidity and all that, they they you know, he admitted he said, "Look, um we're going to lower rates. I can't I can't guarantee we're going to continue lowering rates, but we're we're we're concerned. You we're we're not concerned yet. The bank reserves are still ample um on their measures, but they're getting to a point where they think they're going to have to start adding liquidity. Okay. So, what is he talking about? Well, one of the main issues that has been out there is that uh the like I said the the Treasury look the United States runs there. We're running multi- trillion dollar deficits. We we spend so much money that we need to borrow more to spend to to just pay down the maturity of other debt. Like when when debt matures, we don't have money to pay, you know, to give to those investors. we have to issue more debt, you know, to to um to pay down that old debt. Okay? So, why does that matter? It matters because the the Treasury continues to float bonds. Okay? And as they as they're selling these bonds, they're getting cash and then they get that cash and they have to put it into their checking accounts called the Treasury General Account. And that's where they that's where they write the checks, wire the money, send the money to all the people that they employ and all of the agreements they have with contractors like defense contractors uh to build um you know whether it's def whether it's um items for defense whether it's airplanes or submarines or whatever it may be aircraft carriers or much smaller items um that that's where that money comes from. It comes out of that checking account. So they the Treasury issues bonds, they get cash, they put that cash in the Treasury checking account, the Treasury General account, and then they use a Treasury general account to spend the money. So what has happened? Well, for over 30 days now, the government's been closed. So they haven't been able to spend out of that checking account. And so why does that matter? Well, it matters because they're they have a target every single quarter. they have a target of where that general account should be and sometimes they'll let it build up and sometimes they'll spend it down. Okay. So, the exact opposite happened back in June of 2023 when we had the government shutdown and the government shutdown where they they I'm sorry when not the government shutdown the uh the debt sealing crisis when we the the government was still operating yet we couldn't issue any more debt. Okay. So, here we have a government shutdown. we can't spend money out of the that treasury check checking account, the Treasury general account. Back then, we had we had a debt sealing crisis where we couldn't issue any more debt. So, we had to spend all the money out of the the general checking account, the general account, the the Treasury checking account in order to pay the bills, right? So, back then, they were they were paying paying paying paying. You said that you saw the debt just stayed constant because they couldn't issue any more debt, but the general account was drawn all the way down. Okay? So, that money went into the market during that time and they were not drawing capital out yet. They were not they were not issuing more debt and uh and taking money out of the capital markets. It was it was that that in and of itself was an injection of liquidity. So they weren't taking money out, but they were putting money in. Okay. Now the exact opposite is happening now. So now the government shut down. They can't write checks, but they continue to issue debt because that's what they're on. They're still they stay they stay on target and they keep issuing the debt because they know they're going to need this money to eventually make up for all those uh fees and expenses and uh paychecks that they've just been on hold for the last month. and and and change. They know that. So, they're building up the the general account. And in doing that, you've got money that's stuck there. Their target is $850 billion. And right now, it's running just under a trillion dollars in there. So, they've got just under a trillion dollars that's just sitting in that in that account. That that tells you that there's over $150 billion sitting there that's waiting to be spent and that people are waiting for it. there. Um, you know, I've got my brother-in-law is uh he works for the government here in Nevada and he hasn't been paid. Uh, he works in in intelligence and, you know, he's uh he's a necessary personnel and he works in in in defense, but he he has not been paid in, you know, in weeks and weeks and weeks and weeks and weeks. So that's uh that's just one of the examples of >> you know he's not able to do things that he would normally do whether it's investing or buying uh certain things or going on trips or whatever that that's you know it it puts a a crimp on that or it forces him to use credit cards to do that. So that's kind of just one of the examples of of the the issue that it's causing. And so that that general account, it's so important because as you as you know it it's just locked up. That means there's less liquidity out there. Remember the Treasury is still issuing bonds. It's still issuing debt. And so it's the liquidity is coming out of the system, but it's not going back in right now. And that has weighed on it a little bit. >> This episode is brought to you by VANX Rare Earth and Strategic Metals ETF. Ticker symbol REM MX. Rare Earths are the hidden backbone of modern technology and defense, powering everything from smartphones and electric vehicles to fighter jets and wind turbines. Van Ec recognized this early, launching the rare earth and strategic metals ETF, ticker symbol REMX, 15 years ago, well before supply chain security became a global priority. Today, China dominates the production and refining capacity of rare earths, creating real challenges for global supply chain security, as these materials are essential for technological innovation, clean energy, and national security. That's why countries all around the world are racing to build their own supply chains and reduce reliance on China. As this global shift continues, investment in the rare earth ecosystem is growing rapidly. From mining to advanced manufacturing, investors can gain access to this powerful trend through REMX. Visit vanck.com/remx Juliia to learn more. Just to like recap, as you point out, the bank reserves are the lifeblood of the financial system. And when the TGA when the TGA goes up, bank reserves go down, financial conditions tighten. TGA goes down, bank reserves go up, financial conditions ease. Um, and that massive amount just under one trillion um is because of that shutdown effect. So if we let's say we get through the shutdown and um they have some sort of >> I guess a continuing resolution or something. Um what do you think happens? Like what does that mean for the economy right now? Because I know liquidity is super important. So like I guess where are we today? Where could we be headed? How are you thinking about it from more of the economic outlook? >> Yeah, I mean, well, one of the things that people have been they've been concerned about and that uh Powell said is that the those reserves are coming the bank reserves are coming down and part of that is because the TGA like we just talked about. Um it's because the the Treasury is still issuing debt and that that's drawing down reserves. Um as money come out comes out of reserves to to buy that debt. some of it. I mean, some some of that comes out of um foreign entities and hedge funds and all that stuff, but um you know, that's part of it. But when that money comes back in, you know, when the when the government gets up and running and this money starts getting being spent, then those reserves kind of shore up a little bit. The issue that people have been talking about recently, you've you've heard on maybe on Twitter, um, is that people are concerned that we're going to get into a 2019 style uh, lockup in the in the overnight borrowing market. Okay, what do I mean by that? And this is something that I'm still not um not I'm wary of. I'm not not raising alarm bells but making you know making it making people aware of it that this is a possibility and the Fed is well aware of it too. So what am I talking about? Back in 2019 there was there was something called the uh it was it was a repo crisis. It was called the repo crisis. Okay. >> And this is before this is before we had lockdowns in 2020. You'll remember this in 2019 September 2019. Uh the repo markets locked up. What do I mean? Well, the repo markets are where banks and financial firms lend to each other and they do that by having they they have collateral and that collateral is US treasuries. So, if I'm a if I'm a hedge fund and I need, you know, short-term liquidity to meet a margin call or something like that that I know is going to be cleaned up in a day or two, what I might do is instead of selling things, I might take my treasuries and loan them to JP Morgan and JP Morgan gives me cash. So, I actually I'm borrowing cash using those treasuries collateral and I'll pay them an overnight rate for that. And that rate is basically back then in 2019 it was libore plus a spread. Okay. So and that spread would be um you know it it it would be a little bit above the fed funds rate. Okay. Basically just to keep it very simple for everybody. Back then though, what happened is you had this convergence of factors that created a crisis of liquidity and a shortage of dollars. So what happened was the Treasury came out with a larger quarterly refunding announcement like they they were going to need they're going to issue more debt than people expected than banks expected and investors expected. That was number one. Number two is September and all these companies had to make their their tax payments. So they drew down cash reserves and uh and cash balances out of their treasuries to send to the US Treasury. And so that money came out of their accounts which drew down reserves. And then the third thing is you had uh currency issues and overnight overseas you had a demand for dollars that weren't that were not being met. So all these things kind of came together in 2019. Then overnight the the cost to borrow dollars in the United States for overnight spiked all the way up intraday to above 9%. Which was just insane like with the the borrowing rate should have been down you know um a fraction of that and it just it it tripled overnight. And so um and the markets pretty much locked up. The Fed nearly panicked. Well they did panic. They stopped QT like immediately and within almost within hours they turned around and started getting QE meaning they started um they started injecting liquidity into the markets by buying T bills themselves and short-term uh treasuries themselves and that put money into the markets and so people will say well they they were saying well is this QE and then and the Fed said absolutely not this is absolutely not QE it's not QE but if If you go back and you look at the balance sheet of the Fed, you'll see that all along the way from the great financial crisis, they were contracting. So all the the bonds and and mortgage back securities, they were taking off. This is called QT, quantitative tighting. When the Fed sells their their treasuries and mortgage backs into into the market, their balance sheet comes down the assets they hold. And then you get to 2019 and it starts to tick back up again. you get these this little hump in the uh in the this QE style hump of them buying back $400 billion worth of treasuries and then they never sold them back out because they turned around and boom an absolute bazooka of liquidity from the Fed during the the 2020 crisis and they took in another $5 trillion. So that's a long way of saying that they were really worried that that so what happened though back then is that the bank reserves fell to a point that was a percentage of GDP or a percentage of total bank assets that made them not ample anymore. And so now the now that that that measure if you look at GDP is somewhere around 8 to 10% they're they're they start to get nervous right so back then they fell to I think it was 7.7% of GDP today they're under 10%. The bank reserves are under 10% of GDP. So it starts to get them they like they're on notice. They're not nervous yet because it takes a while for the bank reserves to draw down. They're not nervous yet, but they're on notice. So, what was their response? Their response was, "We're stopping QT in December." That's the first step. We're going to stop QT because bank reserves are falling to a level that we're starting to take notice. Not really worried yet. And then at the end of the month in October, you had a few things happen again where you had the the government shut down, the bank reserves fell, dollars were in shortage, and the sofa rate started to tick up again. It didn't take off like it did. So, I'm sorry, let me back up. The sofa rate replaced >> replace the new that's the new overnight rate. Okay, >> so the sofa rate now is the new overright overnight rate. It started to tick up and you're seeing it start to pick up gradually here and it on average per night it's been ticking up. Now, it's come back down a little bit, but it's been ticking up, and that's what's been um concerning people and concerning investors and saying, "Uhoh, are we going to have another 2019 style um meltdown in the credit markets and overnight lending market because of, you know, a shortage of dollars and this and the sofa rate." And so, that's that's kind of what people are looking at now. got up just the uh you know um right at the end of the month there was $50 billion that was borrowed overnight at the end of the month which was like whoa that that's that was not normal and um and I'm going to send you a chart so you can put this up when uh you know we're talking about this but you can see here unless I can actually >> share yeah you can share your screen >> you can see here that getting toward like the end of se September, beginning of October, this is the amount of of uh borrowing that financial firms are doing overnight. They're which is that that repo, right? The repo market where they're they're using their treasuries to or you know to borrow dollars. Well, it started getting a little bit here. You started saying, "Uh oh, it's starting to get active here." And then boom, one night on a Friday night on uh on October 31st, it exploded. And a bunch of this happened in this in the um the afternoon session where it was like a scramble for dollars. So at the same time, you had these this is the spread between the sofur and fed funds or the uh theeer which is the overnight rate. So the blue line. So, but you could see here that the spread exploded too. It was, you know, 36 basis points over what the Fed funds rate was. This is what banks are charging each other and financial firms are charging each other for that that short-term overnight lending. Boom. Exploded up and people are like, uhoh, is there a problem? Is somebody imploding? Is there a crisis? Is there a liquidity crisis? What's going on? Well, I think we've all figured out that the problem is the Treasury General account has, you know, $150 billion sitting in it that has not been put out back in the market and everybody's waiting for the the the government to reopen. Well, it's so it's kind of and that end of month window dressing happens with financial firms because they have leverage ratios they have to meet and they have to make sure that they're that they are um that the statements they put out and the reports they put out are in line with expectations. So sometimes they add they need more dollars in their account and they and and fewer treasuries and so they'll do this where they they're you know back here they'll borrow a whole bunch and because there was so much that was needed well the f the the the ones who had the cash said well you have to pay up for that and so they started lending them at higher rates which is kind of what happened at the end month end and since then it's calmed down. However, do notice that even though it's calmed down, it hasn't come back down to the normal, you know, 10, it hasn't come back down to the normal like right on the Fed funds rate or a little bit less because there you're you you know, you're you're you're using a collateral. So, it's it's like a it's a riskless um offer for for somebody to give you dollars for these treasuries. You you have their treasuries. if they walk away, well, you've got full coverage and you're, you know, with a treasure. You're not going to lose money on that. But you'll notice here that it is still it it's still in this uptick here that it hasn't completely subsided. And I think part of that has to do with the fact that going back to your original question, you've got all this money sitting there idle in this Treasury General account that's not being used. it's fewer dollars out there in the system and that's been um you know that that's kind of been uh it's contracting the liquidity out there. >> This is so fascinating, James, and I love love the charts. Um question for you. You mentioned um >> the Fed and um I guess ending QT. What about doing QE again? Well, so in his statement, um Powell said, "Look, we we realize that the banks are going to start needing liquidity. It's just a natural phenomenon of a of a um an inflationary environment that we live in. GDP rises, nominal GDP rises, and so um you need more reserves in the banks for that velocity of capital that's moving around the system. They know that." And so what he said was we're we understand that we're going to, you know, we we we are at a point where in the not tooistant future, I'm paraphrasing, but this is the essence of it. In the not too distant future, we're going to have to start adding reserves back. Well, everybody said, "Oh my god, that's QE. That's QE. That's QE." It's not quite QE yet. It will be added liquidity, though. And whether they take that back out of the system is very unlikely to me. So in essence, yeah, it's QE, but it's not the fire hose that we saw in either 2008 of a trillion dollars or in 2020 of $5 trillion. It's not that yet. I would say it's more like a steady, it'll start as a trickle and maybe a steady stream of liquidity. You know, you know, billions of dollars a month, but not hundreds of billions. you know, it's going to be a little bit different. Now, that all of that is taken off the table if we have some sort of credit event, which we could see. And the reason we could see that is you just saw today that commercial real estate uh loans, the the default rate is um has spiked to basically an all-time high since the great financial crisis. And I'm not sure if it's even above that now. I saw a headline before I jumped in here, but they're rising rapidly. And so you saw uh two uh basically two auto related companies, financial companies go bust in the last number of weeks. Uh you're seeing >> Yeah. First brands >> default. >> Yeah. >> Yeah. Exactly. And them and uh and the one >> is itricolor. The one down in near the border. That's right. in Texas, you know, subprime lending basically. Um, now what's what's important about that is that you're also seeing subprime defaults on the rise for autos. >> Yeah. I saw a headline before we got on. Yeah. From Bloomberg, right? >> And so that's that's a concern is how strained are consumers, which gets us into the next part of the conversation. all feeds back again to the Fed and there and what Powell was saying in his press conference which was we understand that we basically have a K-shaped economy. Well, what does he mean by that? It means that you know as we get a the recovery in this in this um you know since the 2020 crisis and and since the the Fed has been lowering rates the recovery is K-shaped meaning that you have a demographic that's topheavy say the top 10% that has been doing quite well um even though there's been high inflation and the reason for that is asset inflation. So you've got consumer inflation asset inflation. And the asset inflation mean your the price of your house is going up, the price of your gold is going up, the price of your stocks are going up. You know, you've got this asset inflation where you're benefiting from inflation at a much faster rate than you're then, you know, you're being hurt by the consumer inflation because consumer inflation is not as big of a percentage of your either assets or income. The lower demographic on the other hand has been struggling and they've been struggling to make ends meet because you know you see it every day in in posts on on Instagram or Twitter that how are how am I supposed to make it if I can't pay my rent if I can't pay my job my I can't pay uh gas for my car to get to my job or the insurance on my car or my health insurance or my house insurance or you know or I I can't uh pay for the all the groceries. you're seeing this in the lower demographic has really been struggling and you know that this is true because the the default rate on credit cards is rising with the lower demographic and the younger demographic and uh and you know the usage of credit is rising rapidly and so um that is a concern and so the Fed is trying to weigh this out and say well if we lower rates is that going to help the lower the the lower demographic or Not. How is that going to help them if it if we have stagflation and long-term rates stay high? Because it's not going to lower their credit card rates or their mortgage rates, which means it's not going to lower their uh their rent rate because everything's keyed off the 10-year Treasury. So if the 10-year Treasury remains high because if expectations of inflation remain remain high then you know what happened just like what happened back when Biden was um you know about to end his term and the Fed turned around and lowered rates by 50 basis points. Well, what happened? The 10-year rose by 50 basis points. So why did that happen? Because people said you you're you're lowering rates now and what while inflation is still above 3%, it's three and a half%. You're crazy. You the inflation's going to rage. So the 10-year Treasury yield went higher as people sold 10-year treasuries saying, "I need more protection against inflation. I need a higher yield." And so that's uh that's kind of um what the worry is here. Do I lower rates? Do I inject liquidity? You know, if I'm POW, how do I get out of this? And the answer is he doesn't. He's trapped. He's absolutely trapped. We are we are running massive deficits. The Treasury needs him to lower rates so they can lower the the coupon that they're paying every year on this $ 38 trillion of debt that we've amassed. And you know, and when you do that, it's inflationary. Both those things are inflationary. And so lower rates and continued deficits, which is what we get back to on, you know, this fiscal driven economy that we live in. And so that's kind of uh that's kind of the worry there is that you're you've got this K-shaped recovery where you know if you look at if you look at uh the the consumer and uh and you look at actually the the two different demographics and I posted about this recently and I'll bring up the poster so you can see it but the two different demographics and just how stark it a a a difference it's been for the wealthiest the wealthiest demographic versus the uh the the less wealthy. And here's the so here's the net wealth of the the top 1%. >> Oh wow. >> Since 1990 versus the bottom 50%. You'd say, well bottom 50% hasn't done that bad. Look at how big this white space is here compared to this one. It's done actually pretty well. But remember this is the top 1%. >> Okay? >> So when you do out the math, you know the top 1% here the here are the metrics. So per capita the top 1% per per person went from 1.8 million of net wealth to 15.5 million for a $13.6 million gain. That's an 8x multiple. The bottom 50% remember they're sharing all of that, right? They're sharing all of all the bottom 50% they have 50% of people sharing this. So according to the the demographics and the and the um and the cons and the census from back in 1990 the bottom 50% on average had $5700. By the end of the by the end of 25 2020 25 uh sorry 2025 they had $25,000 for a $19,000 gain. So, they made 4x. They they they've gained 4x in um wealth, half of what the the top 1% did. So, it's just getting worse. And that's really the concern here is that we've got this, you know, separation of wealth that's occurring because of the way that our economy is driven and the debt driven economy that if you don't own assets that you're being left behind, which gets all the way back to everything that we talk about every day and preach on owning gold, owning Bitcoin. I prefer Bitcoin, you know, long term. Um, and this is what I write about in the informationist every week is just how and why you should be owning assets and and explaining and different all the different things that are going on in the economy for people understand that and it's why we launched the Bitcoin Opportunity Fund. You know, David Foley, my partner and I are we are extremely confident. I have I have super high conviction in Bitcoin as an asset and as a base layer for an economy that we need. And so and it can help the the smallest and the and the and the lowest demographic. If you can just put away any money and you can buy a fraction 1/100 millionth of a Bitcoin to start, you know, it's just there's there's something there for you to buy that cannot be debased. And that's why we that's why we did this is that we really believe in this system and in Bitcoin in the in the future. So >> yeah, I want to quote something that you wrote um because you said when you flood the system with dollars through the Fed balance sheet expansion, through TGA draw downs or both, each dollar becomes worth less. Nominal prices rise not because assets are fundamentally more valuable, but because the measuring stick is shrinking. Gold doesn't go up because gold doesn't go up in dollar terms because gold changed the dollar fell. Bitcoin doesn't rally because Bitcoin changed the dollar got debased. Real estate doesn't appreciate because the house improved. The currency deteriorated. This is why I stay positioned in hard assets. Bitcoin, gold, real estate with pricing power. Not because I'm bullish on the economy, but because I'm bearish on the currency. The TJ drawdown is coming. It's mathematically inevitable. the government has to spend. When that happen when it happens, especially if it coincides with the Fed balance sheet expansion, the liquidity wave will be substantial. Don't mistake liquidity for prosperity position for de debasement, not the narrative. If you're like me, you will buy hard assets and hold them forever. I think that's such an interesting point, James, because I think a lot of times people think liquidity, they think it might be a good thing, like prosperity, if you will, but you're talking about like the debasement of the currency, the dollar. >> Yeah. And you know, one of the things that that confuses people is that, you know, I ask any of your normal friends that are not neck deep in this stuff and talk about inflation. I do it all the I say, "Well, what do you think inflation should be? Like, what should the inflation rate be?" And they say, "Well, I think it's about like 2%. That's good." And it makes you because if you don't have 2%, then people will hoard their money and then it'll grind the economy to a halt because they won't spend and buy things. And they've been brainwashed into really truly believing that inflation is normal and not understanding that with technology, we should have deflation. We should be getting everything for for less. >> And wasn't 2% just like a random number like someone came up with? Did it come out of like New Zealand or something? it it happened. Well, some people talk about it it matches the the rate that uh of of gold extraction, but really, you know, the the best explanation I've I've uh studied or heard is that the New Zealand bank came out with it in the '9s and everybody just gravitated to it. Now, why would it be 2%. It's a good question. If inflation is 5%. You're going to feel that because in in just two years your your spending your your purchasing power is down by 10% if your if your wage hasn't kept up you know so in 5 years it's down 25%. Everybody felt it in CO the official reading for inflation during CO is that from 2020 to 2025 you lost 25% of your purchasing power. Now, you and I know that that's probably that's probably understated. >> Wait, can you repeat that one more time? How much purchasing power have we lost >> from 2020 to 2025? You lost 25% of your purchasing power. >> That's how much inflation was. >> Yeah. >> And that's the official number. So now think about it. Let's go back to first principles. Why do we have inflation? Well, we should have deflation. Let's start there with with, you know, when I was a kid, I'm a little bit older than you, but when I was a kid, I used to go into Tower Records or Strawberries to go buy a CD and it was like 12 to $15 for nine or 10 or 11 songs at most if they had a, you know, a second LP on there. And now for that 12 or $15, I've got a phone that $ 122 or $15 a month, I can get millions and millions and millions of songs at my fingertips at any time from any artist I want. Basically, that's deflation. Photos. I used to go and buy, you know, a roll of 20 24 photos on a on a actual piece of film, you know, like a roll of film that you put in a camera and that was it. That's all you got. Then you had to take that film and go down to the They didn't do >> Oh, man. There's so much nostalgia in this. I remember Photoshop. Yeah. >> Yeah. You had to spend money to get them made and get them printed and >> it was fun to open them and flip through them and see how they came out and >> Yeah. You remember that? So, but that's now you can I can take I can take 24 photos in like just holding the button down in, you know, in a second or two. It was like it's crazy. Or all the video you can take with that and the video cameras. You remember the old like home video cameras that people had at weddings and and you know, baby showers. You everybody's got iPhones now or or you know their Samsungs or whatever. That's deflation. You should everything should be going down in price. Why are they going Why is it going up? Well, you could say, "Well, there's more technology in there. It costs more to make the chips." All like, "Yeah, but okay." But if you're making the same technology year after year after year, it should be going down in price. Everything that we that we innovate on should be going down in price and because it's getting better for less. You're you're you're all this technology and innovation makes it easier to make these things for fewer people. le like less you know um labor and materials and all that. But anyways, but on the flip side of that, now let's talk about why we have inflation. Well, we have inflation because we have an expansion of the money supply. Basic terms, the money supply has been expanding at somewhere around 7.1% since 1971. What happened? Well, what happened is we got off the gold standard. We had the Nixon shock who said, "We're officially off the gold standard. can't turn in your US dollars for gold anymore. Sorry, but trust us, you have the full faith of US government that backs this US dollar. And then you got all these countries to agree to it. And so, um, the US dollar is the the the world reserve currency. Okay. So, put that aside. So, now we have this dollar that there's nothing it's attached to anymore. So what do we do? Well, we run deficits. We run deficits and we borrow money. We keep borrowing money every single year. And in doing that and with the way the bank works, you expand the money supply. So the money supply has been expanding at that rate, 7.1% since 1971. That's one measure. You know, I've seen others 6.8, 7.3, somewhere in there. So as the money supply expands and it goes after these goods, it you know um the the goods that are that that are hard assets, you know, things like gold, now Bitcoin, you know, when you have a house, you know, the houses aren't appreciating in value. They're going they're the the dollar that's being bought with is the depreciating in value. There's just more and more and more of them chasing after that that house. So that's kind of what's going on. And why do they need this? Why? So, let's get down to the first principle of why they need this. Well, we need inflation because of that deficit. We've got $38 trillion of debt. So, what if you look at just that and you start pulling it apart, you say, "Well, what's the solution?" Well, the the problem is we'll use big numbers and just round numbers here. They they're changing from year to year, but this is about what we're talking about. The US government spends about $7 trillion a year. The problem is we only take in about $5 trillion in taxes. So it's a ne negative of $2 trillion. All right. So you say, well, we can just cut spending. There's a few problems with that. Number one, structurally it's very difficult to cut because the vast majority of that 7 trillion or of the five trillion that you make, the vast majority of that is taken up with social security, Medicare, Medicaid, and defense spending. And then the last piece is interest on your debt. Okay? So that already takes up all that 5 trillion. And so even if you cut out every single other program, every single other discretionary expense that's not signed into legislation, you're still probably running a deficit. That's number one. Number two, it's just very unp it's unpolitically um like it's it's unpalatable for politicians to cut expenses because they have to serve their demographics. So we're which we're witnessing it right now that the the Democrats want to spend ungodly amounts of money to shore up their demographic. Whether it's an extra trillion dollars for, you know, illegal aliens because they need those votes or it's just wasteful spending for demographics that, you know, that they're going to get either political donations or just their vote from. It's not just the Democrats either. It's both parties. the deficit the the debt rises under both parties. Make that clear. But nobody wants to cut spending. It's political suicide. So the second thing you do and it just doesn't happen. We the cutting doesn't doesn't happen. You saw what happened when when uh when the Doge Commission was created and the spending was cut on just either fraudulent or just ridiculous uh packages and programs. Man, people got violently angry about that because they didn't want their programs cut. So, it's just unpopular politically, so they don't want to do it. Now, they try to trick each other into doing it, but it it it's hard. So, it doesn't happen. The second thing that you could do is you can raise taxes. Well, raising taxes might sound great, but as you've seen in different uh European countries and the Nordic countries, you raise taxes on the rich, you wind up having rich flee your country. And so that's one thing. The second thing that happens though is if you're in a country like America, you have innovation that gets stifled because you have companies that stop spending on research and development, expanding product, you know, productive uh product lines or um you know, attractive product lines um profitable. They that means they're spending less money. They're they're hiring fewer people uh and you know, their their productivity goes down. And ultimately what happens is you raise rates, you get to a a you know a level that you're you're you're receiving in your tax base and then that level kind of starts to to turn over though because even though your rates are higher, you're you're charging higher rates on productivity that's declining and so you get into a worse spot. It's not a it's not a good thing to have raise your taxes on u on companies and small companies especially. Um, so you wind up in a worse spot. And the third thing you can do is you could just revalue your debt. You can default, which is what we saw Germany made um, you know, Greece do basically. And you've seen countries do this where they, you know, you've seen emerging markets do this all the time where they they just default on their debt. Well, when you do that though, that means that you're not able to issue debt in your own currency going forward. You're in the penalty box, at least for a while. And so, um, if you're a country that issues debt that's denominated in your own currency, you would never default. You would never hard default. What would you do instead? You just print money and buy your own debt. We're watching Japan do it. Ad nauseium. They're the largest owner of their own debt, the Japanese central bank. And so that's what you do is what you wind up doing is you print money and you debase the currency. Now what happens when you print money and you expand the money supply? Well, your your GDP goes up nominally. So it just goes up in more dollars. So you issue debt in 2025 and you know in 2030 that debt if or let's say you issue debt in 2020 right and in 2025 you're using dollars that are 25% cheaper to pay down that debt. So there's more dollars out there. So by debasing the currency, you can pay down the debt easier or manage it easier so it does it's not rising so rapidly on you. So that's kind of that's kind of the the ma that's that's the great game plan that they have. And so when you go back to your your question of why is there inflation? There's inflation because it's necessary. It's necessary to keep this whole system going. And you know, we live in a system of debt, borrowing, and leverage, and we've got to keep it going. And that's just the the bottom line. And it's going to keep going until it doesn't. >> Yeah. James, um, it's always great having you on. Let me ask you one final question. Um, and there I wish I had more time because I have even more questions for you. What is the risk for you right now that's maybe keeping you up at night? doesn't have to actually be keeping you up at night, but it's not getting up enough attention. >> Well, the one that is starting to get a little bit more attention is look, I think the AI is going to be transformative. I think it's going to be massive. I think it's going to be um it's it's going to be tremendous and it's it's going to evolve into something that we can't even imagine right now. I do think that I do think that these companies that are that are uh involved in in the AI um you know revolution uh they've gotten they they're they've their their prices in their stocks have risen so rapidly and so much that it concerns me that it's gotten ahead of itself a little bit. Do I think it's going to crash and do I think that it's it's all fluff and it's just, you know, it's not real and it's a, you know, like a it's like a 1999 tech bubble. No, I don't think it's that. I think it's more that it might have it might be a little bit ahead of itself. And that concerns me that if there's a draw down, it'll just take everything down with it, at least for a small period of time, a short period of time. Um, you know, I don't worry. And um even though the economy is K-shaped right now, you know, even you still you go out and restaurants are full, you know, people are going out to concerts, they're going out to games, they're going out to sporting events. It's not like it's stopping. You know, you're not you're not feeling like you did back in um the great financial crisis uh when when the economy kind of ground to a halt. It was almost depression. You're not feeling that. So, I'm not worried about that quite yet. I'm more worried that we just have some sort of shock in the system and that the stuff has gotten ahead of itself a little bit. Now, again, ultimately, I think it's going to be it's transformative and there's a there all these companies should do very well. But the reason that that it concerns me is that, you know, you've got a handful of companies that make up about a third of the S&P. So, there's two things there. If you have a cascading event where all of these are being sold off, what happens is because of ETFs, you have so many ETFs that people own rather than the individual stocks, they just start selling ETFs and then the whole like everything's drawn down with it. And so you kind of have a an unexpected market shock from that. Do I think it's going to happen? No, I don't. I don't. I think it's, you know, a coin flip on whether or not we have a draw down. And it's a lower probability that we have a a massive draw down. I mean, like I'm not talking about 25 30%. That's massive. I wouldn't I'm not expecting that. However, there's a risk of that out there, I think. And because of that, because of the the way that the market is structured, with all the leverage that we have that we talked about and with the the structure of how these these companies are owned through ETFs, there is a possibility that we have that we have a sharp draw down. And when that happens, everything correlates to one. Doesn't matter what you own. Even if you own gold, it's going to it's going to go down with it because investment managers sell what they can, not what they want to. And that ends up being whatever is on in front of them. And so um I my hedge fund while we you know while the Bitcoin opportunity fund remains com fully exposed to Bitcoin the Bitcoin treasury companies and other stuff we also have uh some insurance on the portfolio just in case something there's there's some sort of market shock because we haven't seen one in a while. Um, and I think that some of the some of the the new entrance into this world, they have not seen what I'm talking about in a 2008, 2001, 1999, 1998, you know, that style 1989, 1987. They haven't seen these draw downs that happen so quickly. So, um, but, uh, I still remain super optimistic and if that does happen, I think it's a great opportunity because nothing will stop the the reality of the way the system is structured and the need for con just constant liquidity, expansion of liquidity and money supply and debasement of currency, which means own assets, they're just going to continue going up. James Lavish, founder and co-managing partner at the Bitcoin Opportunity Fund, director at Strive and author of the informationist on Substack. So wonderful having you back on the show. Really appreciate you sharing all of your insights, your knowledge, your wisdom, helping us all learn and get better and explore these ideas. Really appreciate you taking the time. Thanks again, James. >> Well, it's great to be here, Julia. I look forward to the next time. Thank you. >> Likewise. We'll have to do this in 2026 and catch up. Thanks again. And here.