E121: Macro update, Fed hike, CRE debt bubble, Balaji's Bitcoin bet, TikTok's endgame & more

I think that the government debt crisis, assuming the government wants to inflate and monetize the debt as a way to solve that problem, that will be highly inflationary. But when these things play out, we can't know. I think that's what makes this really hard. I think jumping all the way to the sort of finish line and saying we're going to have a million dollar Bitcoin in 90 days because the US dollar is worthless, I think that's premature. I think this could play out over the next couple of years.

I do think all these guys are going to have to, in order to gain wider spread capital markets attention, like Elon has had to do with SpaceX, are going to have to find business models that have kind of near-term viability that don't depend on government contracts.

So he's betting $2 million in total on Bitcoin hitting $1 million by June 17th, which there's probably no chance of that happening. A very tiny chance.

Do I think that we're going to have a million dollar Bitcoin in 90 days? I personally find that very unlikely, but you can't say yet.

We have a real problem if Bitcoin is the exit ramp for an inflationary crisis because it's not accessible enough. It's not easily transactable.

if Bitcoin or crypto assets in general were truly a legitimate off ramp and salvation from US dollar hegemony and all of this stuff, why isn't Bitcoin at least at $35,000 a coin right now? It's barely above $28,000. It really hasn't moved that much.

So look, I think this is the biggest like black swan. It's not a black swan, but this is the biggest kind of elephant in the room right now.

My point is put this in the who cares bucket and get back to the facts. Friedberg mentioned it. We have a debt ceiling problem that's in the offing. Sacks mentioned it. We have a commercial real estate crisis.

If you were to now additionally cover the whole thing, all the deposits, it would be another roughly 100 billion of premiums paid by these banks. That seems very manageable to me, actually.

And so the irony is if you actually did, and this is getting super technical, but if you actually looked at the statistical model and said, how much is this going to cost to insure every deposit? It gets much, much cheaper the higher the deposits that you're willing to insure would be.

Make it abundantly clear that we're never going to insure 100% and deal with that risk, or make it 100% and deal with the fallout, which is largely about wiping out a lot of equity value in banks.

either in a world of inflation run amok because the Fed isn't hiking fast enough, which just destroys future cash flows, or in a world where the Fed pivots in a moment like this, and Nick, you can show the second chart, both result in the same outcome, which is that you just see these massive drawdowns in the value of risk assets.

I think it is divestiture or shut down for TikTok. Since we're not communists here, I think they should be given the chance to fully divest to an American-owned company.

But I will say my point of view from just seeing the political behavior is that they're probably going to mandate that these guys spin this thing out to US investors and that the Chinese don't have any equity or management oversight or interest in it.

So I think the pound of flesh that they want is more easily and more salaciously satisfied by shutting the thing down. So if I had to bet on what happens, I bet more on that.

So this credit bubble is here and it's being manifested right now in these very sophisticated parts of the market. Eventually, they'll ripple to the broader economy at large.

So I think it's hard to argue that there isn't a concerted effort now to crack down on crypto by a wide variety of government agencies and authorities, starting with Gensler at the SEC, who seems incredibly hostile to crypto.

So I think Gensler had to pivot very hard from at a minimum being very pro FTX and there's all kinds of stories about his interrelatedness with Sam and his family to very anti-BIT or anti-crypto in general. That's clearly happened.

So now all of a sudden, the building is underwater. So where does that end up? Well, they default on the debt and the bank ends up owning the building. So then what happens is you end up with all of downtown San Francisco owned by a bunch of banks.

Look, I've maintained now for nine months that rates are going to be higher than we like and longer than we want. And so I think it's high time that we acknowledge that we have a sticky inflation problem whose back we have to break.

But the other part of it is, like, does it reinforce or does it decay US dollar hegemony? And I think it actually reinforces it. And the reason is just very practically speaking, when you look at how dependent other people, other countries are on the US dollar in times of stress, they actually become more dependent.

When Dalio's points of view, with lots of kind of empirical wisdom behind it, I think, indicate that the US is on a path, and the way we spend, and the way we behave, and the way markets are reacting, I think, indicates that a lot of what has happened historically is happening now in the US.

you need to get interest rates to be greater than terminal inflation, which means that a 5% Fed funds rate is insufficient. So we're going to need to see a print of five and a half, 5.75%.

The banks are saying we don't have enough liquidity right now to cover our needs, which are highly volatile right now because basically depositors are moving out of community and regional and small banks into the big four so-called systemically important or CIP banks.

If you look at how well run Citi, B of A, Wells and JPMR relative and contrast them to the sub GSIBs, it's like night and day.

Why won't you just stand pat for one month? You can always raise rates in a month. I think that this move here could in hindsight be seen as the straw that breaks the camel's back.

Then how bond holders will react to all of this stuff is they'll just start to find different assets, probably the front end of the curve, money market, cash, gold, and they'll just abandon all these assets.