Preston Pysh (02:35):

Amen to that.

Sven Henrich (02:36):

Yes, [inaudible 00:02:38] where do I start? Maybe just a quick background because I’ve known to be a central bank critic for more than a week or two. It’s painful for all of us to recognize that the macro environment has devolved in a painful way for a lot of people over the years. I’ve been a critic on the sense that all the interventions that we’ve seen over the past 15 years have widened the wealth gap and central bank’s power himself operating up front how central bank policies do not, absolutely, do not contribute to inequality when all the actual evidence is exactly there on the tables, creating rifts in society.

Sven Henrich (03:28):

And then of course, the goal now to come say … he comes out last week and says, well, now that we’re producing QE and bringing out, or we’re actually starting QT, we’re taking the liquidity out, it’s going to be bad for asset prices. So while you’re not admitting that you’re boosting asset prices on the way up, you’re certainly now using it as an excuse why asset prices may be going down. So there’s an inherent dishonesty in entire construct and all of us, we have to listen to all this and these peoples tend to put themselves on pedestal or are being put on pedestal by the media as the great wise men of women of global monetary system while they just revealed themselves to not be that at all.

Sven Henrich (04:11):

They’re not wise, they can be horrifically wrong and they ignored all the precautions that [inaudible 00:04:19] in terms of continuing to print into an environment where we did have supply chain issues, where we had fiscal stimulus, the likes we’ve never seen before, and they just kept adding liquidity into what I last year obviously kept screaming about was this massive asset bubble in everything. The exacerbating housing prices by buying mortgage back securities when there was no housing prices. Everything got literally exacerbated to historic degrees.

Sven Henrich (04:55):

And then now of course, what happens while they ignored all this, even in December. I just need to make this point. In December, CPI was already 7% and the fed in their wisdom put out this fed funds forecast of less than 1% for 2023. So this broad disconnect was already there. They were still living in la la land. Now, to be fair, they’re not controlling a Russia invasion of Ukraine, which certainly exacerbated things. And so you have on this inflation question, you have really multiple factors that are coming at play and it’s nasty. You had the monetary fiscal access, you had the supply chain issues, you had the Russia Ukraine war, which is ongoing, which is fueled energy and food prices globally, which the fed does not have any control over. And then the other part is psychology.

Sven Henrich (05:56):

And we saw this in the 20s and Germany. It was just one psychology kind of feeds on itself. You risk that, you have that visual cycle and then wage growth, people demand more wages, and it just feeds on itself in terms of expectations. So it’s a really dangerous time in the sense, because we are already seeing the economy slowing down rapidly. Asset prices have dropped significantly. In fact, this first half of the years, one of the worst first halves in all of history, and it got exacerbated also by the fact that not only stocks dropped, which was the standard curve in the last 40 years, because bonds also dropped. So that in terms of being finding a place to hide, there really wasn’t any in terms of the large investment groups. And then of course you have a new asset class, crypto, Bitcoin and everything got smacked, right?

Sven Henrich (06:48):

So the cumulative impact on the wealth effect is dramatic. And they had, since the financial crisis they’ve used and they will never admit it. I’ll just say it. They used the stock market to manage the economy. Bernanke actually is a former fed chair. When he was fed chair, he said in 2012, when the stock market goes up, consumers feel more confident. They want to spend more. That’s what it really is all about. And they constructed this over those last 15 years, intervening at every single step of the way, believing apparently that this all could be consequence free. Well, now we see the consequences unfolding, but now they’re a position where they can’t rescue the stock market because of inflation, still being a dramatic problem. So the question is, how do you then ultimately solve this and how can we wiggle through it because, and I’ll finish on this point. The fed funds rate that I mentioned earlier, the projected fed funds rate that they had at less than 1% in December for ’23, they now are at over 3% going to 3.8% in 2023.

Sven Henrich (08:04):

Let me tell you something. When you build an empire of debt, totally financed by cheap money, you cannot raise rates to certain levels without you facing a major, major bear market depression, what have you. So to me, this is just another fed put that’s been placed in the market because while they’re saying 3.8% fed funds rate for 2023, they’re also at the same time projecting positive GDP growth. I’ll just say it straight out. That’s a lie. It’s just not going to happen. And the reason that’s not going to happen is because we’ve seen for the last 30, 40 years, the federal reserve being able to raise rates to a lower high, to a lower high, to a lower high. Each cycle, they can tighten policy less and less and less. Why? Because the debt construct has completely blown up in everybody’s face.

Sven Henrich (09:01):

Notice the crisis get larger, the indimensions get larger, and the debt requirements get larger. Think about it back in just 20 years ago, debt was five and a half trillion. Now it’s over 30 trillion. We just added nine trillion in debt in four years. And in 2018, they got barely to 2.25% on the fed funds rate, and they stopped. They stopped because the market collapsed, the recession was kind of a risk factor for them. So they pivoted because they can’t handle these big market drawdowns.

Sven Henrich (09:35):

So now we’ve had an even larger bear market, actually the most extensive bear market since 2009. In terms length, this COVID crash was deep and it was fast because they intervened, but this is dragging on. And as you see consumer confidence, the lowest consumer sentiment rather it’s the lowest ever, that’s recessionary. So you’re already risking very much a recession. And my premise in general is to say that there’s no way they can get to 3.8% without a major recession. They can’t raise rates into a major recession. So ultimately I expect there will be a pivot. We can discuss what that may look like, but they can’t do it.

Preston Pysh (10:18):

And so everybody’s saying that they’re not going to do anything until something breaks. Do you share that sentiment?

Sven Henrich (10:24):

Well, first of all, they have to have … if you look at, now from the Fed’s perspective, let’s say they are in the box like I say they are. And they got the policy completely wrong. They got themselves trapped. They are in a position where they’ve lost a lot of credibility, maybe all credibility at this point because not only because they got it wrong, but because obviously over the years, they’ve trained the investor mindset to always expect an intervention. And I would say they were genuinely scared of something ever breaking again like during the financial crisis. So that’s why we saw after QE1, we saw QE2 and QE3, and now the other central banks starting this to apply this in this deflationary environment that we were in. But if you build an entire construct of growth dependent on the market, meaning market levels, in the last year, everybody ignored this, but I kept pointing us out. Market cap to GDP in the 70s, 80s was around 40 to 60%. And it went on for decades like this, right?

Sven Henrich (11:32):

And then we had this big tech bubble building and we saw something we’d never seen before. It went to about 150% market cap to GDP. So the market was valued a lot more than the economy itself in terms of annual GDP generation. Then we had the tech bubble burst and we dropped to about 75%. We went back to the normal range, if you will. That was the bottom. Then they came up with the housing bubble, because they kept interest rates low, and then that fueled a new fire speculation. Got to about 137% market cap to GDP. Then we had the global financial crisis, went down to 50% market cap to GDP. So these were these excesses that right size themselves after things broke.

Sven Henrich (12:16):

Well in December, they actually hadn’t lifted the whole thing up to over 200% market cap to GDP, and everybody ignored it. They said like, well, this is madness, right? You cannot expect to have a long term disconnected financial system that is not backed up by actual productive growth in the economy. So the fact that the bubble now burst is maybe a positive in the sense that, okay, we’re getting back to a right sizing type process. The problem is it’s so big, we’re still high. We’re still in 165 170% range. So we’re just sitting on top of the tech bubble at this point. So how do you from a policy perspective, convince the market that you’re actually serious without then actually breaking something? So this is the art of jaw owning as it’s called, right?

Preston Pysh (13:15):

Mm-hmm.

Sven Henrich (13:15):

At the beginning of the year, I said … this article we talked about, okay, maybe this year is all about gaming the fed. And if I were the fed, what I would do is I would job own and get the market to tighten for me as much as possible so that actually I don’t have to raise rates to the point where I break things, but everything … let’s stocks fall for once, right? Take the excess demand. Part of the equation, demand destruction, slow it down. And then when the time comes and do all this without actually causing a crash, right?

Preston Pysh (13:54):

Mm-hmm.

Sven Henrich (13:55):

And interesting enough on that point, this is so strange about how this market’s been acting this year is because we made lower highs and lower lowers, lower highs, lower lows on the S&P, but so did the VIX. The peak spike was in January. I was baffled. I got to tell you, and I think a lot of people were probably baffled that at the June lows, when we went into 3,600 area, the VIX was again, making a lower high. You would’ve expected in standard market functioning, you would have some sort of capitulation VIX spike now.

Sven Henrich (14:28):

And we can discuss that separately. It’s an oddity because it almost makes it feel like this whole thing is a bit controlled. It’s like it’s managed in some way, and I’m not saying we can’t have a massive VIX spike still, because I actually long term still see that coming. But I just, in terms of market behavior, I find that very, very odd. So if that was my theory that they’re going to let this happen with job owning, then this was all going, according to plan. Again, Russia, Ukraine, I think made things a lot more difficult for them because of the energy price and food price inflation component. And this is where the actual narrative doesn’t make sense. And you actually heard Powell admit to that last week, because he was challenged on this. What we do in terms of rate hikes is not going to impact energy or food prices at all.

Sven Henrich (15:21):

And this is the perversity of this all right now. So if it’s not impacting and no benefit to the consumer, then why [inaudible 00:15:32] smacking everyone on housing and everything else? Because let’s face it, it’s going back to this wealth inequality piece. The bottom 50% did not benefit from all that money printing in the run up of asset pricing. If you don’t own assets, you don’t see asset price appreciation, you don’t. And so Truck and Miller talked about this last year as well in terms of how they’re really just benefiting the upper tier of society, especially the top 10%. And we had it with data, you can see it 89% stocks or 89% of stocks owned by the top 10% is just, it’s an no brainer. So they really benefited from this, and the bottom 50% also got hurt because they were increasingly priced out of the housing market. And then thanks now they got inflation.

Sven Henrich (16:22):

In the bottom 50% inflation food and energy is hurting you more than someone that’s in the top tier income. Higher gas prices, okay. I’ve paid more in my tank. I don’t care. Really, it’s just a minute part of my monthly expenditure flow. That’s unfortunately the reality of what’s been happening. And then now with housing rent prices have been obviously screaming up as well. So you just get beaten down more and more if you’re in the bottom 50% and those few stimulus checks, they didn’t help you in the sense that okay, they helped you while the crisis was going on. So I kept you afloat. Worst case, maybe you got caught up in the bubble and put it in so coin somewhere and that’s just reality. So now inflation’s going to continue on the food and energy front until we see some sort of solution with Russia Ukraine. And if the fed is not really careful here by wanting to continuing to raise rates, then they’re going to break something. Yes, they’re going to put us in a major recession because they’re making everything else more expensive. They’re making the-

Preston Pysh (17:35):

Does the next response, does it come in at the same size of COVID or are they going to try to do a much smaller response because they know that if they do something substantial that the inflation prints are coming right back and maybe with even more magnitude?

Sven Henrich (17:53):

Well, this is the interesting part because I think we all need to be just humble understanding that this is all a really unique set of circumstances and I don’t think anybody has a clue how this can play out. The standard script is yeah, we go the recession, now they’re going to go back to printing because they have to, as I mentioned, over $30 trillion in debt. Actually Wells General had a piece out this week and I think that the cost of servicing the US debt has already increased by 30% in the last year. And that doesn’t even account for the latest rate hike. It’s just the minuteness of the rate hikes and the financing conditions. Again, if you go to 3.8%, what are we talking about? On the one hand they say the debt is not sustainable, both yelling and how saying this for years. On the other hand, they put in the conditions where that continues.

Sven Henrich (18:45):

And so now this … by the way, [inaudible 00:18:50] critically of me says, well, you have ranting about them not raising rates for years, so why are you now critical of them raising rates? I’m not critical of them raising rates. I’m just trying to be realistic about what this applies to the debt construct and the economy that has been made so dependent on asset price inflation when it doesn’t have asset price deflation. So the short answer is, I guess it depends on how inflation evolves. I think, and we’re all looking at the negative side, maybe we can also look at what a potential positive could be. If energy and food price inflation are so tied to the Russia Ukraine and that being geopolitical event, what if that actually solves itself? I know that seems completely unrealistic at the moment, but let’s say they do come to a political situation. And I can come up with a scenario where there might happen. Then all of a sudden, just inflation is going to collapse on that front.

Sven Henrich (19:45):

On a commodity side, look at copper, massive bear market already. Aluminum, lumber, all these kind of commodities. They’re already dropping hard, big time. So if we’re looking at data this summer, I think we need to keep an open mind in terms of how this can evolve because there’s obviously the consumer part of inflation, but then there’s also a core inflation, what the fed looks at. And so you get one headline or Russia, Ukraine, and then it’s over. And then given how positioning is at the moment, which is some of the most negative I’ve ever seen, because people are … I mean, Jesus, that happens at every [inaudible 00:20:23] but people really perish. In fact, AAII bull-bear ratio right now is somewhat the worse since the 90s, it’s worse than the global financial crisis, it’s close worse than it was during the 2000 tech bubble burst.

Sven Henrich (20:36):

So I think people are not prepared if there’s any goodness coming in the sense of positioning and how vicious actually a comeback rally it may be. And then all a sudden it just disappears, because then you’re looking next year at massive retraced numbers in terms of the inflationary component. And that gives them a room to basically stop and then basically, if you have some good news with COVID in terms of like, today China announced they easing restrictions again, supply chain easing, and then you can go back to some sort of normal and keep in mind, the market is already pricing and rate cuts for next year. So while the fed is talking about 3.8%, the markets already saying, this is a short term thing. So you got to be mindful of that as well. How that plays, in terms of timing, nobody knows.

Preston Pysh (21:31):

How are you looking at real estate right now? Because with these rates in the speed at which the rates have occurred. So we’ve gone here in the US, just call it generically 3% to 6% in real estate rates. I’m not sure what it is over there in the UK, but it almost seems like that the economic reality of that has not hit the market yet, or that it’s just about to. So what are your thoughts on that and the timing of how some of that might play out?

Sven Henrich (22:03):

First of all, let me say, since on a global financial crisis, we’ve been trained to expect bear markets to only last at the most six to eight weeks before the next round of intervention comes in. This one’s been dragging on. Actually started in November. That’s when everything peaked. The S&P peaked in January, about small caps, everything else peaked in November and it’s just been going on. So we’re already in the most extensive bear market that we’ve seen since the global financial price, but bear markets can also last for years, right? We’ve not been there, and I think the question here for us now is okay, going into the second half of the year, if we do see improvement in inflation, can we actually get out of this phase here now? Or is there the big second shoe to drop, to your point, real estate?

Sven Henrich (22:58):

And that’s the problem when you build an everything bubble, right? Not only a bubble in stocks, crypto, you can argue, but in bonds. We clearly had a bond bubble, but also in real estate, this is why I’ve been so critical to fit because they bought like $1.9 trillion in mortgage back securities in to a red hot housing markets, a policy that was designed to bail the housing market out. In a low supply type of environment, the housing market clearly can’t handle higher rates either. It just can’t. If you got a 30 year mortgage at two and half percent, great. But now you’re looking at five and a half, what six? It’s going to kill demand and it to could kill the construction side of it because if you don’t have demand, then you’re not going to invest.

Sven Henrich (23:49):

And all of a sudden you’re paying a lot more to finance your projects, you’re not going to take that risk. So they’re looking and staring at a complete collapse there as well. How is that helping the consumer, right? The upside to this, it could make things again more affordable and to get some sort of balance. The big issue is what you raised, which is the speed, the velocity of what has happened with yields. So I want to raise that issue real quick because I think that’s really important. 10 year yield to me is one of the most important charts out there, along with the dollar and the junk yields, if you will, junk J and K. Junk’s an interesting chart. That chart actually is on a point where you would intervene typically. In fact, maybe the whole system right now is, we’re in a situation where typically they would intervene to save everything. But now they can’t.

Sven Henrich (24:40):

But the 10 year yield, that flew higher this year like we’ve never seen this before in terms of velocity at all. Last year, I had this chart out. You may recall this inverse pattern, it was in October, was what? Like 1.5%. I had an inverse. I had a technical target and it got to 3.2%, hit it on the nose, then retreated. That was the point when we saw the market rally in May. It had made a new low, then we saw the 10 year retreat market rally. Then what happened in June is the CPI numbers came out 10 year freaked out, made new highs, one to 3.5% market strategy lows.

Sven Henrich (25:22):

See, just making a technical comment here is when you have a technical pattern play out like we had that inverse go from 1.5 to 3.2%, the pattern has plate, and then you wait and you look okay, let’s see if we can get a new pattern. Now we have a new pattern because we’re building this really tight, rising wedge on the 10 year, and the 3.5 that a hit in June hit the top of the trend line. Now we’re versed. And guess what? We’re seeing a rally in equity market. So that chart is super important, conceptually, because it goes to what I said at the beginning. This debt latent system cannot handle higher rates. 3.2%, by the way was what stopped in December of 2018, excuse me, in the fall of 2018, 10 hit 3.2%, markets fell apart, fed flip flop, that was the end of it. That was with aged $9 trillion of less debt.

Sven Henrich (26:17):

So we cannot be in a situation where 10 year … took 10 years to hover above 3.2% for an extended period of time. So if they want to really avoid a severe recession in a soft landing, the 10 year must come down. It must come below 3%. And then this was going back to my early January concept. If they wanted to just job own the market, let the market type, let the market over type as it now has. And then they come then see the 10 year reverse and have to fit, meet it somewhere in the middle. So instead of a 3.8% fit funds rate, maybe it’ll stop at two and a half, 2.6, 2.7 and that’s the end of the tightening cycle. So I’m wondering as I’m watching this now and having a reverse again, it has the tightening cycle from a market perspective already peaked as the market is starting to price in a recession risk coming. And then that’s the pivot, but we won’t realize it until after the fact.

Sven Henrich (27:27):

It’s just in the here and now, you can make observations. All I said is if they can’t get that done and the tenure keeps flying higher, we’re going to keep making new lows of markets. If the tightening cycle has peaked and the 10 year is now going to break its up trend pattern, you’re going to have a massive risk on asset rally, because again, positioning negativity and relief, frankly, because that then says the worst is over. And I think we’re just going to be cognizant that things can get a lot more violent, not only to the downside, but also to the upside. That’s why I’m making this bear market rally case.

Preston Pysh (28:06):

Yeah. It’s fascinating when you’re looking at, especially a lot of these treasury yield curves, the one that’s got my attention right now is over in Japan, they’re trying to do yield curve control and you’re seeing-

Sven Henrich (28:19):

Aren’t they always?

Preston Pysh (28:20):

And I guess I’m just trying to understand how that all plays into the broader markets. Because if they’re doing the opposite of fed policy with their yield curve control, and it seems like they’re working very hard to keep the yield peg in place, how does that play into the calculus, the global calculus of everything that’s playing out because they’re adding units, others are aggressively tightening units, monetary units in the system. How do you think through that and how do you add that into the overall scheme of how you’re optically viewing, where this goes next?

Sven Henrich (29:02):

Well, first of all, we’ve seen over the last few years, several times where central banks were polar opposite in terms of policy, right? We had that in 2017, 18, what the fed was raising rates and reducing their balance sheet while the ECP kept printing, and Japan kept printing and they kept rates negative. That’s not unusual. What then obviously changed the equation was you saw that with overnight repo, overnight rates also jumped in the US and suddenly brought this whole repo program in to keep things under control. Maybe Japan is kind of in situation now in the sense that the entire globe is moving towards tightening. Obviously, their policy is out of sync with that, and now obviously requires more and more intervention that questions how long they can keep this up. And that’s the problem with permanent intervention. You creating a financial system that’s disconnected from fundamentals in a big, big, big way. Japan, [inaudible 00:30:08] and they’ve done nothing but print for years and years. So I think right now they’re very desperate.

Sven Henrich (30:14):

What you don’t want to see actually is them losing control because I think that could break something globally. That’s clearly a risk factor, right? Because that would push yields higher all over the place if Japan lost control. So I think this timing now between the summer and into the fall is very critical because if I’m correct in saying that the 10 year may have peaked, which I don’t know if I’m correct and we’re dropping lower on yields and we’re getting support from inflation data in terms of new CPI, PPI reports coming in July and August, then that actually takes pressure off the bank of Japan. You heard the term widow maker, right?

Preston Pysh (30:55):

Oh yeah.

Sven Henrich (30:57):

People betting against the power of central banks and bank of Japan and specifically, they do have the ability to create money out of nothing. They have an unlimited supply. So I think they had a lot of people scared that if they’re going to try this again, betting against the bank of Japan, they’re going to get it railroaded again. Yes. So basically what I’m saying is there’s risk in the system and everything. We have central banks fighting for control, trying to get a hold of the narrative in an inflation. Part of it makes us simply be public posturing. The concern is that indeed there are going to break something.

Sven Henrich (31:36):

And maybe on that note, I should say just a personal observation here, given the amount of carnage that we’ve seen in not only in indexes, but specifically in stocks where we’ve seen stocks dropping 40, 50, 60, 70, 80%, I’m actually surprised we haven’t seen a major blow up yet by anyone.

Preston Pysh (31:56):

Yeah. I know.

Sven Henrich (31:57):

That brings me back to my earlier comment about this all seeming very controlled. Traditionally, I’ve been known sometimes to be a bear. Traditionally, I would say, this is the perfect environment for something to blow up and get really ugly, but it’s so calm it’s so steady.

Preston Pysh (32:21):

In traditional markets for sure.

Sven Henrich (32:23):

In traditional, yeah, it’s very-

Preston Pysh (32:26):

Well, [inaudible 00:32:26] the digital asset space is a disaster.

Sven Henrich (32:29):

Yeah. Well, little growing pain, right?

Preston Pysh (32:32):

Major disaster.

Sven Henrich (32:33):

Major disaster. Yeah. So now what I, what I’m saying is, okay, well look at the arcs of the world. Facebook, forget arc. These are major things, Star wars of the bull market. Netflix, completely destroyed Facebook. And you know that so many funds were highly exposed to this. Get where’s the drama? Where’s my big VIX spike? What I have been seeing this year is the S&P makes lower lows and the VIX makes lower highs.

Preston Pysh (33:08):

Sven, do you think that some of it has to do with, there were just monumental gains made in the preceding years since COVID. There was a year and a half that you had a raging bull market where people just crushed … people made what they would typically make in a decade in that short one and a half year timeframe in financial markets. Is this the reason why we aren’t seeing the … because I’m with you. It doesn’t make any sense to me that we haven’t seen something really explode in traditional markets, but do you think that’s why?

Sven Henrich (33:45):

It comes back to leverage? Look at margin debt last year. It just blew higher far beyond what we saw in 2000 or during the housing bubble. It’s absolutely massive leveraging on the side of retail, for example. The one stat that blew my mind last year was that last year alone, more money flowed into stocks from retail than in the previous two decades combined. That’s insane amount of money. And so did they all sell the top and living at the beach? I don’t think so.

Preston Pysh (34:24):

No.

Sven Henrich (34:24):

There is pain out there. And that’s why I was saying, I think maybe the … and this is the worry I have is the fed again, making a policy mistake by underestimating how much pain there actually is out there. And we see that with the savings rate as well. This is one of the things that always irk me with central bankers, this shear leading right up until the bitter end. Remember Bernanke 2008, there is no sign of a recession, subprime is contained before it blew up in everybody’s face. And then he got renominated as the hero because he intervened.

Sven Henrich (35:03):

And then we saw this last year again, with every one of these guys bombarding markets all year long saying inflation is transitory. They literally promoted this risk on environment. And the S&P was just a tracker of the fed balance sheet. Now we’ve dropped over 30% on small CALS, NASDAQ, and you know if it wasn’t for some of the specific stocks and especially energy holding things up, because that’s where you’ve seen gates that actually underneath the damage is a lot more pervasive. So to me, just the notion that all this is consequence free and we can have a soft landing here with rates, staying as high as they are to me is a fantasy construct. So something needs to give very shortly here, otherwise this fall, it’s going to be a show to remember.

Preston Pysh (35:57):

No, I’m with you. I had a question come from the audience, this one’s from Eddie. He wanted to know if he found technical analysis harder over the last few years, given the fed’s massive influence on the markets. And then Sven, if you don’t mind, as a follow up to that, just give us some of your thoughts in general about technical analysis and how you find it as a tool for maybe a beginner investor or somebody who’s just new to the space.

Sven Henrich (36:27):

Okay. So first to Ed’s question. I find technical analysis to this day to be incredibly helpful. Look, and maybe mixing the answer with the other question you had about technical analysis in general, technical analysis is not a guarantee. It’s not a tool that guarantees you anything. You can still be taken out positions, and that’s why people sometimes call it voodoo or squiggly lines and this, that, and the other. What technical analysis to me anyway, is we’re all in the position of great uncertainty, right? Anything can happen at any time, but it helps us identify a positive risk reward. For example, do I want to continue pressing long here in this technical setup? And this could be on the charts, on the signals, on the positioning. It’s a whole heap of tools and you can make this really complicated, which I don’t like. I’d like to actually keep it very simple, kiss, keep it simple, stupid. That’s one of my wife’s lines. And she’s been just marvelous.

Sven Henrich (37:37):

And I can go through all kinds of tools, which we don’t need to go through. But I’m saying when the search is defined, what the market deem is relevant, it keeps us honest in that sense, because we may all have opinions and we may have biases and we want this to go to a million and this to drop 100%, this was not realistic, but it helps us keep us honest in the sense that we can say, look this, we can debate all day long why, but it is relevant to the market. If it’s relevant to the market, it has to be relevant to me as someone’s trying to position for a profitable trade.

Sven Henrich (38:15):

And it’s going back to Ed’s question specifically. I give you one example? This is really recent. This was here in June 16th, 17th. I posted this chart on Twitter about the broader NYSE N-Y-S-E index. One of the most powerful tools to me in technical analysis is confluence where, okay, there’s not one particular point that on a chart that’s of interest, but rather it’s multiple things happening at the same time, which I found fascinating. And NYSE specifically, it was the weekly 200 MA. It was the February, 2020 highs and it was the 38 two fit. And they were all in the same zone, which to me just screamed confluence, support. So is that to say, I guarantee that NYCE does not drop lower? No. And I pointed this out on Twitter as it is a lower gap below. This area doesn’t hold.

Sven Henrich (39:15):

But I also said, this is an area of confluence that would be of interest for bulls to take a major stand at, because it had all these areas together. And guess what? It did. I keep tracking that chart. It just bounced right off there, like a rocket. And so technical analysis, absolutely matters. Now, to be fair, what we see when all these interventions over the years, I’ve come to realize that the extremes become ever more extreme to the upside, as well as to the downside. When you have too much fluff in the system, the down moves can be absolutely awe-inspiring and there will be times when technical analysis also gets blown out. As I said, it’s not a guarantee. You just got to be aware where the control pivots are, and then figure out if that is a trade worth, taking from a risk reward perspective, stop management and all that. Not financial advice. No, it’s a tool and we got to learn how to use the tool.

Sven Henrich (40:18):

And keep in mind banks use technical analysis. They have whole teams of technical analysts. They’re basing on all this as well. Some may call it a self-fulfilling prophecy, but it’s not. Yes, a lot of people are looking at different things, but it makes sense because the market is sensitive to it and is reactive to it. And our job is to find out where those points are and then use those points to develop a positive risk reward entry point.

Sven Henrich (40:47):

And the final point on this, and I freely admit this. When you are in a heavy, heavy printing environment like we were last year, the cell signals often get washed away. It’s very tricky, but then it comes back down to the simplest things and trend lines, for example, are very powerful. Yeah, you can get a spike over, you can get a drop below whatever temporarily, but markets really respect us as well. And as we got into November, December, the S&P was screaming against a long trend and NYCE did as well, and it just kept stopping there. Every time it dinged it and while the fed kept printing, that correlation was, was there.

Sven Henrich (41:30):

So every time it dinged, it was definitely worth an effort to get a sell out. And we got these occasional drops they weren’t very dramatic, but then once the trend broke, all hell broke loose, right? That’s why it’s an arch form, I would say, to mix technical analysis with what’s understanding what’s going on on the macro front and what the trends are, and then present a comprehensive picture of how you want to approach this from a trading perspective.

Preston Pysh (41:59):

As a guy who started off as a value guy, exclusively, I was very suspect of anything technical analysis related. But through time, I found that things that have a larger market cap, or if I can look at a sector by combining equity indices or whatever to manufacture a larger market cap collectively, I find that there’s a lot of signal, like you’re saying, probability-wise in using technical analysis when I’m dealing with a larger market cap. When you’re looking at smaller market caps, I think it’s just so volatile, dependent on much smaller factors that are hard to predict or forecast based on looking at price exclusively. Those are some interesting comments, and I really like your comment about the confluence. I think that’s an important factor for people to think about.

Preston Pysh (42:53):

Sven, so you seem to be more amenable is the word I’m going to use to Bitcoin playing a role in potentially the resolution of a lot of this craziness that we’re talking about with respect to central banking policy. In general, what are your thoughts around it? What played a role in some of that change of heart or maybe just looking at it a little bit differently?

Sven Henrich (43:19):

Well, as you said at the outset, we had a couple of little dust ups you and I at the beginning. Now look, for me, it was an evolution as well. Part of my capitulation process was my wife kept beating me up over it. She’s been a long bull on Bitcoin. To me, analytically at the beginning, I obviously saw the run up in 2007 [inaudible 00:43:46] collapse, looking at the technology, wasn’t clear to me that central banks would actually ever allow it in terms of being … These guys, all are monetary, [inaudible 00:43:59] dictatorships. They have complete control over the monetary system. So why would they actually allow this to happen?

Sven Henrich (44:07):

And maybe with regulation together, they would squash the whole thing. And then of course we drop what from 17,000, 20,000 to three and a half thousand, and that was the first, the big pain wave. But then also looked at it from the human component in terms of where you actually see development happening. It’s actually working from a technical perspective. It is very clearly defined, and you see people like Jack former CEO of Twitter getting heavily involved and they’re smart people and they’re doing a lot of things around. Then the regulatory pass started evolving a bit where it started realizing you know what? They can’t shut it down. They can’t ban it.

Sven Henrich (44:54):

They can make it difficult, absolutely. But no, they can’t shut it down. But then at the same time I saw, as it’s talking about massive asset bubble. So I saw all this other stuff coming about that reminded me very much of the 2000 tech bubble, the fluff, the over-excitement, the emotions, along with the recklessness in some cases, in terms of behavior as you know we got spam to hell with bots and everything else. These are all the negative components.

Sven Henrich (45:26):

So in terms of an asset bubble, I was very concerned that everything had blow up in that sense, and I started talking to Michael Saylor last year. I had three discussions with him. The first one then I was coming from the point of, okay, let me try to poke holes on the whole thing. And during that discussion, this 2000 tech bubble aspect came back in my mind. And Michael and I talked about the components. We had obviously stocks get completely obliterated in the wake of the tech bubble, including Amazon, including Apple and all. They dropped 80, 90%.

Sven Henrich (46:04):

But, and this is the hindsight equation, are you looking at business models that are sustainable or that have the potential to have a global dominance and footprint? And clearly in hindsight we know the Apples and the Amazons of the world where exactly that whereby pets.com and all that stuff completely blew up. So then that became of interest to me because I said, okay, well, let’s look at the space, and what do I see as a winning business model, long term in the construct? And that’s where when you are in an asset bubble, you want to see how this all falls out. And we just saw that. We just saw this this year.

Sven Henrich (46:49):

In January, my second discussion with Michael, my first nipple at Bitcoin when I had dropped, I think it was down the low 30,000. So just a little nipple because I was still in the full cognition that we’re still in asset. And I pointed out the charts going back to Ed’s question earlier about the relevance of technical charts. One of the things I always liked about Bitcoin, and I’ve said this for the last year and a half or so, that I like that it’s acts very technically, and actually charted beautifully. And I’ve been pointing out Bitcoin on the north cast for months and months, when I see bullish signs, when I point at the bull signs, when I see the negatives, that bearish aspect of it, bear flags or whatever it plays. It plays it really nicely.

Sven Henrich (47:33):

In fact, this last few weeks when the markets dropped, Bitcoin, for my third discussion with Michael Saylor, I talked about the 17,000 level. We dropped to 20,000. I said 17,000, there’s a major trend line there, major, major support trend line, and that’s the immediate risk. But as long as it holds, the trends intact. That’s what we hit Literally that weekend, we hit 17,500 tack the trend line and it bounced from there. Not saying anything is clear, but it’s all part of a process to mean if we were to drop that trend line, boy, folks, things can get a lot uglier, just to be absolutely clear on that. And I said this in January. You can make the case because there’s a larger larger macro trend line that points down to six, 7,000. I’m not predicting anything. I’m just looking at the overall risk.

Sven Henrich (48:23):

That’s why it’s so important whether we are now in a structural bear market that lasts for a couple of years in which the cases can happen, or we’re coming out of this and this will have been like a first half of the year scare because, and that’s the other thing I’ve been pointing out for the last couple years, is the asset correlation is massively high between the S&P and Bitcoin in terms of the directional flow. In fact, in recent weeks, it got to like 95%. In my case in January was, what’s missing for Bitcoin is that regulatory framework demand perspective, I think there’s a lot of funds that are professional investors that want to get into Bitcoin, but they don’t have the regulatory clarity and they can’t actually invest until they do have that regulatory clarity.

Sven Henrich (49:16):

So if I look at this, then I see a bear market or I see an asset bubble that’s popping, I see business models getting crushed left, right and center in the crypto space, I see the fluff coming out, which I think is a positive thing because once you have the creative destruction, then you can have that longer term view in terms of what will maintain, what will be sustained. You heard Gary Gensler from the SEC yesterday saying considering Bitcoin a commodity, it’s kind of seeing [inaudible 00:49:47] fit out, which is of interest as well. The Twitter handles Northman Trader, Northman and Investors, but in terms of Bitcoin, I do see it as a longer term hold for me. So that’s why I outline in January, I want to use this year with the view that an asset bubble could be bursting. I want to use this year as a slow patient scaling in strategy over time.

Sven Henrich (50:15):

20,000 was a level I mentioned in early January as well. That was a key support line as well. So now here we are. So it’s part of a process and I think long term it’s very positive for Bitcoin. Now, of course, if bought it 50, 60,000 and you’re writing this down, is this no fun? That’s why I kind of stayed away from that psych, hype at the time. By the way, just a general comment, I think for anyone, whether you’re a short term trader or a long term trader or investor, the biggest skill I find that I continue to teach myself is patience. That’s why, for example, if I were really patient, I just maybe trade two or three times a year, wait for the big confluence points to come together. But we’re also creatures that one instant gratification, right?

Preston Pysh (51:11):

Yes.

Sven Henrich (51:11):

So we get trigger happy on the finger, but that’s one thing I learned over the years to just be a lot more patient. But at the same time, when a setup hits, fight for it too because things will be volatile. It’s not like okay, thing, here you go. You got to be willing to sweat it out because that also happens at key points and let’s be persistent with discipline.

Preston Pysh (51:38):

All right. So here’s my last question. So you spend a lot of time in nature.

Sven Henrich (51:43):

I do.

Preston Pysh (51:44):

You’re out in nature and I love the pictures. I love the memes also, but I love the pictures that you post. What is it that you have learned from nature that you apply to your stock investing and just the way that you optically view markets?

Sven Henrich (52:02):

Well, it goes back to those patients I think. I live here … I’ll just put this out. I live here out in the countryside in England. It’s absolutely lovely, and I love England, by the way. I just moved here a few years ago, eight, nine years ago,, but it’s an amazing place because everyone over time wanted to come here. The Romans did, the Anglo-Saxons, the Vikings, the Normans, and you get to see all these places that have been around for a very long time. And that, don’t want to get too philosophical here, but it helps really keep the macro in perspective. Things change over [inaudible 00:52:46], but they have stayed same. And it helps me actually just … the beauty for me is I can just step outside and I’m in nature. We are forced to stare at screens long enough as it is, so it’s a nice outlet here. I love it. Wouldn’t want to be anywhere else at this point. Although the winters are rough.

Preston Pysh (53:09):

Yeah. But you know what? You can … Do you snow ski at all?

Sven Henrich (53:14):

No, we don’t get snow in England. We get rain.

Preston Pysh (53:15):

You get rain.

Sven Henrich (53:19):

We either get cold rain or freezing rain.

Preston Pysh (53:21):

Oh man.

Sven Henrich (53:21):

That’s where the wood shopping comes in because we got a nice wood burner, got the ax out.

Preston Pysh (53:27):

I love it.

Sven Henrich (53:29):

It’s good stuff, so can’t complain.

Preston Pysh (53:32):

That’s amazing stuff. Sven, I really appreciate you coming on. And I’ve been a fan for years. It might not have seemed like-

Sven Henrich (53:39):

I appreciate it.

Preston Pysh (53:40):

… it a few moments, but I’m serious. I’ve been a fan of yours for years and just, I love how succinctly you can get to the crux of what’s important in the markets and you can do it in a single tweet or a single chart that I think everybody that follows you when they see it, they’re like, “Yes, yes, that’s the chart right there that explains exactly how I feel right now about these market conditions.” And it takes a lot of skill and a lot of knowledge to be able to pinpoint things like that. So such an honor to talk to you and I really appreciate you taking the time to come on the show and have the conversation. And give people a hand off to your content and things that we can put in our show notes.

Sven Henrich (54:22):

Oh yeah. Obviously the website is northmantrader.com. I also have the NorthCast out. We’ll try to explain charts, what I see in terms of markets. So of course the Twitter handle @NorthmanTrader. And I strangle sarcasm into my tweets. Sometimes that doesn’t work because people don’t get that it’s sarcasm. I had some person, attorney from Florida got upset with me yesterday about a little sarcastic tweet. That happens. Sometimes it’s lost in translation, but-

Preston Pysh (54:54):

Yes.

Sven Henrich (54:54):

… I try to … look at the end of the day, what I try to do is I try to keep it real. We are in a complex world. I try to add some humor in it, but sometimes the humor just writes itself because I just need to comment on what people actually say or do and versus what’s actually happening. It’s an ongoing comedy show and you know what? Comedy is good for us. I think humor is helpful getting through complex times, but it also helps make what is set whether it’s being done.

Sven Henrich (55:24):

And in general, I am a bit, I guess, woeful about how this has all been evolving over the years because people are getting hurt, and we say it’s maybe fun and giggles. It’s not. Inflation right now is hurting a lot of people. And this wealth equality issue is strenuous because we’re seeing it in politics now. Detentions are high and society gets ever more divided. That’s not a positive thing. I don’t think things would be as extreme if we didn’t say the middle class shrinking decade after decade after decade. It’s a challenge. So yeah, we keep it light, but real, that’s the deal.

Preston Pysh (56:03):

Well, I really appreciate you taking the time and we’ll have links to all your stuff there and the show notes and thanks for your time today.

Sven Henrich (56:10):

Preston, brilliant. Thank you very much.

Preston Pysh (56:13):

Thank you, sir.

Sven Henrich (56:14):

Enjoy the rest of your day.

Preston Pysh (56:14):

Thank you, sir.

Sven Henrich (56:14):

Cheers.

Preston Pysh (56:14):

Cheers. 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. 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. And with that, thanks for listening, and I’ll catch you again next week.

Outro (56:48):

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