Transcript of The Real Crypto Cycle: What Happens When Global Liquidity Peaks

What you can see right now is that we're transitioning unfortunately out of a period that I've labeled the everything bubble. And that everything bubble is basically illustrating the fact that liquidity has been abundant relative to debt. Now, what has gone on? Well, the first thing that's happened is that every crisis that we've seen pretty much since the GFC has been addressed by policy makers throwing liquidity back into markets. The celebrated QE trade. Okay, that has been going on and maybe we're about to restart that. Michael How, welcome to Bank list. It's an honor to have you, sir. Well, it's great to be here. A lot of things going on in markets right now. I think we we need to keep a breast of them. We do. And I think that I want to keep uh a breast of global liquidity and looking at that through this lens. So, your life's work has really been mapping money to flows, global liquidity flows. you help investors track global liquidity. I feel like I'm an investor and many bankless listeners might be in a similar position as myself that kind of understands global liquidity but doesn't fully understand it. And I see a lot of noise out there. People talking about well you know Fed said this and therefore this or they'll look at charts of M2 and say this is bullish or this is bearish. And I'm really looking for signal, you know, in this episode and in our conversation because I think you can provide it on global liquidity because you position global liquidity as a master variable that really drives cycles and crises and asset prices and certainly a lot that's happening in crypto. So can you talk about this? Maybe we can get into the 101 conversation. Is your basic position that that global liquidity acts as almost a theory of everything? Well, I mean, I maybe wouldn't go that far, but I I'd go I' I'd go fairly close to that. I think the um I think, you know, the interesting point to ponder is what you know, why why do we get why did we get to this position? Uh why is looking at global equality so important? Why is why money flows and watching where the money is really uh a key factor in understanding asset prices today? And I think the you know the beginning or my insight uh was that I used to work for the American investment bank Salomon Brothers and Salomon Brothers was a big trading firm. It pretty much was for many many years the bond markets internationally and Salomon used to pride itself on not just research but actually having uh a big trading engine and a trading floor that was physically enormous. And part of the idea of that trading floor was that you could basically uh see money moving uh from desk to desk. And you know I used to sit in my my office in uh in the research department. You could actually look out over the trading floor in London which was uh you know a vast space. Uh this was back in the late 1980s early 1990s and you could actually see the money moving from desk to desk. And one of the things that Salomon brothers always used to school us in was the whole idea that uh in financial markets there were no unrelated events. And the fact is that if you got one desk that was screaming you know bye bye bye there was another desk on another part of the floor which was basically saying sell and you saw this money shifting around the world and because Salomon was an international broker in fixed income you could actually see these shifts pretty much taking place. So that was really the insight. Uh and Henry Calfman who was then head of research at Sal others basically used to do an analysis of US flow of funds analysis called prospects in financial markets every year which was a very detailed tone that went into the flows of money that were coming in or prospectively going out of uh uh of US financial institutions and US securities. And that was really a very insightful document for actually understanding how asset prices were moved. And this was a very different view than sort of the textbook view that said, you know, you've got to do this little math equation and uh you've got to look at compare yields and whatever else may be. I mean, that really wasn't how asset prices performed. Asset prices are formed in the market. They're formed by supply and demand and money flows are really a very very important factor. So that's really the the the genesis of everything and what we do now to yeah crossber border and now um uh GL indexes is we basically track uh these money flows worldwide. We've been doing it for you know near on three decades now. So we're pretty familiar with the data and we cover 90 countries and we you know hopefully are the definitive source of information on liquidity flow globally. I think you are Michael. May maybe we can go into the GLI right. to this global liquidity index. So, this is a chart of weekly global liquidity and it's a chart that goes all the way back to uh 2010 and this is the the GOI index I think you're referring to. Andre 2010 for people who can't see this. If you if you can't see this then then make sure you're looking at the video on either YouTube or or Spotify right now is about it was under hundred trillion the weekly global liquidity throughout the world. Now it is just under $200 trillion. So we're looking at like uh a doubling in that time. What is this chart showing us exactly? What is this global liquidity? Where is it coming from? What are we seeing here? Okay, so this is the flow of money through global financial markets. It's not a measure of M3 or M2 or any of these traditional money supply aggregates that economists look at. And in many ways the definition of liquidity that we use uh pretty much begins where conventional M2 definitions end. Uh this is money in financial markets. Uh money in the real economy in other words money that is sitting in resale bank deposit accounts is really what goes into M2. This is uh if you like the fringes of the financial system but it's really money that is in the financial markets. So it's looks at the repo markets. It considers shadow banking. uh basically it's a measure of that money flow through as I say all in international security markets etc and it's that which is really driving uh that flow of money which is driving asset prices so this is what we look at pretty closely now what you can see on the chart is the level of global liquidity in uh in US dollars so this is an aggregate that comprises around 90 economies worldwide and clearly you know China the US uh the Euro zone are big elements ments in this Japan as well there's a lot of small countries that really are just noise around that but you can see the durations and maybe you can infer as well some of the uh instances of cycles in that data now what we like to do is to focus very much on the momentum of the cycle and try and strip out the signal from what is you know which can be noise around that signal and one of the things that we look at is a cycle that you can see hopefully here which is called the global liquidity cycle which is actually a measure of the momentum of global liquidity. So this is actually a shown as an index uh in actual fact what it is strictly is a zcore of the underlying growth rates of liquidity and 50 is the is the long is the trend value of that growth and what you see is effectively girations around that trend of growth uh how liquidity momentum alters uh over the cycle. Now, this data goes all the way back to the mid 1960s. Uh that's what our databases pretty much begin. And uh we've been updating that real time since the late 1980s. As I said, uh what we've what we show is the black line is the index or the actual underlying momentum as we stand now. The red dotted line is a sine wave uh which we put on that data uh back in year 2000. We haven't changed the frequency or the harmony of that cycle. It's basically what you see is what you get and that is a 65 month cycle. Now uh there are two rabbit holes we can go down to explain that. One is that is it robust? Well uh the uh foundation for the study of cycles actually recently asked for our data. They do a lot of very intense and robust cyclical work understanding cycles worldwide and they came back uh with a very thorough analysis that said well you know hey interestingly enough we found exactly the same tempo in this data it's 65 months so I think that's greatly reassuring from the experts in the field of studying cycles. Uh the other rabbit hole is to say well actually why is this 65 months? Why not 50 months or why not 100 months? And the best reason I can come up with is that this is really measuring a refinancing cycle in the world economy refinancing debt. Uh capital markets today are predominantly all about debt refinancing. They're not about raising new money for new investment projects. They're much more about rolling over our existing and actually huge debt pile. And that cycle is really moving with the average maturity of debt. The average maturity of debt in the world economy is almost exactly 65 months uh you know around 64 or whatever it is right now. So you can see that that uh that's maybe why the system works. And so what you're looking at here is a debt refinancing cycle. And that cycle last bottomed in late 2022 around October of 22 in fact and it's slated to peak in late uh 2025 pretty much now. And you can see there is the beginnings of a downward inflection. Now we don't know for sure uh you know whether that is for real or not or whether that will you know reverse and go up again but it looks as if there are conditions currently underway which would point to some of these uh you know some of these tightening effects going on and the other thing I just say before we leave this slide is say that you know all money that is anywhere must be somewhere by definition and if money is in the real economy it's not in financial markets and if it's in financial markets it's not in the real economy. So if you see signs that the real economy is starting to uh gain momentum, it's quite likely that money will be sucked out of financial markets and financial asset price will be disturbed or undermined by a much stronger real economy. So you know what you really need for strong global liquidity growth is number one central banks that are prepared to keep fueling the system, keep pumping money in and secondly a world economy that is not particularly strong and that basically means that uh that's a you know a great cocktail for very strong uh global liquidity and very strong asset markets. Uh and that's what we don't really have right now. So we have, you know, evidence that the real economies we think are beginning to uh strengthen a tad and we've got evidence that central banks seem to be beginning to roll over their positions. I just evidence that uh with this chart, this one is looking at world central bank liquidity. This is akin to the previous chart. It's shown as an index. The orange line is a measure of the momentum of what central banks are doing. This is the orange line is a you know a size weighted aggregate. So uh the US Fed plays a dominant role in this uh in this analysis. The black dotted line is just a very simple count of the percentages of uh central banks that are worldwide that are easing or tightening. And since we've got you know just over 90 central banks we're looking at um then you can almost take this as a straight percentage. So you know read that as saying you know was over 80% of central banks were uh easing. Now you've got a figure which is in the you know probably the mid70s but it looks like it's inflicting downwards. So these are the considerations that we we basically you know look at to try and understand where we are in the cycle. You can now borrow USDC against your Ethereum and Bitcoin on Coinbase. Cryptobacked loans on Coinbase make assessing liquidity seamless for crypto hodlers. 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Visit uni chain.org or follow@ uni chain onx for all the updates. So we have a global liquidity index that uh continues to go up and we also have uh these liquidity these 65month global liquidity cycles. These are almost like um not business cycles but maybe the equivalent for you know liquidity type cycles. And part of what you're trying to do is sort of, you know, project where these cycles go and where we are in the cycle. I I guess going back to the the highest level in the first graphic you showed, which is the the GLI, the global liquidity index. Um, are we why why is this always go up? So understand that there are 65 month cycles kind of embedded within this um chart but it seems like we are in a weekly global liquidity super cycle and have been for quite some time. What's the primary driver for the reason global liquidity always seems to trend upward and has that always been the case or could this reverse at some point? Well, it's a it's a very good question. I think uh I mean it comes back to the fact that you know why is liquidity so important uh for markets? What's really uh the the main use of liquidity? The main use of liquidity as far as we can see in a debt dominated world is to roll over or refinance existing debts as they come to mature. And one of the things that you know we've we've noted historically is that something like 70 to 80% of transactions let's say primary transactions in financial markets now are debt refinancing transactions. They're not about raising new capital which is what the textbooks tell us there should be. Uh that that that world has gone a long time ago. Who uses the capital who taps the capital markets for capex now? Uh you know a lot of this AI spend that's going on right now. I mean there are clearly exceptions but a lot of that spending is basically coming out of straight cash flow or out of treasury coffers in these big big tech companies. Uh if you look at China which has been a huge huge capital investor uh it's not coming out of capital markets is basically state funded. So you know the capital markets are not really playing their textbook role anymore and therefore a lot of the uh metrics and a lot of the implications that come out of that particular model are no longer valid. uh what we got to think about is the new world which is the debt refinancing world. Now what I can show you a little bit further on in this presentation is the implications of that which is shown on this slide which is called the debt liquidity cycle. Now this is really the heart of the financial system and this is really explaining how the financial system has developed or evolved uh really since the global financial crisis in 2008. Now what it says here is that in the middle of the diagram is a debt liquidity nexus and that's pretty much saying that that is at the heart of the modern financial system and as I keep saying the modern financial system is a debt refinancing system. Now the paradox that we face is that debt needs liquidity for rollovers but actually liquidity needs debt uh because something like uh 77% or precisely 77% according to the world bank the figure given on the left hand side uh of all global lending now is collateral backed now that could take into account clearly real estate in terms of home loans uh but it could also it also takes into account a lot of financial transactions such as hedge fund basis trades or whatever which use treasury collateral um you know to back borrowings and therefore we need to understand that collateral backing. So in other words what you've got is debt needs liquidity but liquidity needs debt and u you know ironically it's old debt that finances new liquidity. uh but that's how the system effectively operates and you see these two wings. You've got a refinancing wing on the right hand side uh which says that you know the figure of 78% of all transactions refinance debts. If this sour you tend to find that term premier start to uh start to change or credit spreads blow out. Uh and then if you look at the left hand side that's the transmission from debt into liquidity. And if that transmission breaks down, you're going to get problems in the repo markets. You might get problems extending into the collateral market. So you may get volatility uh in bonds such as the move index or you see sofa spreads topical point uh start to blow out and sofa spreads for the last 2 to 3 weeks have blown out quite considerably in the US and that's giving us cause for concern. But ultimately you need the stability at the heart which is a stable or robust debt liquidity ratio. And I'm going to show you that evidence here which is basically showing the debt liquidity ratio for the all the advanced economies worldwide. Now let me just explain this diagram. So this is looking at the total stock of debt public debt and private debt in advanced economies worldwide. So we're talking about a figure of probably somewhere in the region of about close to $300 trillion. And we've got a pool of liquidity that uh is the uh you know is the is the bottom of that ratio. So that's debt to liquidity. The ratio averages about two times which is where we've drawn that dotted line. And what's more it mean reverts. Now you're familiar with looking at to other metrics. Many people are familiar with looking at other metrics like the debt to GDP ratio. I'm never too sure what that really tells me. I mean it's a very oft quoted statistic and I think like a lot of things in economics things that are very easy to measure tend to get a lot of air time but you don't really understand what they mean and this is uh a much more valid statistic which is saying this is the debt to liquidity ratio. What does it mean? It shows your ability to refinance that debt. Now if you move higher on that chart above the dotted line you start to see a stretched debt liquidity ratio and you get financing tensions or refinancing tensions and you can see those basically morph into financial crisis uh which we've annotated there on the other side when you get actually the opposite you get very abundant liquidity uh compared with um debt uh and po liquidity as I've called it here you get asset bubbles that's the vent of that surplus liquidity. So, what you can see right now is that we're transitioning, unfortunately, out of a period that I've labeled the everything bubble. And that everything bubble is basically illustrating the fact that liquidity has been abundant relative to debt. Now, what has gone on? Well, the first thing that's happened is that every crisis that we've seen pretty much since the GFC has been addressed by policy makers throwing liquidity back into markets. the celebrated QE trade, okay, that has been going on and maybe we're about to restart that. Who knows? Um, but that's effectively uh the impact of more liquidity on the system. But the other thing that happened uh particularly around COVID was that interest rates were slashed to near zero levels. And one of the things about interest rates are is that they low interest rates incentivize more debt. And they not just incentivize more debt, they actually incentivize the term in terming out of debt. And what has happened or what did happen during the COVID years was a lot of the debt uh that then existed was refinanced uh back into the late um 2020s at low interest rates. And that uh so-called termin of debt is now returning to haunt us in the form of what people call a debt maturity wall. And you can see that uh here where this is for the advanced economies and this is showing the debt maturity wall that is upcoming. Now it may be a problem. I'm not saying it will be uh but clearly it's a hurdle we've got to jump and the uh orange bars are showing the actual increments. This is not the level. This is the increments in debt refinancing that's needed uh each year. Now the bite out of that chart that occurred in 2122 23 was a result of these zero interest rates that encouraged a lot of turning out of debt and as a result um the later years are overloaded with uh debt reappearing that needs to be rolled over again and that's the challenge that we've got. Now, if we just finally put this into context, and I'm going to go right to the beginning of the presentation, and look at uh a chart that uh I snipped from um or part of the chart I snipped from uh Twitter, I think it was, which was this uh at this um uh pink page, which very nice nicely details. cuz I can't quite read what the source was, but um anyway, it was it was it looks like it came from the FT some somewhere on the line, but it basically shows uh different asset bubbles which they've labeled and put in different colors. Now, what I've put on top of that is our data overlaid as best I could as the red line, which is the global liquidity cycle. And you can see that more or less with a little bit of poetic license matches. So you can see that this liquidity these liquidity surges are actually very much associated with uh periods of asset bubbles and what we've gone or what we're going through right now is this period uh here of this everything bubble which is coming to an end and it's coming to an end first of all because there's an awful lot of debt which is coming due in the next few years. So the debt maturity wall is coming in as fast and secondly it looks as if central banks are beginning to slow down their pace of liquidity injections none more so than the Federal Reserve. So this chart is very interesting because when the debt to liquidity ratio is below 200%, we have a tendency to get bubbles here is what this is looking like, right? The Japan bubble, Y2K bubble, this is the dot bubble, US housing bubble, and now we're in the everything bubble. And as we get above uh 200%, we have a tendency to get these crises. So I guess you're you're painting the picture of the current positioning of the cycle that we're in. is it sounds like we're on the at the end of a cycle at the end of at least kind of an asset price appreciation cycle and liquidity starting to dry up and us heading over 200% and getting into back into the the crisis type territory. Yeah, I mean this is this chart I've just put up here shows the current cycle in red and the average cycle u going back all the way to 1970 shown as the dotted line in terms of time. And now we're measuring you know the 60 is this the 65 months or this is shown as the zero a the zero line at the bottom is the trough and then you're measuring months uh going to the left and to the right and this is one of those 65 month cycles that you were referring to earlier. Okay. Yeah. More more or less right now. You know an interesting question is what is the what is the tolerance either way in this? In other words, what's the sort of the range? And the range is tends to be about sort of plus or plus or minus 8 months uh across the various cycles. So you can see you've got some flexibility but not a huge amount. And if this is correct then we've got to be you know slightly I don't know wary but certainly certainly prudent in our asset allocation. Now I stress absolutely that there is a big big difference here between cycles and trends and one of the things that we're uh you know very clear about is that the trend towards monetary inflation which is u you know which has been affecting markets significantly over the last decade is slated to continue uh you know for another two or three decades at least. So we've got a very strong trend towards monetary inflation and that is simply because the welfare burdens that are placed and maybe the welfare and defense burdens that are placed on economies are so eye wateringly large that the only route that uh policy makers really have is to print money or to monetize that debt and that creates monetary inflation and you know we all need protection against monetary inflation. Uh I think think that's you know that's pretty clear that's the that's the long-term picture but in terms of drilling into the short term this is the problem that people need to face right now and this is looking at um the problems in the repo markets that we need to start you know paying a lot of attention to. Now this is one of the elements that I noted earlier on could go wrong. So if you get tensions in the repo markets, uh you start to see repo spreads, in other words, interest rates on uh on repo borrowings shown here by the sofa rate, the spread against Fed funds. Uh that's what this this data is showing. Uh it tends it will tend to blow out. So the orange line is the normal spread. Given the fact that sofa or repo borrowing uh is collateralized and fed funds isn't, you'd actually expect uh sofa to trade below Fed funds, which it did for quite a long time. I illustrated here the normal range, that gray band, and then you start to see periods where uh that rate blows out on the upside against the normal, against the normal range. And there's a danger zone that we indicate when you're about 10 basis points or so above normal. And that's more or less what we've been hitting. And it's not really the extent of these spikes that are really the important thing because you're bound to in any financial system get daily problems maybe causing a spike in overnight rates. It's really the frequency that's the most important factor. Now, this is a consistent picture now for the last few weeks that we've started to see these repo spreads blow out. Now, what's the what's going on? Why is that why is that happening? And the reason comes back to what the Federal Reserve has been doing. Now, this is um showing here something called Fed liquidity. Fed liquidity was a concept we came up with uh when I wrote a book called Capital Wars about what is five or six years ago now. And in that book we detail the uh the range of operations that the Federal Reserve can undertake in terms of injecting liquidity into financial markets. And there was a lot of focus and there subsequently has been on the Fed balance sheet. And people say, well, okay, if the balance sheet goes up or the balance sheet goes down, that's QE or QT, respectively. The fact is that's not quite true because not every item on the balance sheet actually creates liquidity. Uh some destroy liquidity. Uh some have no effect and what you need to do is to strip out the liquidity creating parts and actually monitor those. And that's what we show in this data. So if you go back to 2021, you'll see the growth rate or Fed liquidity, the amount of money, pure liquidity that the Fed was injecting into the system was rising at over 80% at a six-month annualized rate. And that was clearly in the midst of COVID when markets were a fire and there was a lot of cash around. Uh within 12 months, we right down to a 40% negative drop uh in the pace of expansion. In other words, a contraction. And that was when there was a lot of monetary tightening when the Federal Reserve basically decided that inflation wasn't really transitory, it was more permanent and they had to try and address it. So you got this big tightening. Then there were concerns about the stability of the financial system. Uh you'll note that in you know early 23 we had the uh you know problems with um uh Silicon Valley Bank etc. uh and there was the guilt crisis in the UK in late 2022 and some of these things began to spur policy makers and particularly the Fed to start reversing course and adding liquidity and you can see how that starts to move that orange line moves up through 23 and apart from the sort of little blip down in the middle generally you got pretty decent growth of uh averaging you know close to 20% over that period of about sort of 15 18 months. Uh then we start to see a little air pocket through 2024. uh then a surge in liquidity at the beginning of 25 uh as the debt ceiling was imposed and the imposition of the debt ceiling meant that liquidity was being fed into markets u simply because uh what was going on there there was no debt issuance and the treasury had to run down its bank balances at the Fed which meant that liquidity was going into the system net and that caused a surge as the debt ceiling has been uh has been renegotiated What's happened is the Treasury General account, this said account at the Federal Reserve, has been replenished and as it's replenished, so money has been drawn back out of markets. And that has totaled about $500 billion of money that's now been withdrawn. Uh it's also true of course that the uh recent um government closure uh has also uh allowed a little bit of uh of liquidity to be withdrawn from markets because the Treasury General account has now gone up over a trillion dollars and probably the government closure government shutdown may have taken 100 150 billion out of markets. So when that is readressed uh when the government opens up you'll start to see that money come back. So there could be a little bit of a blip which we show there but generally speaking you're still looking at uh negative growth on Fed liquidity simply because the Treasury general account has been rebuilt after the debt uh debt ceiling and you got other sort of claims coming out of the Fed and the Fed generally has been reluctant to add liquidity. Although note they've uh they've now formally uh ended QT that will have a small effect not decisive and you can see that we get back to moderate growth in the second half of 2026 but that moderate growth actually assumes uh a little bit of QE returning and we pencil a figure of 250 billion next year of Q of genuine QE although they won't call it that uh which is basically going back into markets but you see the picture uh this is not that healthy and you can see the implications. Now if you want to look at it a little bit more in a little bit more detail, this chart shows the pattern of the S&P and Fed liquidity in one chart. uh the S&P has been lagged by 25 weeks I six months and if you eyeball that you get some idea of the concerns that we've got because generally speaking what you find is that whenever liquidity Fed liquidity drops sharply you tend to see corrections subsequent corrections in markets and that may be what we're going through right now but you know the proof of the pudding is in the eating of course okay so Michael put put all this together for us with respect to the cycle so it's looking like where at the end part of a cycle, uh the um like some liquidity is being withdrawn from the market at this point in time and you're seeing some flashing red lights maybe on the repo markets or at least you're you're monitoring those and that points to potentially the end of this, you know, 65month liquidity cycle. And thus something happens with riskon assets. Risk on assets, you know, suffer. we get closer to a potential crisis. Put put all these pieces together for us and um tell us what you think this means for where we are currently in the cycle with respect to the different assets that an investor might hold. Okay. Well, let me let me put it this uh in these terms. So, here is a schematic diagram which basically uh melds together the liquidity cycle and the asset allocation cycle. Uh on the left hand side you see the liquidity cycle references to four different regimes that we think of calm, speculation, turbulence, rebound. Those four regimes kind of overlap uh not exactly but broadly uh asset class performance uh regimes. And you can see that we've labeled equities, commodities, cash, bonds on the asset allocation uh part of the diagram on the right. Generally speaking, risk on when you're moving through rebound and calm, certainly in the uh you know from midrebound through to late calm, equities are definitely the best asset class. Around the peak of the cycle when you're moving between the calm and speculative regimes, commodities do well. In the down swings, you tend to find that cash uh is the best asset class uh certainly in uh in absolute terms. And then by the trough of the cycle, uh, government fixed income long duration bonds tend to be pretty good. Uh, and then you end the riskoff phase and then start again on a new risk on phase as that cycle inflects and starts to go up. Now we show that uh in terms of a traffic light diagram which is illustrated here. Uh on the left hand side you've got asset allocation across major assets and on the right you've got industry group allocations within equities or maybe credits. And this is basically illustrating uh when you get a green an amber or a red light um and that maybe that's self-evident what you do. You either go uh proceed cautiously cautiously or stop. And what this says is that during the rebound phase, the early cyclical upswing uh you want uh you know you may not be going fully risk on. I mean that really depends I suppose on risk tolerance but you basically want to you know proceed cautiously on a risk on basis. Uh equities and credits are the best performing asset classes green lights. By the time you get to calm you want to be pairing down your credits and looking more at commodity markets. So equities and commodities are the best asset classes. By the time you get to speculation, credits, you know, dangerous time to be in credits. You want to be probably dominating your portfolios with commodities, real assets, in other words. And you want to be thinking of uh equities starting to shave your extreme equity positions. And then turbulence, you want government bond duration, long duration. Uh equities and commodities not so good. Credits may be coming back if yields are uh decent. uh in the industry groups it simply says cyclicals on the risk on uh defensive stocks on the on risk off technology always leads uh it's the best uh early cycle area to get into uh it does well in calm financials tend to do pretty well midcycle certainly through the calm phase and energy commodities tend to do pretty well uh in the calm speculation phase as that cycle peaks um now what I would argue is that you know notwithstanding the fact that there's been absolutely no economic cycle to speak of really since the end of co economies have generally flatlined and I think that's to a large extent because government spending is such a dominant partner of uh of many western economies uh you've got no uh no clear business cycle but nonetheless the asset allocation cycle and by implication the liquidity cycle have been absolutely as normal. So we've had a very normal liquidity cycle uh from trough now through to peak. And if you look at the asset allocation performances uh just eyeballing this uh this traffic light and this traffic light is not you know designed or has been concocted for this cycle. It's what exists in every cycle. So you know we've been using this for decades. Uh it it works it's worked absolutely like clockwork. Uh equities have have outperformed credits have outperformed. Uh bonds have not done so well. Commodities are coming through now. Uh technology has been a huge leader. Financials have had a fantastic 18 months worldwide certainly and energy commodities may be beginning to pick up now with you know gold miners you know really the stars of uh of this year. So I mean it's been a very normal cycle and then you can look at another you can look at another chart which shows the correlation between global liquidity and world wealth and world wealth is absolutely everything thrown into this bucket. This is u you know equities, bonds, uh liquid assets, residential real estate, uh crypto, precious metals, everything is shown in that black line as a return and it's showing the the annual return on that portfolio and the growth rate of global liquidity in dollar terms. And you can see the correlation between those two series looks pretty good. Now, I'd have to fess up that if I if I ran that chart back pre200, it would look good, but it wouldn't look as tight as this. And one of the things that you've seen over time, and you get some evidence of it since 2010, is that that correlation has really tightened up. So, that's pretty much telling you that one of the main main drivers of uh of wealth returns uh is liquidity. And that's clearly something that I think the administration acknowledges and why, you know, Treasury Secretary Bessant is all about, you know, sort of ending uh Fed Les and sort of trying to direct money via uh the Treasury into the real economy. Um and I think that's the policy. I mean, otherwise the social divisions uh in the US will just get too uh you know, just too great to uh you deal with. So I think that's the backdrop and you know maybe we can consider this chart which is looking at crypto and you know this uh growth rate that you see here is shown uh is showing very high frequency data. It's showing weekly changes uh with a 6 week window. So it's looking at changes over 6 weeks. Simple reason for that is just get rid of any uh any unnecessary noise so you get some signal. and global liquidity the black line has been advanced by 13 weeks only 3 months uh we're showing here deviations from a log trend in both cases so the data series have been made stationary in a statistical sense and what you can see here is that there's a high degree of correlation between the two factors the bees index that we show there the growth rate is bitcoin ethereum uh salana uh and it's basically a weighted average of those of those three cryp uh crypto units As usual, Michael, every slide we go through opens up, you know, a tree of questions in my mind. I want to come back to this slide, but um before we do that, can we go back to the stoplight slide quickly? And so this is asset allocation by where we are in the cycle. We have these four phases of the cycle, rebound, calm, speculation, and turbulence. It seemed from what you were saying that um maybe we're somewhere between calm and speculation in the current cycle. Is that your take? Are we sort of late speculation? Well, I mean the answer is it depends on the economy. I mean the US is in speculation. Okay, that that's clear from the data we we get. Um the European markets and some of the emerging Asian markets are in calm late calm phase. Okay. Okay. So late calm to speculation that's somewhere where we're in. We know we're not in turbulence. We know we're probably not in rebound. And then of these different asset classes where we have risk on, equities, credits, commodities, bond duration, where does crypto sit? Is that in the commodity section? Is that in the risk on section? Really good question. We've done a lot of statistical work on looking at what drives crypto. We basically come to u two conclusions in that work. And there's a lot of stuff we've written up on our uh Substack called Capital Wars about that uh Cisco anal and those CISL analyses. The first thing to say is that crypto generally behaves uh a little bit like a tech stock and a little bit like a commodity. So it's got some NASDAQ in it and it's got some you know gold or whatever uh properties. So it's uh really a mix of those two factors. And so I think you've got to think of it in in those in that in those terms. So it's certainly the trend is very much like the trend in gold and the cycle is kind of like the cycle in technology if that kind of makes sense. Now if we drill deeper into that analysis and we look at the factors that go into driving um crypto and we've we've done uh let me just make uh make it clear that we've done analysis for Bitcoin. We haven't done that much analysis for other crypto yet, but Bitcoin, we've done fairly thorough work. And what that shows is that about something like about 40 45% of the drivers of the systematic drivers of Bitcoin are global liquidity factors. Okay. If you break down the remainder, you tend to find that that splits out uh something like 25% gold and about 25% what we call risk appetite factors. Now those risk appetite factors are things like I mean you can take as a barometer NASDAQ I suppose that would that would constitute a sort of good way of understanding risk appetite but it really is you know it's if you get uh for example a sudden selloff on Wall Street because investors are skittish then that's clearly going to affect Bitcoin. I mean that's something which which comes in. If you did the same analysis for gold bullion, you'd find a much much smaller if if actually any effect uh from risk appetite. So, Bitcoin is is certainly more spooked by fluctuations in markets or fluctuations in technology stocks and gold would be. So, I think that that's fair. If you then look in detail at the gold connection, it's very interesting because what it shows is that uh Bitcoin and gold have a negative short-term correlation but a very positive long-term correlation. Now, if you consider that mathematically, um that is that fits into what would be called an error feedback uh system. And broadly what it's telling us is that Bitcoin and gold trend together but they cycle apart. So in other words, what you tend to find is a situation where uh I don't know what the best analogy would be. This may this may be a a slightly conultural one but it's a bit like you know somebody taking a dog for a walk on a leash and if you take the uh the owner let's say the owner is gold for argument's sake and the the dog on the end of the leash is Bitcoin and what you may find is that Bitcoin can move around independently of gold but ultimately they go in the same direction and that may be a sort of a decent way of looking at it and sometimes the sort of the the dog runs off into the on an expanding leash but ultimately it will have to come back again. So if you think of it in those terms maybe that's helpful but it's often the case you can see periods and you certainly you've seen it in the last few months where gold has surged and Bitcoin's done nothing or even fallen and then equally Bitcoin has surged and gold has done nothing or fallen and that's that negative short-term correlation but ultimately they come back in line because they're both monetary inflation hedges but they may be short-term substitutes to each other. So I guess the answer to the question is is a commodity is a risk on is the answer is yes. It's it's kind of both of those things. Yeah. Fascinating. So right now in the cycle we're somewhere between comm and speculation. Um back to the super cycle and back to the GLI that you originally showed the chart. So from everything you've said so far, Michael, your projection is that that number continues to go up. So I'm talking about the big number where we're at 185 trillion right now. Yeah. And of course this will go down uh at the end of a you know 65 week liquidity cycle but the grandmaster trend line is it yeah it just continues to go up forever. Yeah. This is level. Okay. So continues to go up forever until like I guess I had some questions about this in in the context of this is measured in um you know US dollars, right? And so is this sort of a Brett and Woods type thing? I mean there's there's another cycle which is kind of the Ray Dallio you know monetary regime change type of cycle that happens every you know 70 to to 90 type years. Um does this graph break? Does the denominator of this graph kind of break if we enter a new monetary regime or does this keep trending upwards? Um yeah, like how does h how do you think about that? Well, I think the I mean these are these are all great questions. I think the uh I think the the the point about monetary regimes uh which is probably a relevant question looking forward because I think the monetary system is evolving into very new into a very new shape particularly with the advent of stable coin in the US which I think is a decisive move and a particularly clever move if it was thought out and not accidentally arisen but I think that the implications are actually very very profound and very significant. Now you know what you got to think about is to go back to an uh an earlier chart I showed which is this debt liquidity ratio which is this chart. Now if you look at that that shows broad stability over the long term and you know that that will apply to um different countries and different currencies. But the denominator and the numerator are both in the same units pretty much. Now clearly there are circumstances where that won't apply where if you've got an emerging economy that's borrowed a lot of dollar debt and they've only got liquidity to service that in local currency you could have a big problem and you could get a default in that situation and that has happened for sure but that default tends to you know involve involve a bailout and maybe a reconstitution of the monetary system. If you look at the big western economies, there is absolutely no way you can get a default. And the reason for that is that the whole financial system rests on existing debts. And as I said earlier on, uh the liquidity that we've got in the system is collateralized, but the liquidity or let's say the new liquidity you've got is actually collateralized on old debts. So you can't let those old debts default. You've got to keep them running. You got to keep them rolling over. And that's why the system there there's a there's there's a d we have a dynamic system here. Uh and we've got to keep doing that. Now the question comes is um basically what you know what does the future look like? This is looking at the debt liquidity ratios of Japan and China. Okay. Now the black line is looking at Japan and the orange line is looking at China. And don't worry too much about the percentages on the left on the right and the fact that they're different and the fact that they're different maybe from what we're used to if we looked at the other chart um for advanced economies because this basically tells us much more about the uh debt structure than anything else. And what we really were interested in here is not the debt structure but much more about the profile of uh of debt relative to liquidity. Now the black line is Japan and in Japan's case we saw peak levels of a debt liquidity ratio uh around uh 2005 2010 okay where the debt liquidity ratio was around 300%. Um if you look at China uh China is looking at a very similar trajectory. Uh I mean I accept the fact that the debt liquidity ratio is uh is peing at a lower level but as I said don't worry about that. It's the profile that's important here. And what this is basically saying is that what you've got is China is trying to get out of its high debt liquidity ratio as Japan did. Now how did Japan get out of that high black line or the high ratio shown by the black line? The answer was abonomics. The Bank of Japan buying huge amounts of uh government debt, monetizing that, printing money, and letting the yen be trashed. Okay, hold that thought. And translate that into China. What are you going to see in China? Are they going to default the debt? Nope. Are they going to monetize the debt? Absolutely. Uh are they doing it now? Probably. May not be in one go, but we're looking at a very similar trajectory. So, what China is doing is inflating. You want evidence of that? Look at the gold price. Um why is the gold price going up? Because China is buying gold and because China is printing money and that is the mechanism ultimately China is controlling the gold price and I think that's what you're seeing right now. So effectively here is the uh the China backdrop. This is Chinese PBOC liquidity and this is showing six month changes in the in the in their liquidity injections. What you can see is that we've had this big spike uh in the beginning of 2025. Uh that may be turning off a tad, but still you've got you've had a huge shot in the arm in terms of liquidity and that is it's no coincidence that what you've got is a very strong yuan gold price and I think that's what they're driving in the gold price and everything is really revolving around that particular process. Now why are they doing it now? Why didn't they do it a year ago, two years ago? I think the reason they're doing it now is because of the stable coin threat. And I think that stable coin has really woken up the Chinese threat of the integrity of their monetary system. Now, uh I'm on the same page as Brent Johnson who has written recently and probably more eloquently than I did about the prospect of red dollarization. And I think this is a real real possibility because stable coin are a tremendous innovation um for investors globally and they can start to shift more and more of their savings into US stable coin particularly if you're in uh jurisdictions which either have currencies that are unstable or you have jurisdictions that are unfriendly ultimately in a tax sense uh to their residents. And if you think about uh the squeals that are coming out of Europe at the moment with the ECB saying this is grossly unfair uh you know and latest evidence in the last day or so in the Financial Times where uh a senior ECB official said you know we're going to lose control of our monetary system because of the threat of US stable coin. If they're saying that what are the Chinese thinking because it's a much much bigger problem for them. If you're a Chinese exporter, you're effectively dollarized. You're earning a lot of your money in dollars. And you've got a choice. You can either put that money into a western banking system and you can risk sequestration as happened to the Russians after the invasion of of Ukraine or you can basically give it to a domestic bank uh in China and good luck there because if you fall foul of the authorities like Jack Martin did, you may lose it. So better than sort of deciding between the devil or the deep blue sea is to go into US stable coin because there is some degree of anonymity in that. Uh and for a lot of uh potential investors it's much easier to open a stable coin or coinbased account that needs to open a bank account these days. So you know we're starting to talk here about China and uh uh and Europe but start thinking about Africa, the Middle East, Latin America, all these countries with very unstable currency regimes. um you know they're going to start going for stable coin and this could be big big so what I'm arguing is that if you look at the world it's cleaving into two monetary systems one is a US dollarbased system which basically has let's call it digital collateral uh in the form of repackaged treasuries uh wrapped into a stable coin and then what you've got is China who has taken the other course and said okay we're going to start backing our monetary system with gold I emphasize they are not going onto a gold standard. That would be uh that would that would not work. They need fiat money like everyone else does. But they may have the discipline of gold behind them. And effectively what this is saying is, you know, trust our technology for America or trust our gold for China. 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I was really fascinated on your Substack. you you wrote this article that goes into the details of the Bitcoin and gold axis and it's basically the argument you just articulated that there seem to be two blocks that might be on the early phases of emerging there's sort of the US block when we get into kind of this new maybe monetary regime or this transitory regime and that is stable coins backed by treasury so again these short duration bonds in the US side and maybe some crypto assets maybe a strategic bitcoin reserve something like that and then there's China's his approach at it which obviously sees US denominated stable coins as a threat and they're going in the direction of gold and it seems like the PBOC is continuing to buy gold and so if you extrapolate this forward we could very well live in a world of two different monetary blocks one is kind of China one goldbacked and the other is sort of US stablecoin bitcoinbacked something like that is that what you're saying correct correct correct that that's how I see And I think what it says, I mean the the corollery of that is that if this is genuinely a capital war, which of course I believe it is, then it's in America's interest to to have an un unstable gold price. Okay. Because a strong gold price would clearly give power to China. Why is that the case, Michael? Because the US does also have a lot of gold, do they not? Yeah, it's true. But then they're not going to trade with that and it doesn't really have any bearing on uh the value of the US dollar per se because the US is delin the dollar is delin from gold. Okay. Uh now you could argue in some ways there is value there and that may be somehow uh in the equation for the value of the dollar but I'm not sure about that. But you know hold that thought. I think the point being is that if America wants uh doesn't want a a surging gold price because a surging gold price would give uh certainly more power to China given the fact it's accumulating very rapidly. I mean there were there were articles I read over the weekend that said that actually maybe China has as much as 5,000 tons of gold now because he's been secretly accumulating and if you take Fort Knox as being 8,000 then China's not that far behind. Okay. So, you know, this is clearly a a threat. But then, you know, if you put park that thought and say, well, okay, what's it in China's interest to do? They want the gold price higher, but they also want to use their technology uh and cyber attack uh the US and they can use quantum computing to do that. I mean, that's one of the one of the risks presumably looking forward. Quantum computing can actually, you know, uh undermine the integrity of of crypto. Um and it can undermine the integrity of generally large sways of uh of western society uh from traffic lights to washing machines or whatever else if they get you know if these uh you know Chinese malware is embedded uh in uh in different products. So you know this is the threat that we've got but it is coming back to this point you know trust our gold or trust our technology. If this is a new sort of front of the capital word who who do you think is better positioned and and who do you think is winning? So the US strategy of maybe crypto uh versus the Chinese strategy of of one goldbacked that sort of thing. Well, I think I think that my heart says the US will win because I've got a lot of faith in US technology, but I think the the pages of history will tell you that gold often comes uh comes out on top over the very long term. Interesting. So does this is this kind of an explainer as well for the massive rise in the price of gold that we've seen that we've seen over the last couple of years? But I think that's right because what what's happening is that China is accumulating gold. U whether that's being done I mean it's not being done officially in the sense that you know you won't find evidence in in data because they're burying that as much as they can but they want to accumulate gold. China's the world's biggest producer of gold. So it's uh you know it's uh uh it's sort of squirreling that away. Um and you know the stockpile is growing and the point is that to give credibility to its monetary system it will basically entertain the idea of doing gold for commodity swaps. So you might see an oil gold swap coming through where let's say the Saudis are allowed to swap or take gold in return for oil. There won't be many that are allowed to do that but just sufficient to give that credibility that air credibility. It won't be that Joe public will be allowed to trade. they won't. But it's pretty much like the old gold standard or gold exchange standard that the US ran. Uh you know, it wasn't open to everyone, but you know, selected central banks could basically trade their gold and the Chinese will do that too. That's what we got to consider. So there's no gold standard, but there's certainly a gold backing and a gold credibility uh which is sort of running through the Chinese currency. Yeah. So I guess some sound money underlying kind of collateral starts to you like start backing more of the fiats. So I guess project this forward for an investor. So if this idea comes true, it sounds like you'll want to hold some crypto assets. You you certainly want some Bitcoin in your portfolio. You may also want some gold as well. Like what's your projection for those asset prices over the next, you know, 5 to 10 years as this plays out. Well, I think I mean the the answer really comes back to you looking at um maybe two things. I mean, one is that if you look at it qualitatively in terms of a capital war, uh, and the two economies being, you know, long-term rivals, then you're going to want to own both gold and you got want to own Bitcoin, uh, as well, or you want to own crypto and you want gold. I think that's pretty clear. You got to have that in a portfolio because basically what we're getting against this background is persistent monetary inflation. Okay? So, it's not Bitcoin or gold. Bitcoin and gold. I think that that's definitely the case and you might want to hold that in a portfolio volatility adjusted. I mean that may be a decent strategy. Uh I think if you look at the scope for monetary inflation, I mean the point here being is that you've got the likelihood that debt is going to grow at something like at least 8% peranom. uh and I'm using as a benchmark the sort of uh projections that the Congressional Budget Office uh you know put forward for the US and you know the the CBO is bipartisan but it does project out uh you know pretty transparently uh its data on debt and the fiscal deficit right out to 2050 and beyond. So we've got a we've got a good uh you know good uh amount of data projected here and we can use that to try and extrapolate what it would mean for uh gold and bitcoin. Now as a heads up if you look at the last 25 years uh the stock of US federal government debt uh increased uh by around about um uh 10 times over that period. Okay. um since 2000 2025 you've had a 10 times increase in the stock of federal debt. I mean that is a big number right the S&P has gone up by less than five times over that period and gold prices have gone up 12 times so gold has more than matched the increase in federal debt. Now, if you look at what the Congressional Budget Office is projecting uh for the debt GDP ratio, uh they're talking about 250% for public debt, federal debt to GDP. We're currently just over 100%. So, they're going to double debt GDP. So, in other words, debt is growing more than twice as fast as nominal GDP. Um so, you know, that's the sort of metric. So, I'm saying at least 8% growth here. Now, if you assume that gold prices continue uh with the same relationship uh to federal debt, in other words, that you keep the federal debt in real gold terms constant, then the gold price by uh the mid 2030s would be easily $10,000 an ounce and by 2050 touching $25,000 an ounce. Now, if you then say, well, okay, what's the relationship between Bitcoin and gold? And what's the current ratio about 25 27 times, you know, then do the math and you've got, you know, what that could mean. Wow. Um, that's very interesting math. Uh, I want to ask you on behalf of crypto investors. So, I think we're very attached to this idea of a 4-year cycle in crypto just for our own reasons, right? There's a Bitcoin happening. This is how it's played out three different times. um what does your global liquidity model say about Bitcoin crypto assets four-year cycles? Because this is a very timely and relevant question as um it is the end of a fourth cycle. Crypto assets are now down from their highs substantially and crypto investors are wondering is this cycle over? What do you think about that question? Well, I mean the short answer is I've showed this I've put this chart up of of crypto assets and global liquidity and I'm really see I don't really see any evidence of that fouryear cycle. I know others have shown it and you know all all credit to them. I've never really found that. I mean clearly there's a you know a hing cycle that you can that you can uh you can envision here. Uh and maybe that's having an effect. I don't know. I mean the reality is that the cycles that we look at are longer and this is a debt refi cycle and if you said that the h havinging cycle was really about supply uh I mean presumably that's mean I I don't know well I mean you know I'm not I'm not the crypto expert I don't know there any more or less effect but let's say you've got the supply effect this is much more a demand effect um showing the impacts and this is a a five to six year cycle not a 4year cycle on the other hand it seems as if the two are converted emerging right now. So maybe that's a that's something to worry about. Yeah. Okay. So then if we just apply your lens, ignore the whole crypto 4-year happening cycle type thing that we have experienced insular to the crypto industry. So if we just use your global liquidity metrics, it's still indicating that it's kind of late stage. Might not be the end and it might not be a four-year cycle, but we're still late stage in the crypto cycle. So it could be over but it might not be. Yeah. I think that look I think that the to go back to the point I was making I mean there's trend and cycle and you know you you've got to think about a portfolio in terms of those two characteristics and you have a core exposure uh to the trends and you have a tactical overlay which is really responding to these cyclical movements and I think it really depends on personal preference how much you have in your core and how much you have in your tactical overlay. Now generally speaking that tends to move with uh age. So you have target age funds which are incredibly popular in the US and 401k plans and those target age funds basically start to evolve their asset allocation through time uh with a lot more fixed income as you get older and a lot more equity as you're younger. And I think it's the same really with a tactical core positioning. You know, if I'm younger, I'm going to have a much bigger allocation to core and a relatively small amount to tactical overlay. Whereas, if I'm older, I'm gonna probably have the other way around. I'm going to be much more concerned about the cycle because, you know, if I've only got, you know, another decade on this planet, uh, you know, I I'm going to I'm not going to want to see uh my my sort of sunset years featuring very depressed prices. Whereas if I'm, you know, 20 years old or whatever, I've presumably got a much longer horizon. So, uh, you can stand the pain of up and down cycles more more easily. So, I think it's really just a question of choice. So what I would say is that you've got to think about the core holdings as having your core exposure in monetary inflation hedges and that means Bitcoin, it means gold, it means prime residential real estate that always does well in inflations and it means uh you know good quality equities uh companies that have got pricing power and that works. I mean that's you know that's almost Warren Buffett ology buying these type of of good growth high margin stable margin companies. think that's good from a tactical standpoint. You know, you've got to take some of your portfolio and play around with it and pair down your risk when you start to see inflections in the cycles such as we're getting now. And we've been saying to you know, our clients and readers of the Substack, look, you know, for for several weeks now, I mean, we're not happy with the with the ongoing developments. We we recommend uh you know not chasing risk and starting to reduce extreme positions because it's going to be you know when the proverbial hits the fan it's very difficult to get out. I think you put it this way and in some of the material I've read we've not turned bearish risk off yet but we are not bullish short-term as well. Yeah. I I guess this model Michael how does this model the liquidity model apply to other investor conversations? Another big one right now is is kind of the AI bubble, right? And so there are those in Silicon Valley that are, you know, techno optimists and big believers here who basically say, "No, this is a this is a a new industrial revolution, okay? And AI and just productivity gains will just smash through whatever pre-existing cycles we've seen and increase productivity, increase GDP, and maybe in that world, your cycles are not as relevant." Um, what do you think about that? And how would your model apply to the AI bubble and whether there's a bubble or not? It's never different this time, is it? You go back and you look at uh I mean look at uh Japanese equities. I mean if you look I mean I I started in the business when Japanese equities were in a in an inflating bubble and um you know everyone thought that Japan was going to rule the world. Uh, and then there was there's no coming back. And there's uh uh oh, I forget that you there was a famous movie, wasn't there? The about Japan taking over. Um uh what was that called? Was it uh wasn't Rising Side? I forget what it was called. But anyway, basically it was uh it rang the bell right at the top of the Japanese market and the Japanese have you know basically been on the back foot ever since. Um so that was you know Japanese going to rule the world. Um and then you you go back to look at the tech bubble in year 2000. I mean, how many of those companies uh the ones that are really flying uh in Y2K are basically, you know, are they featuring in the market now? No, they're not. U you know, I mean, so I think you you've got to start thinking about and there's a the biotech boom um you know, in the in the mid uh 2010s. I mean, that's peted out. It's really difficult to raise money for biotech right now. So, I think that these things go in cycles. I mean, I I have no mistake. No, no question about that. in terms of their valuations. I mean that's not to say that you know if you go back to year 2000 and you say well okay you know it was absolutely true that technology is uh pointers of the future and technology is with us and this is embedded now uh and you can say biotech is a fantastic industry but we're talking about here valuations on the stock market that's a very different thing you know look at railroads I mean railroads were a fantastic innovation back in the middle of the 19th century but how many how many made money in the stock market from railroad stocks I don't think many people. So, back to when I asked you the question at the beginning of this conversation, is global liquidity a theory for everything? And you said, well, almost, but not quite. What doesn't global liquidity explain in markets? Well, I think you've got I mean, you've got a lot of other factors which can come in. I mean you know I mean you you're really sort of addressing one which is if you get extreme innovation you might get uh you might get something that uh where the trend I mean liquidity here is a is a theory of the cycle and you may get a trend change in economy uh that you know that that changes the the underlying dynamics uh if you go into different if you go into stock selection uh it's very difficult to I mean you can use global equities to understand you know whether you buy equities in general or not but and you can maybe get some evidence of of industry groups but you know will it tell you whether Amazon will outpace Walmart or uh Costco or whatever I mean very difficult to get anywhere anything like that you so it can't explain the micro of course yeah you can't do that sort of thing and then I think you've got geopolitics I mean to what extent does geopolitics affect markets I mean that may be a debating point by itself because you know I mean the long history of markets would tend to suggest that these things are ironed out in the long term. But, you know, I mean, hey, we've got to accept the fact that maybe, you know, if Trump and Z, you know, fall out, then markets are not going to go up, they're going to go down. Part of the the value of um your models, Michael, is I I feel like um they can help they can help point investors in the direction of signal when it comes to global liquidity and and money printing and all of the other things that they might pay attention to just Fed speeches and that kind of thing. Um would you say that's what it provides? So rather than listening to all of the different I guess uh more micro more in the weeds insights over what POW is doing specific a specific uh speech and what the you know Fed Treasury balance sheet looks like and what the PBOC is doing at any moment. Can investors basically look at the global liquidity index and some of your work and can that be a a filter of all of the noise? Does that basically tell the whole story in the charts and and the data that you've provided here? Well, I think I mean I I would like to think so. It's a statistic that summarizes all this information. I mean, that's not going to satisfy everyone because people are going to ask questions and they're going to want to drill down into the data and that's that's feasible. We can we offer all those services. So, we we're fully transparent. Uh we can allow that granularity definitely. But if you want one number then that's the global liquidity index that works for sure. And you know, I found in my experience that you know what matters a lot more is liquidity. is not uh GDP growth or understanding the economy or you know looking at these sort of metrics that economists pour over and you know one of the problems that I I tend to I'm maybe a cynic although I'm you know I I grew up as an economist but I'm a cynical one and the fact is that you know in economics those things that you can most easily measure always take on the greatest importance whether they're important or not and that's you like the story of the drunk who loses his car keys is and he's fumbling around at night under a street lamp. Uh not because that's where the he lost the keys, but that's where he can see. And that's economics in a nutshell. All right. Well, let's close this out. And last question for you, Michael. So, um what are you watching now over the next 3 to 6 months? What what what are your kind of base expectations for where the markets go? Well, what I'm looking at in the next 3 to six hours and next 3 to six days of the repo markets because I think that's that's going to be critical. At the moment, the repo markets are blowing out. Uh, it's an inconvenience to the Fed, but it may morph into a bigger crisis because if you start to see trade fails and an unwind of some of these lever positions, it's going to turn quite ugly and that could be the start of the end of the cycle. It could easily be the it could easily be that the start of the end of the cycle for sure. Uh, and I think the question is is what is the administration really trying to do? And I think the point to ponder that everyone's got to start thinking about is why are Trump appointees and I think if for example people particular like Steven Miran why is Mirren saying okay we want the balance sheet smaller but we want rate cuts as well that doesn't make sense to me because the two are incompatible but what it's really saying I think between the lines is that lower interest rates are going to help the real economy certainly help to get mortgage rates down and it may help the real economy by weakening the dollar. But at the same time, the shrinking balance sheet is going to help to redistribute activity and maybe wealth away from Wall Street and towards Main Street. And I think that's what the agenda really is. It's a pro Main Street uh not anti-Wall Street, but less bullish Wall Street environment. The Federal Reserve currently is running a policy which is not conducive to a bull market on the street. It's basically conducive to a rangebound market. That's fascinating. That's the point that you're making in in many of the material that I'm reading about this this move from Fed QE to Treasury QE. That's something that you're watching. And then the implications of that are what assets does it make sense to hold in that world in that environment. Well, it makes sense to own things which are going to get more traction from the real economy. I think it commodities should do well. I think US defense stocks uh are certainly worth thinking about. uh and you know I come back to you saying that that maybe is the tactical position you may even want to say well okay if this is the the remit uh maybe maybe I want to hold some some 5year Treasury notes as well I mean maybe that's a a decent a decent bet but the other thing to you know say is that you know it doesn't detract from the longerterm picture which is that monetary inflation is here with us from for the long term and you've got to have Bitcoin and gold in your portfolio and The best time to buy them is to buy them on Weakness. And we may be seeing some upcoming Weakness. A good time to pick up some more. Michael How, this has been absolutely fantastic. Um, is the best place to find your work. I I find myself I'm a subscriber to Capital Wars. I find that a um a fantastic place where you're publishing a lot of your work. Is that the place you'd uh direct bankless listeners today? Yeah, I think absolutely. I mean, Capital Wars on Substack is probably the the best place. There's a few but sometimes we we we do tweets uh so you can get some sense of what we're saying on that uh or if there's an institutional service which uh is available crossbercap.com amazing we will leave links in the show notes for those bankless listeners got to let you know of course none of this has been financial advice crypto is risky you could lose what you put in but we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a [Music] [Music]