“Experts Are WRONG About Everything” | Michael Howell on Bitcoin, Recession, & Global Liquidity

Why is it the stock market is going up Despite the fact that there is a well Predicted recession uh allegedly Upcoming in the US and maybe the world Economy today I interview famed investor Michael Howell founder of cross-border Capital as he makes the case that a Further recession is not happening in Fact we're at the beginnings based on The data of a new bull market Michael Shares his knowledge on macro fed Interest rates Bitcoin investing advice For new investors but before all that Michael what's your background well yeah Um goes back quite a while Um uh I originally was in Academia uh I Kind of got I suppose disillusioned with That I was doing a a masters and PhD in Economics Finance Etc so I moved into Industry and I was working in corporate Planning for uh for a UK Industrial Company for two or three years and then Basically basically the financial sector Began to explode in a favorable way This was a so-called Big Bang as people May remember it in the in the mid 1980s Uh there was a huge influx of capital Into London Um American Banks came in sort of big Time I joined Salomon Brothers Um and I was a research director there And basically I spent about seven or Eight years with salmon brothers and Then moved on to another uh another

Investment Bank called bearings who I'm Sure people would have heard of and After working for maybe two uh volatile Investment Banks I thought it was time To set up an investment advisory company So I did that independently in the late 1990s and I've been doing that for the Last 25 years or so And one of your main core competencies Is macro and liquidity could you go into Why that's important correct yeah I mean That's very much coming out of the Solomon Brothers School uh for those That don't know or don't know Financial History Simon Brothers was the uh Biggest uh fixed income Trader worldwide It was the global Bond markets uh it had Uh big footprint in Global Forex markets As well and basically the sort of the Theme behind Salomon Brothers research Uh and its proprietary trading was Understanding flows understanding the Flow of capital around the world and the Doyen of floor funds analysis is a Gentleman called Henry Kaufman who's now In his 90s Um Henry was head of research at Salon Brothers and did all of the pioneering Work on understanding what are called The Z1 accounts which come out of the Federal Reserve So what happened in in markets this First half of 2023 because one of the Main reasons that IU got put on my radar

Is you were on podcasts back in January Of 2023 when maybe Market sentiment was At its worst and you were saying hey I Think there's maybe a bullish uptrend in Liquidity here so what happened Yeah well it that's that's exactly what Happened I mean basically what uh what You saw were a number of features going On but I I'll drill out and focus on on Two of those one was that uh you saw at Uh in the end of um before uh around uh Let's say end of September of 22 there Was something called the British guilt Crisis that was uh for the maybe an Esoteric uh concept but basically it Occurred because the incoming prime Minister new prime minister in Britain And her Chancellor decided on a very uh Let's say pro-growth budget which uh Involved a lot of uh let's say fiscal Risks uh so it was unfunded an unfunded Program the financial markets got Spooked by that the British guilt Market The bond market The Sovereign bond Market sold off heavily a yields spiked Uh and that was a wake-up call for Governments worldwide treasury Departments around the world because had That same phenomena occurred in the U.S Treasury market there would have been Another 2008 Global financial crisis Such was the extent I mean it was a big Spike in yields and markets wouldn't Have taken that and that was the time

Where Janet Yellen began to voice Concerns about ill-equality in the U.S Treasury market uh if people recall and What you began to see around that time Is what we labeled as stealth QE which Was probably a joint operation between The treasury in the Federal Reserve to Try and stabilize U.S Bank Reserves uh Under the quantitative tightening label As the Federal Reserve withdrew Liquidity from U.S markets through not Most of last year U.S Bank Reserves held Up the FED began to diminish quite Significantly that was a big liquidity Squeeze but following the end of September and the debacle in the British Guilt Market uh U.S Bank Reserves then Flatlined and they were held at about 3 Trillion uh US dollars as a level the Next iteration was the svb the banking Crisis these Credit Suisse Etc debacle around uh March of this year That led to a further increment of Liquidity by the Federal Reserve there Was direct support through the discount Window in other words lending uh to Banks and further support and you saw Various other measures such as a rundown Of the treasury general account for Various reasons approaching the debt Certainly bottom line was liquidity Started to pick up so that's Point Number one there was what we might call A stealth QE because

Um the authorities were denying that That was happening and they kept on Insisting that they were operating a Quantitative tightening program in the Background that clearly wasn't true Markets respond to liquidity and the Most sensitive asset classes to Liquidity are things like Cryptocurrencies and the NASDAQ index And both of those have been flying Pretty much ever since the other big Change uh was the end of lockdown China Where you saw from the Chinese economy An attempt to or Chinese policy makers And attempt to Goose the economy uh with A lot of monetary stimulus uh China Enacted that through through December January of this year uh there's Subsequently been a bit of a lull in That so uh of the last three months in Fact uh in uh April and May out of those Last three months April may have been Negative months in Chinese liquidity but June has been a very big month where the Chinese have added another trillion Yuan Of liquidity of their money markets They're trying to get the economy uh Revved up again so the bottom line is That don't listen to what central Bankers say watch their hands and that's Really what we've always done through Certainly uh you know my career is Looking at Central Bank actions and this Has really been key to understanding the

Markets money moves markets and that's The bottom line that's what you've got To try and understand And just to be ultra clear because I Totally understand that the Fed was then Lending to Banks like svb I saw that What is stealth liquidity and how is it Different than just full-on quantitative Easing Well it's the the this is where it gets Somewhat wonkish because you've got to Start to look at the a lot of the line Items in the FED balance sheet but the The key thing to say is that not all Elements on the balance sheet are Necessarily liquidity creating so There's been a huge focus on the overall Balance sheet size which you know in Truth has been shrinking but there are Various elements within that uh mix of Items on the balance sheet that don't Create liquidity they may even withdraw Liquidity one of the key ones has been Something called the reverse repo Program now the reverse Repro program Can be thought of as the Federal Reserve Basically issuing very short-term Securities and mopping up liquidity from The markets and that reverse repo Program uh swelled to huge size it was Basically his Peak around two and a half Trillion US Dollars uh it's currently on The way down uh it has been tapped by Bill issuance from the treasury as we

Speak and it's currently uh latest daily Print has been under 2 trillion so You've lost about half a trillion in That reverse repo program that is a Withdrawal of liquidity from the markets But as that program sweeps shrinks money Is added back uh into financial markets So these are sort of Fairly wonkish Considerations but the fact is that what You've got to look at is an aggregate That we calculate and if anyone's Interested look on Twitter because we Frequently give definitions of what we Do and that basically shows how to Calculate that if you if you want to do That that is one of the elements that's Very important uh Federal equality has Been rising uh for a number of months Now but it's something that one's got to Look at now I can detail why liquidity Is important I can put up a chart if you Like which gives some of the uh some of The sort of illustrative backdrop here You go so what this index here is Looking at is a proprietary index that We calculate this is made available to Our clients we provide data uh Extensively but not just the world Economy or the us but basically 90 Economies worldwide if that's uh what You so want uh we provide a lot of that Data to Quant funds around the world This is showing the global liquidity Index this is an aggregate uh it's

Basically a weighted index makes it Easier to understand if we put an in Index form uh the way to read that chart Is to say that if you're at the bottom Of that uh at that chart where the index Is close to zero or thereabouts uh very Close to zero in that gray area that's When liquidity is tight and that's when You normally get as the label says Banking crises uh and you can see we've Labeled helpfully labeled a lot of those Crises of which the latest iteration a U.S Regional Banks Credit Suisse first Boston as examples but there have been Lots of others through the through Through time uh the Scandinavian banking Crisis back in the early 1990s uh bear Stearns Eurozone banking crisis Etc uh This uh this chart begins here in 1990 We've got a much bigger one that goes Right back into the 1960s uh same point At the top of of the chart what you can See there are what we label asset booms That's when there's lots of liquidity in Markets and that's basically when you Start to see uh evidence of strong gains And asset markets asset markets respond To liquidity they're one of the first Things to do that and maybe what I Should say just to clarify what we're Looking at here is money that is moving Around uh Global Financial markets it's The credit and the savings flows that Are going through world financial

Markets it is not money that is in the Real economy it is not really related to Conventional monetary Concepts like M1 Or M2 that people will be familiar with Those are much more measures of money in Retail bank accounts and those retail Bank accounts are much more synonymous With movements of real economy money We're looking here at financial sector Money which is really driving the asset Markets worldwide now it tends to lead Our real economy money that's that's one Of the things to note so if you're Seeing an inflection now upwards in the Liquidity cycle that's important because It suggests that maybe better times are Ahead And if you look at this following chart What it shows is the global liquidity Index again which is all 90 countries uh All forms of liquidity and what we put On top of that is something that we call The US dollar monetary base now the US Dollar monetary base again needs a bit Of definition but basically it is the Effective part of the federal reserve's Balance sheet in other words how much Liquidity they put into U.S domestic Markets plus the spillover of dollars That end up in Foreign Exchange Reserve Accounts of foreign central banks so it Gives you an idea of the amount of Dollar availability worldwide Given the fact the dollar is the key

Currency worldwide and effectively is The international uh standard of value That has a big role in driving Global Liquidity or certainly has done for the Last 10 15 years closely as the chart Indicates and that rise in the black Line which you show us the growth rate Uh as an annualized six months change in The US dollar monetary base should be a Leading indicator of better times in Terms of global liquidity now you know We can go on from that and say well okay Do we have further Evidence what is this Likely to say about the upcoming Landscape and I can maybe just show you Two other charts which illustrate that One of those is to look at what's Happening in terms of the funding Of the US government right now but maybe To draw some parallels of what's Happened in the past now one of the Things that the U.S treasury is slated To do and this is why Um it's probably not just correct to say That there is ongoing a stealth QE or What we've also called a not qeqe Because the authorities are in denial of That there's also something else which Is a bit more subtle which you may uh Use the acronym for yield curve control Ycc and say there's a not ycc Ycc going on in other words there's a Subtle yield curve control uh being Operated by the authorities and what I

Mean by that is they're trying to Control the U.S treasury market uh for The better perhaps but they want to try And keep a cap on yields and improve Liquidity in the treasury market now That's a kind of long-winded way of Saying that what they're doing is They're changing the pattern of issuance Of debt in the U.S and what this chart Is showing is the projected growth in Treasury bills so that's debt Instruments up to one year in maturity That is being issued newly by the U.S Treasury Now as you can see by the dotted line This is their prospective issuance is What they've uh they they claim they They want to do over the next nine Months and the growth rate of Treasury Builds an issue is slated to grow at Over 30 percent now historically that's Normally been quite a good heads up to An increase in global liquidity so what You've got is a backdrop which is really Saying number one uh we're seeing Evidence that the Federal Reserve itself Is starting to project uh more liquidity Or inject more liquidity in the system Dollars are beginning to spill out into The world economy foreign central banks Are accumulating those and they can Monetize those effects so in other words This is a big restart of the monetary Cycle but on top of that you'll see in

The U.S treasury uh through its policies Of trying to increase Bill issuance Actually also helping the whole process Now Part of what the treasurer is doing is Trying to get the something I spoke of Earlier on the reverse repo program down In size and that is directly or would Directly be a source of liquidity inflow And they're doing that by targeting the Money market funds directly with Bill Issuance so that their marketing bills Unusually in a direct way to the money Market funds to try and as I say get That reverse repo down they're also as Far as I can see trying to reduce Volatility in the treasury market and if They manage to reduce volatility in the Treasury market by the careful Management of debt issuance then what You're likely to see is General Liquidity boosts in the system because What we live in today is a financial System there's more and more rests on Collateral and that collateral is Largely dominated or dominated by U.S Treasury notes and bonds and if there's High volatility in the bond markets it Makes it far less attractive for lenders To lend against collateral so the So-called haircuts that are applied to Collateral tend to increase during Periods of high volatility and that Crimped liquidity creation so all these

Moves are trying to get liquidity up and That's the way that we envisage it uh Envision things so basically what you've Got is an environment where whereas in 2022 there were headwinds facing Investors we think there are now there's Now a Tailwind behind investors and What's more that Tailwind May well last Uh until 2025 2026. now it won't be a Straight line but you know things are Improving and just before you you I pass It over again the other chart that we Ought to be thinking about is this one And this is the same illustration of US Dollar monetary base which is the black Line showing that the cycle is Restarting dancing I've Advanced that in time uh so pushed It Forward almost a year so it's Predictive and what I've put on top of That is the average Outlook business Outlook from two key surveys in the US The New York fed empire state survey and The Philadelphia fed uh economic survey Now I would suggest that that's not a Bad relationship uh what it's suggesting Is we may be seeing an early bottoming Out in the economy and that is something That perhaps uh the stock markets are Already beginning to uh move towards That's the stock market always looks Forward of course uh it discounts about Six months ahead and if this is this Prognosis is correct the move up in

Financial markets and stock markets Around the beginning of this year would Be pretty much on track for some Bottoming out in the U.S economy around About uh mid to late summer of this year So that's what our data is showing it's Certainly non-consensual uh it's sort of Left field but you know it's maybe a Controversial point to uh debate So just to be clear you're both based on Liquidity you're bullish for the next Year plus maybe until 2025 but correct There could be I mean we've got to Accept the markets that are moving Straight lines they'll be bravers of Profit taking uh there'll be doubts Um but broadly that's what's going on And you know if we come down to why I Mean this is a question that our clients Keep asking me why is it that you get a Situation that the stock market is going Up despite the fact that there is a well Predicted recession uh allegedly Upcoming in the US and maybe even world Economies because we know that stock Markets earnings are very sensitive to Uh periods of recession and if you get Uh you know if earnings get creamed in a Recession why should the stocks go up Now my answer to that is twofold one is That if you look at this chart in front Of you you'll see that the orange line Has already created significantly so We've already had very significant

Slowdown in The Temper of business Activity uh so in other words how much Lower can it really go uh is point Number one and the second point is that The stock market doesn't only uh care About earnings The other big factor which drives uh Stock markets is actually what is in the Textbooks called the discount factor in Other words the PE multiple and PE Multiples uh are very sensitive to the Inflation backdrop now the inflation Backdrop is coming down fast and if I Can just slip on a another slide this is A chart which shows Um what we call the inflation pass Through A parameter for the US economy now why Is this so important So important because stock markets are Priced relative to inflation and Inflation is the key metric in terms of Determining the PE I'll prove that point In a second but just bear with me in Terms of what's going on here what this Is showing is the if you like the echo Effect or the uh or the Persistence of Inflation in the pricing structure in The US economy now it's measured in Months and what it's really saying is That if you get an inflation shock uh in June how many months will that inflation Shock typically last through the pricing Structure the longer it lasts the more

Embedded inflation is and the shorter The window of of persistence the less The inflation pressures in the economy Now what you can see is that we've Estimated this pass-through parameter Going right back to the 1950s this is an Alternative measure of inflation it's One I prefer because it's basically Telling you a lot about inflation Expectations which is what the Federal Reserve and other central banks think is Key to the inflation Outlook at the time Of the avoca's entry into the Federal Reserve in uh 1970 late 1778 early 79 What you saw was a peak in that Pass-through data of about 55 months Now that was saying that an inflation Shock in the end of the 1970s took Almost five years to pass through the Economy so you could see that there was A big inflation problem Vulcan nailed That it took him several years to do That but you can see that the Pass-through data comes right down what We saw in the latest uh inflation Spike Was a pickup in the pass-through data to Almost 32 months and that occurred in The middle of 2021. what's happened uh Since then is the pastor has come Crashing down it's currently 11 months Uh they're still too high probably but It's on its way down and the point that We'd make is that this is actually uh Evidencing a much faster uh arresting of

The inflation problem than Volker got Back in the early 80s uh in other words The inflation is being washed out of the System very very fast it's not to say it Won't reappear again I'm not saying that But I'm saying for the moment that Inflation is coming down now why is Inflation so important for the stock Market let me just address that question And I may have to flip uh forward a few Slides let's do it I'd love to bear with Me Um And let me show you this chart now this Chart is looking at a trade-off between Uh Equity Holdings which is the data on The left hand slide uh you'll have to uh You know accept my word for that looking At where it says ratio P to L that's the Value of all equities against the pool Of liquidity and that is showing that Against the average inflation rate uh Over a five-year period now what it says Is that if you look at that left hand Ratio that's saying how many uh how much Equity is held per dollar of liquid Assets and what it says is that at Around six percent inflation core Inflation investors hold 40 cents in Equities for every one dollar of Financial liquidity If you move up to two percent in Underlying inflation that 40 cents Doubles uh or maybe even triples uh

Nearly triples goes two and a half times Perhaps to about one dollar for every One dollar of uh of liquid assets so you Can see that inflation is very important Now this is an unfamiliar way of looking At this so I'm going to jump to a very Familiar way which is looking at P Multiples and this is why this is so Critical to understand particularly for Those that are very nervous about Upcoming recession The right hand chart is taking data from Robert Schiller's website and those of You familiar with the Roberts Robert Schiller the yellow Um uh the Yale professor This is academic academic research but It basically shows something called the Cape which is the cyclically adjusted Price earnings multiple on Wall Street And that is the orange line and I've Charted that back to 1890. so there's a Heap of data in there the dotted line is The average five-year inflation rate for The U.S economy uh charted Contemporaneously That to me suggests that what is the key Metric for understanding the level of The price earnings multiple on the U.S Market it's inflation if inflation there By the way the inflation data is Inverted if you look at that right hand Scale so uh the the scale gets bigger as You go down so if inflation picks up

That dotted line goes lower and if Inflation is low the dotted line is high And that corresponds to a high PPE the Way that most analysts and most Investors value the stock market is Against fixed income and that is the Wrong way to do it and what I've shown For comparison on the left hand slide is The five-year Cape the cyclically Adjusted P for the U.S market and the Long-term bond yield again taken from Robert Schiller's website there was a Very small period but one could argue From the 70s through until the early 2000s where the bond market was an Extremely good match trick for the stock Market but since then it hasn't worked Particularly well and a lot of people That use the so-called fed model which Is a valuation model that uses inputs Such as long-term bond yields for Valuable stock market value Wall Street Have been going seriously uh you know Off uh derailed uh over the last few Years by looking at that metric Essentially what you've got to do is Look at inflation and inflation is Coming down until it's not but for now It's coming down therefore what I would Argue is that the two factors that are Driving the market at the moment Liquidity is rising courtesy of the Federal Reserve courtesy of the treasury A courtesy of the uh People's Bank of

China and the other thing is inflation's Coming down because we've won uh what May be a temporary but it's still a Meaningful Vector over inflation Pressures When when do you think the FED is going To cut rates or does it not matter based On this Well I think the uh that's a complicated Question I think the answer is that if You're talking about policy rights I Don't think policy rates get cut that Quickly uh in my view they're going to Remain elevated for some time because Actually we go into this mess through Very low or zero interest rates and the Issue that we you know we faced and if You look back at fed policy in the last Decade or so uh and particularly the Post GFC policy response the Federal Reserve enacted what everyone knows as QE QE was a policy that was not trying To revive the economy it was trying to Create Financial stability and Effectively the financial system was uh Very Rocky it was fragile and the Original it's fragile is because of the Huge debt load that the economy has Taken on now one of the points that I Make which is somewhat contrary to Let's Say the textbook view is that the Textbooks see financial markets as Capital raising mechanisms in other Words what they argue is that the that

Wall Street or the bond market is really There to raise new capital for capital Investment programs and that is the Source of future economic growth well Nice idea but we're a long way away from That world now in factual fact the Financial markets are there for Refinancing existing debt And something like out of every eight Dollars those track the transacting Global financial markets seven dollars Out of that eight are basically Refinancing transactions in other words Rolling over debt let me illustrate You've got 350 trillion dollars of debt Worldwide in the world economy and that Debt has an average maturity of about Five years So simple math says that you've got to Roll over 70 trillion dollars of debt Every year just to stand still okay and That debt needs balance sheet capacity In other words liquidity to do that And therefore this is why Um debt refinancing debt rollovers Dominate the financial markets if you Don't have that liquidity in place you Won't be able to roll over debt and Effectively you've got a financial Crisis and I'm not saying interest rates Are unimportant but they're not really The main consideration and think of that From a homeowner's perspective if you've Got a 20-year mortgage you come up for

The renewal of the mortgage you've got To roll it and you can't find anyone to Roll it you're homeless doesn't Necessarily matter about what interest Rate you pay I mean obviously it's a Consideration but you want the role on That mortgage and similar for a Corporation if you can't roll your debt You're insolvent so the role is critical When you've got a world of dominant debt Now how do we get into the mess of 350 Trillion dollars of debt it was largely Because the Reckless central banks Crushed interest rates to zero uh or Near zero uh in the period in the um uh In the early 2000s and that was a Mistaken policy and it incentivized the Debt Taker and if you want the reason Why they went down that road it's very Simple that it comes back to a Five-letter word that's dominating the World and financial markets called China What happened was that China entered the World Trade Organization was allowed in Uh it was allowed in to compete unfairly With the rest of the world in 2001 and What China did was to create it almost Instantly a cost deflation because China Said its exchange rate way too low and As we know Chinese wages has Significantly lower uh than the rest of The world that was a big cost deflation The central banks got spooked by that Because they misread that uh cost

Deflation for a monetary deflation and They knew from the lessons of the History books back in the 1930s that Monetary deflation is a bad thing and so They scrambled to try and avoid the Monetary deflation and they slashed Interest rates and that was not what They should have done uh it wasn't the Monetary deflation it was a cost Deflation Um basically the private sector should Have adjusted to that itself but too Much intervention by the state basically Caused the problem and that basically Meant that what you got was near zero Interest rates it caused this big Incentivization of debt and it created a Huge fragility in the global or the Western Financial systems and that's Where we are now The problem is looking forward we've got A situation where We're moving into a world where the Paramount problem is not necessarily Just Financial stability it's fiscal Stability and what I want to do is maybe Just focus on what that problem is Because it's a it's a big one and I'm Going to go on to a later chart which Illustrates what the problem is Now what this chart here is illustrating Is the Holdings Of U.S treasuries by the Federal Reserve And that is the data that we see first

Of all as the orange bars Scale on the left hand side is in Billions of dollars so you can read that As five six seven eight trillion of Holdings of U.S treasuries The data in Orange is not my data it's Data that comes directly from the Congressional budget office uh in other Words the overseers of fiscal prudency In the uh or in fiscal Integrity in the US The Congressional budget office Basically uses uh for the period from 22 To 25 Federal Reserve projections based On their anticipation of a QT policy Which is reducing the size of the Balance sheet thereafter the balance Sheet expands again uh because treasury Holdings go up and that is the orange Line now although number one I don't Believe that there'll be a QT along the Lines that we can see here in other Words I think the best path is probably A flatlining and best of those treasury Holdings uh notwithstanding that that's A small point but I think that the uh The other side of the dog leg the period Of pickup from 2025 to 2033 is way too Uh conservative because it assumes a Very low level of defense spending if You get to a more reasonable five Percent of GDP level of defense spending Uh then what you are seeing are the gray Bars into terms of Treasury Holdings and

The numbers that you see above each bar Is the assumed growth rate Pro rata in The Federal Reserve balance sheet each Year Bottom line is we're back to QE again Big time uh in the last two or three Years The Federal Reserve has bailed out the Financial system in other words he's Tried to maintain Financial stability This is what it's doing to the regional Banks what it's like you do in the next 10 years is to bail out the government Because what it needs to do is to Preserve fiscal stability and what we're Likely to get is a period of sustained Monetary inflation and that is the worry That I foresee now There could be alternatives to that one Of those is that federal spending is Curtailed the problem is that there's an Awful lot of mandatory spending that's Coming through for demographic reasons Which is basically set in stone you Can't do anything The second thing is that what about Raising tax rates uh or you know trying To somehow improve taxate the tax take That's kind of very difficult because We're in a world of international Competition uh in taxes and if the U.S Raises taxes Capital May shift Internationally uh the other thing is That if you look at the record tax

Revenues move very closely with the Level of Wall Street so if Wall Street Is in the doldrums tax revenues is going To be low anyway Another possibility is what about Selling debt to foreigners well good Luck there because China's been a big Buyer of the margin and I would guess That geopolitical factors probably weigh In and mean that China is not going to Be such a big consumer of treasuries in The future and then there's the domestic Pension funds and households well that's Possible but then I would guess that Interest rates have to go up in order to Lure buyers into the market and if that Happens the treasurer's interest bill is Going to start to Skyrocket and you're Sitting on a knife edge when it comes to Debt accumulation so I don't think That's there so the only possibility is The Federal Reserve is going to come in And basically start to buy treasuries in Other words what it's doing is Monetizing indirectly uh the the deficit Now what does that mean to to Joe public To the average investor does it mean You're going to get more High Street Inflation Probably not certainly probably is the Answer so you've got to be aware of this We've got to start to move towards a World where you need more inflation Hedges do you need to or should you be

Buying bombs in this environment I think Unlikely that's unlikely to be a great Investment uh you know look back Historically of when you've seen periods Of monetary inflation bonds have not Done particularly well so you're likely To see negative real interest rates or Certainly very low really interest rates What about traditional inflation Hedges Uh like residential real estate like Precious metals or a new one like Cryptocurrencies I think all those boxes Are ticked I think all those look pretty Good and what we're doing is we're Moving into a world now I think where There's likely to be more and more Governmental control because fiscal Finances are getting out of control more And more there is a need to create Growth that have to be investment Programs that'll have to be channeled Through government some talking about The green agenda or more defense Spending and therefore the governments Are coming back at us and therefore we Need some sort of Independence which is Why gold precious metals are maybe Crypto are ideal longer term investments Uh while you can So you're saying that for the average Totally average investor looking forward Your projection is a better place to Have your money is not Bonds it's in the Stock market or it's in hedge

Investments like it like precious metals Or possibly Bitcoin uh rather than those Safer plays Absolutely correct because Bonds in the Environment of monetary inflation are no Longer a safe asset Michael I'm loving this perspective I Want to remind the audience links for Your Twitter uh crossbar capitals Twitter Down Below in the video Description check it out I want to Pivot just to get your general Thoughts on bitcoin and on Cryptocurrency but just any final Thoughts on macro on liquidity Okay I think the um let me just say in Terms of further sort of points in terms Of contact points I mean we have a Website which is cross-bordercapital.com Uh I've written a book about this which Is called Capital Wars which is Published by MacMillan uh powergrave and If we've got a sub stack uh site which Is also entitled Capital Awards where we Go through a lot of this uh research in Terms of final thoughts on liquidity uh I don't want to suggest that this is a Downer on the US because when you start To look at fiscal the fiscal backdrop uh The US is the uh is the cleanest shirt In the laundry here a lot of other Countries are in far far far worse shape Than America is Um and that's the reality so you know

Um I'm certainly not suggesting that Among paper currencies the dollar is Going to be a weak currency I think the Dollar as a paper unit uh holds its head Up and is probably in a structural bull Market but vis-a-vis other instruments Like gold or maybe crypto I think the Dollar uh is outshone by those Alternatives So I think that's Point number one I Think Point number two is to say is that What you're beginning to see uh after Some years of strong capital inflow into The US is that the margin money is Starting to shift towards Asia now I'm Not suggesting Here China necessarily But I can you can see very strong Evidence of money moving into uh some of The other Asian economies notably Japan And notably Korea so I think that's one Of the things to start looking at as Well for investors need to diversify Portfolios is not all about NASDAQ uh You just got to start looking worldwide But I think in particular Asia and let's Say uh Western influenced Asia is a very Good place to start in Japan uh you can Follow the leader Warren Buffett uh Because he's actually gone there Recently with great great success Would you flip the screen so it's just Us again Yeah of course awesome Um awesome perspective on macro in

General what are your thoughts on Bitcoin Well I think that let me uh let me Answer that in in two ways I mean one is What is the what is the case for crypto I think the case for crypto is that uh Is a compelling one because basically Crypto in theory has restricted Supply Uh it is not Um subject to the same forces as paper Money which is government issued debt Effectively and we know the governments Uh or the fiscal arithmetic facing Governments is is horrendous so Basically in terms of Supply uh Considerations crypto has to be a better Vehicle there is a demand case for Crypto in certain cases now um I would Be the first to say that that may be in Certain areas slim and in other areas Compelling uh if you look at things like Um uh the Ripple currency uh which is a Bridge currency I think that has Compelling attractions uh as a crypto Unit Um I think there are other other crypto Which I simply don't understand and Therefore I'd be the wrong person to Comment I think in terms of Bitcoin it's Established it's first through the door It's got a name uh and it's you know It's approved effectively by the SEC uh As a as a as a currency and therefore uh We've got a number of issuers in the US

Trying to do ETFs on uh on bitcoin so You know hey why not it probably is a Decent alternative So when you see the black rocks the Citadels the fidelities in their own Ways getting into Bitcoin does that open You up to getting exposure in your in Your business for your clients I think The one has to have some exposure to Crypto I think it's you know as I say It's through the door it's an Established medium I think you've got uh You know as I say a varying use case but Providing supplies more constrained Which in theory uh at least it should be Uh there's a compelling argument that These are these are decent stores of Value but don't just rely on those Things because we've got a we've got to Acknowledge the history books and the History books show that uh if you go Back to the 1930s uh there was uh I was It called the I forget if it was called The gold act but uh it wasn't in 1933 34 Uh well Roosevelt basically uh made Holding of gold illegal uh for U.S uh For U.S residents uh and that was Something that you know probably could Not be done now but uh you know hey Let's never say never here Um and that's something I think we've Got to consider so diversification is Clearly the the key thing uh one of the Things that governments don't like doing

Is losing potential revenue streams You have Decades of experience as an Investor in general so if you're just Talking to crypto investors could you Give some advice to these crypto Investors coming into the market in These last few years I think that I think there are two Things to say one is that the most Important variable to understand is uh Uh or our money flows and you've got to Understand how the system is working Basically you know what what uh you know What I specialize in is looking at asset Price inflation an asset price inflation Is all about understanding money flows From a macro standpoint now I'm not Saying and don't misinterpret I'm not Saying that looking at individual Securities and adopting a value Investing approach you know I'll uh Ben Graham doesn't work clearly it works That's a pretty good discipline but You've also got to look at macro and Macro is all about understanding money Flows and how those money flows are Allocated and effectively this is a Portfolio decision so if that flow of Money is going to increase in the future And I would argue that money flows Because they're created by central banks And by governments at the end of the day Have to increase okay then you we as Investors have got decisions to make as

To how to allocate that money and Basically what you've got I would argue A sort of three basic pots you've got Traditional bonds which in an Environment of high monetary inflation Are not going to be decent performers Particularly if governments can't afford To let interest rates go up too much The second thing is you've got Equity Markets now Equity markets can do well In a higher inflation environment they Will not do well in a very high Inflation environment but they'll do Well in a high inflation environment and Just you know just remember again the History books in examples of Hyperinflationary economies think of What's happening in Zimbabwe now right Think of what's happening in Germany in The 1920s the stock markets were Extremely strong performers because they Were inflation Hedges okay Bonds did badly now as I say there are Better alternatives to the stock market When you've got very high inflation and That comes back traditional monetary Hedges such as real estate such as Commodity markets such as precious Metals and I would add probably uh Crypto as well in that same sphere Michael I want to give you a fun Question more thought to provoking Question you don't have to mention Cryptocurrency at all but say you were

25 again starting over and yet an extra 1 000 in your pocket how would you go About forming a portfolio or investing That thousand dollars Well I think the first thing to the First thing to ask is what is the time Horizon uh but let's assume I'm gonna Say let's assume you take a two-year Time Horizon for argument's sake I would Have Um probably the I mean I'm going to Exclude real estate because that's uh You know that's clearly a social Decision but I say that of that I would Tend to be putting about 80 percent in Um 80 in stocks and 20 in inflation Hedges and I think the preference you Can you can say is do you prefer gold or Precious metals which is probably you Know let's say a generational decision So basically people uh you know like Myself or uh maybe older people would Tend to think that that is the best Inflation head because traditionally has Been or you'd say okay for a younger uh Cohort you want crypto so I'd be Thinking of that 80 20 balance And when you say 80 in stocks Uh what type of stocks or could you give Me some breakdown on what you would be No I think that I think that if you I Mean this is you know back of the Envelope but I would say that probably You know for U.S investor you'd be you'd

Be wanting to put probably you'd want to Diversify 20 to 30 percent of that I Would I would tend to think that the Moment as we stand uh a large part of That diversification ought to be in Asia Into countries like uh Korea Japan Um as alternatives Those look attractive to my view and if There is a coming cold war with China Then these economies have to be Bolstered anyway as a bull walk against Uh you know Chinese expansions so I Think that you know economically they May Prosper so I would say that that Would be my my bent in terms of Geography I think in terms of sectors I Think one has to acknowledge that Technology has a place in every Portfolio uh and I'd also say that Commodity markets probably also because In an environmental let's say uh Heightened geopolitical risk uh resource Availability uh and securing resources Has clearly got to be key and we've Under invested in this area of so much Over the last 20 years that there's got To be a lot of money moving towards Commodity areas so I'd say those have Got to be fairly big weightings within Uh within a portfolio Final question and this is more about You um not so much about the current State of the economy but for you would You finish this sentence I became

Successful when I understood Blank oh I think the the big quote the Key question is understanding Global Liquidity and that was something that Was taught to me at uh you know one of Us Asylum brothers and I think the thing To look at is why we salmon Brothers Such a dominant and such a successful Um Investment Bank through the through The 80s until the mid 90s and basically What happened if you look at the history Books uh it was derailed because of uh Aaron Traders trying to Corner the uh The treasury market and Salomon was Slapped down understandably by the U.S Administration uh but up to that point It was a money-making machine uh and it Was all about understanding the flow of Money uh around the world Michael Austin perspective links for all Your stuff down below I want to have you Back in three four months and revisit Some of these charts but just final Thoughts for the altcoin daily audience Good I well I think my final thoughts Are I think we're in a in a bull market Bull markets never going straight lines But in my view Global liquidity is now Picking up and it's likely to Peak out Sometime around about 20 25 2026 and That's a Tailwind behind investors and So what you want is basically to start Thinking about moving towards more risky Assets



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