The content of this podcast should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
0:00 - Introduction
0:55 - Market Indicators and Predictions
2:16 - Understanding Capital as Prey
3:25 - Impact of Japan's Interest Rate Hike
4:43 - Market Reactions to Job Numbers and AI Investments
5:03 - Record Sell-Off in Japan's Nikkei Index
6:02 - Ripple Effects of Interest Rate Changes
7:12 - Unwinding of Yen Carry Trades
8:43 - Escalating Tensions in the Middle East
11:37 - Impact of Yen Carry Trades on Bitcoin
14:57 - Job Data Revisions and Analysis
21:34 - Impact of Arbitrage and Interest Rates
23:46 - Shift in Asset Investment Strategies
25:25 - Potential for Reverse Carry Trades
26:43 - Dilemma Faced by Central Banks
27:26 - Ripple Effects of Fiat Currencies
27:41 - Questioning the Market Bubble
36:35 - Spot and Future Prices Analysis
40:22 - Predictive Indicators: Pizza, Gay Bars, and War Stocks
51:30 - Jobs Report Analysis and Recession Speculation
52:37 - Resilience in Life and Investments
53:58 - Debt, War, and Austerity Discussion
56:24 - Bitcoin Resilience Amidst Political Influence
1:01:40 - Understanding Economic Fluctuations: Philosophy vs. Panic
In this podcast episode, we embark on an exploration of the current state of the global economy amidst recent turbulent events that have rocked financial markets worldwide. From significant market drops to historic stock market declines in Japan, coupled with the surge in stocks and crypto markets, the economic landscape appears fraught with uncertainty. Key factors contributing to this turmoil include Japan's interest rate hike after a lengthy period, disappointing US job figures, and the looming specter of war, all of which have sparked fears and led to panic selling across various markets.
As we navigate through this economic chaos, a fundamental philosophy emerges - the idea that capital is constantly being hunted by the insatiable greed of individuals, creating a complex ecosystem of financial predator-prey dynamics in a world driven by state policies. We delve into the intricate web of investments, including Japan's interest rate hike and the ripple effects of the yen carry trade, shedding light on how these mechanisms have triggered massive liquidations and market upheavals on a global scale.
As we analyze the response of the Federal Reserve and geopolitical tensions, we witness the intricate dance between global events and their reverberations in financial markets, offering valuable insights into the underlying mechanisms fueling economic turbulence. Discussions range from the credibility of job data to historical financial crises and the surge in multiple job holders, providing a comprehensive narrative that touches on economic analyses, statistical methodologies, and the complex interplay of market forces in shaping our financial reality.
Moreover, we delve into the significance of the yen as the third reserve currency and its impact on various markets, particularly through the lens of the yen carry trade and the recent rate hike by the Bank of Japan. By exploring how borrowing yen to invest in higher-interest rate currencies influences global dynamics, we unravel the complexities of interest rates, asset investments, and currency fluctuations, showcasing how central bank policies can trigger market responses and impact assets like Bitcoin.
The podcast also delves into the technicalities of spot prices, futures prices, and arbitrage strategies in Bitcoin trading, shedding light on leveraged positions, market liquidations, and the interplay between short-term market reactions and long-term economic trends. Additionally, we examine the geopolitical landscape, discussing potential scenarios involving Japan, Iran, and Israel that could have profound effects on oil prices and global stability, underscoring the interconnected nature of world events with financial markets.
Through a blend of financial analysis, historical context, and geopolitical insights, this podcast offers a multifaceted understanding of the forces shaping the current economic landscape, inviting listeners to explore the intricacies of currency trades, market psychology, and global politics. By weaving together diverse perspectives and backgrounds, each episode aims to illuminate the complex web of financial dynamics and world events, fostering clarity and understanding in a time of uncertainty.
[0:00] Good morning, everybody. Fifth of August, 2024. Bit of an emergency stream today. I'm sure, as you're aware, the current world economy is going through various levels of hysterical paroxysms. And just a disclaimer up front, I am not an investment advisor or investment expert. This is not investment advice. Your capital is at risk. Don't buy or sell anything based upon what a philosopher is saying. So I'm obviously better on the philosophy side than the economic side, but I will do my best. So let's look at the current situation. And it's a fluid and changing situation. So this data will have changed, of course, over the last little while. This is mostly from yesterday to today. Japan's stock market posted its biggest two-day drop in history. The magnificent seven stocks raised over a trillion dollars in market cap. Crypto markets raised over $500 billion in market cap in 24 hours.
[0:56] Markets price in a 60% chance of an emergency Fed rate cut. South Korea has halted all sell orders on their stock market and NASDAQ futures fall as much as 6.5% in one day. So what's going on? Nobody knows. I don't know. You don't know. Nobody knows. I'm going to put out my theories, which may be as much nonsense as fact.
[1:22] But what is going on? I think there's three things. Japan increased its interest rates for the first time in, what, 15 years?
[1:33] And that's number one. Number two, disappointing US job numbers. Number three, war. War. Always a challenge to the economy except for the warmongers and war profiteers.
[1:48] So the first philosophical aspect that I want to put out there is to understand that capital is prey.
[2:00] I want you to understand this very foundationally. Capital, savings, resources, right? All of the deferred gratification that allows your savings account to grow. Capital is prey. And the greedy are the predators.
[2:16] Predators so you've got this capital it's saved up in businesses it could be saved up in your bank account and so on and it is being chased all over the world by these predators of bottomless statist, greed this is really really important to understand wherever you put your money there are slender slithery freddy krueger fingers trying to get in there and take it wherever you put your money under your mattress you put it in a bank account you put it in crypto you put it in stocks bonds doesn't matter everywhere your capital is there are greedy a-holes trying to arbitrage it leverage it steal it inflate it away borrow it and destroy it consume it to consume it right so this is largely the result of statism as a whole it would be there in the general free market economy but it's to a near infinite degree so it's really really important to understand that whatever you save is being hunted it's being hunted and they're trying to take it away yeah FDR stole people's gold yeah it is being hunted so that's really really important to understand.
[3:25] So let's uh let's get into it um so last week the Bank of Japan decided to hike rates by 0.15 bps 0.25 percent now that isn't that wild that a quarter of a percentage point increase in a rate causes this domino effect but we're going to get into something called the yen carry trade yen carry trade it's 20 trillion dollars it's 20 trillion dollars that the yen carry trade we'll get into that in a sec so the yen went higher wiped out trillions and highly leveraged or levered investments leading to a cascade of selling and forced liquidations so, people were betting on the japanese yen being essentially free to borrow and suddenly it's not free to borrow and we'll get into sort of the details but this is causes a domino effect effect, wherein they have to sell assets in order to cover the increased expense of the Japanese yen, and that requires that you sell off assets. And I would assume that Bitcoin is one of the major assets sold off, because you can sell that on the weekend, which is a little bit trickier when the markets are closed.
[4:44] So the NASDAQ dropped into a correction Friday as investors freaked out over elevated valuations on the high cash outlay for investments in artificial intelligence. The Philadelphia Semiconductor Index, really one of the worst names for a punk band in history, is already in a bear market, tumbling 22% from a peak even before Monday's open.
[5:04] While U.S. futures are a bloodbath, nobody had it as bad as Japan, whose benchmark Nikkei 225 Index recorded its worst-ever daily sell-off on Monday, losing 4,451.28 points. Boy, that 2.8 is really the killer. From the previous day's closing amid panic selling, triggered by fears of a possible U.S. recession and the yen's strength. The sell-off was the largest ever in history and worse than the Black Monday crash of October 1987, when it lost 3,836.48 points. The average closed down 12.4% to 31,458.42. two. On a percentage basis, it wasn't much better with the Nikkei's peer topics tumbling minus 12.2%. It's the biggest one-day drop since the 1987 stock market crash and the second worst day since data begins in 1949. The index is poised for its biggest three-day drop on record.
[6:03] So, of course, Japan's central bank started to raise interest rates as the Fed looked to cut its historic mistake that has already wiped out trillions in value. It's also having ripple effects across global markets of various asset classes. This is due to moves to reverse carry trades. So investors had borrowed at lower rates in Japan to fund purchases of higher yielding assets elsewhere, right? So you can borrow in Japan at really low rates, I've heard 0.4%, stuff like that, to fund purchases of higher yielding assets elsewhere. So this reminds me of arbitrage is sort of when you exploit one market in order to fund another. And so if you can borrow at low rates in Japan, and then you can buy treasuries or bonds somewhere else at higher rates, it reminds me of that old joke about bankers. The bankers is the 3-6-3 rule. 3-6-3 rule. You borrow at 3%, you lend at 6% and you go play golf at 3 o'clock in the afternoon because that's your big value add.
[7:07] So, this is a quote from asymmetric advisor, Strategist Amir.
[7:13] With the end carry trades now being unwound quickly, not only has the Japanese currency notably broken its depreciation trend against all major units, but risk assets that those trades are financed with are also being sold off. What does that mean? Depreciation trend against all major units. So, if the Japanese currency is at 0% interest, then it's going to be less valuable than other assets or currencies. And so when they raise the currency rate, then it becomes more valuable, and that people have been living with that arbitrage for like 15 plus years, right?
[7:48] So we'll get into that in a little bit more detail. Other things, this is from Zero Hedge. The White House has said that the U.S. is trying to prepare for any scenario in the Middle East by warning citizens to leave Lebanon, and the U.S. Is moving an aircraft carrier to the Middle East purely for defensive reasons. Apparently, America extends to the Middle East. Finer, this is a White House guy, said the overall goal is to turn the temperature down in the region. The UK Foreign Office said Britain temporarily withdrew the families of officials working at the British Embassy in Beirut due to a highly volatile security situation in Lebanon. US Central Command forces said they successfully destroyed an Iranian-backed Houthi missile and launcher in the Houthi-controlled area of Yemen. It was separately reported that Yemen's Houthis said they targeted MV Groton in the Gulf of Aden with ballistic missiles. Israel could reportedly preemptively strike Iran in the scenario that intelligence was to show that an attack was imminent via the Times of Israel.
[8:43] The Times of Israel is also reporting that a bunker that has not been prepared for 20 years is now being prepared for Netanyahu, which is not a great sign for massive amounts of peace in the region. The U.S. is reportedly willing to guarantee to Israel that it would be able to renew fighting against Hamas in Gaza after the first phase of a potential ceasefire and hostage deal. This is, again, via the Times of Israel. So the risk of all-out Middle Eastern war is rising sharply.
[9:13] Strikes in Beirut and Tehran, this is like weapon strikes, not union strikes, could plunge Israel and Iran deeper into a dangerous cycle of escalation. All right so we'll get to the job stuff in just a second let me just pop by here and try to figure out uh this stuff um.
[9:40] Just listen to the price of theft call-in. Amazing work. Thank you. I appreciate that. It's a great day to buy Bitcoin, says someone. Then again, that's every day. That's right. That's right.
[9:52] Stock market always go back up eventually, or we will have much bigger problems than portfolios. Yeah, yeah, for sure. I don't see a world where Bitcoin is not uber strong after this craziness. Well, I think so. I think someone will get to all of that over the course of the conversation. Money laundering was big in Japan. Hey, that's a song. Big in Japan. All right. Yeah, $35 trillion debt. That's not a big thing. Sounds like arbitrage adds about as much value to the economy as gambling. Minimal just shifting currency only around to someone's advantage. Well, arbitrage is great in a free market scenario. It's just predatory in a fiat currency scenario. Netanyahu says someone has apparently warned U.S. politicians of incoming Lebanon invasion. Certainly could be. and we'll get to the gay bar index in Washington and the pizza index in the Pentagon. Oh, so very shortly. All right. So last week, the Bank of Japan increased interest rates from 0% to 0.25%. This early increase surprised the market. So before this, anyone could borrow the yen at no interest, change them to US dollars and buy stocks. Basically, it was free money. And of course, Japan, I remember in the 80s, Japan was going to be this powerhouse that was going to eat everyone for lunch. And then Japan has basically had this zombie childless economy for like 30 plus years.
[11:17] So here's the problem. Because the Bank of Japan increased interest rates, the US dollar crashed versus the yen. That meant the traders borrowing billions in yen to buy dollars could not cover their debt anymore. What could they do? Well, they had to sell the stocks they bought earlier with those dollars. That equals a stock market crash.
[11:37] But wait, but wait, there's more. so this practice which I mentioned earlier and I haven't had a chance to organize all these notes and I'm reading from some other stuff I provided my own commentary so this is going to scatter it's going to scatter shot a little bit so this practice this is the Japanese carry trades worth 20 trillion dollars only the Japanese hold 4 trillion US stocks using this method and they are being margin called right now so what about crypto well crypto is considered a risk asset in In times of panic like now, people sell risk and rush to safety. Usually that means cash and gold. Some hope that Bitcoin will also be seen as a hedge for such uncertain times. So we'll see if that plays out or not. And this is from our good friend Peter Schiff. The Bureau of Labor Statistics reported a gain of 114,000 jobs, which is well below expectations of 185,000.
[12:35] So this job stuff i i don't believe a bit of it the amount of political pressure particularly in an election year that's put on the bls again i'm not saying whether they have integrity or don't have integrity but they keep revising their numbers after the fact so i don't believe any of it for reasons i went into the other day i'll just touch on them briefly here jobs numbers are.
[12:58] To me, not credible, because, you know, the full-up part-time, if you take one job and split it into two part-times, what does that mean?
[13:07] The fact that they count government jobs, which often interfere with productive jobs in the economy, that's all counted, so the government hires a bunch of people, that's considered to be good for the economy, I suppose. pose. And so that makes it, to me, mostly nonsense. It also, it's like the unemployment rate. What about all the people who have dropped out of the workforce and are no longer looking for jobs? That's not ideal. And of course, the birth and death of companies is lacked, right? We'll get into that in a sec, right? So we've got the payroll survey and the household survey. So the payroll The payroll survey is designed to measure employment hours and earnings in the non-farm sector. With industry and geographic detail, this survey is best known for providing a highly reliable gauge of monthly change in non-farm payroll employment. Of course, non-farm because farming is so seasonal. A representative sample of businesses in the U.S. provides the data for the payroll survey. Now, of course, which businesses do they sample? Well, they can skew the data by choosing which businesses. The Household Survey is designed to measure the labor force status of the civilian non-institutional population with demographic detail. The national employment rate is the best-known statistic produced from the Household Survey. The survey also provides a measure of employed people, one that includes agricultural workers and the self-employed. A representative sample of U.S. households provides information for this survey.
[14:32] So the headline report was still well above the household survey of 67,000, which was only 58.8% of the headline number. So what that means is that they say that, the Bureau of Labor Statistics reported a gain of 114,000 jobs, but the household survey said there were only 67,000, which is less than 60% of the headline number. So that's not great.
[14:57] This has been the trend for all of 2024. For the year, the headline report has shown 1.4 million new jobs with the household survey showing a mere 83,000 jobs, or 5.8% of the headline report. So that's not good.
[15:14] Business births and deaths in the payroll survey. The payroll survey as businesses sample and frame cannot include new firms immediately. They are incorporated with a lag. Similarly, the permanent closure of a firm is not always captured immediately. So, because the sample cannot fully reflect business births and deaths in real-time, the payroll survey estimation methodology includes a statistical procedure to account for the net effect of births and deaths in the final employment estimates. So, it's modeling. It's modeling. And so, there are a bunch of assumptions which I assume are going to skew political. So, the methodology used for birth and deaths prior to 2003 bias adjustment has been evaluated as a possible source of divergence in household and payroll survey employment, along with some known limitations in the payroll survey sample design in use at the time. So in 2003, BLS completed a comprehensive redesign of the payroll survey sample and introduced a new methodology to estimate the net employment effects of business births and deaths. They claim to have greatly improved the accuracy...
[16:17] Not sure, not sure. So that's important. The number of multiple job holders has surged to new all-time highs this month. That is not a sign of a good economy. That is a sign that people are getting, they either need second jobs to cover their basics because their inflation has pushed them past their payroll value, or they can't get any one decent job, so they have to get two crappy jobs. So that's not good. But there have been significant downward revisions of the data since January of this year, right? So they release the data, and then they come back. They say, oh, actually, actually, it's not true. Now, of course, in the business world, I'm no lawyer, but in the business world, I'm pretty sure this would be considered outright freaking fraud. That if you say, well, we have a projection that we're going to do $250 million in business this year. and then a couple of months later, you're like, no, actually, sorry, it's only 160. Wait, wait, 80. Wait, you owe us money. That's not good. You're supposed to stick by your estimates. The fact that they get revised later is important.
[17:27] Over the last three months, the data has been revised down by an average of 29.7 thousand per month and 17,000 over 12 months. These revisions go unnoticed by the mainstream. Yes. Well, they wouldn't if it was Republicans begins in power the labor force participation rate is still well below the highest levels which was before the global financial crisis in 07 08 labor force participation rate well below well below we never recovered from the 07 08 global financial crisis this month it rose slightly to 62.7 percent so yes shadowstats.com is absolutely worth uh worth checking right alphaville was big Big in Japan. Tom Waits. Big in Japan. No. No, absolutely not. That was Alphaville. They had some good songs. They had some good songs. Big in Japan and Forever Young. Guy's got a high voice, man, I'll tell you.
[18:23] Okay, so Bitcoin dropped 15% against the Japanese yen, outpacing declines versus the U.S. dollars as yen carry trades unwind. So the yen, this is amazing to me, but when the Bank of Japan raised interest rates by 0.25%, the yen rose almost 10% against the U.S. dollars in just three weeks, leading to the unwinding of these carry trades. This is to sell off and risk assets and causing significant market volatility. With the significant strengthening of the yen, many traders have been forced to unwind these positions, leading to a cascading effect across various asset classes. So if you're borrowing in yen and buying stuff in dollars, not only is that depressing the value, sorry, not only is the value of the yen depressed artificially by the Bank of Japan strategy, but you're artificially raising the value of the US dollar. So why would a 0.25 have a 40x change and rise the yen 10% against the US dollars? I would assume, I don't know, but I would assume it's because when you can't borrow yen and buy dollars or assets denominated in US dollars, when that strategy is toast, and it's not just toast for now, you understand, it's toast for a long time. So that's going to lower the demand for the US dollars. because if the yen carry strategy, which is borrowing in yen and buying stuff in other.
[19:52] What is the, the yen is the third reserve currency after the, I assume, US dollars, was it euros the second? Or maybe it's, no, it's euro, I assume. So what happens is when you're not borrowing yen to buy dollars, then the value of the dollars is going to go down because the demand being fueled by the 0% interest on the yen is no longer around. And that isn't just a now thing, right? If you've got a $20 trillion industry that gets toasted by a 0.25% rate hike, that is no longer a valid industry for X amount of time. So now you have to price in the possibility that after 15 years of basically 0% interest rates, that the Bank of Japan has now gone to 0.25%. You have to carry that forward, and that has to be put into all of the models. And that's going to crush the industry, which is going to lower the demand for US dollar of denominated assets and U.S. dollars as a whole. So hopefully that makes sense to you. So, Bitcoin's yen-denominated price in the Tokyo-based BitFlyer exchange dropped nearly 15%, and what is Bitcoin down? It's 25% now. I think it bounced back a little bit from 69 and change. Canadian dollars, where are we at now? Everyone's refreshing. Oh, it's just bounced back a little bit to 275. I mean, basically, I'm going to make a case, which again, is just pure nonsense and all made up stuff.
[21:17] But I'm going to make a case that there are two kinds of, quote, market corrections, fundamental and technical. And in my view, this is a technical one. Again, don't buy or sell anything based upon my views. But in my views, this is a technical one, not a foundational one.
[21:35] So i think that's let me make the case and and obviously make your own decisions but that's my particular perspective all right so let's get back to this uh this data all right so there's a bunch of unproductive arbitrage borrowing from this artificially deflated currency to this artificially enhanced currency arbitraging the difference and it only needs a tiny bit if the volume is high enough obviously 0.25 is enough to change a 20 trillion dollar market but there's just a whole bunch of people sniffing and seeking out tiny variations in the market now in the free market those variations would then be closed and you'd get a tiny window and it would be closed very quickly but because fiat currency is government force currency it's political not economic which means that these arbitrages exist for a reason and trying to close these arbitrages. I mean, obviously, interest rates should be free market, right? Interest rates are the price of money because we're mortal. We want things sooner rather than later. Interest rates should be free market, but in general, they're not so much, right?
[22:42] Okay, so I just want to talk a little bit more about this yen carry trade. The trade is based on borrowing yen to buy assets denominated in currencies where interest rates are higher. There's like T-bills and stocks. So for rock bottom interest rates, again, for like 15 years, as the yen was practically free to borrow. Interest rates in Japan finally being hiked just a little bit while other countries are itching to lower them or already have the viability of the trade could be coming to an end after being established as one of the most popular plays on foreign exchange markets. So this puts a lot of money.
[23:17] Into the American dollar and into the Japanese economy and that seems to be drawing to a... It's certainly going to go down. It's certainly going to go down. So the investors' opportunity for nearly free borrowing is done, so they're dumping their yen. And further selling portends more volatility on top of the already whipsaw-like actions for the currency since the Bank of Japan ended decades of ZERP. Zero interest rate policy, I think, intervening several times to prop it up.
[23:46] So the carry trade may continue to some extent for as long as interest rates in the u.s remain higher than in japan but with the rate cut from the fed looking more and more likely this year and the hawkish bank of japan itching to hike further the risks of the end carry trade increase and it becomes less and less appealing so they're selling assets to cover losses because the bank of japan raises interest rates so that's a technical sell it's not a oh my gosh somebody's cracked bitcoin's code and it's all it's not it's not foundational it's a technical sale, and when you have options like borrow virtually free money from japan and then buy stuff that has higher interest rates elsewhere that's keeping money out of bitcoin that's keeping money out of crypto when those loopholes in a sense those avenues get closed off Where do the assets go? Well, I mean, some will go to cash, but cash is being bled through inflation. Some will go to gold, but gold has its pluses and minuses, and some, I believe, will go back into crypto. So Japan remains the outlier in the global rate-cut game. Despite higher inflation across much of the world, central banks have cut rates to some degree or another in Canada, Switzerland, Sweden, China, Mexico, Brazil, and most recently, the UK.
[25:12] After billions of interventions from the Bank of Japan, the yen strengthened 8% against the dollar in recent weeks after hitting the lowest exchange rate in 38 years. So the lowest exchange rate was driving this yen carry trade, but that seems to be closed off.
[25:25] Higher investment rates are making yen-denominated investments more attractive, but as the carry trade unwinds, it could be replaced by a reverse carry trade. This is where traders borrow the yen to buy assets denominated in a lower-yielding currency or asset, expecting the yen to weaken later on. Once the yen falls again, they can exchange the lower-yielding assets back into yen at a lower unit cost than the initial borrowing amount. They can profit from both the interest rate differential and the yen's decline. It's kind of a shorting strategy, I guess. This is the biggest two-day drop since the 2011 tsunami that leveled the Fukushima nuclear plant. I can't believe this. Fuku, signaling domestic uncertainty in the way of higher interest rates in Japan. So, the yen carry trade has helped fuel bull markets in other countries by providing an opportunity to borrow in this low-interest currency to buy assets elsewhere. So, stock market volatility, of course, is creeping beyond Japan. It's a subsidy, right? It's crushing the value of the yen as a subsidy to other assets in non-yen denominated currencies. So...
[26:34] The Fed and other banks are trapped as well, right? So let's go back to the Bank of Japan. It's tough, right?
[26:44] What's the old, was it FDR said, I want a one-armed economist, so I finally don't get an economist that says, on the other hand, so does it save the yen, save its stock market, or save its government bonds, roughly half of which it already owns, right? Tough call. No good options. The Fed, well, it's all trade-offs, right? The Fed and other banks are trapped as well, trying to prevent banking and real estate crises by lowering rates despite inflation still running hot. The powder keg is primed. So the only question is, who will light the first match? All right, let's go back to your questions. Yeah, if they have no consequences for lying, they lie. Well, not only do they have no consequences, they can often profit enormously.
[27:26] So yeah, it is a huge ripple effect. A huge ripple effect. and this is one of the problems with fiat currencies. One of the, I mean, other than the moral problems of fiat currencies, which are not small. All right. Are you saying we're not in a bubble?
[27:41] Well, no, we are in a bubble. The question is, is this correction foundational or technical?
[27:51] Government jobs mean someone else is paying more taxes to fund their regulation. Yes, that's right. That's right. That's right. It's a scene, you know, Now, the big question in economics is the seen versus the unseen, right? So if the government spends $5 million creating a bunch of jobs, everyone says, yay, new jobs. Nobody looks at it and says, well, the money that was taken from everyone else to create these jobs is a net economic loss and usually worse and more sustainable. Plus, the government jobs are usually interfering with other productive activities, in the economy, so it's a massive negative. Okay, so let's talk Bitcoin. Itty bitty ditty coins. the sharp decline has resulted in massive liquidations across the market. Data from Coinglass revealed that over $1.05 billion in leveraged positions was wiped out in the last 24 hours. Long positions accounting for $901.42 million of that total.
[28:42] So, this is all automated. And, you know, the one minor bit of expertise that I bring to this is that I coded a lot of this stuff in my very first programming job way back in the day. I worked for a very big stock trading company and wrote this kind of code in COBOL 74. And then we upgraded to COBOL 85, though this wasn't in 1974 because I would have been eight years old and quite the prodigy at the time, and it was still two years until I got my first job. But I know a little bit about this stuff. Stuff is just triggered. If this goes down, the automatic sell kicks in because other people's automatic sells are going to kick in. And it's so insane that some stock market companies will move closer to a data center because it might give them a millisecond faster sell. sell, right? It's truly mad how short amount of time. We upgraded a tandem system back in the day because it would give us a slight advantage in selling. So, it's funny because I always look for this language of panic. Destroyed, wiped out, erased, you know, and it's all just numbers. I mean, obviously, it translates into goods in the moment, but it's all just.
[29:56] Numbers and the numbers are transitory and so it wiped out and it's like no it's just people's valuation have has changed right i mean when you're a kid you're into i don't know i'd like model trains when you get older you're not so much into model trains so my interest has changed and the model trains don't have as much value and girls have more value i'd rather spend money on a date than buying a model train. Model trains have been wiped out. It's like, nope, just the interest has declined. That's all. It's the interest has declined. So I find this sort of hysterical warlike language about capital to be kind of funny. All right. So the jobs report has fueled speculation about future Federal Reserve policies. While some believe that a weakening economy might prompt the Fed to cut interest rates potentially benefiting fixed supply assets like Bitcoin, in the long term, the immediate market reaction has been one of risk aversion. Well, people just have to sell stuff to cover their losses, and Bitcoin is one of the easier things to sell, particularly on a weekend.
[31:03] So, we're going to talk a little bit of spot prices and future prices. So, here's the technical definition, and it is pretty much what you think. Spot price and future price are quotes for a purchase contract. The agreed-upon cost of a commodity by the two parties, the buyer and the seller. What makes them different is the timing of the transaction and the delivery date of the commodity. One applies to a deal that's going to be executed immediately, the other to a deal that's going to happen down the road, usually a few months hence. So the spot price is now, and the futures price is down the road. And the futures price is an indication of where people think the price is going to go up. Sorry, where the price is going to go up. If it goes up, they long. If it goes down, they short. So Bitcoin's futures trade at par or mega premium to spot prices. The decline in premium dents the appeal of cash and carry arbitrage strategies. So Bitcoin's latest price crash has narrowed the gap between futures and spot prices, It's denting the appeal of these carry trades that seek to profit from discrepancies between the current and future price. So people were expecting Bitcoin to go up, and now they are not, at least in the short run.
[32:15] And the question with regards to those pro-Bitcoin and those skeptical of Bitcoin is, is Bitcoin a safe haven? Haven. Is Bitcoin a safe haven? And so the store of value thesis is, this is where you put your money in emergencies, but if people are selling Bitcoin because of an emergency provoked by this Bank of Japan rate hike, then you say, well, it's not a store of value because it's too variable. Look, it's just crashed 25% and so on, right?
[32:53] And the challenge, of course, is that this is the problem with the Bitcoin ETFs, which I talked about last year quite a bit. The problem is that you have a bunch of people in the financial industry who are into Bitcoin and other stuff, right? So they're not like Michael Saylor, all-in, one boner for the BTC. They are in Bitcoin and a whole bunch of other stuff. And what that means is that when the price of the whole other stuff changes, the Bitcoin price is affected because they have to sell Bitcoin to cover losses. And if they have profits, maybe they'll buy Bitcoin. So in this case, Bitcoin is tethered to the main economy, the fiat currency economy. And if Bitcoin is tethered to the main economy, the fiat economy, I want you to think of a skier analogy. This is not proof of anything. This is just a way of understanding it and looking at it. I'll get your questions in a second here. Donations, of course, if you find this helpful. Donations are very, very much appreciated. You can donate on these apps. Also, freedomain.com slash donate to help out the show, because I think this is quite helpful stuff for you to have a hold of. I want you to think of this.
[34:03] I want you to think of a skier, an expert skier that is just going down a hill. Expert skier going down a hill. He's got to dodge a couple of rocks, maybe a couple of pine trees and so on. But he knows what he's doing and it's his choice. And there's no external, there's no giant storm, there's no polar bear chasing him, no avalanches. He's just expertly navigating his way down. Well, his odds would be pretty good of getting down to the bottom in one piece. Now, I want you to think of a water skier in a storm being pulled by a drunken speedboat captain, right? So there's waves, there's wind, fish are flying into his face, and the drunk...
[34:49] Speedboat captain is going all over the place like he's dodging james bond in some cheesy movie right, so that is the difference bitcoin has its own expertise but when bitcoin is being pulled behind fiat denominated assets it's going to get yanked around by the wild shifts in the fiat currency assets they speed up they slow down they go left they go right there's all the storm and activity and so would we say wow that's a really bad water skier he's constantly on the verge of falling he must be really bad well no i would say that any water skier who can stay up in that circumstance and situation is actually a completely expert water skier who's navigating things as well as he possibly can so the guy who dances well when drunk is one of the best dancers around and Bitcoin is constantly getting roofied by central banking. Just so you understand it, it's constantly getting yanked and jerked around and dragged up and thrown down and drugged and roofied and all of that, disoriented, smacked around the head, spun around three times with a Guantanamo Bay black bag over its head. So it's constantly getting yanked and jerked around by fiat currency situations because the same people who are trading in fiat currency-denominated assets Assets are also trading in Bitcoin, and Bitcoin has to cover the volatility of those other assets.
[36:16] So, I mean, if you cherry pick any particular window, you can make any asset look terrible.
[36:24] So there's a lot of leverage in the Bitcoin trade. This is from someone on Twitter. There was a lot of leverage in Bitcoin trade, and it gets unwound with everything else.
[36:35] So, let's do a couple of other summaries, and we'll get to some more details about the geopolitical stuff. So, this is from Clint Russell on Twitter. Japan held its rates at or near 0% for 15 years. As such, investors began borrowing trillions of yen and investing them in stronger currencies and assets. Essentially, it was a bet that the yen would continue to fall in comparative value. It worked well until last Wednesday. Japan's central bank finally hiked rates a bit, just to 0.25%, which is still insanely low, but it spiked the value of the yen by 7.5% compared to the U.S. And forced investors to cover their short positions to the tune of billions, creating enormous losses. Trillions? He asks. This was called the yen carry trade. It appears to have ended this week. To cover those losses, it requires liquidity, and liquidity is achieved by selling off other performing assets, hence the global sell-off. I think Berkshire Hathaway and Warren Buffett sold, what, half their Apple stock and so on?
[37:34] So one of the bearish force which i think helped to set this off japan imports most of the oil it needs to function they produce about two million barrels of oil per day but consume twice that or more this means japan imports a ton of oil actually one of the reasons why pearl harbor happened was the u.s naval blockade against japan which can't survive without oil because it's a a resource-poor island.
[37:58] So Iran is promising a major strike against Israel in response to the surprise Tehran strike last week. It is expected to happen this week, possibly today. When they do, all bets are off. Israel and the U.S. could move on Iran, and if they do, I would expect Iran to immediately shut down the Strait of Hormuz, while 20 million barrels of oil per day get funneled through that waterway. The global price of oil skyrockets. Japan gets cooked. So he says, in short, let's hope cooler heads prevail and a wider war with Iran can be avoided. The global economy likely depends on it. So I had talked about geopolitical stuff. The Times of Israel reports, an underground bunker in Jerusalem where senior leaders can remain for an extended period during a war has been prepared by the Shin Bet security service and is fully operational. The Waller News site reported on Sunday, amid fear of attacks on Israel from Hezbollah and Iran. The bunker, reportedly built almost 20 years ago, can sustain hits from a range of existing weaponry, has command and control capabilities, and is connected to the Defense Ministry headquarters in Tel Aviv, the report said. The bunker, which is also known as the National Management Center, has not been used in the past 10 months of Israel's war in Gaza. So that seems quite important. Now, let's look at the pizza meter and the gay bar meter and war stocks.
[39:20] So there's this theory that major world events can be predicted from how busy pizza places are in Washington, D.C. on any given night. The theory was put forward by Frank Meeks, owner of numerous Domino's franchises in D.C. in January 1991. At the time, Meeks said his busiest delivery night was August 1st, 1990. This was a day, of course, before Iraq invaded Kuwait. He said the orders usually come in late, after 8 or 9 p.m., the assumption being that because something is going down, people at the Pentagon and White House, etc., are working late. Now, of course, there's always an adaptation, right? So when Meeks first proposed his theory, he was able to tell by the number of pizzas being delivered. So, because people don't want to give out warning of this stuff, the government changed their protocol. Now the pizzas have to be picked up in person, they've got to diversify the pizza parlors they get them from, and so on. With Google being able to show when a restaurant is busier than normal, people have turned to monitoring pizza places near the Pentagon. On there, for science, something may be going down.
[40:23] So i don't know if anybody's done a real data research on this stuff there was a spike in late night pizza orders a few months ago when iran launched launched a drone strike on israel, so there's a gay bar index apparently gay bars in dc noticed a drop in the business before major events so somebody says the pizza places in dc saw spike in activity the other day while gay bars are practically empty, so who knows, right? Who knows? So, other indications of war, although the majority of assets in the stock market are crashing, certain defense stocks are doing the exact opposite, rallying amid the rising geopolitical tensions that have seen new war fronts arise or threaten to appear in multiple regions as the now already, quote, old wars continue raging.
[41:14] As it happens, these defense stocks, which are among the favorites of many United States politicians, some of whom sit on committees overseeing the defense budgets or creating geopolitical policies, are increasing in price, demonstrating curious behavior amid the widespread stock market decline. We're talking Raytheon, Lockheed Martin, Northrop Grumman, and so on. So it would seem to me that that's where things are cooking as a whole. So is it foundational i mean the stock market as a whole and the economy as a whole is in my view it's largely a debt propped up inflationary ponzi scheme that exists to transfer resources to the elites at the expense of the middle class and the elites are both the very wealthy and the irresponsible poor who get free stuff from here to eternity well Well, not quite eternity, I'm sure of that. But as far as this goes, I personally don't think it is a major foundational imminent end of the economy crash. I think it is a technical adaptation where they say, okay, so the yen carry forward strategy, which is $20 trillion or so, that is no longer how we hunt capital.
[42:36] So, what happens when a particular area of the ocean is dry on fish? You just go to some other area.
[42:44] You've got to think of capital as the bison and most financial people as the hunters, the natives, the indigenous population. Population wherever the buffalo go that's where they go because they want to hunt the buffalo so one avenue may have closed off and now of course as i said before you have to price in possibility in the bank of japan changing changing the interest rates you have to bake that in now that's a factor that makes a lot of the trades far less profitable so the um the hunting grounds are no longer in virtually free loans in Japanese yen, right? That hunting ground has closed off. So it'll take a little while for people to figure out where the best new hunting ground is, and someone will figure it out, and then everybody else will charge after, and then that will drive up profits there, and then they'll try to close down those profits by changing some factor because other people want money going there. And so it is a shift in the hunting patterns. It is not a foundational break in the economy. Again, in my humble opinion, which means virtually nothing, but I'm just telling you my own personal opinion. Oh, Bitcoin back up to 76.1. I'm sure it's entirely the result of this broadcast. No, it's not. Just kidding.
[44:08] Just kidding. All right. What have we got here? Somebody has. August 5th. I'm just looking. Somebody sent this.
[44:22] Yeah, 4.3 unemployment rate. I don't believe any of that stuff. Um now what i also think is the case uh thank you for the tip i appreciate that what i think is also the case is um the u.s is leaderless, now from within the u.s you know this just seems like bizarro land politics as usual but outside the US this is really something that the US it's really interesting because the US, is leaderless functionally and has been for quite some time it has been for quite some time the effects and this I'm not doing politics I'm just doing people's thoughts about this I assume, so a country is more often killed by cynicism than invasion.
[45:23] Because, you know, people voted for Biden, and Biden has been cognitively compromised for Lord knows how long. And so do people think that their participation and their vote means much, right? So the Democrats have swapped out Kamala for Joe Biden, and there's been no votes. They're just swapping them out. And they did this kind of tinkering with Bernie Sanders and Hillary Clinton back in the day as well. So do people feel represented? Do they feel that their voice means anything? Do they feel that they are heard members, H-E-A-R-D, I guess H-E-R-D may be a little, that they are members who can be heard in the Republican democracy that they believe in? And the fact that you know the media covered this stuff up and the fact that somebody's been making decisions and nobody knows exactly who i think is a kind of a blow to american patriotism and that is a big challenge for a lot of people.
[46:28] So So, the fact that, it's hard to imagine, to me, it's hard to imagine that Trump would have been out of the loop with regards to Japan, because he's been very, very concerned with arbitrage and foreign investment and interest rates for his whole life, because it's been a very, very big part of his life. Life he was talking about china and predatory trade policies back in the 80s so it's hard to imagine that he would be completely out of the loop with all of this kind of stuff it's also hard to imagine that he would not be more proactive and positive when it came to trying to resolve tensions obviously in the russia ukraine conflict and also in the middle east.
[47:11] You know the russia ukraine conflict was on the verge of being settled, and then tony blair i think it was somebody flew out to sort of scotch and all of that and And so it's hard to imagine that people would not have, Trump or someone like him, doesn't have to be Trump, could be someone like him, wouldn't have at least worked pretty hard to solve these issues. Whether they could be solved or not, I don't know. But even in the absence of solving them, it raises public awareness. So, I think that the various predatory forces throughout the world are moving fairly rapidly based upon, well, I mean, the turmoil in the UK has rendered them a little paralyzed. And the absolutely unprecedented turmoil in American politics, I think, is emboldening people around the world.
[48:08] And I think that's going to have, I mean, that's having a very, very big effect. So, you know, once more, when Bitcoin gets tied into fiat currencies, Bitcoin is going to have crazy swings. And then people are going to say, oh, it's not, it's not a safe haven. And it's like, yeah, but the fact that it's bouncing back, I assume here it's bouncing back. What did it go to a low of 69? Now it's back up to almost 76. so it's not you know whether you get knocked down that matters in life and it's whether you get back up again and so bitcoin keeps seeking its bottom and for those of us who've been up and down in the bitcoin world for a while the fact that bitcoin is going from what was it from 81 and and went down to 68, 68, would it go to 68?
[49:04] No, 69, no, it went to 68, 9. So the fact that it's bouncing back up now, so it was 82, and then it kind of went, oh, it was 80, and 80 went down, now it's back to 76, so it's 4K Canadian down from its top, so the bounce is what matters. It's not whether it goes down, it's whether it bounces. It's not whether you get knocked down in life, it's whether you get the heck back up that matters and counts i say this from great personal, experience so you remember when bitcoin was 60 dollars yeah yeah that's right that's right so people saying well it's not a store of value because the price went down uh nope nope not at all it doesn't i mean in terms of your longevity what matters no most is not whether your heart not stops, but whether it can be restarted, right?
[50:01] So I did warn back in the day, and sorry to pat my own back and all of that, but I need to get my flexicizers in at some point. But I did warn back in the day that when the ETFs came in, there was going to be an inflow and then Bitcoin was going to get yanked around by the drunken speedboat captain of fiat currency.
[50:22] I know some people hate that sob song tub thumping, but hey, it's a bit of a brain virus. It's a bit of a brain virus. so i think that's most of what i wanted to get across uh we've got jobs reports and if you believe the official job reports versus the household income that's a whole different matter the job report is lower than expected and probably will be revised downwards and in an election year a lot of times numbers in my view i can't prove any of this but in my view a lot of times numbers are skewed in an election year so what people are doing is they're looking at the jobs report that is low considerably lower than what was hoped for they're looking at that and they're saying gee right so the expectation is 185k they got 114 000 that's down a lot the household survey is 67 000 so that's like a third right give or take right So the official expectation, 185, household survey, 67, which is a third.
[51:31] And people are saying that, what are the numbers I should believe? And of course, they're discounting them because they've been lowered. What was it, an average of 17K? Was it Boris Johnson who messed up the Ukraine deal? My apologies for getting anything wrong. But yeah, I think it was some British politician that went out and an ex-politician that scotched up the deal. So, because I'm not particularly doing, well, I'm not doing politics anymore, so I don't really keep track of this kind of stuff. This is a dredged up memory from many moons ago. But absolutely tragic, of course, and horrifying and horrible. All right. So, yeah. So people are looking at the jobs numbers and they're discounting them. And if you go down to jobs numbers that the household survey, if you go down to those job numbers, which are a third of the expected numbers, I think a lot of people are wondering whether this is, recession territory. Ah, the R word. Is this recession territory? Always an interesting question.
[52:38] You're right, it's better to see history of an investment recovering. Lots of things, when they get hit, they don't get back up. Same with people, too, I noticed. Oh, yeah. I mean, honestly, in life, resilience is everything. Resilience is everything. Because if you're not getting knocked down, you ain't in the ring, and you're never going to win. Nobody gets in the ring without getting knocked down. And it really only matters whether you get back up. I try to bet in life.
[53:08] Oh, is that rocky? Yeah, it ain't. It ain't about how hard you hit. It's about how hard you can get hit and keep moving forward. It's how much you can take and keep moving forward. That's how winning is done. Yeah. I mean, in the long run, there's going to be a massive change in the economy as there always is when this level of debt occurs, right? But when debt goes very high, the impulse to war becomes almost irresistible. And that is one of the most appalling things about debt. But it's, of course, a long way down the road from when the debt first starts, right? Right. So the urge to war is almost irresistible when it comes to debt for a number of reasons.
[53:58] But one of the most important reasons is that you can get people to accept austerity in a time of war, which you can't get them to do in a time of peace.
[54:09] And that's really important. People are going to have to take reduced standards of living in order for the economy to have any chance of surviving. People are going to have to accept reduced circumstances and not in this sort of soft way of inflation, but, you know, really, really things are going to be cut enormously. And so the way that you deal with debt, because people don't love the next generation enough to make these sacrifices on their own, right? They don't care about their kids enough to say, well, we have to stop doing all this debt. So they won't do it for their kids, but what they will do it is for war.
[54:48] So it's always the same playbook. You talk about some external danger, you tell people they have to reduce their expectations, and anyone who doesn't do that is an enemy of society who should be attacked and ostracized. That you're siding with the enemy that you're a traitor and so on and it's the same playbook with covid right it was the same playbook with with covid so uh yeah it was fairly predictable to to say that they were going to move on from covid to uh to war and um it is quite uh quite sad oh look at that now we're back over we're 76 584 so i'm just going to look at when it when did it start really begin to drop. 83, 264, right? So 83.
[55:41] 264, I should do it the other way, right? Yeah. 76, 5, 8, oops. 76, 5, 8, 4, divided by let's do 81.
[56:00] I can type, Whoops. So, yeah, we're down like less than 10%. So Bitcoin crashed and recovered in, what, a day, and now it's back up within 9.4% of its high.
[56:24] That's pretty resilient. Now, when people notice that, they notice that resilience, That's going to be very interesting because one of the things I think that the current crisis is doing is having people really see just how unstable and politically motivated the fiat currency market is. So some guy in Japan says, let's raise interest rates 0.25%, which is nothing.
[56:52] Let's raise interest rates 0.25% and $2 trillion gets wiped down. But you can't do that with crypto. Well, I wouldn't say all crypto. You can't do that with Bitcoin. That is not possible in Bitcoin. So at some point people will say, okay, so let's look at that which bounced back quicker and let's look at that which is least susceptible to political influence. And a bitcoin of all the currencies in human history bitcoin is the least susceptible.
[57:29] To political manipulation all right so that's all i wanted to say really appreciate you guys time i'm happy if you have any last questions hammer them in i'm here to help i'm here to do what i can to try and give you at least a philosophical perspective on the current stuff give me a one to ten if you don't mind how did i do because i'm always looking to improve and be more clear and concise and helpful and valuable. So give me a 1 to 10 if you don't mind. Well, I guess you can give me a minus 10 if I sucked into galactic chunks out of the stratosphere. But let me know how I did. This was a fairly quick information gather and expostulation. So we've got a bunch of people typing there, so I'll let them finish off that. Really do appreciate everyone who's dropped by. Great pleasure to see and chat with you all. Don't forget, if you donate this month, If you donate at freedomand.com slash donate, you get my almost 12-hour presentation, The Truth About the French Revolution. Going to have to re-watch from the start since I joined so late. Ah, yes, but you joined early for being the latest. 10 out of 10, evaluating that it's a technical correction was good stuff. Yeah, in my view, in my view, foundationals are largely unchanged. It's a butterfly effect, a Japanese butterfly effect. You da man, Stef. Well, thank you. I appreciate that.
[58:51] Always attend you know when Stef says i don't know what i'm talking about that you're going to get the most real information possible well thank you i just you know i'm a i'm a very i'm very much aware of my limitations in these areas but i do try and bring as much clarity as possible so i really really do appreciate that and yeah the fear stuff is is there's a lot of drama in the finance world. And the drama is there's a lot of people who get pretty hysterical in the world of finance. And I completely understand that. I mean, people's savings are on the line and so on. But people panic. What was it? People say, Bitcoin is neither money nor currency. So what is it? Peter Schiff was right.
[59:39] But that's like saying that email is is neither smoke signals nor a paper letter. So what is it? Well, it is the thing itself. Bitcoin is a universally validated store of value. 9.67. Oh, I appreciate that. Very tempered, appreciated, level-headed analysis amidst the fear. And so, I mean, minor, obviously, who knows what this means, but I started the presentation, presentation and I said that it was a technical correction, not a foundational collapse. And again, this doesn't mean anything, of course, but since I started the presentation, Bitcoin has gone up a couple of points, right? So now it's 76.5. Again, it's not related to my presentation, but it may indicate. How are you able to be so well informed so quickly? Well, I appreciate that. Thank you for the 10s there as well. Dankeschön, Stefan. Let's do the German pronunciation.
[1:00:39] Well, I have a lot of history of this kind of analysis. I used to do shows with Peter Schiff, and I've done a lot of econ. I studied econ at the graduate level, and I also did work at a stock trading company doing coding, so I had to understand a lot about these kinds of things. I've been covering Bitcoin since 2011. so I do have a little bit of experience and of course the value that I'm bringing I think is the philosophical analysis not any kind of technical analysis so the philosophy I've been doing for over 40 42 years now 42 years so yeah because I'll be 58 next month so thank you for the tips I appreciate that if you're thinking about if you're listening to this later and you find this helpful freedomane.com slash donate and you know if you're listening to this later I guess as it's kind of late to say now, this is not time sensitive. This is a way to me of looking at the economy as a whole and trying to figure out what's going on. Because if it's a foundational thing, you really want to be aware of that.
[1:01:40] If it is, as I'm guessing, a technical blip, you want to be aware of that and not panic.
[1:01:48] So, I haven't even really looked at my stuff because I just consider this a Japan fuel. And, you know, the Japanese should have some interest rates. They should have some interest rates. Because if they can't fix the value of their currency, it's going to be tough for them to fix their birth rate. And they're going to be gone in 200 years or less. All right. I appreciate your feedback. Thank you. Thank you so much. I'm glad that we had a chance to chat and lots of love from up here. I really appreciate your help and support. Again, freedomain.com slash donate. You get my almost 12-hour truth about the French Revolution, which is absolutely foundational to understanding how the modern world came to be and what direction it's heading in. All right. Thanks, everyone, so much. Lots of love. Take care. I will talk to you soon. And we're going to talk Wednesday night, 7 p.m. Eastern Standard. We'll maybe do a live call-in. So you can call in with any additional questions. I guess I leave you from the glowing furnace room of my red background, and I will talk to you soon. PeacefulParenting.com. Don't forget PeacefulParenting.com. Take care. Bye.
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