‘Peak Bubble’: Bitcoin To ‘Lose A Zero’, Drop To $10k Says Bloomberg Strategist | Mike McGlone
Summary
Bitcoin Volatility: Mike McGlone predicts significant volatility for Bitcoin, suggesting it could drop to $10,000, emphasizing its status as a risk-on asset closely tied to stock market performance.
Market Correlation: The correlation between Bitcoin and the S&P 500 is at an all-time high, indicating that Bitcoin's price movements are heavily influenced by stock market trends.
Gold's Performance: Gold is expected to outperform other risk assets, with McGlone forecasting a potential rise to $4,000 per ounce, driven by economic uncertainties and geopolitical factors.
Commodity Trends: McGlone highlights a deflationary trend in commodities like crude oil and natural gas, predicting a potential drop in oil prices to $40 due to changes in global demand and supply dynamics.
Economic Indicators: The gold-to-oil ratio is seen as a precursor to economic slowdowns, with historical spikes often preceding recessions, suggesting potential economic challenges ahead.
Inflation and Deflation: McGlone discusses the cycle of inflation followed by deflation, noting that current global economic conditions, particularly in China, are indicative of deflationary pressures.
Stock Market Risks: The US stock market's elevated levels are seen as unsustainable, with McGlone warning of a potential significant correction, which could impact Bitcoin and other risk assets.
Investment Strategy: Investors are advised to be cautious with risk assets, considering the potential for increased volatility and economic shifts, and to consider diversifying into assets like gold.
Transcript
This is an example of peak bubble. Bitcoin might drop to zero. Now to end all that thing, the US stock market has to stay elevated. It's August. We don't have a minor correction, but for now it's early days. That's why I think the end of this year is going to be so telling. I think Bitcoin now it added a zero. I think it loses a zero now. Go back to 10,000. That's not a big deal in terms of Bitcoin's history, but for people who own it, it is. And the bottom line is right now to me that threshold was get ready for some major volatility into December. The last quarter of 2025 is not going to be pretty for stocks, risk assets, and Bitcoin. Bitcoin may even lose a zero. If things get really bad, we'll find out why with our next guest, Mike Mclo, senior commodity strategist at Bloomberg Intelligence. Just a quick announcement before we start the interview. I'll be attending the Beaver Creek Conference while the precious metal summit in Beaver Creek, Colorado, September 9th to 12th. I'll be speaking with key leaders, thought leaders in the resource sector. We'll be getting some on the ground news and important updates from one of the key conferences in the resource sector, one of the premier conferences in the world for precious metals. So, tune in then. It'll be a great show. It'll be sponsored by Tutor Gold, brought to you by Tutor Gold. Now, back to the interview. Mike, good to see you again. Thanks for being here. Well, thanks for having me back, David. Particularly on this date, the last day of trading for summer doldrums of August. I can't wait for the long weekend. So, uh let's begin. Let's start by talking about uh your piece. Bitcoin's 100K uh threshold may define 2025. Um you wrote this not too long ago. Now, Bitcoin's been trading above 100K, as you know, for quite some time. Uh you've correctly called Bitcoin to go to 100K uh several years ago, so you're no stranger to the 100K target. Now that we've reached the 100K target, what is next ultimately for Bitcoin and for risk risk assets for 2025, Mike? So what the the latest you saw there I that's probably the third update of going to 100k. No not and once it got there I thought that's a threshold. I think Bitcoin now it added a zero. I think it lose a zero now. Go back to 10,000. That's not a big deal in terms of Bitcoin's history but for people who own it it is. And the bottom line is right now to me that threshold was um um profound. And the first time we traded 100K was on December 6th. To me, that was a classic sign of you're supposed to be selling when they're yelling. And that triggered gold. So, since that day, as of now, um since from August, I'm sorry, from December 6th to now, the end of August, August 29th, gold's up about 30%, Bitcoin's up maybe 8%, stock market's up about the same amount. S&P 500 total return. Um, and the Bloomberg Galaxy crypto index is unchanged. To me, it's now what are we going to do for the rest of the year? We have one month left and we then we tilt over to the the fourth quarter. And I think this is just a sign Baltley is going to pick up. Bitcoin has proved it's a risk on asset. The 48month correlation of Bitcoin, the S&P 500 right now is about6. That's about it's the highest ever. I use 48 months cuz it's four years. And in 2020, right, for before the biggest money pump in history, the correlation was negative. 05. So Bitcoin's proven it's a risk on asset. It's going up because the stock market's going up. It has 20 million companions in cryptocurrencies and then there's gold which has only three there's only four precious metals so three companions. So I think gold's going to continue to outperform most risk assets particularly and I should say if but I will say when the US stock market starts to give back some of its gains and here's the key thing I'll end with is just this month in August the VIX volatile index in volatility reached the low for the year about 4.2 two as we speak it's back up to about almost 16 and so the month of August will go down history as the low for the year in in Bitcoin maybe and the high I'm the low for the year in VIX in the VIX the high for Bitcoin is the exact opposite of April April is when the VIX reached the high at 52 at the closing basis and Bitcoin reached the low on a closing basis 4 p.m. around 73. So I think the market's just proving that we're at that stage now. Summer doldrums are going to tilt over to volatility and just a question how we make out from here and I fully expect gold's going to continue outperforming. Okay, I want to get to gold and uh equities in just a bit but going just finishing off on Bitcoin. I remember I started interviewing a few years ago now. Uh Mike, I don't remember when our first interview was, but back in 2020 when Bitcoin was just over 10K, 11K, you were already talking about the prospect of Bitcoin just adding another zero if nothing happens. I remember a few years ago in 2021, 2022, I said, "When can it 3x to 100K?" You said, "Well, I mean, maybe the next couple years." You were right, by the way. That was one of your best calls I remember. And you and I asked you, "What could happen? What what needs to happen for Bitcoin to reach 100K?" And you said absolutely nothing is going to naturally get there. I'm just curious now that we've reached the threshold, why aren't you saying it's naturally going to add another zero to a million if nothing happens? It's a classic thing you learn sometimes um having dealt with customers and done myself and seen the D's in business and that's I call the deaths and divorces unfortunately. You're supposed to be buying when they're crying. And when it was around 10,000, everybody was crying. Um, and a lot of people who are Bitcoiners. And then you're supposed to be selling when they're yelling. And this is one of the most profound prolific examples of selling when they're yelling I've ever seen. So back then in first Trump administration, that's when I I really enjoyed writing how this space is the most enduring bull market in the space is the proliferation of of stable coins. I call them crypto dollars. Back then, Tether was $2 billion. Now the whole crypto dollar space is approaching 300 billion is going to the dollar. All those crypto dollars were investing in treasuries and back then it's when the Trump administration hated it. I'm like okay I love it. And now that they tilted over and they love it. It's time and everybody's jumping on board. Just a classic example. You're supposed to be backing off and saying staying away. And what's changed David is back then I really like that narrative that Bitcoin had definable diminishing supply and increasing demand and adoption. Get it? price must go up over time. Now on coinarketcap.com they say Bitcoin is supposed to be limited at 21 million coins. Coinarketcap.com is approaching 21 million cryptocurrencies. In 2009 there was one. There's unlimited supply and you see all this switching out from Bitcoin maybe the ether with people like Tommy Lee and stuff to Ethereum and I said well good luck. That just proves to me we're in a this is a commodity space. It's highly speculative. It's wonderful to trade, but buying and holding, I'd say good luck. I fully expect things like Dogecoin, which tracks nothing, is a joke. As we speak, it's at $31.6 billion. We can lop a couple lop a couple zeros off of that and it's still too expensive. That's going to come. But the bottom line is this whole space has been on on the back of the rapidly advancing, most very expensive US stock market in risk assets in history on 100-year basis. And at some point, that's going to implode a little bit or revert a little bit. And I think the most significant people need to understand is now that this space has really been embraced by the Trump administration for it to go up. You have to completely expect the success of the Trump administration. It's the opposite of what it was before supposed to be the opposite of of um politics and and government. And then we have to look in the big picture. We've only 6 months in or so into the new administration and we've got another 3 and 1/2 years left to expect us to have only a one almost 20% correction in S&P 500 that went straight up and not have a a significant draw down in the stock market that stays down over this, you know, significantly disruptive, discombobulating person. I mean, he might turn out to be right, but you're changing the world order. To expect that not to happen, I think is what gold's figuring out. And that's why I think gold is going to continue to outperform most risk assets. Well, before we move on to gold and other uh assets, what I'll just ask the same question I asked you a few years ago. What needs to happen now to Bitcoin for another zero to be added into the uh seven figure territory? So, I think that's a very unlikely scenario partly because there's too many people who are long it exposed to it or just in the next 5 years. No, ever is a long time. Next 5 years very unlikely. I think Bitcoin is more likely to lose a zero than add a zero at this stage. number one thing for it to go a continue higher is US stock market has to continue at um add to its 100red-year premium to the um to GDP and the rest of the world. It's got to add it almost has to do that because the correlation is the highest ever. Bitcoin and cryptos are just running on top of this massive speculation. So that's the number one thing I think for it to appreciate and I think people who are buying might get it. Bitcoin is proving this year as I showed complete negative correlation to the VIX. It's leverage beta and sometimes it's le more leverage beta than digital gold. Right now it's clearly leverage beta and the pile on factor is when you're supposed to be selling because they're yelling and I hear about all these flows in Ethereum. I said well okay well I'm probably not buying as much Bitcoin anymore and they're proving that it's a commodity and there's thousands of these millions of these commodities that are great for speculation. Nothing wrong with that. Remember I'm from that background from futures but to me it's now has reached that point of it's too expensive and it really reminds me of internet so stocks in 1999 of the Japanese stock market in 1989 I started in the business in 1988 covering Japanese customers from the trading pitch in Chicago and what I read about in 1929 in um US stock market I mentioned that because you just look at our stock market versus GDP Warren Buffett model you do have to go back to when Herbert Hoover was elected to have similar similar ities and Trump might go down with just poor timing. Gold is an indicator that you're looking at as a precursor to more volatility under Trump in 2025. You wrote in that piece, uh, I'd like to get to this chart and have you respond to it, please. This is the gold oil ratio. So, gold to oil now spiking historically whenever it spiked, uh, it precedes some sort of economic slowdown or recession. There's been exceptions, of course, um, and and over over the last basically 15 years, it's steadily risen. Uh but every time you see a very sharp rise, something usually happens in the economy. Um anyway, I'll let you comment on what this ratio and gold overall is signaling for us. So I think that ratio is going back to 100 because I see gold heading to 4,000. Wow. It's kind of its next next major resistance level. And the key trigger for that, David, would just be a little bit a pick up in stock market values up 10% then the year. Maybe it ends up unchanged. That'll be a good catalyst for gold. And I think crude oil is going back to 40. Now that's not profound at all because the last 20 years, every bottom in crude oil three times has been around 40 or below. And we see what's happening. The all-time high was put in in 19 in 2008 at 147. And what happens when crude oil spikes, the elasticity kicks in, but it's also facing a paradigm shift in the world order. Just make a quote is my EV is 11 years old. And that same car you can get from China now at half the price with three times the range. I have a plug-in hybrid. the world's shifting rapidly away from um towards electrification which obviously means better things for um for copper but that to me is where I think crude oil is heading lower but also that demand pool's not coming um the number one source of demand in the world has been China they're they were picking straight up in their imports of crude oil it plateaued about 11 million barrels a day four years ago and it's just kind of hanging on there and they're actually producing increasing their own production partly just adopting the technology that US pioneered So this is a major paradigm shift in a world that's replacing and fossil fuels with technology. And then there's this old little old factor of that chart you show me is crude oil has a very high connection basically can't really go up when the stock market goes down unless there's a shock and that to me is a key risk is so I'm looking for maybe even this year by this year we might print that 40 handle I've been calling for since 2022 or three. Um because I saw you know you see the elasticity kicking but it's not alone. I mean you see that very much happen in natural gas. Natural gas got up to 10 down to two and right now it's picking around three potentially might trade a little lower. Remember we had a colder than normal winter. It's still pricing for another colder than normal winter adids global warming and all the grains the grains are in a clear lower price cure trajectory. Now they might be getting near bottoms but these lower price cure pay rates can take a long time but remember the bottom line is the catalyst for all these the pressure in these elastic commodities was to spike to the 2022 high. So that gold um crude oil ratio the highest ever on a year-end basis was it right now it's at 53 54 so barrels per one ounce of gold on a year-end basis the highest ever was around 39 and guess what the two years were 1933 and 2020 not really good years in markets so we're at unprecedented levels right now in commodities this is going to be a historic year particularly if we continue in the space and particularly if the stock market drops a little bit. And that's why I'm quite concerned, much more concerned than I was in 1999 and in 2007. This uh oil chart, I like to show you uh historical uh oil chart performance. If oil were to drop to $40, like you said, that hasn't happened. Well, let's just discount 2020. That was an anomaly, but that hasn't happened since 2015, 10 years ago, right? So, if oil falls down to $40, well, we haven't seen that for 10 years. Could that be actually a catalyst for more economic growth? Could people be driving you more? Could businesses see higher margins? You know, all that. It helped. So, in 2015, that helped. That came as the Shell Revolution kicked in and we've had we had a few um credit issues in in Europe and everything. But the bottom line is 2015 and that whole chart except for just the last 5 years, the US was a net importer. Now with Canada, we're net exporters around six or so million barrels a day of crude oil and liquid fuels. US now is the largest producer and a net exporter of of crude oil and natural gas and it's just that super abundance is kicking. We have to export it. That's an oxymoron compared to that whole chart in history and that's what's changed. So look at the supply side. Obviously Canada still have that has to export because we make more crude oil natural gas than you consume and OPEC has to cons is is coming on with more and primary demand source China's curtailing picking back. So I expect that normal trend to continue and that is I just say the last 20 years crude oil on average has never never settled actually in history it's never ended the year above 100,000 you have to I'm sorry above $100 a barrel and it often times ends the year around 60 60 bucks now we're heading for there now I think it's just going to do its normal and head towards a low price cure the bottom line is number one rule in commodities you almost always go to the cost of a break even cost the cost of production depends on how you define it and where it is break even cost this year is right is the low for this year and in the states the break even cost is around $55 a barrel and the low this year is 55. The high is 80. Now we had some spikes that pumped up on 80. People worried about supply and about curtailed um supply out of the Middle East. I think it's much more likely to break below 55 and get towards 40 than stay above 80. And I just that's the trajectory and that's with the stock market up 10% in the year. Now imagine if it ends up down 10% in the year. that that takes that takes what are severe deflationary forces already in place in the world's most significant commodity and the grains and it just adds fuel to those downward trajectories. Let's talk about gold. Now, this is the gold price chart. Um, and it's been hovering around new all-time highs basically since April. Now, if I were to go back to your report here, you wrote that the pandemic's unprecedented monetary stimulus, Russian's invasion of Ukraine, and the election of Trump uh President Donald Trump may uh might come to be viewed as paradigm shifting events that propelled gold to 4,000 an ounce in 2025. So, these events already happened. In fact, they've happened quite some time ago before April. So, what has kept gold at elevated levels for 4 months? This is a this is a rangebound floor that doesn't usually happen with gold. Yeah. So, what you're showing in that chart is that's the 200 day average of the VIX volatility index. It looks like it's it's an upward trend and it's actually since President Trump was elected, VIX has been going up. If you just look at a 200 day moving average now, it's kind of hovering right where the bottom was in 2021. And also, I'm showing you in that chart is the Bitcoin to gold ratio. It peaked in 2021 and hasn't been able to go there since above there since. So, Bitcoin has been flatlined versus gold now for four years. That's the bad bad problem. But the thing that's been happening is Bitcoin is there's still more central bank buying. That's significant. In fact, total reserves on a global basis of gold now is actually just surpass in central banks treasuries and ETF flows, David, are significant. So, what's very rare is we have total ETF um inflows this year up about 11%. That's after four years of outflows. I mean, that's a paradigm shift. The thing is that very rarely happens in the summer doldrums when the stock, you know, we just reached a new low in VIX usually when the stock market's going up. I mean, when the VIX is going up. So, I think what's happening is people are diversifying out of um and some taking some of their profits in some certainly US equities and finding alternatives and it's global. Remember, the rest of the world is facing unpar unprecedented tariffs on the world's largest goods importer. Just getting started, most notably China. So I look at gold is just it's it's just just waiting out each the chart you showed earlier was just a nice little bull flag. Um and it built a base around 3,300. I look at it as just waiting for a pick up in stock market US stock market vols catalyst to go higher because that's the key thing I really appreciate in the market when you have complete assumption expectations that the stock market will just keep going up. It's only had two down years on a total return basis since the bottom and since 2008. Then you get to the point where it's just tilted. Expectations are just too high. We got some normalization. Gold's figuring it out. And also, we're having this issue with number one thing. Remember about gold. Gold absolutely loves President Trump. Every time he opens his mouth, the gold market smiles. I mean, we don't have to go into details. And you the way you said yes, I think you get it. The gold market says, "Oh, Mr. Trump, we love you. Just keep being you." and shifting the world order, reversing the you know that and then gold gold just loves that. So go ahead, Mike. You know what else gold loves is inflation expectations jumping. And I I think it's important to highlight the fact that this was not in the sentence that you wrote. A stock market pullback could trigger the next key move upward in gold and potentially uh led by Bitcoin. You did not write that a huge jump in inflation is going to trigger gold to $4,000. Why not? I'm glad you went there because gold, I think, is anticipating normal deflation that follows inflation. That's a typical cycle in history. Always works out that way. It's just a question of time, particularly when you pump up inflation, artificial money supply, and that's what we did to the peak in 2022. Um, and so the best performing pairs in in for gold are deflation, particularly in dicey currencies. Let's say if you're in Zimbabwe, you're better off holding gold than any type of Zimbabwean currency. any other country like that and then deflation i.e what happened after um the great financial crisis now we're having severe deflation in China good example is PPI in China the year-over-year is minus 3.6% um the bond yield the tenure note yield is 1.79% compared in the US at 4.22%. Now David, that's despite the fact that money supply in China is running by some estimates, the late side check on the terminal, $45 trillion. That's double the US. And um that to GDP levels, by some estimates, Goldman Sachs put out 300%. They're doing massive things to prevent the deflation that almost always happens in rapidly advancing market emerging markets that revert. So they're playing deflation. and the rest of the world's um most central banks in Europe are cutting um cutting rates partly because they see it coming. China's exporting this deflation around the world and there's one key thing there's one major pillar holding up the whole world from just that normal deflationary cycle the US stock market. So the key thing I've been watching is gold divided by the US stock market. It just looks like it's just starting to pick up higher. Um, and I, you know, I don't know what it's going to take to, so let's put it this way. Gold, um, divided by the S&P 500. It's just bottoming and looks like the pattern looks just like it did in 1967 to 72, right about there at 71 when we US went off the gold standard. Um, at the same time, looks like the stock market might be peaking versus the rest of the world's stock markets and potentially GDP. just getting started by that's why I point out by the end of this year you might you and I might have a lot more to talk about and that's just if we just get a normal pick up in US stock market volatility and just a little backup in risk assets and that's why I point out to Bitcoin it's a riskier of them all it's led everything on the way up probably going to leave on the way back down and I think it's at risk of just dropping a zero a little a little back up by the order of 25% in the stock market is that what you said well here's my base case I started out the year I think this is going to be a down year for the stock market in the beginning of the third 50% draw down in the S&P 500 since the start of um since 2000. Not so profound. We've already had two. Wow. What another one. The difference this time is from the highest levels ever. And we have the most mercurial discombobulating government ever in this country. So also we're the tariffs. What's the main thing that tariffs do? Cuts off profits. It it's a a profit um it just it takes out those profits that all these entities were using when they were offshoring. Now, okay, they just don't they're going to hurt earnings. Um, and it's just the key things are way overdue for a little recession. So, these kind of things happen when you least expect it. Yes, been wrong. Some of us expected this two years ago. It didn't happen, but now we have a major catalyst and we just have we're not even near there yet. So, on the year, the total return S&P 500 is about 10%. That's great. It's already priced in. It's done. It's been a good year. Um, and gold seems to be anticipating this this riskoff low volatility ancient store value beating everything. David is possibly telling us that it's expecting a front running or signaling that we're going to have more of a down or just more of a normal downdraft in the stock market. Now, gold could turn out to be wrong and we'll see that by the end of the year, but I'm sticking with the rock versus stocks. Okay. On inflation, I think the Fed has a slightly different view on inflationary pressures short-term uh than yourself. Correct me if I'm wrong, but anyway, I'll play for you what POW said at Jackson Hole last week and then we will uh we will respond to this together. Take a listen. You have inflation expectations for granted. Come what may, we will not allow a one-time increase in the price level to become an ongoing inflation problem. So, putting the pieces together, what are the implications for monetary policy? In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. a challenging situation. Risks to inflation are tilted to the upside in the short term. That's what he said. Can you evaluate that statement? Um, sure, maybe short term because of tariffs, but the key thing that all the Fed governors and they just completely passing and missing the stinky old elephant in the room. When you get two times GDP in the stock market, it is the economy. That's the only reason inflation is still sticky. The main reason it's still sticky because it's the wealth effect is the greatest in our lifetimes in a hundred years. So I had the honor of at the economic club of Miami last night seeing Chris Waller speak. He's on the top list being the next Fed governor. He's on the transitory camp for inflation. He expects that we're going to have a he suggests we should have a 25 basis point cut in September. And he says everything's starting to tilt lower. He says from his anidal information what he checks is people are not hiring and and the labor market's starting to tick down. But the bottom line is let's just say the facts what they're not saying when the stock market goes down that'll be a severe deflationary force and we're way overdue for that where you got CPI like just today we had core PCA PC price index running around 2.6% 6% in the uh year-over-year 2.9% on the on on the core and then um so that is going to go negative. My prediction at some point we'll see that. Remember that's just a 12-month measure. It's a 12-month measure of a rolling time series that's ticked every month it's added on. At some point it's going to roll over and the number one force for all that is the stock market. So let's put it this way. If the stock market ends up down in the year, you're going to see negative inflation. You'll just see deflation and the Fed will ease ease a lot. That's my point is everything's being held up by this house of cards that is running at the greatest wealth effect ever and we're soberd for just the normal reversion like we did after housing the housing bubble in 2000 that peaked in 2006 and we got deflation right well that was pretty extreme but houses and stock markets are more expensive much more expensive now relative to virtually everything than so I I'm I'm afraid to say it I'm fearful I'm actually very fearful what can happen but I'm it's nice to be able to say at least gold is giving you some protection Well, September uh commodity outlook, China deflation tilt is the name of this report and I think that uh is reflective of some of the things you've just talked about, Mike. So, it says here record settings risk off and top performing. Gold sits at top of the warning radar, especially with most risk assets still rising, declining crude oil, natural gas, and grains are showing deflationary leanings that typically follow spikes akin to 2022. Uh so I uh I'll let you summarize this report, but basically I think you wrote that uh commodities will still continue to put deflationary pressures on the economy. That means you're not bullish on commodities except gold. Correct. Yes. And I want to point out one thing. So the Bloomberg commodity, scroll down a little bit. I want to show you that second chart. I show the second chart. Well, that one we've that's So that's the Bloomberg commodity index. It's the same as 2011. Um, and okay, so it's hovering there, but it's stuck between inflated risk assets on the top. You see that's a stock that's S&P 500 and deflation in China. I show you that's a 10 in China. So it's stuck between which one's going to win. So that's my point. As long as you see have just a little bit of a backup in the US stock market, you know, where we say if it goes unchanged on the year. Oh, that would be so horrible. My point is we're at the point now it absolutely has to go up to avoid normal deflation for the inflation. But I want to scroll down to the one next chart to point out what I'm really worried about. There's three C's in commodities. The three C's met matter. There's crude oil, copper, and corn. Two of those three already heading lower. Crude oil is heading lower. 200 day moving average is clearly heading lower. Corn is clearly heading lower. 200 day moving average. And there's one C that's copper. I show you right there. It has put in a chart pattern. I think it's very much akin to crude oil in 2008 when it put up made a new high at 147 and then collapsed down to 40. Copper's doing that right now. So the the the world copper is basically like Atlas shrug. The world is resting on its shoulder. It absolutely has to go up because if it goes down, it takes everything down with it. And copper's right now up about 10% on the year after being up over 35% for a while. It's right at a significant trend line. Same thing as the S&P 500. We're up 10% a year. My point is my fe fear the risk I think is copper is going to follow downward with deflation in China the most significant demand pull producer user of copper and break that trend line and tilt everything lower which means that's what's happening already is we got to we got to go up I think the risk goes down and I mean gold's already pricing that in the gold copper ratio is clearly in recessionary tra trajectory on a global basis and is there a good reason yeah sure how about this new president we have who's um slapping tariffs on the rest of the world and really just rearranging the whole US system pushing back on the Fed, pushing back on data um and it's making you know it's really a lot of the things that really made the US gain a pretty significant premium in its risk asset prices i.e. offshoring profits is being shifted and you know the the defend the independents from the Fed are being pushed back on. I think we're just going to get some normal correction, but that is where I think I'm really worried. The key thing to watch right now to me is copper. Um, it's got to recover and I think it's more likely to break down and that means do trickle with it. But the thing that's already happened though is um is some of the most significant I looked at copper very significant very similar to to Bitcoin. Every single trend line was up. Everybody I talked to was bullish and as an ex- trader I look at that like yeah everything in the trend line's up. When I look at that, I say, "Okay, well then everybody's on board." And then the optionality is and the option trader thing here is at some point when it breaks those trends, that's your trade. Can you just explain the notion of Dr. Copper? What actually leads? What does copper lead economic growth with the vice or vice versa? Does copper lead uh stock market performance or vice versa? Because if you overlay copper with the S&P 500, you will notice at least the last couple years at least a very close correlation. In fact, it's almost perfect except for a few instances of exceptions. But anyway, I'll let you comment on this correlation. It it can be a leading. It can be a lagard. It's diff. It depends on the time. Right now, it was it was the thing is what you see there was a complete distortion this year. It's indicative of what happened with the US tariffs. You know, the fear of the US tariffs spiked it and now it's collapsed. And why? Potentially because the rest of the world has to face those tariffs, which means that S&P 500 might have a drag on its profits. But that's where I think it's most significant. Lead or lag, doesn't matter. Right now, to me, the best leading indicators on the planet are cryptos, most notably Bitcoin. Highly volatile risk-on asset. And they're starting to break down. And that's where I want to point out the key thing that's really been leading the Bitcoin rush is this M strategy stock and Michael Sailor. And it got way too expensive. It's broken down before below its 200 day moving average. The 200 day moving average in Bitcoin is below 100,000. And to me, that's next. Um, and particularly it's the time of year that you don't want to buy risk assets in August when volatility just reaches a low for the year unless you and especially when they're at record highs, just expect this up. Bitcoin treasury companies, I'm glad you brought this up. Some people view this as the next major innovation in Bitcoin. Many people have told me offline that they're worried that these large accumulations by uh such a centralized group of people and entities is a risk if they sell off which they will um they said once Bitcoin starts falling we're going to have huge liquidation. So strategy number one treasury company the will for Bitcoin model holdings number two. Number six take a look. Oh wait it fell. Okay it was number six now it's number eight. Trump Media and Technology Group Corp. DJT now owning 15,000 Bitcoin, the eighth largest entity according to this chart on plan the planet for accumulating Bitcoin. That's interesting. I don't know. Anyway, I'll let you comment on this risk. So, that's one thing is the systematic risk of Bitcoin is like nothing I've ever seen. I fully expect it's to do it always has in history to have a normal 50% maybe 60 maybe 70 higher or higher draw down. And now you see example of how extreme it is. But those two words Bitcoin and Treasury in the same sentence is a complete oxymoron. But I think what happens so what happens to these tickers once Bitcoin loses a zero. Well, exactly. I I it's the thing that's that's what happens. They get stopped out and then it's time to buy Bitcoin. Maybe we'll get lucky this time. But this is all predicated remember this this space helped get that president elected. It was a bit of a fostian bargain and these things typically don't work out so well. That's why I point out is also remember who started this Michael Michael Sailor at at strategy. I mean I was very close to him. I interviewed him in 2022. It was our first time that Bloomberg had an open event and I agreed with him. That's when he jumped on board in 2020. He jumped on board with Bitcoin. Well, the main reason Micro Strategy back then jumped on um Bitcoin was his software company didn't have a lot of upside potential. So that was fine and alternatives. It worked great. He doubled down. You know, he he got a 10x and now he's doubling down. And he actually has been taunting Warren Buffett for freeing heavy in cash. David, it's the most significant example of lesson you learn in the trading pitch is never mess with the market gods. Um, thou shalt not tempt the market gods and he temp the market gods and I wish them luck. But this I think I'm going to look back in history and write in my book is this is an example of peak bubble. And this is here's a problem I also have with Bitcoin. There's 21 million other cryptocurrencies. People like Tom Lee have gone over the earth. Ethereum like, okay, well, there's another million you can rot in at some point rotating. There's unlimited supply of and only in 2009 there was only one. Now there's 21 million or 20 million. So they're commodities and they're expensive and people are buying them at the highs. The lesson in commodities is they go down because they went up and they go up because it went down. So, I think we're just going to head towards that going down phase and it's going to be pretty enduring and things like Dogecoin are going to have to drop a couple zeros and Bitcoin might Bitcoin might drop a zero. Now, to end all that thing, the US stock market has to stay elevated. It's August. We don't have a minor correction. But for now, it's early days. That's why I think the end of this year is going to be so telling and that's why by the end of the year, if the US stock market is just up 5%. Everything that the domino's tumble and so I think there's good indications for that. Gold's gold's figuring it out. what tumbles first in this domino effect. So, I've heard the view that once these Bitcoin treasury companies start to liquidate, that's the end of the Bitcoin cycle, not the other way around. What do you think? Um, it depends on what you mean by start. They're going to be significant periods that there might not be much left to liquidate, but what's the leader in that space? Micro Strategy has been the key thing I've been watching this week. And Micro Strategy for the first time since 2021, I think, or 22 on the way down is broke below its 200 day moving average. and it's still at a significant premium to uh its its nav to Bitcoin. So, I think this will go back to a discount and then maybe it's time to buy it. But it's just a normal cycle and I do it's unfortunate how people's emotions get too extreme at the extremes and that's what's happened. It's just starting to roll over and again it's August. This is not the time to buy risk assets yet. I've been to be people like him and you keep people here and people like like you saw Donald Trump Jr. or another Trump member saying it's going to go to a million. I'm like, "Yeah, good luck." I just when they hated it, I love writing that article that it's going to add a zero. And now that they love it, I'll just maybe write an article. It could drop a zero. It's just a normal cycle in life. Unfortunately, I end the Fed. People have been commenting on what the Fed's going to do next. I think it's widely implied now based on what Pal said, the Jackson Hole meeting that the September meeting will see a rate cut. Isn't that good for the markets? Won't that alleviate any volatility into December? Well, okay. Who doesn't believe that? So, it's the lessons of Benjamin Israeli. What we anticipate seldom occurs. It's the most priced in potential for easing ever. It's a market. So, you have to ask yourselves, why is the Trump administration pounding so hard, the hardest in history uh to for the Fed to eat? Because I think they get it. Besson probably gets it. Like, yeah, your timing might be as bad as Herbert Hoover. We got to keep the stock market elevated and we probably should have get the correction out away be well before the midterms rather than later. So the longer they delay it the worse. But we are so addicted to it. It just some point it gets too high. So that's my point is it's also historically very strange to be even consider easing when you know adding to the punch bowl when the party's just getting just blasting off risk assets, cryptos, stock market, credit spreads the narrowest in maybe 25 years. But I think that's the stage we are now. market is so addicted to it, needs it. And here's my prediction for the future. We're going to go to a per a per an elongated period of the stock market just backing up doing what it normally does and the Fed chasing it. And this everybody and of course Mr. Trump has plausible deniability. He can blame the Fed, but you know, it's it's just what happens in in cycles. So maybe I'm wrong, but when you look at commodities, what's happening commodities, you show the gold to Bitcoin, a gold to crude oil ratio. You just look at things like the Fed started easing and since they started easing last year, 30-year bond yields are going up, 200 day moving average and two bond and 10 year not two yields are going down. That's never happened. It shows me and I think the indication is we've reached the endgame of the Fed adding liquidity system and pumping up risk assets cuz now risk assets are just too expensive. And the best leading indicator for all that is $4 trillion of or so cryptocurrencies, 21 20 million of them. And the number one of them probably peaked probably signaled selling to sell risk assets around 100,000 and so far that's been a good signal for gold. Excellent. Thank you very much Mike. Uh good update before the start of September and uh well by the time this airs it'll be the start of September but uh good to hear from you again. When or where rather can we follow you and learn more about your work? Well I appreciate being on your program. So on your program, the Bloomberg terminal on X at Mike Mcloone um 11 and um Mike Mcloone 11 and then um on LinkedIn senior commodity strategist. So David, thanks for having me back on and I'm looking forward to next time we speak. Let's see if uh I can be proven wrong on these theories and if I'm proven right, that's going to be an exciting environment, most notably for the more tactically Yeah. oriented and those who are not overweight risk assets. While we've all made wrong calls, we've made right calls. You're right. Calls have been pretty uh significant. So, let's see what happens next with Bitcoin. Can it lose a zero in the coming months or years? We'll find out. Mike, always good to get your insights. We'll speak next time and happy long weekend. Thank you for watching. Don't forget to like and subscribe.
‘Peak Bubble’: Bitcoin To ‘Lose A Zero’, Drop To $10k Says Bloomberg Strategist | Mike McGlone
Summary
Transcript
This is an example of peak bubble. Bitcoin might drop to zero. Now to end all that thing, the US stock market has to stay elevated. It's August. We don't have a minor correction, but for now it's early days. That's why I think the end of this year is going to be so telling. I think Bitcoin now it added a zero. I think it loses a zero now. Go back to 10,000. That's not a big deal in terms of Bitcoin's history, but for people who own it, it is. And the bottom line is right now to me that threshold was get ready for some major volatility into December. The last quarter of 2025 is not going to be pretty for stocks, risk assets, and Bitcoin. Bitcoin may even lose a zero. If things get really bad, we'll find out why with our next guest, Mike Mclo, senior commodity strategist at Bloomberg Intelligence. Just a quick announcement before we start the interview. I'll be attending the Beaver Creek Conference while the precious metal summit in Beaver Creek, Colorado, September 9th to 12th. I'll be speaking with key leaders, thought leaders in the resource sector. We'll be getting some on the ground news and important updates from one of the key conferences in the resource sector, one of the premier conferences in the world for precious metals. So, tune in then. It'll be a great show. It'll be sponsored by Tutor Gold, brought to you by Tutor Gold. Now, back to the interview. Mike, good to see you again. Thanks for being here. Well, thanks for having me back, David. Particularly on this date, the last day of trading for summer doldrums of August. I can't wait for the long weekend. So, uh let's begin. Let's start by talking about uh your piece. Bitcoin's 100K uh threshold may define 2025. Um you wrote this not too long ago. Now, Bitcoin's been trading above 100K, as you know, for quite some time. Uh you've correctly called Bitcoin to go to 100K uh several years ago, so you're no stranger to the 100K target. Now that we've reached the 100K target, what is next ultimately for Bitcoin and for risk risk assets for 2025, Mike? So what the the latest you saw there I that's probably the third update of going to 100k. No not and once it got there I thought that's a threshold. I think Bitcoin now it added a zero. I think it lose a zero now. Go back to 10,000. That's not a big deal in terms of Bitcoin's history but for people who own it it is. And the bottom line is right now to me that threshold was um um profound. And the first time we traded 100K was on December 6th. To me, that was a classic sign of you're supposed to be selling when they're yelling. And that triggered gold. So, since that day, as of now, um since from August, I'm sorry, from December 6th to now, the end of August, August 29th, gold's up about 30%, Bitcoin's up maybe 8%, stock market's up about the same amount. S&P 500 total return. Um, and the Bloomberg Galaxy crypto index is unchanged. To me, it's now what are we going to do for the rest of the year? We have one month left and we then we tilt over to the the fourth quarter. And I think this is just a sign Baltley is going to pick up. Bitcoin has proved it's a risk on asset. The 48month correlation of Bitcoin, the S&P 500 right now is about6. That's about it's the highest ever. I use 48 months cuz it's four years. And in 2020, right, for before the biggest money pump in history, the correlation was negative. 05. So Bitcoin's proven it's a risk on asset. It's going up because the stock market's going up. It has 20 million companions in cryptocurrencies and then there's gold which has only three there's only four precious metals so three companions. So I think gold's going to continue to outperform most risk assets particularly and I should say if but I will say when the US stock market starts to give back some of its gains and here's the key thing I'll end with is just this month in August the VIX volatile index in volatility reached the low for the year about 4.2 two as we speak it's back up to about almost 16 and so the month of August will go down history as the low for the year in in Bitcoin maybe and the high I'm the low for the year in VIX in the VIX the high for Bitcoin is the exact opposite of April April is when the VIX reached the high at 52 at the closing basis and Bitcoin reached the low on a closing basis 4 p.m. around 73. So I think the market's just proving that we're at that stage now. Summer doldrums are going to tilt over to volatility and just a question how we make out from here and I fully expect gold's going to continue outperforming. Okay, I want to get to gold and uh equities in just a bit but going just finishing off on Bitcoin. I remember I started interviewing a few years ago now. Uh Mike, I don't remember when our first interview was, but back in 2020 when Bitcoin was just over 10K, 11K, you were already talking about the prospect of Bitcoin just adding another zero if nothing happens. I remember a few years ago in 2021, 2022, I said, "When can it 3x to 100K?" You said, "Well, I mean, maybe the next couple years." You were right, by the way. That was one of your best calls I remember. And you and I asked you, "What could happen? What what needs to happen for Bitcoin to reach 100K?" And you said absolutely nothing is going to naturally get there. I'm just curious now that we've reached the threshold, why aren't you saying it's naturally going to add another zero to a million if nothing happens? It's a classic thing you learn sometimes um having dealt with customers and done myself and seen the D's in business and that's I call the deaths and divorces unfortunately. You're supposed to be buying when they're crying. And when it was around 10,000, everybody was crying. Um, and a lot of people who are Bitcoiners. And then you're supposed to be selling when they're yelling. And this is one of the most profound prolific examples of selling when they're yelling I've ever seen. So back then in first Trump administration, that's when I I really enjoyed writing how this space is the most enduring bull market in the space is the proliferation of of stable coins. I call them crypto dollars. Back then, Tether was $2 billion. Now the whole crypto dollar space is approaching 300 billion is going to the dollar. All those crypto dollars were investing in treasuries and back then it's when the Trump administration hated it. I'm like okay I love it. And now that they tilted over and they love it. It's time and everybody's jumping on board. Just a classic example. You're supposed to be backing off and saying staying away. And what's changed David is back then I really like that narrative that Bitcoin had definable diminishing supply and increasing demand and adoption. Get it? price must go up over time. Now on coinarketcap.com they say Bitcoin is supposed to be limited at 21 million coins. Coinarketcap.com is approaching 21 million cryptocurrencies. In 2009 there was one. There's unlimited supply and you see all this switching out from Bitcoin maybe the ether with people like Tommy Lee and stuff to Ethereum and I said well good luck. That just proves to me we're in a this is a commodity space. It's highly speculative. It's wonderful to trade, but buying and holding, I'd say good luck. I fully expect things like Dogecoin, which tracks nothing, is a joke. As we speak, it's at $31.6 billion. We can lop a couple lop a couple zeros off of that and it's still too expensive. That's going to come. But the bottom line is this whole space has been on on the back of the rapidly advancing, most very expensive US stock market in risk assets in history on 100-year basis. And at some point, that's going to implode a little bit or revert a little bit. And I think the most significant people need to understand is now that this space has really been embraced by the Trump administration for it to go up. You have to completely expect the success of the Trump administration. It's the opposite of what it was before supposed to be the opposite of of um politics and and government. And then we have to look in the big picture. We've only 6 months in or so into the new administration and we've got another 3 and 1/2 years left to expect us to have only a one almost 20% correction in S&P 500 that went straight up and not have a a significant draw down in the stock market that stays down over this, you know, significantly disruptive, discombobulating person. I mean, he might turn out to be right, but you're changing the world order. To expect that not to happen, I think is what gold's figuring out. And that's why I think gold is going to continue to outperform most risk assets. Well, before we move on to gold and other uh assets, what I'll just ask the same question I asked you a few years ago. What needs to happen now to Bitcoin for another zero to be added into the uh seven figure territory? So, I think that's a very unlikely scenario partly because there's too many people who are long it exposed to it or just in the next 5 years. No, ever is a long time. Next 5 years very unlikely. I think Bitcoin is more likely to lose a zero than add a zero at this stage. number one thing for it to go a continue higher is US stock market has to continue at um add to its 100red-year premium to the um to GDP and the rest of the world. It's got to add it almost has to do that because the correlation is the highest ever. Bitcoin and cryptos are just running on top of this massive speculation. So that's the number one thing I think for it to appreciate and I think people who are buying might get it. Bitcoin is proving this year as I showed complete negative correlation to the VIX. It's leverage beta and sometimes it's le more leverage beta than digital gold. Right now it's clearly leverage beta and the pile on factor is when you're supposed to be selling because they're yelling and I hear about all these flows in Ethereum. I said well okay well I'm probably not buying as much Bitcoin anymore and they're proving that it's a commodity and there's thousands of these millions of these commodities that are great for speculation. Nothing wrong with that. Remember I'm from that background from futures but to me it's now has reached that point of it's too expensive and it really reminds me of internet so stocks in 1999 of the Japanese stock market in 1989 I started in the business in 1988 covering Japanese customers from the trading pitch in Chicago and what I read about in 1929 in um US stock market I mentioned that because you just look at our stock market versus GDP Warren Buffett model you do have to go back to when Herbert Hoover was elected to have similar similar ities and Trump might go down with just poor timing. Gold is an indicator that you're looking at as a precursor to more volatility under Trump in 2025. You wrote in that piece, uh, I'd like to get to this chart and have you respond to it, please. This is the gold oil ratio. So, gold to oil now spiking historically whenever it spiked, uh, it precedes some sort of economic slowdown or recession. There's been exceptions, of course, um, and and over over the last basically 15 years, it's steadily risen. Uh but every time you see a very sharp rise, something usually happens in the economy. Um anyway, I'll let you comment on what this ratio and gold overall is signaling for us. So I think that ratio is going back to 100 because I see gold heading to 4,000. Wow. It's kind of its next next major resistance level. And the key trigger for that, David, would just be a little bit a pick up in stock market values up 10% then the year. Maybe it ends up unchanged. That'll be a good catalyst for gold. And I think crude oil is going back to 40. Now that's not profound at all because the last 20 years, every bottom in crude oil three times has been around 40 or below. And we see what's happening. The all-time high was put in in 19 in 2008 at 147. And what happens when crude oil spikes, the elasticity kicks in, but it's also facing a paradigm shift in the world order. Just make a quote is my EV is 11 years old. And that same car you can get from China now at half the price with three times the range. I have a plug-in hybrid. the world's shifting rapidly away from um towards electrification which obviously means better things for um for copper but that to me is where I think crude oil is heading lower but also that demand pool's not coming um the number one source of demand in the world has been China they're they were picking straight up in their imports of crude oil it plateaued about 11 million barrels a day four years ago and it's just kind of hanging on there and they're actually producing increasing their own production partly just adopting the technology that US pioneered So this is a major paradigm shift in a world that's replacing and fossil fuels with technology. And then there's this old little old factor of that chart you show me is crude oil has a very high connection basically can't really go up when the stock market goes down unless there's a shock and that to me is a key risk is so I'm looking for maybe even this year by this year we might print that 40 handle I've been calling for since 2022 or three. Um because I saw you know you see the elasticity kicking but it's not alone. I mean you see that very much happen in natural gas. Natural gas got up to 10 down to two and right now it's picking around three potentially might trade a little lower. Remember we had a colder than normal winter. It's still pricing for another colder than normal winter adids global warming and all the grains the grains are in a clear lower price cure trajectory. Now they might be getting near bottoms but these lower price cure pay rates can take a long time but remember the bottom line is the catalyst for all these the pressure in these elastic commodities was to spike to the 2022 high. So that gold um crude oil ratio the highest ever on a year-end basis was it right now it's at 53 54 so barrels per one ounce of gold on a year-end basis the highest ever was around 39 and guess what the two years were 1933 and 2020 not really good years in markets so we're at unprecedented levels right now in commodities this is going to be a historic year particularly if we continue in the space and particularly if the stock market drops a little bit. And that's why I'm quite concerned, much more concerned than I was in 1999 and in 2007. This uh oil chart, I like to show you uh historical uh oil chart performance. If oil were to drop to $40, like you said, that hasn't happened. Well, let's just discount 2020. That was an anomaly, but that hasn't happened since 2015, 10 years ago, right? So, if oil falls down to $40, well, we haven't seen that for 10 years. Could that be actually a catalyst for more economic growth? Could people be driving you more? Could businesses see higher margins? You know, all that. It helped. So, in 2015, that helped. That came as the Shell Revolution kicked in and we've had we had a few um credit issues in in Europe and everything. But the bottom line is 2015 and that whole chart except for just the last 5 years, the US was a net importer. Now with Canada, we're net exporters around six or so million barrels a day of crude oil and liquid fuels. US now is the largest producer and a net exporter of of crude oil and natural gas and it's just that super abundance is kicking. We have to export it. That's an oxymoron compared to that whole chart in history and that's what's changed. So look at the supply side. Obviously Canada still have that has to export because we make more crude oil natural gas than you consume and OPEC has to cons is is coming on with more and primary demand source China's curtailing picking back. So I expect that normal trend to continue and that is I just say the last 20 years crude oil on average has never never settled actually in history it's never ended the year above 100,000 you have to I'm sorry above $100 a barrel and it often times ends the year around 60 60 bucks now we're heading for there now I think it's just going to do its normal and head towards a low price cure the bottom line is number one rule in commodities you almost always go to the cost of a break even cost the cost of production depends on how you define it and where it is break even cost this year is right is the low for this year and in the states the break even cost is around $55 a barrel and the low this year is 55. The high is 80. Now we had some spikes that pumped up on 80. People worried about supply and about curtailed um supply out of the Middle East. I think it's much more likely to break below 55 and get towards 40 than stay above 80. And I just that's the trajectory and that's with the stock market up 10% in the year. Now imagine if it ends up down 10% in the year. that that takes that takes what are severe deflationary forces already in place in the world's most significant commodity and the grains and it just adds fuel to those downward trajectories. Let's talk about gold. Now, this is the gold price chart. Um, and it's been hovering around new all-time highs basically since April. Now, if I were to go back to your report here, you wrote that the pandemic's unprecedented monetary stimulus, Russian's invasion of Ukraine, and the election of Trump uh President Donald Trump may uh might come to be viewed as paradigm shifting events that propelled gold to 4,000 an ounce in 2025. So, these events already happened. In fact, they've happened quite some time ago before April. So, what has kept gold at elevated levels for 4 months? This is a this is a rangebound floor that doesn't usually happen with gold. Yeah. So, what you're showing in that chart is that's the 200 day average of the VIX volatility index. It looks like it's it's an upward trend and it's actually since President Trump was elected, VIX has been going up. If you just look at a 200 day moving average now, it's kind of hovering right where the bottom was in 2021. And also, I'm showing you in that chart is the Bitcoin to gold ratio. It peaked in 2021 and hasn't been able to go there since above there since. So, Bitcoin has been flatlined versus gold now for four years. That's the bad bad problem. But the thing that's been happening is Bitcoin is there's still more central bank buying. That's significant. In fact, total reserves on a global basis of gold now is actually just surpass in central banks treasuries and ETF flows, David, are significant. So, what's very rare is we have total ETF um inflows this year up about 11%. That's after four years of outflows. I mean, that's a paradigm shift. The thing is that very rarely happens in the summer doldrums when the stock, you know, we just reached a new low in VIX usually when the stock market's going up. I mean, when the VIX is going up. So, I think what's happening is people are diversifying out of um and some taking some of their profits in some certainly US equities and finding alternatives and it's global. Remember, the rest of the world is facing unpar unprecedented tariffs on the world's largest goods importer. Just getting started, most notably China. So I look at gold is just it's it's just just waiting out each the chart you showed earlier was just a nice little bull flag. Um and it built a base around 3,300. I look at it as just waiting for a pick up in stock market US stock market vols catalyst to go higher because that's the key thing I really appreciate in the market when you have complete assumption expectations that the stock market will just keep going up. It's only had two down years on a total return basis since the bottom and since 2008. Then you get to the point where it's just tilted. Expectations are just too high. We got some normalization. Gold's figuring it out. And also, we're having this issue with number one thing. Remember about gold. Gold absolutely loves President Trump. Every time he opens his mouth, the gold market smiles. I mean, we don't have to go into details. And you the way you said yes, I think you get it. The gold market says, "Oh, Mr. Trump, we love you. Just keep being you." and shifting the world order, reversing the you know that and then gold gold just loves that. So go ahead, Mike. You know what else gold loves is inflation expectations jumping. And I I think it's important to highlight the fact that this was not in the sentence that you wrote. A stock market pullback could trigger the next key move upward in gold and potentially uh led by Bitcoin. You did not write that a huge jump in inflation is going to trigger gold to $4,000. Why not? I'm glad you went there because gold, I think, is anticipating normal deflation that follows inflation. That's a typical cycle in history. Always works out that way. It's just a question of time, particularly when you pump up inflation, artificial money supply, and that's what we did to the peak in 2022. Um, and so the best performing pairs in in for gold are deflation, particularly in dicey currencies. Let's say if you're in Zimbabwe, you're better off holding gold than any type of Zimbabwean currency. any other country like that and then deflation i.e what happened after um the great financial crisis now we're having severe deflation in China good example is PPI in China the year-over-year is minus 3.6% um the bond yield the tenure note yield is 1.79% compared in the US at 4.22%. Now David, that's despite the fact that money supply in China is running by some estimates, the late side check on the terminal, $45 trillion. That's double the US. And um that to GDP levels, by some estimates, Goldman Sachs put out 300%. They're doing massive things to prevent the deflation that almost always happens in rapidly advancing market emerging markets that revert. So they're playing deflation. and the rest of the world's um most central banks in Europe are cutting um cutting rates partly because they see it coming. China's exporting this deflation around the world and there's one key thing there's one major pillar holding up the whole world from just that normal deflationary cycle the US stock market. So the key thing I've been watching is gold divided by the US stock market. It just looks like it's just starting to pick up higher. Um, and I, you know, I don't know what it's going to take to, so let's put it this way. Gold, um, divided by the S&P 500. It's just bottoming and looks like the pattern looks just like it did in 1967 to 72, right about there at 71 when we US went off the gold standard. Um, at the same time, looks like the stock market might be peaking versus the rest of the world's stock markets and potentially GDP. just getting started by that's why I point out by the end of this year you might you and I might have a lot more to talk about and that's just if we just get a normal pick up in US stock market volatility and just a little backup in risk assets and that's why I point out to Bitcoin it's a riskier of them all it's led everything on the way up probably going to leave on the way back down and I think it's at risk of just dropping a zero a little a little back up by the order of 25% in the stock market is that what you said well here's my base case I started out the year I think this is going to be a down year for the stock market in the beginning of the third 50% draw down in the S&P 500 since the start of um since 2000. Not so profound. We've already had two. Wow. What another one. The difference this time is from the highest levels ever. And we have the most mercurial discombobulating government ever in this country. So also we're the tariffs. What's the main thing that tariffs do? Cuts off profits. It it's a a profit um it just it takes out those profits that all these entities were using when they were offshoring. Now, okay, they just don't they're going to hurt earnings. Um, and it's just the key things are way overdue for a little recession. So, these kind of things happen when you least expect it. Yes, been wrong. Some of us expected this two years ago. It didn't happen, but now we have a major catalyst and we just have we're not even near there yet. So, on the year, the total return S&P 500 is about 10%. That's great. It's already priced in. It's done. It's been a good year. Um, and gold seems to be anticipating this this riskoff low volatility ancient store value beating everything. David is possibly telling us that it's expecting a front running or signaling that we're going to have more of a down or just more of a normal downdraft in the stock market. Now, gold could turn out to be wrong and we'll see that by the end of the year, but I'm sticking with the rock versus stocks. Okay. On inflation, I think the Fed has a slightly different view on inflationary pressures short-term uh than yourself. Correct me if I'm wrong, but anyway, I'll play for you what POW said at Jackson Hole last week and then we will uh we will respond to this together. Take a listen. You have inflation expectations for granted. Come what may, we will not allow a one-time increase in the price level to become an ongoing inflation problem. So, putting the pieces together, what are the implications for monetary policy? In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. a challenging situation. Risks to inflation are tilted to the upside in the short term. That's what he said. Can you evaluate that statement? Um, sure, maybe short term because of tariffs, but the key thing that all the Fed governors and they just completely passing and missing the stinky old elephant in the room. When you get two times GDP in the stock market, it is the economy. That's the only reason inflation is still sticky. The main reason it's still sticky because it's the wealth effect is the greatest in our lifetimes in a hundred years. So I had the honor of at the economic club of Miami last night seeing Chris Waller speak. He's on the top list being the next Fed governor. He's on the transitory camp for inflation. He expects that we're going to have a he suggests we should have a 25 basis point cut in September. And he says everything's starting to tilt lower. He says from his anidal information what he checks is people are not hiring and and the labor market's starting to tick down. But the bottom line is let's just say the facts what they're not saying when the stock market goes down that'll be a severe deflationary force and we're way overdue for that where you got CPI like just today we had core PCA PC price index running around 2.6% 6% in the uh year-over-year 2.9% on the on on the core and then um so that is going to go negative. My prediction at some point we'll see that. Remember that's just a 12-month measure. It's a 12-month measure of a rolling time series that's ticked every month it's added on. At some point it's going to roll over and the number one force for all that is the stock market. So let's put it this way. If the stock market ends up down in the year, you're going to see negative inflation. You'll just see deflation and the Fed will ease ease a lot. That's my point is everything's being held up by this house of cards that is running at the greatest wealth effect ever and we're soberd for just the normal reversion like we did after housing the housing bubble in 2000 that peaked in 2006 and we got deflation right well that was pretty extreme but houses and stock markets are more expensive much more expensive now relative to virtually everything than so I I'm I'm afraid to say it I'm fearful I'm actually very fearful what can happen but I'm it's nice to be able to say at least gold is giving you some protection Well, September uh commodity outlook, China deflation tilt is the name of this report and I think that uh is reflective of some of the things you've just talked about, Mike. So, it says here record settings risk off and top performing. Gold sits at top of the warning radar, especially with most risk assets still rising, declining crude oil, natural gas, and grains are showing deflationary leanings that typically follow spikes akin to 2022. Uh so I uh I'll let you summarize this report, but basically I think you wrote that uh commodities will still continue to put deflationary pressures on the economy. That means you're not bullish on commodities except gold. Correct. Yes. And I want to point out one thing. So the Bloomberg commodity, scroll down a little bit. I want to show you that second chart. I show the second chart. Well, that one we've that's So that's the Bloomberg commodity index. It's the same as 2011. Um, and okay, so it's hovering there, but it's stuck between inflated risk assets on the top. You see that's a stock that's S&P 500 and deflation in China. I show you that's a 10 in China. So it's stuck between which one's going to win. So that's my point. As long as you see have just a little bit of a backup in the US stock market, you know, where we say if it goes unchanged on the year. Oh, that would be so horrible. My point is we're at the point now it absolutely has to go up to avoid normal deflation for the inflation. But I want to scroll down to the one next chart to point out what I'm really worried about. There's three C's in commodities. The three C's met matter. There's crude oil, copper, and corn. Two of those three already heading lower. Crude oil is heading lower. 200 day moving average is clearly heading lower. Corn is clearly heading lower. 200 day moving average. And there's one C that's copper. I show you right there. It has put in a chart pattern. I think it's very much akin to crude oil in 2008 when it put up made a new high at 147 and then collapsed down to 40. Copper's doing that right now. So the the the world copper is basically like Atlas shrug. The world is resting on its shoulder. It absolutely has to go up because if it goes down, it takes everything down with it. And copper's right now up about 10% on the year after being up over 35% for a while. It's right at a significant trend line. Same thing as the S&P 500. We're up 10% a year. My point is my fe fear the risk I think is copper is going to follow downward with deflation in China the most significant demand pull producer user of copper and break that trend line and tilt everything lower which means that's what's happening already is we got to we got to go up I think the risk goes down and I mean gold's already pricing that in the gold copper ratio is clearly in recessionary tra trajectory on a global basis and is there a good reason yeah sure how about this new president we have who's um slapping tariffs on the rest of the world and really just rearranging the whole US system pushing back on the Fed, pushing back on data um and it's making you know it's really a lot of the things that really made the US gain a pretty significant premium in its risk asset prices i.e. offshoring profits is being shifted and you know the the defend the independents from the Fed are being pushed back on. I think we're just going to get some normal correction, but that is where I think I'm really worried. The key thing to watch right now to me is copper. Um, it's got to recover and I think it's more likely to break down and that means do trickle with it. But the thing that's already happened though is um is some of the most significant I looked at copper very significant very similar to to Bitcoin. Every single trend line was up. Everybody I talked to was bullish and as an ex- trader I look at that like yeah everything in the trend line's up. When I look at that, I say, "Okay, well then everybody's on board." And then the optionality is and the option trader thing here is at some point when it breaks those trends, that's your trade. Can you just explain the notion of Dr. Copper? What actually leads? What does copper lead economic growth with the vice or vice versa? Does copper lead uh stock market performance or vice versa? Because if you overlay copper with the S&P 500, you will notice at least the last couple years at least a very close correlation. In fact, it's almost perfect except for a few instances of exceptions. But anyway, I'll let you comment on this correlation. It it can be a leading. It can be a lagard. It's diff. It depends on the time. Right now, it was it was the thing is what you see there was a complete distortion this year. It's indicative of what happened with the US tariffs. You know, the fear of the US tariffs spiked it and now it's collapsed. And why? Potentially because the rest of the world has to face those tariffs, which means that S&P 500 might have a drag on its profits. But that's where I think it's most significant. Lead or lag, doesn't matter. Right now, to me, the best leading indicators on the planet are cryptos, most notably Bitcoin. Highly volatile risk-on asset. And they're starting to break down. And that's where I want to point out the key thing that's really been leading the Bitcoin rush is this M strategy stock and Michael Sailor. And it got way too expensive. It's broken down before below its 200 day moving average. The 200 day moving average in Bitcoin is below 100,000. And to me, that's next. Um, and particularly it's the time of year that you don't want to buy risk assets in August when volatility just reaches a low for the year unless you and especially when they're at record highs, just expect this up. Bitcoin treasury companies, I'm glad you brought this up. Some people view this as the next major innovation in Bitcoin. Many people have told me offline that they're worried that these large accumulations by uh such a centralized group of people and entities is a risk if they sell off which they will um they said once Bitcoin starts falling we're going to have huge liquidation. So strategy number one treasury company the will for Bitcoin model holdings number two. Number six take a look. Oh wait it fell. Okay it was number six now it's number eight. Trump Media and Technology Group Corp. DJT now owning 15,000 Bitcoin, the eighth largest entity according to this chart on plan the planet for accumulating Bitcoin. That's interesting. I don't know. Anyway, I'll let you comment on this risk. So, that's one thing is the systematic risk of Bitcoin is like nothing I've ever seen. I fully expect it's to do it always has in history to have a normal 50% maybe 60 maybe 70 higher or higher draw down. And now you see example of how extreme it is. But those two words Bitcoin and Treasury in the same sentence is a complete oxymoron. But I think what happens so what happens to these tickers once Bitcoin loses a zero. Well, exactly. I I it's the thing that's that's what happens. They get stopped out and then it's time to buy Bitcoin. Maybe we'll get lucky this time. But this is all predicated remember this this space helped get that president elected. It was a bit of a fostian bargain and these things typically don't work out so well. That's why I point out is also remember who started this Michael Michael Sailor at at strategy. I mean I was very close to him. I interviewed him in 2022. It was our first time that Bloomberg had an open event and I agreed with him. That's when he jumped on board in 2020. He jumped on board with Bitcoin. Well, the main reason Micro Strategy back then jumped on um Bitcoin was his software company didn't have a lot of upside potential. So that was fine and alternatives. It worked great. He doubled down. You know, he he got a 10x and now he's doubling down. And he actually has been taunting Warren Buffett for freeing heavy in cash. David, it's the most significant example of lesson you learn in the trading pitch is never mess with the market gods. Um, thou shalt not tempt the market gods and he temp the market gods and I wish them luck. But this I think I'm going to look back in history and write in my book is this is an example of peak bubble. And this is here's a problem I also have with Bitcoin. There's 21 million other cryptocurrencies. People like Tom Lee have gone over the earth. Ethereum like, okay, well, there's another million you can rot in at some point rotating. There's unlimited supply of and only in 2009 there was only one. Now there's 21 million or 20 million. So they're commodities and they're expensive and people are buying them at the highs. The lesson in commodities is they go down because they went up and they go up because it went down. So, I think we're just going to head towards that going down phase and it's going to be pretty enduring and things like Dogecoin are going to have to drop a couple zeros and Bitcoin might Bitcoin might drop a zero. Now, to end all that thing, the US stock market has to stay elevated. It's August. We don't have a minor correction. But for now, it's early days. That's why I think the end of this year is going to be so telling and that's why by the end of the year, if the US stock market is just up 5%. Everything that the domino's tumble and so I think there's good indications for that. Gold's gold's figuring it out. what tumbles first in this domino effect. So, I've heard the view that once these Bitcoin treasury companies start to liquidate, that's the end of the Bitcoin cycle, not the other way around. What do you think? Um, it depends on what you mean by start. They're going to be significant periods that there might not be much left to liquidate, but what's the leader in that space? Micro Strategy has been the key thing I've been watching this week. And Micro Strategy for the first time since 2021, I think, or 22 on the way down is broke below its 200 day moving average. and it's still at a significant premium to uh its its nav to Bitcoin. So, I think this will go back to a discount and then maybe it's time to buy it. But it's just a normal cycle and I do it's unfortunate how people's emotions get too extreme at the extremes and that's what's happened. It's just starting to roll over and again it's August. This is not the time to buy risk assets yet. I've been to be people like him and you keep people here and people like like you saw Donald Trump Jr. or another Trump member saying it's going to go to a million. I'm like, "Yeah, good luck." I just when they hated it, I love writing that article that it's going to add a zero. And now that they love it, I'll just maybe write an article. It could drop a zero. It's just a normal cycle in life. Unfortunately, I end the Fed. People have been commenting on what the Fed's going to do next. I think it's widely implied now based on what Pal said, the Jackson Hole meeting that the September meeting will see a rate cut. Isn't that good for the markets? Won't that alleviate any volatility into December? Well, okay. Who doesn't believe that? So, it's the lessons of Benjamin Israeli. What we anticipate seldom occurs. It's the most priced in potential for easing ever. It's a market. So, you have to ask yourselves, why is the Trump administration pounding so hard, the hardest in history uh to for the Fed to eat? Because I think they get it. Besson probably gets it. Like, yeah, your timing might be as bad as Herbert Hoover. We got to keep the stock market elevated and we probably should have get the correction out away be well before the midterms rather than later. So the longer they delay it the worse. But we are so addicted to it. It just some point it gets too high. So that's my point is it's also historically very strange to be even consider easing when you know adding to the punch bowl when the party's just getting just blasting off risk assets, cryptos, stock market, credit spreads the narrowest in maybe 25 years. But I think that's the stage we are now. market is so addicted to it, needs it. And here's my prediction for the future. We're going to go to a per a per an elongated period of the stock market just backing up doing what it normally does and the Fed chasing it. And this everybody and of course Mr. Trump has plausible deniability. He can blame the Fed, but you know, it's it's just what happens in in cycles. So maybe I'm wrong, but when you look at commodities, what's happening commodities, you show the gold to Bitcoin, a gold to crude oil ratio. You just look at things like the Fed started easing and since they started easing last year, 30-year bond yields are going up, 200 day moving average and two bond and 10 year not two yields are going down. That's never happened. It shows me and I think the indication is we've reached the endgame of the Fed adding liquidity system and pumping up risk assets cuz now risk assets are just too expensive. And the best leading indicator for all that is $4 trillion of or so cryptocurrencies, 21 20 million of them. And the number one of them probably peaked probably signaled selling to sell risk assets around 100,000 and so far that's been a good signal for gold. Excellent. Thank you very much Mike. Uh good update before the start of September and uh well by the time this airs it'll be the start of September but uh good to hear from you again. When or where rather can we follow you and learn more about your work? Well I appreciate being on your program. So on your program, the Bloomberg terminal on X at Mike Mcloone um 11 and um Mike Mcloone 11 and then um on LinkedIn senior commodity strategist. So David, thanks for having me back on and I'm looking forward to next time we speak. Let's see if uh I can be proven wrong on these theories and if I'm proven right, that's going to be an exciting environment, most notably for the more tactically Yeah. oriented and those who are not overweight risk assets. While we've all made wrong calls, we've made right calls. You're right. Calls have been pretty uh significant. So, let's see what happens next with Bitcoin. Can it lose a zero in the coming months or years? We'll find out. Mike, always good to get your insights. We'll speak next time and happy long weekend. Thank you for watching. Don't forget to like and subscribe.