[00:02:14] James Lavish: And posting it on. And I pulled it up. I actually have a window on it open that one of you guys posted, and I just haven’t gotten to it yet, dude. It’s crazy. Yeah. What, what is it like, it’s Nostr. Is that, is that how you pronounce it?

[00:02:30] Preston Pysh: Yeah, like Nostradamus, so probably Nostr.

[00:02:33] James Lavish: Nostr, yeah. Nostr guy.

[00:02:34] James Lavish: Yeah, that makes sense. Okay. So Nostr?

[00:02:37] Preston Pysh: Nostr. So, I mean, the, the simplest way I could describe it is they’re decentralizing Twitter right now. Just a bunch of like, like Bitcoin, you know, you got a rogue group of shadowy psychopaths.

[00:02:51] James Lavish: Super coders, super coders,

[00:02:52] Preston Pysh: Super coders that are out there just decentralizing money.

[00:02:55] Preston Pysh: Now they’re doing it with free speech and, and Twitter, and I’m no expert on, on the intricacies of it. But I opened up an account, I created private keys, just like you know, with Bitcoin. You got private keys and then you have a public address associated with those private keys and basically created an.

[00:03:13] Preston Pysh: And you just wouldn’t believe how Twitter, like the experiences so far. Really? Yeah. All right. And so then, so yeah, so it’s, I mean, it’s a protocol. Anybody can just build basically an app on their phone or their desktop, and they just basically tap into this protocol, this messaging protocol, and. Jack Dorsey’s there, which is insane.

[00:03:34] Preston Pysh: Really? Yeah.

[00:03:36] James Lavish: Jack Dorsey is basically, I didn’t,

[00:03:37] Preston Pysh: yeah, it’s so, I’m like, I’m there having conversations with Jack Dorsey on this new messaging app that’s completely decentralized. People are running their own relays. I think there’s like 130 relays. Basically people decentralizing the servers and. The guy who stood it up.

[00:03:53] Preston Pysh: This is what’s so fascinating about it. The guy who stood up. Yeah.

[00:03:55] James Lavish: When did it, when did it? I think they’ve, I think they did it months ago, but I think they’re just now like getting enough built that people are like starting to sign up in the j droves. And the guy just, I saw him tweet. I don’t know if we would, we call it a tweet.

[00:04:12] Preston Pysh: I don’t even know what you’d call it, but he just, he said that none of it would be possible without Bitcoin and lightning in particular because like lightning immediately settles and you can do these micro payment. That, that’s going to be the thing that’s going to be the incentive for these people running like their own local relay servers.

[00:04:33] Preston Pysh: There’s people talking about running apps on like Umbr. It’s insane. It’s, it’s, wow.

[00:04:39] James Lavish: I’ll put a link in the shop. I’ll sign up tomorrow. I’ll get in there and figure it out.

[00:04:44] Preston Pysh: Check it out, man.

[00:04:45] James Lavish: Get my keys. Do you have a, like a username and everything just like Twitter or is like Yeah.

[00:04:50] Preston Pysh: So your, your public key is your username.

[00:04:54] Preston Pysh: And some of the software clients, like the local or or the software clients that you can run on your smartphone or whatever, are getting to the point now where it’s going to be like the at symbol, like on Twitter, like at Preston or at James or whatever, that it will auto do like the same stuff that you have with with Twitter right now.

[00:05:12] Preston Pysh: But right now everyone’s using, because it’s so early, people are using their public addresses that are associated with their private keys as like their username effectively. Sweet to tweet at. But dude, it’s wild. It’s just like the wild, wild west. All right. Looks like it.

[00:05:28] James Lavish: A lot of problems. I’ll, I’ll definitely check it out.

[00:05:30] James Lavish: Definitely

[00:05:31] Preston Pysh: I’ll send, I’ll send you a link and then I’ll put a link in the show notes for people if they want to check it out. Anyway, let’s hop right into this. So the big, the big news, we covered Japan early on, man, , we were talking about this, break it down for people that maybe didn’t listen to earlier episodes.

[00:05:49] James Lavish: Yeah, you and I talked about this. We’ve been talking about this for months, right? Yeah. And even offline, we’ve been talking about it quite a bit, but for those who, who haven’t been watching Japan, the Bank of Japan a number of months ago had declared that they were going to hold their 10 year rates at a certain level, which was 5%.

[00:06:10] James Lavish: Everybody else in the world, the Bank of England, the e cb, the us, everybody’s raising rates. And Japan is holding theirs, like just barely over water. Right? And so the 10 year was being held at 0.25%. It’s called yield curve control. They’re controlling the, the yield curve of their, of the different maturities of their government debt.

[00:06:35] James Lavish: And so doing that though, as you and I discussed and you know all this, but doing. When people can get a better return on a sovereign bond, on a government bond elsewhere outside of, of that country that’s doing that, they’re going to sell those bonds and buy the ones that yield better. Right? In essence, what happens is it’s a, people who are investors in Japanese government bonds were selling those 10 years, they would get yen for those 10 year bonds that really.

[00:07:08] James Lavish: Then they would sell the yen, buy US dollars and buy the US Treasury 10 year because it makes sense that they could get a better yield. And that’s just interest rate arbitrage right there, you know, it’s called interest rate parody. Then it just, that’s kind of what happens. So there’s tremendous pressure that builds up as people are selling all of these treasuries and there’s nobody to buy them.

[00:07:35] James Lavish: So the, the market eventually becomes pretty illiquid, and the Bank of Japan has to step in and buy just about every single bond that’s being sold in the market, in the open market. Then we would see outside the window. The bond trading at crazy levels and that was hedge funds taking the opposite, opposite side of the trade, thinking that eventually, that the way they were pegging it at 0.25%, it would break.

[00:08:03] James Lavish: That’s what they were doing. And they were right and eventually they were right. And because the Bank of Japan ended up over the last number of months, they jumped over the halfway mark that I’m pretty sure no other sovereign has, has jumped over this. This is a new one. And at least the modern era that the Bank of Japan owns more J gbs, more j Japanese government bonds than anybody else in the world.

[00:08:27] James Lavish: They own over 50% of their own debt. So what do you think that means, ? I mean, it’s comical, right? I mean, they’re just, they’re basically printing money, printing yen and buying their own bonds. But they’re doing this and doing this and doing this, and there’s, and the, the market eventually, and uh, I, I sent you that that chart.

[00:08:48] James Lavish: Oh, yeah. The, the market eventually pretty much dried up. It just wouldn’t even trade for days at a time, two or three days at a time. It wouldn’t trade the tenure.

[00:08:59] Preston Pysh: For people that are listening and not viewing the, the video on this discussion, you might want to go back and pull up the YouTube version of this discussion, because we we’re going to throw up some charts here that James sent me for the

[00:09:11] James Lavish: people that are just Yeah.

[00:09:11] James Lavish: Talking, talking through. Yeah. In the United States we have something that’s called the MOVE index and it just, it shows the, you know, it’s a volatility index and shows a volatility of our bonds and as that number gets higher, it’s worse, the more volatile it is. It’s worse. And in this chart you can see that that orange line, it kind of ticks around.

[00:09:31] James Lavish: Typically it’s typic ticking around one to one and a half, which is an, it’s just a, a 15 or 20% move from where, I’m sorry. The, on the index level, you can see where it’s moving around and as it goes up. You can see it just spike up to two and a half times, almost three times what it normally is. And that’s, it’s just showing that the, the liquidity in the Japanese bond market is completely dry.

[00:09:57] James Lavish: It’s drying up. And then the right hand side, you can see the percentage of ownership, bond ownership of the Japanese government. And you can see it that just rises from 2013, where they owned about 10% of their own bonds to today, where they own over 50%. Clearly they’re the marginal buyer. They’re the main buyer.

[00:10:17] Preston Pysh: So it’s, it’s, it’s akin to FTX owning all their FTT tokens.

[00:10:21] James Lavish: I mean, right. And then, so now you, you know, Japan, and so this is what they’re doing, right? Japan’s got over 260% debt to GDP right now. It’s a different economy. I know. It’s a different demographic. They’re a net exporter, and it’s a, it, it’s not like the United States totally.

[00:10:40] James Lavish: But this just shows the tremendous pressure, the manipulation of their monetary policy is having on their debt markets. So then people are talking about, well, they, they must be that, of course what happened was Japan is scared of inflation, so they’re raising rates. I personally don’t think that that’s what they’re doing.

[00:11:03] James Lavish: I think that they are, they’re kicking the can down the road to maintain this monetary manipulation. Right? And there, yes. The next chart you can see here is that they in a normal yield curve, The, your yields are lower, the short of the, the maturity and they’re higher, the longer the maturity. So this is kind of a, it’s kind of a normal yield curve.

[00:11:24] James Lavish: It should have a little bit different belly to it. But the thing here is you can just see that the whole yield curve just moved up about 20 basis points from the three, you know, four year treasury on. But what’s really interesting is you could see at that back end, all the way down the one month, six month up to the, the one.

[00:11:45] James Lavish: It’s barely below zero. So that’s it. The, this is the only negative yielding debt that’s out there in the world. This is it. This is the last of it, you know, from any major country. This is the only, this is the only place that you can borrow pretty much for free, and so free money. The, the message here is free money is going away for the world.

[00:12:07] James Lavish: And so risk assets all sold off immediately across the world. You could see all the futures just dive bomb everywhere because they, everybody knows that well, okay, so free money is going away. If Japan’s not even going to have free money, well, who’s going to have free money? And if you look at the next chart, you can see that the, this is how much negative yielding debt there was in the world.

[00:12:31] James Lavish: After the, the, the 2008 crisis. So all the way to the left, there, you can see it was just a little bit, and then it spikes up after the, the 2008 financial crisis. And it was over 16 trillion of negative healing debt just last fall, year ago. Fall. And now you can see it’s just a, a, just a, a smidgen of that.

[00:12:51] James Lavish: And it’s in Japan. This is it the last. That’s where the markets are freaking out and that’s why everything’s sold off. The risk assets all sold off. Of course then, you know, the financials snap back in in Japan because it, it kind of fixes a little bit of their short-term, long-term debt problem, but when their financials can actually make some money.

[00:13:13] James Lavish: But it, they’re basically, they’re resetting, they’re joining the debt problem party of the world. They’re joining the inflation problem party of the world. And you saw the reaction. It’s where we’re. And so, yeah. So this next one is, you can see that people ask about the yen and what, what’s going on with the yen.

[00:13:31] James Lavish: And we had talked, you and I had talked about this and you can see how that spread between the treasuries, the US Treasury and the Japanese treasury. The 10 years have, those are the, you know, the 10 years kind of your, like your benchmark treasury for your country. That’s the benchmark that you look at for where your yields.

[00:13:50] James Lavish: So in this one you can see that the, as that difference between the two moves, so does the yen almost lockstep. And you could see that as the US the United States, the US Fed was raising rates while Japan, the, the Bank of Japan was holding theirs at a certain level and that spread widen. Well, of course that had a negative effect on the yen, just like we’re talking about.

[00:14:16] James Lavish: And the yen jumped over to one over one 50 on 1 55. Right. And since that has happened, the us, the us, you’d see in the US tenure kind of weighing here in the yields because people are expecting us to go into a recession, in which I would agree we are headed headlong into a recess. The 10 year and anything above the 10 year is kind of backing off on those yields, right?

[00:14:42] James Lavish: So this thread has gotten better and hence the yen has gotten cheaper. So it’s not, you know, the, the yen has gotten more expensive for the US, but the yen has gotten stronger. But you could see when they changed those rates overnight, we didn’t even get to this. So what happened was the other night, The Bank of Japan surprised everybody and said, all right, well we’re going to, we’re going to move that window from holding the rates at 25 basis points.

[00:15:16] James Lavish: We move it up to 50 basis points. So basically doubling the yield on that 10 year treasury, right, and immediately all the risk assets sold off. The 10 year treasury in, in Japan went straight up to 46 basis points and went right, right toward that level where the Bank of Japan would’ve to step in and start buying to hold it there, right?

[00:15:37] James Lavish: The yen took off against the dollar, so it, it became, there were fewer yen per dollar, and so you can see the yen one all the way down to the one 30. All in an instant reaction and so everybody freaked out. Nobody predicted this. Nobody predicted that Japan would finally blink because as we were talking about, we were saying that Japan’s going to try to hold out as long as they can.

[00:16:02] James Lavish: Yeah. Hope that the Fed blinks and starts lowering rates before Japan has to stop their control. That’s essentially what happened. They moved, they moved that benchmark, they moved that the peg to from 25 basis points at 50 basis points. And everybody freaked out. Bloomberg had surveyed 47 economists.

[00:16:22] James Lavish: Guess how many had guessed that this would happen? Zero. Zero. Wow. Zero. Not one economist had guessed that this would happen, and so it was like a shock to everybody. And so people are scrambling to figure out, well, is it because they’re scared of inflation? Or, and like I said, I think it’s because they’re, they’re trying to continue this.

[00:16:42] James Lavish: They’re just moving it to a level. I think even Lynn was on your show a number of months ago, and, and she had said it, she said, look, I think they should have pegged it a little bit higher now that we see where rates are going. But nobody expected the Fed to be raising this hard, this fast.

[00:17:00] Preston Pysh: So, and, and nobody expected the market to be able to handle it, I don’t think Exactly.

[00:17:05] Preston Pysh: For this long.

[00:17:07] James Lavish: Exactly. And so and so, because nobody expected that. Certainly not the Bank of Japan. I mean, we didn’t, the Fed didn’t even expect it. If you read my newsletter last, this last weekend, if you, if you saw it, I showed that the Fed expected the race to be not even half of what they were at the end of 2022, back in December of 2021.

[00:17:26] James Lavish: They had no clue that they were going to be this highest. Of course this is, this is what, this is what the, the, the game of chicken. That the Bank of Japan was playing, they lost at least this round. They’re trying to stay on that, that game and hope that they can pull it through for the next three months before the Fed has to stop raising rates and the pressure eases and we’ll see.

[00:17:50] James Lavish: I mean, it’s a dangerous game. They’re printing a massive amount of money to do this. They just announced they’re going to buy another 9 trillion of JG B’s monthly to control these yields. 9 trillion.

[00:18:04] Preston Pysh: I just threw the first chart back up again, which shows the percentage and you’re showing how it’s at 50% of them owning it.

[00:18:13] Preston Pysh: It seems like in 2022 that it looks like they’ve added about 3% ownership, I would say. Yeah. Based on the chart there.

[00:18:24] James Lavish: And they’ve been holding it down for so long because they’ve been, they wanted inflation. They’ve been battling deflation for years. Years there decades. Right? And I mean, why they need inflation.

[00:18:36] James Lavish: Why? Because they have so much debt. Why? Because they need to inflate it away. I mean, it’s, but, and it’s a problem for them. It’s an experiment.

[00:18:46] Preston Pysh: Yeah, it only seemed like the rest of the world wasn’t there yet. Like that was the relief valve as they’re trying to create it because they got there first and the rest of the world wasn’t quite there yet.

[00:18:57] Preston Pysh: As far as the speed at which they got themselves into this indebted quagmire or whatever word you want to use on a global scale. Mm-hmm. , they just got there first and now it almost seems like they’re the final defender trying to hold the like cheap money down.

[00:19:14] James Lavish: That’s what it feels like. Exactly. That’s exactly what it feels like.

[00:19:17] James Lavish: And so when I saw that announcement, I was like, I knew it. I was like, wow. That’s, I mean, that’s it. They’re, they’re going to have to move it again. Oh man. Oh really? You think so? Unless we hit recession really quickly in the next, in the, like if we, unless unemployment shoots up and people are out of work and prices just crash and we really hit it hard fast, I think they’re going to have to move again.

[00:19:43] James Lavish: I mean, look at the, you saw the spread, right? Mm-hmm. . So if you bring up that last chart again, sorry, we’re going back and forth here, but that last chart, you can see the yen has gotten ahead of itself, right? What’s it going to be? Is the spread going to widen? Or, I mean, is it going to close or is the yen going to come back?

[00:20:02] James Lavish: And in that case, It’s showing that there’s additional pressure, like it all things being equal. It looks like the yen should be up around 1 37 for, for the percentage moves that, that it’s made. When the correlating percentage moves, it’s made over the history of this just eyeballing it. It looks like a three or 4% off from here, and so that something’s gotta change there.

[00:20:25] James Lavish: This is going to tighten up, the yen’s going to get weaker or that spread’s going to going to tighten either. So for all the, what’s it going to be? That’s it. And they’re going to be standing there by, so the indications though, and this is what I was getting, sorry, Preston, the indication though is the last couple days is that man, there are not a lot of buyers, even at 50 basis points for that tenure.

[00:20:48] James Lavish: Yeah. And that Japan’s going to have to step in and hold the line. They’re going to, what it is, they keep it in a range. Right. The fact that it’s was stuck at 25 basis points. For so long tell it was just such a red flag and like, it was like a siren that, you know, like, hold on, I got that shirt holding it there.

[00:21:05] James Lavish: Like the, the dam, they’re holding it there. If it goes back to 50 basis points and they’re doing the same thing, then you know, you can see.

[00:21:13] Preston Pysh: So when you pull the, when you’re looking at this slide, the light pink, which is kind of in the middle, I think people can see my curs. This is what James is referring to.

[00:21:22] Preston Pysh: The thing was just pegged out at a quarter or 25 basis points for a very long period of time. If it was dipping down and showing like, Hey, there were a few buyers there, well then, you know, it’s not being pegged the liquid market. Yeah, but I mean, it was pegged out for what, one, two.

[00:21:36] James Lavish: Everybody was a seller.

[00:21:38] James Lavish: Yeah. And the Bank of Japan was the buyer, period. And so, I mean, there was literally nobody there. It didn’t trade for days like they, they were, it just would not open their market.

[00:21:49] Preston Pysh: Well, that’ll probably be the indicator whether your theory that they’re going to have to Yeah. Raise the yield even higher is if it just continues to be pegged out at 50 pips for quite a while.

[00:21:59] James Lavish: Right. If it, if it gets pegged at like 46, you know that they’re staying there, buying them, and if they just can’t stand it and it gets pegged at 49, 48, 49, you know that they’re, if it’s not moving between 25 and 40 and 50, That’s okay. That’s a clear indication. , number one. Number two, if it doesn’t trade for a day, that’s a problem.

[00:22:18] James Lavish: Oh yeah. That was another. And then watch the n I think as we enter this, and so this, so where does this, where’s this? A dollar price is the risk? What’s that?

[00:22:27] Preston Pysh: So with all this, I’m sorry to interrupt you. So when I’m looking at all this and I’m saying, okay, so the yen, they did this for the yen to make it stronger, right?

[00:22:35] Preston Pysh: That means the dollar should be weakening. But I’m not seeing that in the dx y at all. At least these last two days.

[00:22:42] James Lavish: Well, what we’re seeing, what, Hey, look you know, everybody does their own thing. Everybody, everybody is like you ha have your own process, please. Not everybody has the same portfolio or portfolio, you know, makeup, but I’m long the US dollar, because I think as, as the world goes into recession, we’re going to have a flight to safety and there’s going to be a shortage of dollars.

[00:23:04] James Lavish: And so you’re going to have that same phenomenon where people need dollars.

[00:23:08] Preston Pysh: So you think it’s just a correction here in the last like two months?

[00:23:12] James Lavish: Yeah. Yeah, I do. And look, the cost of capital just went up everywhere, right? So now we’re just waiting for the next credit event. Like what’s it going to be?

[00:23:21] James Lavish: What’s going to be the credit event that, you know, what, how, who’s it going to push it? Push over the edge. We know that, that we know that there’s, there are problems out there. We’re watching the treasury. Even the US treasuries are not tremendously liquid lately. And if you look at the tenure, it’s been tailing out.

[00:23:39] James Lavish: What does that mean? I just assume, Preston, that everybody reads my newsletter so they know all this stuff. Right? ? I’m sorry. Or they listen to you. They know if they don’t have a link in the show notes. What a tale is is when the bond auction market opens, right? That we have an auction of US treasuries.

[00:23:57] James Lavish: Well, it trades when issued before. The dealers and buyers can, they can buy and sell beforehand and kind of guess where it’s going to come out. And the last, like I want to say, the last eight out of 10 or seven out of nine auctions has been tailing, which means that the demand was lower than they thought in the auction.

[00:24:20] James Lavish: So the, the dealers were, they guessed that the demand was going to be higher, and we just keep seeing. And so as that, as that keeps happening, you know, that we’re, people are getting, they’re getting worried, and the balance sheets are for the, the private owners of these bonds. They’re running out of room on their balance sheet.

[00:24:41] James Lavish: We’re, we’re, we’re issuing so much debt, right? So let, yeah. So what do you have up here?

[00:24:47] Preston Pysh: So this is the US bond yield curve. Yeah. Over time so people can see when it inver. Just by the durations there. The colors on the, on the chart, you can see how the one year is providing the highest yield , and you got the 10 year and the 30 year providing the lowest yield.

[00:25:07] James Lavish: Yeah. So for your listeners, a perfect exam, this is the perfect graphic of, of the market is telling us it expects rates to come down next year. They’re, they’re, there are a number of reasons for that, but the primary reason for, for that happening is that it signals a coming recess. Typically somewhere around, you know, six months to a year out.

[00:25:27] James Lavish: You can see that that started happening back in October, end of October, if I remember correctly. Some of these, yeah. And it’s coming. It’s coming.

[00:25:38] Preston Pysh: You know, when I’m, when I’m looking at the inflation here in the US, it seems like maybe it’s about to, like it’s stalling out and that we’re going to start to see a deflationary.

[00:25:50] Preston Pysh: Or Deflations start to come back in 2023.

[00:25:55] James Lavish: But whenever I look at Europe, you buy used car.

[00:25:56] Preston Pysh: Now true. But when I look at Europe, it doesn’t seem like you’re seeing that at all. It seems like energy, it’s, it’s just going crazy over there.

[00:26:07] James Lavish: Energy man. They haven’t the, well.

[00:26:10] Preston Pysh: Well, so like my, I guess where, where I’m going with that.

[00:26:13] Preston Pysh: Is there going to be a spillover effect from Europe who can’t get inflation under control? That even though everybody’s looking at these, these credit charts and they’re saying, Hey, you know, historically over the last 40 years when we see this inversion, 12 months later we’re, we’re in a deep recession and we go through these deflationary prices, the, the Fed has to step in, reflate it, the, you know, the typical scenario that everyone has become accustomed to for 40 years condition.

[00:26:42] Preston Pysh: Condition to think. Yeah. And so are we in a different dynamic with Europe specifically that they, that they’re not getting inflation under control and that they were extremely late to raising rates?

[00:26:56] James Lavish: They were so late. I still, I could not believe that I was, I was looking at their, that their policy in July, they were still negative rates.

[00:27:04] James Lavish: They, they still were. And running double digit inflation, overnight rate nuts. I think that You know how I feel about Christine Lagar. I think that, yeah, I mean, the incompetence is monumental. It’s absolutely monumental. Yeah. I think that they’re going to go head long into a recession. It’s going to be harder than ours.

[00:27:23] James Lavish: They can’t print energy. Let’s see. Let’s see what happens this winter. I’m actually, I’m worried for people out there. You know, we talk about it in numbers and we talk. These are people’s lives, man. These are people’s lives. You have inflation that’s absolutely stealing their, their stored energy from their work.

[00:27:40] James Lavish: Great. You know, it’s ab it’s unbelievable. And they’re like, well, you know, some people will lose their jobs. Unbelievable. And the people who even keep their jobs, they’re not keeping up. And some people are going to, they’re going to be throttled on their energy usage. Some people will, even if they don’t freeze.

[00:27:58] James Lavish: Tremendously uncomfortable for a season, you. I guess where I’m going with the, the manipulation is, yeah, so Go ahead. Sorry. I got off in a little rabbit trail there. . I got off my soapbox. I’m so, I’m so irritated with the manipulation. I’m afraid

[00:28:11] Preston Pysh: that we’re looking at things that are very US-centric here and we’re saying, hey, all the signs are pointing to deflation, setting in and rates coming down and us going through this normal, I don’t know if I would call it normal, but what appears to be a cycle.

[00:28:27] Preston Pysh: When I look at Europe, I’m not seeing anything like that. Yeah. And I’m seeing inflation raging, the a central bank that’s grotesquely behind the curve, and they’re probably going to have to step in at a time where you got double digit inflation and add more units, fiat units into the, into the game. And I’m just thinking like, what’s the knock on effect to the us?

[00:28:50] Preston Pysh: What’s the knock on effect to Japan like in, in the global economy?

[00:28:54] James Lavish: Well, in the US goes to recess. Then everybody’s going to follow, you know, I mean, we’re going to drag everybody into a global recession period. The problem is, like you’re saying, that I think Europe lands harder. They just land that much harder.

[00:29:09] James Lavish: They were that much later. They must, they, they land that much harder.

[00:29:12] Preston Pysh: So when we look at what causes inflation, everyone wants to immediately say, oh, it’s the money printer. It’s adding more units, because that’s really easy to understand and it’s just intuitive. What I think a lot of people failed to realize is if you have really bad policy and it’s breaking the supply side of society, you get inflation because instead of 10 people being able to supply widget A, there’s one company that’s providing widget A because the other nine went out of business cause they couldn’t afford the electricity expenses.

[00:29:46] Preston Pysh: Is maybe that a better characterization of what’s happening in Europe is they’ve just had such horrific policy that they’re not going to be able to get inflation under control and, and maybe they’re in some type of spiral at this point cause of this policy.

[00:29:59] James Lavish: Yeah, it’s a good, it’s an absolutely the, they add on the, the derivative effects of the energy policy has been, it’s been breathtaking.

[00:30:08] James Lavish: And so you’re seeing it, you’re seeing it everywhere. That’s why they, they just had to raise, and you heard the UK and the E C B recently say that we’re going to raise higher and longer like the US because they’re shocked. They’re shocked with, I mean, oh, that’s what happens. Oh, yeah. So I, I think that you’re right.

[00:30:28] James Lavish: I do. I think you’re, I think you’re spot on. And they’re going to sacrifice some of the weaker countries, and that’s the problem. So you’re going to see problems start to crop up in the credit markets in Italy, Spain, Portugal, Greece, they’re going to start cropping up. Mm. That’s the problem. They’re sacrificing their those economies and they’re going to go down hard first, and then unfortunately, Germany’s going to take the debt load for all of it.

[00:30:56] Preston Pysh: So people, you know, this is a Bitcoin show. People were hearing all this and they’re saying, all right, James, we. Explain it to me like I’m wearing a mask in my car, driving down the road by myself. which was one of the more funnier memes I, I heard on tv. That’s good. Or not on tv, on Twitter. What am I saying?

[00:31:14] Preston Pysh: But explain this to people. What does this mean in Bitcoin terms for them?

[00:31:19] James Lavish: You know what’s interesting is that you’re seeing Bitcoin kind of hold in here. And as we go into this kind of recession with, with rates rising, you want to hold hard monies. You know, you want to hold things like gold and silver and Bitcoin because you’re having inflation at the same time as you’re having, as you go into a re you’re having inflation, then you have a recession and rising rates at the same time.

[00:31:46] James Lavish: All of the risk assets kind of, they kind of crash, right? But you want to, you want to own those assets that, that will store your value. I think this is going to be big test for Bitcoin. Personally, I think it’s going to be big test. I don’t personally think we’ve seen the bottom yet because as we hit a recession and risk assets sell, sell off, you do have major holders of Bitcoin in particular that are going to need, need to raise.

[00:32:13] James Lavish: They’re going to need to sell Bitcoin to pay margin calls and other assets. For instance, even if they don’t have their Bitcoin margin, it’s going to be one of the first things they sell. I think you just have to be careful. That said, I do think that once we do get through this period and into the next year and the, and toward the end of the year, I think that things like Golden Bitcoin rip, you know?

[00:32:35] James Lavish: Yeah. I think that they, they do. They do exceedingly. Those are the things that I’m looking at.

[00:32:40] Preston Pysh: How about, how about this for, for the bo, whenever that bottom comes, let’s say we hit a bottom in six months from now. Mm-hmm. from right now, to that point, to that bottom, does Bitcoin outperform the S&P 500?

[00:32:52] Preston Pysh: Does it outperform the Nasdaq, the, the major risk on indices?

[00:32:58] James Lavish: I personally think it does. I think it does, and I think that both because it’s, you’re seeing how it’s reacting right now. I think that we felt the majority of the. I could see the s and p and you know, the Nasdaq going down another 20, 30%. I mean, that could absolutely happen if we hit recession really hard.

[00:33:17] James Lavish: You, you’re looking at multiples. We won’t get into this, it’s not really a market show, but if you look at multiples, they’re just not pricing in the forward earnings. They’re just not pricing in the cost of capital yet. And the, the decrease in earnings, I think it does outperform, but that doesn’t mean that it’s going to do.

[00:33:34] Preston Pysh: I saw a Jurrien Timmer, I think. I think Jurrien Timmer from Fidelity just came out with a very similar chart. Kind of backing up, what you’re saying is the earnings aren’t priced in. Yeah. They’re not priced into risk on at this point

[00:33:46] James Lavish: at all. Yeah, so I’d be careful. I would add opportunistically if, look, if Bitcoin gets decimated, it goes down to nine, $12,000, I would start backing it up back up the boat, you know?

[00:33:55] James Lavish: But back up the. But you know, don’t lose your keys outta the boat when leave you. So you’re just taking those bitcoins straight onto the boat. Yeah, exactly. . Just why have a truck ?

[00:34:08] Preston Pysh: You only pick ’em up at the port .

[00:34:12] James Lavish: It’s late. We’re getting loopy. Yeah. So that’s how I feel. But I, I would be, I would just caution people, that’s all, you know, I don’t, you can’t say, oh, it’s different.

[00:34:22] James Lavish: This is all I can say is that I’m seeing signs that look like we’re going to hit, we’re going to hit hard. I don’t think the Powell is going to let us get decimated. I don’t think he’s going to allow that, but I do think he’s going to push it right to the precipice, which means that he wants risk assets to sell off across the board because he knows that that will tamp down inflation.

[00:34:46] James Lavish: He knows it, and that’s important for him and his legacy. And so that’s his primary. Does he get it down to 2%? I don’t think so. Like I said before, I think that’s he’s going to get it in going the right direction and then declare victory. Yeah, it’s going the right way. You’re down to like four and a half, 5%.

[00:35:04] James Lavish: It’s all good. And then we’re just going to knock around between three and 5% for the foreseeable future so we can inflate away our, our past debt, which you and I have talked about before too. But look, you’re seeing everything. All the data is, it’s so clear, right? I mean you, the inverted yield curves you’ve got housing demand is falling off a.

[00:35:23] James Lavish: You’ve got consumer credit is rising while interest rates are spiking and the savings rate is dropping off off a cliff. And if you look at the different income levels and the different quartiles, that savings, it’s all consolidated at the top income level you’ve got. At the same time, you’ve got banks that are tightening their lending standards across the board as interest rates are.

[00:35:45] James Lavish: They’re up jobless claims are starting to tick higher. You’ve got weak PMI numbers. It, it’s all pointing. That way. You know, I, I don’t see anything that says, oh no, we’re going to be fine.

[00:35:56] Preston Pysh: Mike can pull right through my concern the way I think they’re going to go about handling this. So, for the past decade prior to Covid, They could step in with a massive amount of qe, any at the first signs that things were becoming stressed.

[00:36:13] Preston Pysh: And I mean, it was just, it was just a shotgun blast right into the market because they could not produce inflation. And so they kept doing this for a decade and it’s like no matter what they did, no matter how much liquidity they brought to the market, it just didn’t seem to do anything to, to create quote unquote inflation.

[00:36:29] Preston Pysh: So now they get it and they get it in a major way. And I think a lot of it goes back to what I was saying earlier about policy and breaking supply chains and, and those types of things. So they get it in a major way.

[00:36:43] Preston Pysh: They’re raising aggressively, and I think it was Powell who said it recently, that they’re going to be more surgical with how they step into the market to provide liquidity where it’s needed and where they’re seeing stress points.

[00:36:55] Preston Pysh: We saw this over in the UK, right?

[00:36:58] James Lavish: Perfect example.

[00:36:59] Preston Pysh: Treasury market of a surgical response. So my concern is they’re going to keep doing these quote unquote surgical responses, plugging the holes in this dam, like with their fingers and their toes and everything else. Mm-hmm. only for the systemic part of it.

[00:37:15] Preston Pysh: To only get bigger and bigger and bigger until literally the dam breaks open and then the response isn’t going to be surgical, it’s going to be such a fire hose, four x. What they did with Covid, and the numbers are going to be so substantial now that they’re just completely meaningless to everybody. They were meaningless in 2008, 2009, but it’s people were.

[00:37:37] James Lavish: People are numbed by them.

[00:37:38] Preston Pysh: Yeah, they’re totally numbed by it. They’re conditioned to be like, oh, well, what’s different?

[00:37:42] James Lavish: Another trillion dollars? It’s another trillion. Remember we talked about the trillion dollar coin? Well, now you need like 10 of them. . Yeah.

[00:37:48] Preston Pysh: Joe Weisenthal, you know?

[00:37:50] James Lavish: There you go, Joe. I see exactly what you’re, But that’s exactly what they are doing, and we’re watching them.

[00:37:57] James Lavish: We’ve heard Yellen say it, and she’s kind of, she’s dancing around the idea of shoring up the treasury market because everybody knows that the treasury market has to stay liquid. It has to stay orderly, period. It drives the world. If the, if the US Treasury market breaks, forget it. It’s over. I mean, it’s absolutely over.

[00:38:17] James Lavish: Everything revolves around the US treasury market. It’s still the reserve asset of the. That’s where they’re plugging those holes and then eventually they pull a string that they hadn’t thought of or this, it’s so complex, this whole system, and they’ve manipulated so severely that they, they pull a string that they hadn’t thought of.

[00:38:37] James Lavish: So you were talking to me, you were asking me about the, the fed remittances for the people, for your listeners. And it’s already been an hour, so I don’t know how much longer you want to go , but you know, for your listeners, there, it. Preston just brought up a chart that shows the liabilities and the earnings.

[00:38:54] James Lavish: Basically the remittances that the Fed pays the US Treasury, so the Fed typically makes money and they remit that to the treasury every single month. Right. And so actually they do more often. Yeah. But the problem is that you’ve seen it here, fall off a cliff, and now they are running such a deep deficit.

[00:39:17] James Lavish: I mean, they’re losing money every single month that it’s such a tremendous amount that you see this tight band of the, the amount of money that they sent to the treasury every single time they had to send it. And then it just fell off a cliff. Literally fell off a cliff when, when we started raising rates.

[00:39:33] James Lavish: Well, why? Because the Fed bought all those US treasuries in in during qe and it receives interest payments. , this is so stupid. . . It’s so stupid. I can’t believe this is our system. Oh my God. So they can’t be legally, the Fed can’t buy treasuries in. So the dealers buy them and then they sell them to the Fed, and then basically the deal, the, the Fed gives the dealers money and says, Hey, buy this form.

[00:40:04] James Lavish: It’s like you’re, you’re an 18 year old and you’re like, Hey, can you go buy me the six pack? You know?

[00:40:08] Preston Pysh: But you’re 18 years old. . .

[00:40:13] James Lavish: Exactly. So the Fed Buy, the, bought all these treasuries from the US Treasury through their, their buyer, through their dealer, I mean, literally the dealer. Right? So they’ve got them and they’re re they, so they received interest payments from the treasury on.

[00:40:30] James Lavish: But the Fed pays the bank’s interest payments on the bank’s reserves that are at deposit at the Fed, right on deposit the Fed plus the, the reverse repo overnight windows. So they’re, they’re paying them interest on that. Okay, here’s the problem. The Fed bought all these treasuries in QE that are yielding half a percent to a percent and a third or something yet.

[00:40:56] James Lavish: Now they’re, they’ve raised rates so much that they’re paying the banks not and lend an overnight rate. And they’re reserve . They’re paying them a rate that’s far above that, so they’re losing massive amounts of money.

[00:41:12] Preston Pysh: I mean, 300 billion a year if you

[00:41:16] James Lavish: 300 billion, two to 300 billion a year. That’s right.

[00:41:18] James Lavish: Yeah. It’s like 500 million a day, right? Yes. Yes. That they’re paying these. Basically it’s impaired, their balance sheet. So now the Fed has this loss that they’re running every single month, but they’re supposed to be sending money up to the treasury, yet they have this loss. They’re like, they have this hole.

[00:41:34] James Lavish: They literally have a hole in their balance sheet, and they’re like, well, we’re going to call it a deferred asset.

[00:41:39] Preston Pysh: Say that again.

[00:41:41] James Lavish: They’re going to it, calling it a a third asset asset. So it’s not really that we’re losing money, it’s just that we haven’t made the money that we’re going to make yet to pay the treasury.

[00:41:52] James Lavish: So we’re going to call it a deferred asset and then, They’re calling an asset because it, they’re basically saying it’s going to offset future remittances into the treasury. Once that net interest margin inverts comes back, if it ever comes back, it comes back and it’s positive again. It’s just fancy accounting.

[00:42:10] James Lavish: It’s just, it’s li, it’s ludicrous, but that’s what they’re doing. And so now as they’re until basically the fed flooded banks with cash, And kept rates on the reserve high enough. So they would keep those trillions of dollars out from flooding into the economy.

[00:42:26] Preston Pysh: Right, exactly. And that’s the, so what James, that’s the, so what is exactly?

[00:42:31] James Lavish: These banks are flooded with cash.

[00:42:34] Preston Pysh: So how can we make sure that they don’t lend this money out? Well, we’ve gotta pay an interest rate. We have to pay a competitive interest rate to the rest of the market to make sure that all this money that these banks are squatting on doesn’t get out to everyday citizens. Where else we’d have I Inflation.

[00:42:52] James Lavish: But where’s that money coming from that they’re giving them, they’re giving them this money they don’t have, they’re printing it. They’re printing it and giving it to them anyways. Yeah. Now they’re doing it to the tune of 500 million a day. I don’t, I’d like some of that. You want some of that? We’re not getting into that, but anyway, so it’s, but it’s money that’s going it, it is going into the system, right?

[00:43:13] Preston Pysh: This is, this is, they’re James, this is what’s so crazy to me. If we, if we were going to quantify 300 billion, like this is almost half the budget of the US DOD, which is?

[00:43:25] James Lavish: $800 billion a a year. That’s right.

[00:43:27] Preston Pysh: Yeah. I mean, you’re almost at half the DOD budget. Yeah. And so what is it? It’s interest expense being paid directly to the too big to fail banks, and then they’re just right slapping it on their balance sheet.

[00:43:42] Preston Pysh: And then what are they doing with that? They’re going to go buy more treasuries and put those on deposits so that they can get more interest income.

[00:43:50] Preston Pysh: It’s insane.

[00:43:52] Preston Pysh: It’s insane. I need to add that to my button here on my mixer so I can just play it.

[00:43:57] James Lavish: It’s insane. It’s insane. It’s insane. So here’s the string, right? They’re like, oh no, it’s fine. It’s fine because we’re, you know, we’re making money and we’re going to send it back up to treasury. It’s no, you know, this all works when rates are at zero.

[00:44:11] James Lavish: But now that the rates are inverted, they’re, they’re, they’re paying so much more on the overnight than they’re getting for their 30 year and their, you know, whatever they bought. So now , they’ve got a hole in their balance. We haven’t even talked about the fact that they, they, they don’t even, they don’t mark to market their treasuries that they own.

[00:44:27] James Lavish: Yeah. That are down 25. Could you imagine, could you imagine? Hey, You know what? Can we make out a deferred? I know. Bought all these treasuries, can we that a deferred? You know, I got my hedge. I’m not on my private equity, my hedge fund. I, I know we bought all these treasuries and they’re sitting on a balance sheet and they’re down 25%.

[00:44:43] James Lavish: But you know what? We’re going to wait it out. So we’re not going to mark ’em. That doesn’t fly for anybody, anybody. So they don’t mark them and they print money to give to the banks every day. 500 million a. So that’s what hap that’s what’s happening. And definitely shout out to Luke Roman because he’s, he’s been all over this too.

[00:45:04] James Lavish: And it’s been yeah, he’s all over it. And he takes it even further saying it’s just, it’s a form of qe mm-hmm. that we’re just dumping money and it’s, and it could lead to more inflation in the United States. I don’t know. I’ve gotta work that, I’ve gotta work that through because the rates going up, we’re so levered as an economy.

[00:45:25] James Lavish: I think it just, it, it completely overwhelms this level of qe. I think that we’re so levered that we need massive amounts of QE to turn this, like we are the, what is a QE too? The Queen of England’s massive ship that you can, you can chop. That’s what we’re doing here. We’ve gotta turn, like turning that thing around.

[00:45:45] James Lavish: It’s not like a helicopter Preston. . .

[00:45:49] Preston Pysh: It is insane. And I think for most that are just hearing all the fancy terminology, there’s like, at the end of the day, if you were going to put these in business terms, I mean it’s just, it’s absolutely asinine. What’s, what’s happening?

[00:46:04] James Lavish: This company is defunct. Yeah, but somebody give.

[00:46:08] James Lavish: Basically it’s a company that has an endless checkbook. You know, you know when you got your first checkbook and you’re thinking, I could just write checks, , if you write checks, you do think that, isn’t it? But then you realize, oh, somebody’s got cash. I need my, the money in the account. You know, you’re like, what?

[00:46:26] James Lavish: 14 years old, right? This is what it is. They just have a checkbook. Nobody’s checking the bank account. It’s okay. They, they, you know, they have.

[00:46:35] Preston Pysh: I think the funniest part of the academics that then go and wave their hands in the air and say that this is all justified and it’s normal.

[00:46:41] James Lavish: You’re, you’re distorting the reality.

[00:46:44] James Lavish: You know, it’s not really like that. You can’t look at it like that.

[00:46:48] Preston Pysh: Recently, you you’re getting involved in a fund that’s doing distressed debt. Talk to us just in, in general about the stressed debt and help people understand, because you and Greg Foss and some others that are involved in this Larry Lepar, you guys are extremely smart and have experience in this area, and it can be a really lucrative, especially with what we’re about to go into.

[00:47:12] Preston Pysh: If you can get your timing right with raising the, the funds and what you’re able to step in and buy and find value in things that are distressed, talk to us about some of this.

[00:47:22] James Lavish: I’m super excited. That’s what I’ve been working on. That’s why I haven’t been on no Nostr, but I’m launching a, a hedge fund with my co-managing partner.

[00:47:30] James Lavish: Is is David Foley and he’s uh, he is Larry Lepar, one of his partner in his hedge fund. So we’ve got Larry and Greg, Greg Foss, Mark Moss, and those are the main operating partners. And then we just partnered with Swan. So Cory’s going to be on our board and working with us as, And Cory Klippsten. What it is is, and you’re right, it’s a lot of it’s timing.

[00:47:56] James Lavish: It’s a distress asset and distress bond fund where we’re looking at, and it’s all focused on Bitcoin, the Bitcoin ecosystem. So companies that, that need money that are in distress. We’ve seen it in the mins. You’re starting to see it in some of the smaller companies start some of the Bitcoin financial companies, some of the hardware wallet companies that raise money, they need more money.

[00:48:21] James Lavish: But the, the space has dried up. It’s been really tough. There’s a tough part is that people get scared in these markets, but there’s tremendous value out there, and it’s to help these companies that are so important. But also that as an investor you can do really well. It’s the one that’s a gut check that you have to step in to the market.

[00:48:44] James Lavish: Now, when it, like, as it’s starting to get really ugly in this world, and I can’t say too much, but we’ve been in some of these bankruptcy data rooms and where they’re selling assets from these companies and they’re, they’re selling for, some of them are, are pennies on the. You’ve got this tremendous opportunity to help those companies and to get a great rate of return for your investors, for helping ’em and helping grow this ecosystem.

[00:49:09] James Lavish: But that’s it. We’re focused on the Bitcoin ecosystem and that’s it. No other crypto, what we can do, we can do both private and public investments. And so that’s our advantage. We’ve done between us. We’ve got like 150 years of hedge fund, private equity, venture capital and experience doing anything from distress con, convertible bonds, all the way up and down the capital structure.

[00:49:32] James Lavish: We’ve done arbitrage, we’ve done cdss, I mean, you know, option strategies. And a number of us has been, have been investing in Bitcoin for. And so we have people like you and our network of contacts and we see a lot of stuff, so it’s exciting. That’s about all I can say about it is for credited investors. I can’t pitch it or anything, but that’s, that’s what we’re doing.

[00:49:56] James Lavish: We’re excited. We think we have something here that, and I love my partners. They’re, they’re all, like you said, super smart, super driven, and they’re good guys.

[00:50:06] Preston Pysh: Awesome, man. Always a pleasure chatting with you. Yes. Such a pleasure. Give people a handoff. I know you’re active on Twitter. I’ll have a link in the show notes for your newsletter.

[00:50:17] James Lavish: But yeah, gimme one hand off. Thank you, Preston. I love coming on here. You always ask the right, the, the engaging questions. You’re, you’re on top of it, so it’s fun and you’re super smart. But yeah, I’m active on Twitter just at James lavish and I have the newsletter that’s called The Informationist, and it’s just, I take one financial concept and break it down super simply every Sunday.

[00:50:40] James Lavish: I believe this Sunday’s Christmas. So we will we’ll, we’ll be, we’ll be skipping that one because I am going to be with family and that’s important. But every single week it comes out and I think it’s something that just helps people, whether you’re in finance or you’re not, it’ll give you an explanation of, of some of the topics and some of the big buzzwords you keep hearing from week to week.

[00:51:01] James Lavish: And I love doing it. It’s fun and I really like making people smarter. So it’s fun. I like it.

[00:51:07] Preston Pysh: I can tell you as a reader of it, like this one that you just published this past week with the dot plots.

[00:51:13] James Lavish: It’s so helpful and it’s grounded in first principle thinking.

[00:51:17] Preston Pysh: And so for people that hear a lot of these terms and stuff, I think it’s such a great tool to kind of go in there and just read.

[00:51:23] Preston Pysh: I know myself, I feel like unversed on some of the stuff, but it’s so great to go back and kind of read some of your material because it’s just, it’s grounding you in some of the idea. That, you know, sometimes you, you think you might understand something and then you read something like that and you’re just like, okay.

[00:51:39] Preston Pysh: So I really didn’t have a firm understanding of what I thought I knew. So kudos to you in the newsletter. I love it.

[00:51:45] James Lavish: Well, I’m flattered that you read it and I’m, I’m glad it helps. I’m glad it helps some, the people that read it. I really do like that. So thank you Preston, and I love coming on here. Look forward to our next conversation.

[00:51:55] Preston Pysh: Absolutely. So thanks James.

[00:51:58] James Lavish: Maybe it’ll be on Nostr..

[00:52:00] Preston Pysh: Absolutely. Absolutely. Amen. All right, we’ll see you. If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, we study billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener.

[00:52:17] Preston Pysh: If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it’s something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate.

[00:52:33] Preston Pysh: And with that, thanks for listening and I’ll catch you again next week.

[00:52:37] Outro: Thank you for listening to TIP. To access our show notes, courses, or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by The Investor’s Podcast Network.

[00:52:53] Outro: Written permissions must be granted before syndication or rebroadcasting.