Live: Forward Guidance | DAS London 2025 | Day 3 | Main
Summary
Global Liquidity Cycle: Michael Howell emphasized the importance of understanding global liquidity flows for asset allocation, noting that we are nearing the top of a strong liquidity cycle, with potential shifts due to central bank actions.
Monetary Debasement Trend: The discussion highlighted the ongoing trend of monetary debasement, with governments debasing paper money, leading to increased interest in assets like gold and Bitcoin as hedges against inflation.
US Economic Outlook: Quinn Thompson suggested that the US economy might be reaccelerating, driven by significant liquidity injections and strategic investments, despite previous recession fears.
Crypto Market Dynamics: The podcast explored the relationship between global liquidity and Bitcoin, with Howell noting that global liquidity is a major driver of Bitcoin's price movements, alongside risk appetite and gold prices.
China's Financial Strategy: China's recent liquidity injections were discussed as a response to potential threats from stablecoins, with a focus on devaluing the yuan against real assets like gold to manage their debt problem.
European Economic Challenges: The fragmented bond markets and fiscal challenges in Europe were highlighted, with a lack of a unified safe asset posing significant issues for the Eurozone.
Investment Opportunities: The conversation underscored the growing interest in real assets as hedges against monetary inflation, with gold and potentially Bitcoin being key vehicles for preserving wealth in the current economic climate.
Historical Context: Howell noted the uniqueness of the current economic environment, characterized by unprecedented low interest rates and monetary policies, drawing parallels to historical periods of monetary debasement.
Transcript
All right, good morning everybody. Love to see you all here bright and early. Uh my name is Felix. I'm the host of the Ford Guidance podcast at Block Works, which is a podcast that focuses on the intersection of macro and crypto. So that will be the conversation of this morning. Excited to be joined today by Quinn Thompson, CEO and founder of Leer Capital and Michael Howell from Crossber Capital and the maven of all things liquidity and how that works into the world. So excited to have you both here. >> Great to be here. Yeah, it's a privilege to be to have you, Michael, because when when it's Tyler with us, they put us in the furthest back room because it's such a cancel risk when we do this live. So, >> you got upgraded. >> I have to say I'm a I'm a great fan of full guidance and particularly the Friday rap. So, I think everyone's got to tune into that. It's really good with these guys and Tyler too. >> Appreciate that a lot. Um, Michael, for those that aren't familiar for of your work here that are tuned in and listening, would love to just get a bit of background on how do you what is your macro framework? What how do you think about global liquidity and what are some of these key drivers that you look like at and and why has that taken such a hold of you know you have quite a following now these days especially in the crypto world because of those marginal drivers of liquidity so what does that framework look like >> okay maybe let me let me start at the beginning I uh originated at Salomon Brothers the American investment bank um Salon Brothers for those of you who don't know was the world's biggest bond trader worldwide uh we had uh you know big proprietary desks uh traded bonds all over the world and really understanding the fixed income markets kind of meant understanding credit flows, money flows, capital flows worldwide. So I was on the research side and what we did is put into place a a framework for understanding those money flows worldwide and that's pretty much what I've run with ever since. It's really understanding capital markets means understanding where the money is, where the money is flowing and that's pretty much what we do. So we uh came up with this concept of of global liquidity. Uh that's what we monitor. We now um at crossboarder basically monitor 90 financial systems worldwide on a monthly and sometimes a weekly basis and we come up with aggregates and uh measures of these global liquidity flows and they they I would say they work. I mean I suppose I wouldn't be here if they didn't but uh they they they sort of work. So really understanding uh that dynamic is critical for understanding asset allocation worldwide. uh you know what drives markets is not textbooks, it's money flow. >> And so where where are we in the global liquidity cycle? What's going on? >> Well, I mean the the short answer is that we're in a strong upwave upwave and we're probably nearing the top, okay, of the cycle. And I'm going to stress that we've got a cycle and there's a trend. And the trend is probably a lot more powerful. And that trend which I think courtesy of JP Morgan have been called the the sort of monetary debasement trade uh that everyone is now jumping on. Uh and that is real. Um you know I mean a colleague of mine was at the LME conference uh this week uh talking to a scrap metal dealer a precious metal scrap metal dealer who's been in the business 35 years. is he said normally with a spike in gold bullion prices that we've just seen you will see a lot of new supply coming or supply coming from secondhand gold he said I've seen none no one is trading in their gold so what is going on is people are understanding that uh governments thank you very much are debasing paper money and that's the trend that we're looking at and that that is going to that's eye wateringly scary okay the other thing is a cycle and you've got a cycle on top of that trend we're probably coming towards the end of that cycle I I would imagine it may be months or maybe a couple of quarters away. And we got to be alert to the fact that it may be coming down. And one of the reasons that it could be coming down is probably two or three things. One is that central banks get scared. Okay, listen to what Jay Pal was saying last night at the Fed. Uh he was saying, look, we're getting now tensions in repo markets. Uh liquidity is starting to see strains in the US system and therefore we're going to change our policy maybe a tad. uh but there's only so much he can do and one of the reasons you're getting a pickup is that maybe the US real economy is starting to accelerate now simply because there's been so much money uh thrown at it by the administration and by capex in AI etc. So we're somewhere near the top of the cycle but the cycle's been with us uh you know bullish cycle since October of 22. It's interesting thing about the the liquidity cycle starting to top out because we were talking backstage when you're mentioning how you kind of feel like we actually had this recession. It's interesting there's it feels like you know non-stop since 2021 there's been calls for recession. We've had moments where 100% of e economists were calling for a recession and and it didn't happen. Um and a lot of that is characterized by this K-shaped economy that a lot of people have been talking about. But you're of the mind that that's already kind of happened and we're actually coming out of the trough and into a reaceleration. What does what does that look like? Yeah, earlier in the year, uh, Q1 when we we were talking about it pretty bearishly on on the policies of the Trump administration and what those feed through into the economy, cutting immigration off, increasing tariffs, and reducing trade. Uh, serious growth headwinds, cyclical growth headwinds, because by the time we're a year from now, those base effects already rolled off. And that was at a time when in 2024 really going into the the presidential election in November, every bell and whistle was was utilized to keep things afloat. And the data is now showing through the BLS revisions and other labor uh and backdated things that we really have been in a recession in the US, at least a main street, maybe not the AI sector, but a main street recession since early 24. And we're now 7 months past these dramatic uh policy changes in in the US and the the market boogeyman has not uh persisted or reared its head again. And one of the fascinating things is why it's so bifurcated in the views is because when gold does what gold has been doing this this is a crisis type signal. It's a economic uh calam like huge problem and what we don't see from a nominal basis because all asset prices are going up is that it has been smoothed over by uh manipulation of of government debt issuance uh Fed uh pressure and and and liquidity and so we've actually you know bolstered things and so when you look across the landscape now there's a lot of signals that The economy is reacelerating in the US going into the midterms of 2026. You can't have Main Street in a recession if if you're looking to get reelected as an incumbent. And every single asset price is at all-time highs. Stocks, gold, bond prices are at, you know, 12-month highs, yields 12-month lows, mortgage rates are at three-year lows in the US. And it's very difficult to fight that from, you know, a next three six months perspective because especially in an environment where 50% plus of the the consumer spending is is driven by wealthy asset owners. And so I think um we are entering this period where I' I've been very uh you know open with my critiques of different policies but we they have sort of threaded this needle in the US that that you know sort of bodess well for them. Inflation is way higher than 3% and there's a cost to it long term socially and economically but uh from a nominal basis it's been smooth. Michael, what does that lead lag relationship look like between a classic business cycle characterized by GDP growth that Quinn was just mentioning and your global liquidity cycle? Do they do they lead? Do they lag? Are there any times where they're coincident? Like is it normal to see this dynamic where it feels like liquidity is topping out, but perhaps economic growth is actually just starting to reacelerate? >> Yeah, absolutely. I mean, they're they're completely out of sync. Um I mean, I never use the economic cycle for asset allocation. I think it's it's never worked for me. uh I don't think you know that really matters GDP doesn't matter that much for markets what really matters is money flow and uh you know if money is in the real economy it's not in financial markets uh if it's in financial markets it's not really in the real economy and what I'm interested in is whether the money is in financial markets uh and therefore if you get a strong economy or even a pickup in inflation I can kind of see that as a negative in terms of the outlook for asset markets uh so in that regard liquidity is a leading factor it tends the lead economies by about 12 15 months. Why, you know, which is why I think Quinn's point about maybe a US economy accelerating into into 26 uh seems to me pretty plausible because liquidity has been building up for quite a long time now. Uh so why doesn't it spill over? It certainly should be. Maybe that's what we're seeing right now. >> And and that's to just touch on that. It's it's why there's such uh disagreement or unsettlement across the financial markets and industry with central banks actions because the the central banks were created to stabilize the economic cycles and come in when things are too hot and suppress when things are too low and boost. We're seeing a world where they're super pro, they're just pro, it's just boost at all times and that's what's causing this inequality. >> Yeah. To that point, Michael, you mentioned earlier that there is a there was a speech yesterday from Fed Chair Jay Powell where he mentioned that they're likely to begin to end quantitative tightening and that there are some of these hiccups in the funding markets. And it looks like, yeah, they're going to pretty quickly shift to to no more QT. It's it's interesting to think about shifting into to the perspective of how crypto market participants think about all this liquidity stuff. last major crypto cycle back in 2020 2021 everybody started to understand the game of QE monetary QE and I was like all right well you know we're doing this we're we're doing a ton of quantitative easing that's obviously bullish for markets and ever since then there's been this this obsession with okay we need the QE so that we can go higher but the fact is that we're we've actually been in the complete opposite we've been in QT and we've had Bitcoin all-time highs multiple multiple times throughout that time so I'm just curious if you could unpack like how do you think about you know you've talked a lot about treasury QE as a different function of that and so when you look at some of these drivers of liquidity of funding markets what does that tell you versus that previous cycle where the obsession was for monetary QE it's a great point I think that the first thing to say is there has not been QT in the US despite the headlines I mean that that's very clear uh you know if people believe that the Fed has been taking liquidity out of the system you know dream on it hasn't it's been injecting a lot through various uh uh you know underhand means let's say but there's very clearly been a a big liquidity uplift in the US over the last two or three years. Uh that's for sure. It may well be as I alluded to coming to an end because they kind of run out of road of these sort of secret uh you know packages to put in. And what you're getting now is maybe a shift into what I've dubbed Treasury QE and that is effectively shifting issuance uh from the calendar from the long end of the market to the short end through Treasury bills. But I think the idea that the administration has is what they're going to do is use that to direct it into the real economy. So rather than sort of spraying the hose everywhere, they're going to just direct it through the bill market uh into or funded by the bill market into the real economy in terms of defense procurement maybe uh you more capex in terms of AI uh buying strategic resources or strategic states all these sort of factors. So I think there's a difference in complexion. That transition may worry the financial markets because it means that bank reserves could be depleted and that's what Jay Pal was talking about last night when he was alluding to tensions in the repo markets. So you got to watch that. I mean there's no question about that. Okay. But I think the other thing I'd say from a general perspective to answer Felix's question, we did a deep dive into what drives crypto and we did an analysis uh Cisco analysis of looking at data, weekly data from around the end of 2016 onwards. So you've got quite a long sample there. And what we found was that the driver the main driver of Bitcoin is global liquidity. about 50% of the of the systematic influences on Bitcoin come through global liquidity. So that's why everyone's very interested in QE or QT or these sort of factors. Now what I stress is global because you've also got another huge player out there, China, which I'll come on to. The other two factors that are kind of interesting are that around 25% of the movement in Bitcoin is kind of risk appetite elements. So you might associate that with NASDAQ or tech stocks or whatever. So if tech goes up, Bitcoin, crypto will go up. Uh if NASDAQ and tech go down, then they're going to take a hit uh that maybe other monetary inflation hedges like gold wouldn't necessarily. And then the third element, which is another about 25%, is the gold price. Now if you look at the gold price and the relationship, it's really quite interesting from a statistical point of view because what you find is that Bitcoin and gold are negatively correlated in the short term. So in other words, if Bitcoin goes up, gold tends to languish or come down and if gold goes up, Bitcoin seems to languish or go down. You know, does that sound familiar? But in the long term, they catch up. So in other words, what you'd expect to see now is the big spike in gold is going to elicit another move in Bitcoin, positive one. Okay, so you've got these three moving parts which make it kind of a little bit more complicated but those are the things you got to watch. Now I said that this is a global phenomenon. So you got to think about global and China uh is easing uh massively right now. So if you look at what the PBOC is doing, um PBOC has injected in the last 12 months about1 trillion US dollars, so about 8 uh trillion yuan into their financial markets for the first time in a long time. So they're starting to get out of uh you know this uh uh this sort of tight monetary regime that they've been that they've basically been uh uh they've imposed on themselves uh over the last four or five years. That is a big change evidence that look at the Shanghai stock market. Uh look at the bond market in China. Yields are rising, term premier rising. It's it's basically there. And the reason which I'll allude to maybe later is I think they perceive a whopping great threat to the integrity of the Chinese system from stable coin. Quinn, I'm curious. You've been doing a lot of work on looking at gold as the signal, as the canary in the coal mine right now because Bitcoin could be that, but on a short term, you know, you got these leverage wash outs that we just had over the weekend, which makes the chart just look brutal on a short-term basis, but eventually it gets there. But gold has been quite the signal. And you know, we talked about this earlier about how the debasement trade, if you look at the Dixie, if you look at the US dollar, it's actually been quite flat in recent months, even though this idea of the debasement trade has been taken hold. I know you've been looking a lot at gold in terms of comparing it to other asset classes in terms of a relative ratio. How do you think about that analysis? >> Yeah, there's a there's a a high and growing level of angst and anxiety in crypto right now amongst investors for two reasons. one, it's incredibly hard if you've been in the industry to uh part ways with with five to 10 year established biases around this four-year cycle that most still prescribe to and believe in. And uh really since January 2024 when the ETFs put Bitcoin on the global stage, it has become a completely different asset class that that is unrecognizable from what it was before in many characteristics. Max draw down, volatility profile, uh you know, max max uh upside within a short amount of time. Uh but many are still clinging to this four-year cycle, which I I believe strongly. My highest conviction view is that that is over. Um, and secondly is so we're right at the tail end of when when the normal four-year cycle would end. So people are very angsty. And the second is oh my god, you know, after this liquidation on Friday, Bitcoin just touched uh the price that it was at in December of 2024. You know, this this was a period of of peak peak peak exuberance. Uh Trump's going to do everything strategic Bitcoin reserve, etc. Um, and we're still there 10 months later, despite gold having done plus 50% year to date. And um, it's it's an an incredible amount of consolidation for an asset that is rather explosive. Uh, and part of that has been the distribution of long-term holders into this level. And I posit that we will catch up to gold. It will start very soon. And the move that is about to come in in Bitcoin and and crypto broadly will resemble a November 2024 and an October 2023 uh type of move. And and this liquidation reminded me of August 17th, 2023. I remember because I was I was getting off a plane to in Greece on vacation and and checked and it was a similar liquidation event and I was extremely bullish on the macro and and super excited about it. And it after that event, we doubled in four months. And I I I think it it tends to be like that where where you get the the shakeout before the big move. Um but but truly the amount of liquidity I think to Michael's point about what drives uh Bitcoin's price being this global liquidity everybody has different methods of looking at it and some people look at the Fed facilities the RP you know interest rates uh balance sheet these things but it's very important to incorporate some level of marketbased uh measure into that because when you have stock prices globally at all-time highs and moving higher, you have bonds very supportive, everybody's extremely flush with cash. >> Uh it's very difficult to break that upward momentum, particularly if you remember in 2021, uh what what ended things was the removal of the punch bowl >> flat out. We you know that bubble was a bubble um because the Fed was stimulating far too long into the economic recovery. And in this case, we're moving into a situation where things feel very weird. Uh asset prices are very expensive relative to historical norms, but we are moving closer and deeper towards and into the punch bowl uh before May May of 2026 when Paul gets replaced. So it it truly is unprecedented times. >> Yeah. Um Michael, I want to double click on something you mentioned about stable coins. you that that was quite the the quick little comment you had there, but I think it's really important. Curious, how do you think about you mentioned that China sees it as a systemic risk to their to their uh sovereignty in some ways? And then there's also this this dynamic of stable coins in terms of can it be that next funding mechanism for just the amount of debt that we need to issue. You mentioned earlier about how one of the key strategies is is tilting a lot of treasury issuance towards bills. Stable coins are collateralized by treasury bills. How does that whole dynamic work and where do you think that goes? >> Yeah, great great question. Um, just to maybe before I answer that, just to pick up on a something that Quinn said, I think another way to think about this whole, you know, regime of where Bitcoin and crypto fit in, uh, is that we're in the commodity phase of the cycle, the investment cycle right now. That's that's what's really moving. Um, and that's synonymous with, you know, getting towards the peak. So, I think all these things are kind of consistent. But where does Bitcoin fit in? I would say it's probably reflects about one-third tech stock and twothirds commodity. So, you know, you're going to do better in Bitcoin than in tech if that's where your investment focus is. Um, so think of it in those terms. Now, to come back to the stable walking question, uh, I wrote a book about five years ago called Capital Wars, which was trying to make the point that, you know, whatever the skirmish is on trade, what really matters, the big battleground is capital, control of the world's capital and capital flow. And it's really between obviously you know no surprises here uh America and China and it's really about the development of a financial system uh which is really going to effectively collateralize money uh in those two regimes. I think the US is moving more and more towards some sort of digital collateral in some form whether that's stable coin repackaging treasuries through stablecoin or whatever but I think that's that's the move. So digital uh is really ultimately collateralizing the dollar system. What China is doing is collaterizing its system through gold and I think that's the alternative. you got these these two uh you know these two very different financial systems and what has really spooked China in my view I mean I may be completely wrong is stablecoin the Europeans flag this by saying you know this is a great threat to our our monetary system because Europeans can basically uh you know disintermediate out of euros uh we lose control and they go into the dollar system but that's a big threat for China so if you're a Chinese exporter accumulating cash you've got a choice You can currently put your money in the western banking system. Well, kind of good luck there because you might get it sequestrated like the Russians did. Or you give it to domestic Chinese banks. Well, good luck there. If you're like Jack Mar and fall out of out of favor with the uh PRC, then you've got a problem. So, why not put it into stable coin, which presumably has got some anonymity and you've got some protection there. So, that may be a huge threat to the Chinese, the integrity of the Chinese financial system. they could see capital flight through that mechanism. And the one thing that the Chinese are already scared about is capital flight and losing control. So I think this has urged them into trying to make their financial system more robust all of a sudden. And this explains why you've had this big surge of liquidity going into the markets. They want to try and get rid of their debt problem. If you look at the parallels through history, if you've got a big amount of debt, the only way you get out of that is not by defaulting because you can't because that is the collateral in the financial system. You've got to devalue paper money. And that's what they're trying to do. So my view has been that they're trying to devalue the yuan against real assets. Read devalue against gold. So the yuan gold price is really driving the world gold market and that's what we've got to start thinking about. Now what China has done so far is to put a trillion dollars equivalent into their monetary system to draw the parallel. America did two and a half after the GFC. So China's got to do something similar to that. Japan is a role model. Japan did the same 15 years earlier. Uh and look at you know what Japan has done. Devalued the yen massively. But it's not against the greenback that we got we got to judge the yuan. It's against the gold price. And that's really the key thing to think. And if you extrapolate long term, I mean, we can get on to the mechanics later, but I my view is that you've got two big forces now that are effectively pushing up or devaluing paper money and pushing up gold and crypto. One is China and one is the US. And if you do some extrapolations by saying that the real gold value of US debt uh is going to remain constant from here, the skyrocketing amount of debt tells you that sometime in the mid30s, gold is going to test over $10,000 an ounce. And by 2050, long after me, it'll be $25,000 an ounce. So think what Bitcoin could do in that uh in that time frame. that that actually I hadn't heard your full explanation of the China concern about stable coins but it tracks really well uh dating back to 2021 they b they banned Bitcoin mining and and some of this in this room might be aware of that but the big thing there was it was the the most efficient and easiest way for capital flight to to convert yuan to Bitcoin and instantly and send it globally without going through their banking system just invest uh capital on the ground into into Bitcoin mining equipment and there you have it and and it tracks very very well. They're very aware of that and I can totally see it. >> It's so interesting. It feels like there's there's two levels to this US China thing. There's the tariffs versus rare metals constraint and fight and then there's this one that we just characterized which is gold and stable coins Bitcoin. Do you guys see it that same way where there's just like there's the the the traditional version of that which is yeah terrace metals and then this new one which is what are we collateralizing the system with? >> Yeah, I think so. I mean the the big issue for me is the capital war element. Uh that's the that's where you've got most of the that's where most of the fighting will take place. And I think in terms of the trade war, I mean they'll do a deal, it'll be cosmetic uh and ultimately there'll be some rejigging of supply chains for sure, but ultimately it's about control of capital. I completely agree. We're we are in a conflict globally. I mean there's clearly it's becoming multipolar and and these axes of power and um we're just in in a world where the the developed world's uh appetite for for human death and loss of life is is diminishing. Um maybe that's a one good thing of social media. many many bad things of social media but uh it it is it has exposed some of the the real catastrophes of of physical conflict but it is so true that everything globally right now is a financial >> capital war it is it is severely the case >> yeah so of course we are talking about all of this in London in Europe we haven't talked about where Europe sits in all of this yet um it's an interesting situation you have of course this this union where you have a common currency But then fragmented bond markets. A lot of these bond markets, their long bonds have been selling off like mad. We've seen we've seen guilt sell off. Um France is struggling pretty hard right now. And then you see you see the fallout of that from the political spectrum as well where you have a lot of political instability. Um Michael, you're this is you know you're from London. You you know Europe very well. How do you think about where Europe fits into all of that with the with the context of this common currency but fragmented bond markets? Well, the short answer is badly. I mean, there's there's no question that it's that it looks terrible. Uh, you know, I think the world is, you know, one has to go back to uh, you know, looking at George Orwell in 1984 and sort of thinking, you know, how prophetic he was. And in that novel, uh, you'll note that Britain was airirstrip one. So, it was just the landing the landing ground for uh, OAN, which is basically America, Australia, etc. U, uh, in terms of their attacks on uh, Europe. Now, um the fiscal situation here is dire. Uh there's not much they can do about it really without reneging on welfare promises. Uh you know, the deficit is clearly escalating. They can't get it down. Uh we're overt taxed. We're in the wrong part of the lera curve. Uh and the only thing they can do is allow sterling to be crunched and that's what's inevitably going to happen. Um if you look at Europe, I mean Europe has a big problem and the issue is that Europe uh tends to extend its frontier in terms of institutional frontier through crisis. Um, and what they need is a crisis so they can basically have a European bond market. In other words, with a with a Euro denominated bond. And the problem they've got at the moment is that there's no safe asset in the Euro system apart from the German Bund. And that means if you get a crisis, everyone goes into the Bund and despite Germany's problem, it's still the, you know, it's still the cleanest short in the European laundry. And so what happens is that bond spreads blow out. So there's absolutely no way you could get a sort of a a stable coin really being issued in Europe while you've got that fragmented bond market. >> Anything Yeah, I think uh you know, one thing us Americans always get crap for is is maybe saying it like it is a little more more bluntly and um I think the the problems that really developed nations globally are facing population decline and and how rapidly that's being offset with immigration uh you know inflation problems, wealth inequality, they're really quite the same when you look at you know UK, US, Europe and uh you know to Trump's credit is is he just he has kind of hit it on the head and said it how it is. And the the thing that's really carried the US through this economic malaise since 2024 globally is our AI industry and and having the MAG7 attract the the global capital flows which if you look at a longdated chart of of um dating back you know 100 years of uh US equity premium to global equity indices and and then US dollar relative to global fiat currencies they're almost one to one correlated you know US equities are really levered US dollars and having that uh kind of global you know attractive asset in in mag 7 has really supported the economy and dollar but um it it's it's bleeer I think all fiat is bad and but uh >> yeah well I mean it's so interesting too just that yeah that that bleakness you can you can feel it in society right now this this this chase for the the basement trade suddenly everybody's talking about there's this this this this panic you can feel within people where it's like I need to be invested in something. I need to be invested in something fixed and real like gold, like Bitcoin, like you know, even collectibles. You know, Pokemon cards are going crazy these days. It's just like anything that they can't print. And Michael, you actually had some really interesting research a couple weeks ago where you were doing some regression analysis on on gold versus fertility rates and how that that crossorrelates with housing affordability and and household formation. And it's I would love to just hear your thoughts. You know, we talk so much about market price action and okay, we need to own Bitcoin and and gold to have the life raft out of here throughout this bleakness, but walk me through like the societal impacts of that. Yeah. Well, that was a sort of somewhat tongue-in-cheek analysis, but it was basically just working out the uh the sort of correlation or negative correlation between a rising gold price and falling fertility rates. And that's what you've seen across the West. And generally the connection is that the house price to income ratio tends to spike upwards when you've got a lot of liquidity. When you've got monetary debasement, when central banks are printing lots of money, house prices, which are clearly a hedge against monetary inflation, tend to go up a lot faster than incomes. So the house price income ratio goes up. And what that means is that housing is really unaffordable to younger generations. I mean, all generations, but particularly younger generations. And if you can't afford housing, uh, then you can't create families. And therefore the birth rates tend to fall off and then you get labor shortage problems and then the politicians say well okay let's start uh getting more immigration into these economies to basically boost the workforce and then you get a sort of a vicious circle downwards because then you get essentially uh you know wages cut of existing workers you get you know more and more social problems uh etc etc uh and you end up with sort of low wage economies and very low productivity low wage economies uh you know welcome to Europe What do you think about that? >> Yeah, we we talked to Felix and I were at a we're at a a event in DC and and um yeah, you can basically track this to household formation in the US. It's it's the same thing everywhere, but um maybe Europe and Japan are more advanced in their in their decline. Uh but uh in the US it's it's almost below two average household size. And it's we've never had a time where the first-time home buyers were were this old in their late 30s. We've never had a time where uh 50% of of of young adults are supported financially by their parents or over one-third of of first-time home buyers more down payment is is supplied by their parents. And it's basically this intergenerational wealth transfer that uh needs to occur but doesn't fix the inequality. So, while we're uh you know, market practitioners uh trying to determine and pattern recognize the best ways to financially profit off these trends and and and navigate the the capital markets um socially and politically. Uh these are just more forms of kicking the can and ultimately there will be repercussions. But in many cases, like any politician's tenure, uh if you kick the can long enough, it's not my problem. >> Yeah. And I think I mean the irony is if you want to buy some real estate, residential real estate, buy it in China because if you think about what's going on, I mean the real problem that the West have is basically retirement and aging aging populations. And so the cost Medicare cost of that is awesome. So that's what's forcing the fiscal deficits up and up and why they've got to monetize. But China doesn't have that problem. Uh China doesn't have a social security system. Everyone says it should do. But what it has is people tend to fall back on real estate. So they basically put their wealth in real estate and that is their ultimately their pension funds. Now what we know in China is that that's underwater. Um so what they've got to do is to if they want to protect uh society in terms of long-term welfare for retirement, they've got to get those real estate values up. And I would suggest that's maybe what they're thinking about right now with this big monetization. So ultimately what you'd expect to see is if the gold price goes up, you're going to get asset prices in China lifting off and already the stock market is zooming. >> Um, final question here just as we wrap up, Michael, but uh, in in your sage wisdom compared to us two young bucks, I would just love to hear everything we talked about. How unique is this moment? you know, is this something that, you know, is is is a regular multi-deade cycle or thing or is there something truly unique about today this this panic for the the debasement trade chase that we're seeing in the world today? How unique is that? >> I think it's very unique. I mean, let let me uh let me sort of put that in context. I mean, when I was at Solomon Brothers, sort of the the the Bible that everyone used to read was a book uh this is a one for if you can't get to sleep, read it, but it was called a history of interest rates by Sydney Homer. And what that looked at was 4,000 years of interest rate history. Uh nowhere in those pages do you ever read zero interest rates. So that is how unusual the current situation is and or the situation in the last 10 years has been. uh we've never had zero interest rates and ultimately the solution uh of governments to any crisis is basically to throw money at it and to cut interest rates as uh rapidly as they can. Uh they can't raise taxation anymore. They can't really curtail government spending. So what they've got to do is effectively monetize. So this is a unique situation. It's not, you know, just in my lifetime it's unusual. It's unusual in 4,000 years of history. But if you go back and look at those pages of 4,000 years, you'll see that in the Roman Empire, there was lots of debasement as well. And what you need is monetary inflation hedges. And gold and crypto are our vehicles for monetary inflation hedging. >> Beautiful. >> In short, it's the reason there's only one currency that has persisted through time, and that's gold. We've >> And maybe we'll get a second one now. >> Yeah, we very >> don't trust politicians. >> All right, that's all the time we have. Michael Quinn, really great to have you here. Thanks everybody for listening. Give them a round. [Applause]
Live: Forward Guidance | DAS London 2025 | Day 3 | Main
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All right, good morning everybody. Love to see you all here bright and early. Uh my name is Felix. I'm the host of the Ford Guidance podcast at Block Works, which is a podcast that focuses on the intersection of macro and crypto. So that will be the conversation of this morning. Excited to be joined today by Quinn Thompson, CEO and founder of Leer Capital and Michael Howell from Crossber Capital and the maven of all things liquidity and how that works into the world. So excited to have you both here. >> Great to be here. Yeah, it's a privilege to be to have you, Michael, because when when it's Tyler with us, they put us in the furthest back room because it's such a cancel risk when we do this live. So, >> you got upgraded. >> I have to say I'm a I'm a great fan of full guidance and particularly the Friday rap. So, I think everyone's got to tune into that. It's really good with these guys and Tyler too. >> Appreciate that a lot. Um, Michael, for those that aren't familiar for of your work here that are tuned in and listening, would love to just get a bit of background on how do you what is your macro framework? What how do you think about global liquidity and what are some of these key drivers that you look like at and and why has that taken such a hold of you know you have quite a following now these days especially in the crypto world because of those marginal drivers of liquidity so what does that framework look like >> okay maybe let me let me start at the beginning I uh originated at Salomon Brothers the American investment bank um Salon Brothers for those of you who don't know was the world's biggest bond trader worldwide uh we had uh you know big proprietary desks uh traded bonds all over the world and really understanding the fixed income markets kind of meant understanding credit flows, money flows, capital flows worldwide. So I was on the research side and what we did is put into place a a framework for understanding those money flows worldwide and that's pretty much what I've run with ever since. It's really understanding capital markets means understanding where the money is, where the money is flowing and that's pretty much what we do. So we uh came up with this concept of of global liquidity. Uh that's what we monitor. We now um at crossboarder basically monitor 90 financial systems worldwide on a monthly and sometimes a weekly basis and we come up with aggregates and uh measures of these global liquidity flows and they they I would say they work. I mean I suppose I wouldn't be here if they didn't but uh they they they sort of work. So really understanding uh that dynamic is critical for understanding asset allocation worldwide. uh you know what drives markets is not textbooks, it's money flow. >> And so where where are we in the global liquidity cycle? What's going on? >> Well, I mean the the short answer is that we're in a strong upwave upwave and we're probably nearing the top, okay, of the cycle. And I'm going to stress that we've got a cycle and there's a trend. And the trend is probably a lot more powerful. And that trend which I think courtesy of JP Morgan have been called the the sort of monetary debasement trade uh that everyone is now jumping on. Uh and that is real. Um you know I mean a colleague of mine was at the LME conference uh this week uh talking to a scrap metal dealer a precious metal scrap metal dealer who's been in the business 35 years. is he said normally with a spike in gold bullion prices that we've just seen you will see a lot of new supply coming or supply coming from secondhand gold he said I've seen none no one is trading in their gold so what is going on is people are understanding that uh governments thank you very much are debasing paper money and that's the trend that we're looking at and that that is going to that's eye wateringly scary okay the other thing is a cycle and you've got a cycle on top of that trend we're probably coming towards the end of that cycle I I would imagine it may be months or maybe a couple of quarters away. And we got to be alert to the fact that it may be coming down. And one of the reasons that it could be coming down is probably two or three things. One is that central banks get scared. Okay, listen to what Jay Pal was saying last night at the Fed. Uh he was saying, look, we're getting now tensions in repo markets. Uh liquidity is starting to see strains in the US system and therefore we're going to change our policy maybe a tad. uh but there's only so much he can do and one of the reasons you're getting a pickup is that maybe the US real economy is starting to accelerate now simply because there's been so much money uh thrown at it by the administration and by capex in AI etc. So we're somewhere near the top of the cycle but the cycle's been with us uh you know bullish cycle since October of 22. It's interesting thing about the the liquidity cycle starting to top out because we were talking backstage when you're mentioning how you kind of feel like we actually had this recession. It's interesting there's it feels like you know non-stop since 2021 there's been calls for recession. We've had moments where 100% of e economists were calling for a recession and and it didn't happen. Um and a lot of that is characterized by this K-shaped economy that a lot of people have been talking about. But you're of the mind that that's already kind of happened and we're actually coming out of the trough and into a reaceleration. What does what does that look like? Yeah, earlier in the year, uh, Q1 when we we were talking about it pretty bearishly on on the policies of the Trump administration and what those feed through into the economy, cutting immigration off, increasing tariffs, and reducing trade. Uh, serious growth headwinds, cyclical growth headwinds, because by the time we're a year from now, those base effects already rolled off. And that was at a time when in 2024 really going into the the presidential election in November, every bell and whistle was was utilized to keep things afloat. And the data is now showing through the BLS revisions and other labor uh and backdated things that we really have been in a recession in the US, at least a main street, maybe not the AI sector, but a main street recession since early 24. And we're now 7 months past these dramatic uh policy changes in in the US and the the market boogeyman has not uh persisted or reared its head again. And one of the fascinating things is why it's so bifurcated in the views is because when gold does what gold has been doing this this is a crisis type signal. It's a economic uh calam like huge problem and what we don't see from a nominal basis because all asset prices are going up is that it has been smoothed over by uh manipulation of of government debt issuance uh Fed uh pressure and and and liquidity and so we've actually you know bolstered things and so when you look across the landscape now there's a lot of signals that The economy is reacelerating in the US going into the midterms of 2026. You can't have Main Street in a recession if if you're looking to get reelected as an incumbent. And every single asset price is at all-time highs. Stocks, gold, bond prices are at, you know, 12-month highs, yields 12-month lows, mortgage rates are at three-year lows in the US. And it's very difficult to fight that from, you know, a next three six months perspective because especially in an environment where 50% plus of the the consumer spending is is driven by wealthy asset owners. And so I think um we are entering this period where I' I've been very uh you know open with my critiques of different policies but we they have sort of threaded this needle in the US that that you know sort of bodess well for them. Inflation is way higher than 3% and there's a cost to it long term socially and economically but uh from a nominal basis it's been smooth. Michael, what does that lead lag relationship look like between a classic business cycle characterized by GDP growth that Quinn was just mentioning and your global liquidity cycle? Do they do they lead? Do they lag? Are there any times where they're coincident? Like is it normal to see this dynamic where it feels like liquidity is topping out, but perhaps economic growth is actually just starting to reacelerate? >> Yeah, absolutely. I mean, they're they're completely out of sync. Um I mean, I never use the economic cycle for asset allocation. I think it's it's never worked for me. uh I don't think you know that really matters GDP doesn't matter that much for markets what really matters is money flow and uh you know if money is in the real economy it's not in financial markets uh if it's in financial markets it's not really in the real economy and what I'm interested in is whether the money is in financial markets uh and therefore if you get a strong economy or even a pickup in inflation I can kind of see that as a negative in terms of the outlook for asset markets uh so in that regard liquidity is a leading factor it tends the lead economies by about 12 15 months. Why, you know, which is why I think Quinn's point about maybe a US economy accelerating into into 26 uh seems to me pretty plausible because liquidity has been building up for quite a long time now. Uh so why doesn't it spill over? It certainly should be. Maybe that's what we're seeing right now. >> And and that's to just touch on that. It's it's why there's such uh disagreement or unsettlement across the financial markets and industry with central banks actions because the the central banks were created to stabilize the economic cycles and come in when things are too hot and suppress when things are too low and boost. We're seeing a world where they're super pro, they're just pro, it's just boost at all times and that's what's causing this inequality. >> Yeah. To that point, Michael, you mentioned earlier that there is a there was a speech yesterday from Fed Chair Jay Powell where he mentioned that they're likely to begin to end quantitative tightening and that there are some of these hiccups in the funding markets. And it looks like, yeah, they're going to pretty quickly shift to to no more QT. It's it's interesting to think about shifting into to the perspective of how crypto market participants think about all this liquidity stuff. last major crypto cycle back in 2020 2021 everybody started to understand the game of QE monetary QE and I was like all right well you know we're doing this we're we're doing a ton of quantitative easing that's obviously bullish for markets and ever since then there's been this this obsession with okay we need the QE so that we can go higher but the fact is that we're we've actually been in the complete opposite we've been in QT and we've had Bitcoin all-time highs multiple multiple times throughout that time so I'm just curious if you could unpack like how do you think about you know you've talked a lot about treasury QE as a different function of that and so when you look at some of these drivers of liquidity of funding markets what does that tell you versus that previous cycle where the obsession was for monetary QE it's a great point I think that the first thing to say is there has not been QT in the US despite the headlines I mean that that's very clear uh you know if people believe that the Fed has been taking liquidity out of the system you know dream on it hasn't it's been injecting a lot through various uh uh you know underhand means let's say but there's very clearly been a a big liquidity uplift in the US over the last two or three years. Uh that's for sure. It may well be as I alluded to coming to an end because they kind of run out of road of these sort of secret uh you know packages to put in. And what you're getting now is maybe a shift into what I've dubbed Treasury QE and that is effectively shifting issuance uh from the calendar from the long end of the market to the short end through Treasury bills. But I think the idea that the administration has is what they're going to do is use that to direct it into the real economy. So rather than sort of spraying the hose everywhere, they're going to just direct it through the bill market uh into or funded by the bill market into the real economy in terms of defense procurement maybe uh you more capex in terms of AI uh buying strategic resources or strategic states all these sort of factors. So I think there's a difference in complexion. That transition may worry the financial markets because it means that bank reserves could be depleted and that's what Jay Pal was talking about last night when he was alluding to tensions in the repo markets. So you got to watch that. I mean there's no question about that. Okay. But I think the other thing I'd say from a general perspective to answer Felix's question, we did a deep dive into what drives crypto and we did an analysis uh Cisco analysis of looking at data, weekly data from around the end of 2016 onwards. So you've got quite a long sample there. And what we found was that the driver the main driver of Bitcoin is global liquidity. about 50% of the of the systematic influences on Bitcoin come through global liquidity. So that's why everyone's very interested in QE or QT or these sort of factors. Now what I stress is global because you've also got another huge player out there, China, which I'll come on to. The other two factors that are kind of interesting are that around 25% of the movement in Bitcoin is kind of risk appetite elements. So you might associate that with NASDAQ or tech stocks or whatever. So if tech goes up, Bitcoin, crypto will go up. Uh if NASDAQ and tech go down, then they're going to take a hit uh that maybe other monetary inflation hedges like gold wouldn't necessarily. And then the third element, which is another about 25%, is the gold price. Now if you look at the gold price and the relationship, it's really quite interesting from a statistical point of view because what you find is that Bitcoin and gold are negatively correlated in the short term. So in other words, if Bitcoin goes up, gold tends to languish or come down and if gold goes up, Bitcoin seems to languish or go down. You know, does that sound familiar? But in the long term, they catch up. So in other words, what you'd expect to see now is the big spike in gold is going to elicit another move in Bitcoin, positive one. Okay, so you've got these three moving parts which make it kind of a little bit more complicated but those are the things you got to watch. Now I said that this is a global phenomenon. So you got to think about global and China uh is easing uh massively right now. So if you look at what the PBOC is doing, um PBOC has injected in the last 12 months about1 trillion US dollars, so about 8 uh trillion yuan into their financial markets for the first time in a long time. So they're starting to get out of uh you know this uh uh this sort of tight monetary regime that they've been that they've basically been uh uh they've imposed on themselves uh over the last four or five years. That is a big change evidence that look at the Shanghai stock market. Uh look at the bond market in China. Yields are rising, term premier rising. It's it's basically there. And the reason which I'll allude to maybe later is I think they perceive a whopping great threat to the integrity of the Chinese system from stable coin. Quinn, I'm curious. You've been doing a lot of work on looking at gold as the signal, as the canary in the coal mine right now because Bitcoin could be that, but on a short term, you know, you got these leverage wash outs that we just had over the weekend, which makes the chart just look brutal on a short-term basis, but eventually it gets there. But gold has been quite the signal. And you know, we talked about this earlier about how the debasement trade, if you look at the Dixie, if you look at the US dollar, it's actually been quite flat in recent months, even though this idea of the debasement trade has been taken hold. I know you've been looking a lot at gold in terms of comparing it to other asset classes in terms of a relative ratio. How do you think about that analysis? >> Yeah, there's a there's a a high and growing level of angst and anxiety in crypto right now amongst investors for two reasons. one, it's incredibly hard if you've been in the industry to uh part ways with with five to 10 year established biases around this four-year cycle that most still prescribe to and believe in. And uh really since January 2024 when the ETFs put Bitcoin on the global stage, it has become a completely different asset class that that is unrecognizable from what it was before in many characteristics. Max draw down, volatility profile, uh you know, max max uh upside within a short amount of time. Uh but many are still clinging to this four-year cycle, which I I believe strongly. My highest conviction view is that that is over. Um, and secondly is so we're right at the tail end of when when the normal four-year cycle would end. So people are very angsty. And the second is oh my god, you know, after this liquidation on Friday, Bitcoin just touched uh the price that it was at in December of 2024. You know, this this was a period of of peak peak peak exuberance. Uh Trump's going to do everything strategic Bitcoin reserve, etc. Um, and we're still there 10 months later, despite gold having done plus 50% year to date. And um, it's it's an an incredible amount of consolidation for an asset that is rather explosive. Uh, and part of that has been the distribution of long-term holders into this level. And I posit that we will catch up to gold. It will start very soon. And the move that is about to come in in Bitcoin and and crypto broadly will resemble a November 2024 and an October 2023 uh type of move. And and this liquidation reminded me of August 17th, 2023. I remember because I was I was getting off a plane to in Greece on vacation and and checked and it was a similar liquidation event and I was extremely bullish on the macro and and super excited about it. And it after that event, we doubled in four months. And I I I think it it tends to be like that where where you get the the shakeout before the big move. Um but but truly the amount of liquidity I think to Michael's point about what drives uh Bitcoin's price being this global liquidity everybody has different methods of looking at it and some people look at the Fed facilities the RP you know interest rates uh balance sheet these things but it's very important to incorporate some level of marketbased uh measure into that because when you have stock prices globally at all-time highs and moving higher, you have bonds very supportive, everybody's extremely flush with cash. >> Uh it's very difficult to break that upward momentum, particularly if you remember in 2021, uh what what ended things was the removal of the punch bowl >> flat out. We you know that bubble was a bubble um because the Fed was stimulating far too long into the economic recovery. And in this case, we're moving into a situation where things feel very weird. Uh asset prices are very expensive relative to historical norms, but we are moving closer and deeper towards and into the punch bowl uh before May May of 2026 when Paul gets replaced. So it it truly is unprecedented times. >> Yeah. Um Michael, I want to double click on something you mentioned about stable coins. you that that was quite the the quick little comment you had there, but I think it's really important. Curious, how do you think about you mentioned that China sees it as a systemic risk to their to their uh sovereignty in some ways? And then there's also this this dynamic of stable coins in terms of can it be that next funding mechanism for just the amount of debt that we need to issue. You mentioned earlier about how one of the key strategies is is tilting a lot of treasury issuance towards bills. Stable coins are collateralized by treasury bills. How does that whole dynamic work and where do you think that goes? >> Yeah, great great question. Um, just to maybe before I answer that, just to pick up on a something that Quinn said, I think another way to think about this whole, you know, regime of where Bitcoin and crypto fit in, uh, is that we're in the commodity phase of the cycle, the investment cycle right now. That's that's what's really moving. Um, and that's synonymous with, you know, getting towards the peak. So, I think all these things are kind of consistent. But where does Bitcoin fit in? I would say it's probably reflects about one-third tech stock and twothirds commodity. So, you know, you're going to do better in Bitcoin than in tech if that's where your investment focus is. Um, so think of it in those terms. Now, to come back to the stable walking question, uh, I wrote a book about five years ago called Capital Wars, which was trying to make the point that, you know, whatever the skirmish is on trade, what really matters, the big battleground is capital, control of the world's capital and capital flow. And it's really between obviously you know no surprises here uh America and China and it's really about the development of a financial system uh which is really going to effectively collateralize money uh in those two regimes. I think the US is moving more and more towards some sort of digital collateral in some form whether that's stable coin repackaging treasuries through stablecoin or whatever but I think that's that's the move. So digital uh is really ultimately collateralizing the dollar system. What China is doing is collaterizing its system through gold and I think that's the alternative. you got these these two uh you know these two very different financial systems and what has really spooked China in my view I mean I may be completely wrong is stablecoin the Europeans flag this by saying you know this is a great threat to our our monetary system because Europeans can basically uh you know disintermediate out of euros uh we lose control and they go into the dollar system but that's a big threat for China so if you're a Chinese exporter accumulating cash you've got a choice You can currently put your money in the western banking system. Well, kind of good luck there because you might get it sequestrated like the Russians did. Or you give it to domestic Chinese banks. Well, good luck there. If you're like Jack Mar and fall out of out of favor with the uh PRC, then you've got a problem. So, why not put it into stable coin, which presumably has got some anonymity and you've got some protection there. So, that may be a huge threat to the Chinese, the integrity of the Chinese financial system. they could see capital flight through that mechanism. And the one thing that the Chinese are already scared about is capital flight and losing control. So I think this has urged them into trying to make their financial system more robust all of a sudden. And this explains why you've had this big surge of liquidity going into the markets. They want to try and get rid of their debt problem. If you look at the parallels through history, if you've got a big amount of debt, the only way you get out of that is not by defaulting because you can't because that is the collateral in the financial system. You've got to devalue paper money. And that's what they're trying to do. So my view has been that they're trying to devalue the yuan against real assets. Read devalue against gold. So the yuan gold price is really driving the world gold market and that's what we've got to start thinking about. Now what China has done so far is to put a trillion dollars equivalent into their monetary system to draw the parallel. America did two and a half after the GFC. So China's got to do something similar to that. Japan is a role model. Japan did the same 15 years earlier. Uh and look at you know what Japan has done. Devalued the yen massively. But it's not against the greenback that we got we got to judge the yuan. It's against the gold price. And that's really the key thing to think. And if you extrapolate long term, I mean, we can get on to the mechanics later, but I my view is that you've got two big forces now that are effectively pushing up or devaluing paper money and pushing up gold and crypto. One is China and one is the US. And if you do some extrapolations by saying that the real gold value of US debt uh is going to remain constant from here, the skyrocketing amount of debt tells you that sometime in the mid30s, gold is going to test over $10,000 an ounce. And by 2050, long after me, it'll be $25,000 an ounce. So think what Bitcoin could do in that uh in that time frame. that that actually I hadn't heard your full explanation of the China concern about stable coins but it tracks really well uh dating back to 2021 they b they banned Bitcoin mining and and some of this in this room might be aware of that but the big thing there was it was the the most efficient and easiest way for capital flight to to convert yuan to Bitcoin and instantly and send it globally without going through their banking system just invest uh capital on the ground into into Bitcoin mining equipment and there you have it and and it tracks very very well. They're very aware of that and I can totally see it. >> It's so interesting. It feels like there's there's two levels to this US China thing. There's the tariffs versus rare metals constraint and fight and then there's this one that we just characterized which is gold and stable coins Bitcoin. Do you guys see it that same way where there's just like there's the the the traditional version of that which is yeah terrace metals and then this new one which is what are we collateralizing the system with? >> Yeah, I think so. I mean the the big issue for me is the capital war element. Uh that's the that's where you've got most of the that's where most of the fighting will take place. And I think in terms of the trade war, I mean they'll do a deal, it'll be cosmetic uh and ultimately there'll be some rejigging of supply chains for sure, but ultimately it's about control of capital. I completely agree. We're we are in a conflict globally. I mean there's clearly it's becoming multipolar and and these axes of power and um we're just in in a world where the the developed world's uh appetite for for human death and loss of life is is diminishing. Um maybe that's a one good thing of social media. many many bad things of social media but uh it it is it has exposed some of the the real catastrophes of of physical conflict but it is so true that everything globally right now is a financial >> capital war it is it is severely the case >> yeah so of course we are talking about all of this in London in Europe we haven't talked about where Europe sits in all of this yet um it's an interesting situation you have of course this this union where you have a common currency But then fragmented bond markets. A lot of these bond markets, their long bonds have been selling off like mad. We've seen we've seen guilt sell off. Um France is struggling pretty hard right now. And then you see you see the fallout of that from the political spectrum as well where you have a lot of political instability. Um Michael, you're this is you know you're from London. You you know Europe very well. How do you think about where Europe fits into all of that with the with the context of this common currency but fragmented bond markets? Well, the short answer is badly. I mean, there's there's no question that it's that it looks terrible. Uh, you know, I think the world is, you know, one has to go back to uh, you know, looking at George Orwell in 1984 and sort of thinking, you know, how prophetic he was. And in that novel, uh, you'll note that Britain was airirstrip one. So, it was just the landing the landing ground for uh, OAN, which is basically America, Australia, etc. U, uh, in terms of their attacks on uh, Europe. Now, um the fiscal situation here is dire. Uh there's not much they can do about it really without reneging on welfare promises. Uh you know, the deficit is clearly escalating. They can't get it down. Uh we're overt taxed. We're in the wrong part of the lera curve. Uh and the only thing they can do is allow sterling to be crunched and that's what's inevitably going to happen. Um if you look at Europe, I mean Europe has a big problem and the issue is that Europe uh tends to extend its frontier in terms of institutional frontier through crisis. Um, and what they need is a crisis so they can basically have a European bond market. In other words, with a with a Euro denominated bond. And the problem they've got at the moment is that there's no safe asset in the Euro system apart from the German Bund. And that means if you get a crisis, everyone goes into the Bund and despite Germany's problem, it's still the, you know, it's still the cleanest short in the European laundry. And so what happens is that bond spreads blow out. So there's absolutely no way you could get a sort of a a stable coin really being issued in Europe while you've got that fragmented bond market. >> Anything Yeah, I think uh you know, one thing us Americans always get crap for is is maybe saying it like it is a little more more bluntly and um I think the the problems that really developed nations globally are facing population decline and and how rapidly that's being offset with immigration uh you know inflation problems, wealth inequality, they're really quite the same when you look at you know UK, US, Europe and uh you know to Trump's credit is is he just he has kind of hit it on the head and said it how it is. And the the thing that's really carried the US through this economic malaise since 2024 globally is our AI industry and and having the MAG7 attract the the global capital flows which if you look at a longdated chart of of um dating back you know 100 years of uh US equity premium to global equity indices and and then US dollar relative to global fiat currencies they're almost one to one correlated you know US equities are really levered US dollars and having that uh kind of global you know attractive asset in in mag 7 has really supported the economy and dollar but um it it's it's bleeer I think all fiat is bad and but uh >> yeah well I mean it's so interesting too just that yeah that that bleakness you can you can feel it in society right now this this this chase for the the basement trade suddenly everybody's talking about there's this this this this panic you can feel within people where it's like I need to be invested in something. I need to be invested in something fixed and real like gold, like Bitcoin, like you know, even collectibles. You know, Pokemon cards are going crazy these days. It's just like anything that they can't print. And Michael, you actually had some really interesting research a couple weeks ago where you were doing some regression analysis on on gold versus fertility rates and how that that crossorrelates with housing affordability and and household formation. And it's I would love to just hear your thoughts. You know, we talk so much about market price action and okay, we need to own Bitcoin and and gold to have the life raft out of here throughout this bleakness, but walk me through like the societal impacts of that. Yeah. Well, that was a sort of somewhat tongue-in-cheek analysis, but it was basically just working out the uh the sort of correlation or negative correlation between a rising gold price and falling fertility rates. And that's what you've seen across the West. And generally the connection is that the house price to income ratio tends to spike upwards when you've got a lot of liquidity. When you've got monetary debasement, when central banks are printing lots of money, house prices, which are clearly a hedge against monetary inflation, tend to go up a lot faster than incomes. So the house price income ratio goes up. And what that means is that housing is really unaffordable to younger generations. I mean, all generations, but particularly younger generations. And if you can't afford housing, uh, then you can't create families. And therefore the birth rates tend to fall off and then you get labor shortage problems and then the politicians say well okay let's start uh getting more immigration into these economies to basically boost the workforce and then you get a sort of a vicious circle downwards because then you get essentially uh you know wages cut of existing workers you get you know more and more social problems uh etc etc uh and you end up with sort of low wage economies and very low productivity low wage economies uh you know welcome to Europe What do you think about that? >> Yeah, we we talked to Felix and I were at a we're at a a event in DC and and um yeah, you can basically track this to household formation in the US. It's it's the same thing everywhere, but um maybe Europe and Japan are more advanced in their in their decline. Uh but uh in the US it's it's almost below two average household size. And it's we've never had a time where the first-time home buyers were were this old in their late 30s. We've never had a time where uh 50% of of of young adults are supported financially by their parents or over one-third of of first-time home buyers more down payment is is supplied by their parents. And it's basically this intergenerational wealth transfer that uh needs to occur but doesn't fix the inequality. So, while we're uh you know, market practitioners uh trying to determine and pattern recognize the best ways to financially profit off these trends and and and navigate the the capital markets um socially and politically. Uh these are just more forms of kicking the can and ultimately there will be repercussions. But in many cases, like any politician's tenure, uh if you kick the can long enough, it's not my problem. >> Yeah. And I think I mean the irony is if you want to buy some real estate, residential real estate, buy it in China because if you think about what's going on, I mean the real problem that the West have is basically retirement and aging aging populations. And so the cost Medicare cost of that is awesome. So that's what's forcing the fiscal deficits up and up and why they've got to monetize. But China doesn't have that problem. Uh China doesn't have a social security system. Everyone says it should do. But what it has is people tend to fall back on real estate. So they basically put their wealth in real estate and that is their ultimately their pension funds. Now what we know in China is that that's underwater. Um so what they've got to do is to if they want to protect uh society in terms of long-term welfare for retirement, they've got to get those real estate values up. And I would suggest that's maybe what they're thinking about right now with this big monetization. So ultimately what you'd expect to see is if the gold price goes up, you're going to get asset prices in China lifting off and already the stock market is zooming. >> Um, final question here just as we wrap up, Michael, but uh, in in your sage wisdom compared to us two young bucks, I would just love to hear everything we talked about. How unique is this moment? you know, is this something that, you know, is is is a regular multi-deade cycle or thing or is there something truly unique about today this this panic for the the debasement trade chase that we're seeing in the world today? How unique is that? >> I think it's very unique. I mean, let let me uh let me sort of put that in context. I mean, when I was at Solomon Brothers, sort of the the the Bible that everyone used to read was a book uh this is a one for if you can't get to sleep, read it, but it was called a history of interest rates by Sydney Homer. And what that looked at was 4,000 years of interest rate history. Uh nowhere in those pages do you ever read zero interest rates. So that is how unusual the current situation is and or the situation in the last 10 years has been. uh we've never had zero interest rates and ultimately the solution uh of governments to any crisis is basically to throw money at it and to cut interest rates as uh rapidly as they can. Uh they can't raise taxation anymore. They can't really curtail government spending. So what they've got to do is effectively monetize. So this is a unique situation. It's not, you know, just in my lifetime it's unusual. It's unusual in 4,000 years of history. But if you go back and look at those pages of 4,000 years, you'll see that in the Roman Empire, there was lots of debasement as well. And what you need is monetary inflation hedges. And gold and crypto are our vehicles for monetary inflation hedging. >> Beautiful. >> In short, it's the reason there's only one currency that has persisted through time, and that's gold. We've >> And maybe we'll get a second one now. >> Yeah, we very >> don't trust politicians. >> All right, that's all the time we have. Michael Quinn, really great to have you here. Thanks everybody for listening. Give them a round. [Applause]