[00:03:33] Preston Pysh: Yeah. So I was just like doing a little bit of research there to see what portion of the U.S. population doesn’t own any part of the stock market.

[00:03:42] It’s saying about 39% of U.S. adults do not own any stocks, and this is a 2023 figure out of Gallup that it gave me the source. And I’m not trying to substantiate any of this. I’m just trying to like wrap my head around the incentives that’s driving some of the rationale for what they’re doing. And this Scott Bessett quote just keeps coming back to me the day after this was announced, which was, this isn’t a MAG 7 issue. I’m messing up the quote.

[00:04:10] This is a MAG 7 issue. This is not a MAGA issue, was the quote from the treasury secretary the day after. And I don’t know. I think that’s a really powerful quote. And he’s basically saying like, Hey, this is, if you own a lot of assets in the U.S. and you’re a high net worth person, you’re heavily exposed to the stock market. It seems like it’s a you problem, but for our voter base it’s not.

[00:04:34] James Lavish: Yeah. They’re basically saying that fairly. They’re enacting policy that they feel is got to be good for Main Street, and they’re not worried about Wall Street. They keep saying that over and over again. Yeah. And that’s the issue. And it has gotten investors absolutely freaked out, and that’s what the market is trying to gauge.

[00:04:51] Okay. How much of this is gamesmanship? How much of it is they’re talking down? That’s the question, basically. Yeah. And how much pain are they willing to take in the interim? And the question is on that is, look, Besson keeps talking about he needs the 10 year treasury yields down. He needs along to the curve to come down.

[00:05:12] Well, that means that he needs rates lower. Why does he need rates lower? He needs rates lower to finance and refinance the debt. You’ve got $9 trillion of debt that’s coming due this year and over 10 trillion in a year. He’s got a lot of debt that he’s going to deal with. And the problem is that, as Luke Groman keeps talking about, the debt to GDP is just, it’s through the roof.

[00:05:32] And so how do you manage this? Well, you’ve got the Doge commission out there trying to cut costs, but how much can they really cut? Can they cut $500 billion out of the expenses? Maybe a trillion? I don’t think so. I mean, that’s a, that’s a massive amount of fraud. I mean, I’m what, what are you got to cut out?

[00:05:50] You basically have to cut all of the discretionary expenses to get to a trillion dollars. I mean, I just don’t see how they’re got to be able to do that. Or you cut back some of the entitlements that would be kind of political suicide. If we get the midterms there, right? Yeah. So that’s not got to happen.

[00:06:06] Or you could expand the tax base. Well, he’s not got to raise taxes. He needs nominal GDP to go up to do that, basically. Right? Because he’s talking about lowering taxes or he can create a consumption tax through tariffs. And that’s what we’re talking about here. Right? So that’s another way to do it.

[00:06:23] It’s a lot of consumption tax. The problem is that we are so financialized that you and I have discussed this before. We are so financialized that it would be wreckage in the markets and it would spill over to the economy because you’ve got so much of the economy is tied into the financial markets now.

[00:06:44] Okay, so, but how much pain are they willing to take if they are driving the market down, forcing the Fed’s hands to lower rates and come in and maybe with QE or whatever, to flood the market with liquidity to drive up that nominal GDP. How much pain are they willing to take on the asset deflation side in order to bring down mainstream prices?

[00:07:09] Bring manufacturing back into the United States and that takes a long time. The thought of the regulations, you have to go through sourcing the land or the spot you’re going to build a factory. Hiring workers, building out the factory. I mean, like there’s just so much, it’s so much time. It’s not got to, it’s not got to happen.

[00:07:27] Not got to happen in be before midterm. Okay. So the question here is, I think Trump and, and I think they, these guys. They have their eye on the big prize. He wants to be on Mount Rushmore. He wants to be the president who changed the world order, got the United States back into a surplus, stalled the debt issue, maybe put us on a Bitcoin reserve that is tied to bonds.

[00:07:57] We’ve saved the whole United States. We’re the leader in the crypto, we’re leader in AI. We have manufacturing facilities here. We’ve solved the problem bringing all of those workers and getting workers jobs here and solving that. The GDP is a lot of it’s driven by export, import.

[00:08:13] We’re net importers solving that problem because we export so much. I mean, we import so much. So how much pain are they willing to take? And here’s a story. So I was telling it this morning, but there’s a legend that goes around Fort Worth that there was a conversation that Sid Bass had with Richard Rainwater, the biggest hedge fund manager out here.

[00:08:33] He used to be in one of the head investment managers for the Bass family. Their assets, right. Their money. Well anyways, they’re buying up land and buying up buildings and downtown Fort Worth, apparently. And they were kind of letting them just go into disrepair. This is decades and decades and decades ago. Right. And there’s a kind of like just year after year, not putting any money into them. And Richard looked at, I believe it was Sid, he goes, you’re just, you’re ruining your investments here. Like, what are you doing? Like you’re just buying these things and just letting him sit there and letting them rot.

[00:09:04] He’s like, Richard, you know who your problem is. Your problem is you don’t know how to be really rich. So for the people on the that are listening, the vast family is the, the wealthiest family in all of Fort Worth. They’re worth tens of billions of dollars. And basically his plan was to let all of those values, the building values and the land values around downtown Fort Worth just drop. Then they bottle it all up and they did.

[00:09:29] And so they created something called Sundance Square. It’s a beautiful area. It’s downtown Fort Worth, and it’s all owned by the Bass family. They have their own police force there, and so does Trump, does dissent, do these guys have that kind of patience? And I just don’t know that they have that timeline to do that.

[00:09:47] Politically you don’t have that time to do that stuff. So you’re talking about here trying to flip a switch and change the world order and on a dime, and they just don’t see that happening, which gets us to now what’s the negotiation tactic here? What are they doing? That’s what it has to be. Right? It has to be a negotiation tactic.

[00:10:05] Preston Pysh: It’s almost like they’re taking a playbook that works at the small town or even New York City level real estate or something that happens at like a private business kind of standpoint.

[00:10:19] James Lavish: Yeah, exactly. Plug that in, like applying that same mentality to this it.

[00:10:24] So how is that got to work here in 17 months? We’re got to have, I mean embroil, the midterms, right?

[00:10:31] Preston Pysh: Yeah. So to this point, so to really kind of look at first principles, how did we get here? Right? I just look at since early eighties. You look at, well, why do we have such that a massive trade deficit with every single country on the planet?

[00:10:47] And like when you go far enough upstream to that question, what you realize is dollar dominance and the rest of the world arbitraging the dollars value with their own local currency. Like how this played out was the gutting of making anything and everything inside of the U.S. and having everybody else in the world make these physical things that are then imported into our country.

[00:11:10] And what did we do as a country for decades is we stuffed paper promises down their throat for these physical things that were delivered to us, literally exporting inflation. Yes. So when you look at how long this persisted. How it incentivized this dollar network effect, which was our, Luke says this all the time.

[00:11:30] Our number one export was U.S. Treasuries. And that gets to this idea that we were shoving these paper promises down the throats of everybody in the world in exchange for all their physical things. But if we think we’re got to in, like you said, 17 months turn the tide of this water wheel that’s been spinning at a breakneck pace for 40 years.

[00:11:50] I think we’re kidding ourselves. I think they’re in this weird spot where they thought they could really kind of all those promises that you said that I think Trump sees himself on the Mount Rushmore and like all the ego that goes with basically wanting to be, that historical figure was completely like out of touch with reality in how quickly something like this could take place in a single administration.

[00:12:17] James Lavish: And that right there is, okay, so now are they really out of touch though? He is not a dumb man. A lot of people out there who think that Trump is just, he’s just wild and crazy, and he’s just a big risk taker. I’ve heard over and over again that he does his research. He does not just throw these things out offhand or half-heartedly, and he does float things to see what the reaction is.

[00:12:38] I’m sure, and he does do that sometimes just to get a certain reaction. This may be that exactly that kind of tactic where he turns around and he is floating this idea and it’s not really an idea. So now he’s like, the hammer’s come on down. Everybody’s got to get a 10% tax across the board. That should bring a lot of countries to the table to negotiate.

[00:12:58] If it doesn’t, then this tactic has failed. But I think that it brings countries to the table to negotiate, and they know that they’re not got to be able to negotiate these things in nine days, eight days, seven days. Like this is got to take time. And so one thing that I was reading this weekend too, is bill Ackman said, oh, it makes sense for them to just postpone the deadline and saying that. Are you bringing up that tweet right now?

[00:13:26] Preston Pysh: No, no, no, no. Go ahead. Keep going. I’m laughing about something else. I’ll say what it is after you’re done.

[00:13:31] James Lavish: Okay, so, but what I was got to say is that it would make sense that they would save face and say, Hey, we got 50 countries that want to come to the table. We’re got to give them a chance to negotiate and we’re got to get something out to it.

[00:13:45] The reality is that what they want to do is they want to win. They want to put the United States in a better position than we are now on these tariffs and our trade imbalances. How do you do that? Well, you going to bring manufacturing home.

[00:13:57] And you can drive that with incentives to companies to do that. You can also force it with tariffs and you can do it with a little bit of both. So it’s got to be interesting to see who comes to the table, how quickly.

[00:14:09] I think I saw earlier that Europe is already saying, Hey, look, we’ll have a net, net zero tariff policy with you. We, let’s figure it out. So I would expect more of that rather than all of these countries waging tariff war on that. Well, we’re the ones who are waging it, but pushing reciprocal tariffs for their interest in potentially losing. So, and of course the biggest steal in the room is China. Yeah, right. That’s the one that really matters. That’s the prize, right? That’s the golden prize right there.

[00:14:39] Preston Pysh: Just for the numbers sake so people understand, I just had AI kind of run the numbers on a 10% flat tax on any import coming into the U.S. that’s physical in nature, not service-based. This would produce about $230 billion in additional revenue for tax purposes, which in the grand scheme of things really isn’t a whole lot relative to the amount that’s currently being collected through the existing internal sources.

[00:15:05] The reason I was laughing when you brought up Bill Ackman, I just, there was a tweet that somebody had put out there that the market’s not got to recover until Bill Ackman goes on CNBC and starts crying.

[00:15:15] James Lavish: Well, it might be true, he’s already out there.

[00:15:20] Preston Pysh: I think he’s speaking the Wall Street narrative of like, Hey, somebody’s going to plug this. Like somebody’s going to step in right now, or, and this is something Luke had said to me, he’s like, it’s seven to 9 trillion right now that they going to refinance in the coming year. But if they let this thing continue to sell off, it might be more like 11 to 13 trillion that they’ve going to finance in the coming year, because you’re got to have issues with tax receipts and whatnot because of the recession that’s got to be underway.

[00:15:46] James Lavish: So, yeah, it’s the 2025 tax receipts. The ones they receive in 2026. They’re got to be lower , as of now. But he’s got a long time to to recover here. He did this in the beginning of the year, so he is got a long time to recover this.

[00:15:59] Preston Pysh: Yeah. Wild times. So Ray Dalio just published a article that was actually pretty good. This was called, Don’t Make the Mistake of Thinking that What’s Happening is Mostly about Tariffs. And the core thesis of the article is tariffs are a symptom, not the cause. And what he’s saying is globalism is over, and because it’s over and because everybody is taking on the stance of our country first and everybody else second, that the tariffs are a shadow or a reflection of these new policies that globalism is over.

[00:16:35] I’m curious what your thoughts are on that idea.

[00:16:38] James Lavish: That’s interesting. Yeah. I mean, and that’s the point, is that changing the world order, meaning that the globalism Trump wants to separate the United States from all of the European issues and how their energy issues, their issues with. NATO and all that.

[00:16:54] Like he just wants to separate from all of that and he’s made that abundantly clear. And United States has, and this, I think it all just goes back to China and it’s where I think Ray is, I. He is not wrong, but maybe he’s understating that imbalance with China and you can bring it up and see what that number is.

[00:17:19] It is so large and China’s manipulating the wand for so long that that’s what Trump wants to fix. Because in reality, that’s a two horse race here and who, who else is got to be out there? It’s not got to be Japan. They have their own demographic and financial issues that you and I actually talked about two years ago, ad nauseum that have only gotten worse.

[00:17:41] And who else is out there that’s going to be a threat to the, the United States being the largest financial and the largest consumer in the world? Like who’s got to be a threat to that?

[00:17:53] Preston Pysh: This is, if I was got to describe it really simply for anybody hearing about, and I agree with you, I think China’s the big bogey for him to really kind of pin down.

[00:18:02] But if I was got to really oversimplify this, let’s just imagine that I am producing food and I’m delivering it to your house, and you’re the U.S. and you’re paying me in Monopoly money in exchange for this food that I bring over to your house every single day. We have this agreement. We keep doing this for bullet 40 years where I make the food, I come over to your house, I drop it off, you consume it, and you gimme the paper promises.

[00:18:26] This relationship works. As long as that money that you’re giving me, I can go out and spend at what I think it was worth as I’m receiving it. In fact, if it’s getting more valuable, which would be the sovereign bonds over this 40 years, which is what was happening, it was getting more valuable in the overall market of all these other people, I could go spend it, but then all of a sudden, if I’m bringing this food to your house and what you’re paying me is getting wrecked relative to other physical things that I want to go buy with these paper promises you’re giving me.

[00:18:54] All of a sudden who holds this is the core question is who holds the power in this negotiation when I’m the one that’s been producing all this food and I have cattle and I have the fields and I have all this stuff. And you just have a keyboard to plaque on the keys and gimme some more paper promises. Like, I don’t think that you hold in this relationship. I think I hold all the cards, right?

[00:19:20] And I think that’s the problem for the U.S. is like if I was got to argue, we out, we outsource all of our everything, not all of, but so much of our manufacturing production on a net basis. It’s crazy. Like some of these trade deficits with these countries are like 90 to 10. It’s crazy. Right? It’s insane.

[00:19:38] But if I was got to argue with myself, I think maybe he does have some leverage if he goes in like onesie and twosie with these different countries, but doesn’t try to do it all at once. Because I think when he tries to do it all at once, like they just did. The rest of the world can kind of collectively get together and be like, well what are they got to do? Like, what are they got to do if we don’t comply? But if you do it to one of the countries and you kind of like pin down China.

[00:20:03] James Lavish: Yeah, are are iPhones suddenly got to be $5,000? So it’s almost because because of the components.

[00:20:08] Preston Pysh: It just seems like maybe the better approach would’ve been to just like really go after one country specifically and like get the terms and conditions like lined up and then go to the next one and then go to the next one.

[00:20:19] But by doing it, take the scenario with like the food and the paper promises between us and let’s say that it was like five other people on the one side, you’re just basically printing a bunch of paper and you’re consuming from everybody else. If you go to everybody and start hitting them on the head and say, no, I want this adjustment, like everybody else is got to look at each other and say they have nothing, right?

[00:20:40] James Lavish: You haven’t even gotten to the other side of it yet. I’m sure you’re going there. But the other problem is we need them to need dollars. Desperately. Yeah, right. We need them to need dollars desperately because we have a fiscal issue. Our deficits are large enough, meaning that we overspend every year so much that we need other countries to buy our paper.

[00:21:05] We need them to buy our treasuries. Yeah. And to keep the whole thing going. And we need them to trust us and so we need them to trust us. We can’t go and willy-nilly turn off the Swift Pro, like the access and seize treasuries from a country, just because we don’t like what they’re doing. We still need those countries to buy our treasuries.

[00:21:23] And so it’s almost like, and Luke I think has been, Luke has been talking about this. You have to solve that debt to GDP problem first. Yeah. Ray Dalio has been talking about it. I’m not prominent like Ray talking on all the shows and everything, but you and I have been talking about it. A lot of Bitcoiners talk about it because they understand the problems of sound money. Man, the dollar is not sound. And here’s the crazy thing. I caught just pieces, bits and pieces of the best interview with Tucker and he was talking about gold and he was like. But did you hear all this?

[00:21:56] Preston Pysh: I saw some clips, but I didn’t watch the full interview. Yeah.

[00:21:59] James Lavish: He’s talking about gold and he’s talking about how, look, people want gold because it’s sound money, it’s sound, it can’t be printed like the dollar.

[00:22:07] Dude. Is that a warning shot? Is that a warning shot to Congress to get their act together? I mean, he’s, for a little listeners. Bessent’s job is to make sure that he’s to enable Congress, he’s to spend, right? His job is to manage that spending as the banker to the country. That’s the treasury, the treasury’s, the banker to the country.

[00:22:30] Then if we have to borrow to do that, then we’ll borrow to do that. He’s kind of like that manager who’s saying, you remember, what was that show on HBO? Entourage. Yeah. Where the main character, what’s his name is…

[00:22:45] Preston Pysh: Adrian, something or other?

[00:22:47] James Lavish: Yeah, I think that’s his role. No, the actor. The actor.

[00:22:49] He’s like straight. Yeah. He, he’s buying a house. He’s buying cars and his agent’s like. Dude, you’ve going to stop spending. Yeah. You don’t have a movie in production. Like you going to, you are in serious deficit and you going to stop spending.

[00:23:01] That’s literally what Bessent is to Congress and he’s got Doge going and he’s not telling Elon and Trump they going to stop spending. He’s, he knows that we have an issue and he’s going to re-up all this debt and then they’re trying as hard as they can to get that deficit down. But again, that goes back to.

[00:23:18] Well, I don’t see that happening this year. I don’t know if you see it happening in this first term of getting to surplus. That’s a long put. Yeah. I just don’t see us getting to surplus without some sort of predictively miracle that is not so deflationary that we don’t have the tax base anymore.

[00:23:37] But something that is, that brings up GDP nominal GDP to a high enough level that we don’t have to raise taxes around it. But this is, it’s still, we’re $2 trillion deficit. Doge is cut out $250 billion. We’re not there. No, we’re not got to get there with Doge. So I, I love it. I’m happy that we’re cutting out fraud and waste.

[00:23:58] Preston Pysh: But even by doing that, they still have to add more monetary units into the system.

[00:24:02] That’s just how this works. Yeah. That’s how Aries are debt.

[00:24:05] James Lavish: We’re on a debt based system and so. The problem is you’ve going to get that down before you, how do you, and I think they don’t see the 10% number you quoted to get a half a billion dollar, half trillion, or half a trillion dollars.

[00:24:19] I think a half a trillion dollars of, external revenue service to add to the Internal Revenue Service. That still doesn’t get us there. Not even close. So. Not even close. So maybe they see something that we don’t see.

[00:24:31] Preston Pysh: The numbers that were on the chart from last week. Like if they follow through with those numbers, obviously we’ll have more than a quarter trillion, but we’ll also have prices on goods and services here.

[00:24:42] I can’t even imagine, because you made this comment that we exported inflation for those 40 years. By slapping these tariffs on the products that are still coming in, that we’re still consuming like crazy. I think what it does is it brings back all that exported inflation for decades, like very swiftly.

[00:25:00] James Lavish: And it’s a consumption tax. Yeah, it’s a consumption tax for us.

[00:25:04] Preston Pysh: Because they’re just got to tax, right? They have to.

[00:25:06] James Lavish: And I think that’s the ultimate argument is that, hey, if you said we’re got to raise taxes on income. For America, I think American’s got to be pretty upset. Mm-hmm. But if you said we’re just got to have a consumption tax, if you consume more, you’re got to be taxed more.

[00:25:22] You’re a billionaire and you’re spending a hundred million dollars in a year. Well, you’re got to be taxed on that a hundred million dollars. That’s got to be, in spending a hundred, you’re got to be spending $150 million instead of a hundred. Yeah. And I think that General America, we’d be fine with that.

[00:25:37] They’d be like. Fine. That’s, I’m okay with that. Yeah. It’s a consumption tax, but I know people who in the Las Vegas area who are struggling, they’re struggling in this economy. They cannot keep up with the inflation. I know that people say, oh, but inflation’s come down. The goods prices have not come down, and their wage have not kept up. They’re still high prices. They’re looking at oils. You still have sticker shock on everything.

[00:25:59] Preston Pysh: Yeah. I think you might see the price of oil come down. That’s the thing that everybody’s going around talking about. But the price of everything else, even though that’s , like the number one input to the production of anything is energy.

[00:26:10] I don’t see the prices of all this finished goods. They’re not coming back like, that’s crazy talk.

[00:26:16] James Lavish: It’s over. That’s where they are now. They, they’ve reached a new level. If you go out to a nice steak restaurant, instead of it being $42 for the filet, it’s $78. Or in Vegas it’s $112. It’s mind blowing.

[00:26:29] And of course you don’t need that, but talk about things you do need. You do need certain goods and services you do need. To pay for insurance for your car. Insurance rates are absolutely gone on up astronomically. You do need food and you’re replacing it. If you’re a lower income consumer, you’re replacing your food with cheaper food, and so you’re just doing the best you can.

[00:26:55] Or what we’re now seeing is that you’re seeing people charge things. The consumer credit is going through the roof and the savings, the levels of savings are super low people. They spent all their the checks, they got the stimulus checks long, long, long ago, and they’re not putting away money because. The lower income demographic has been hit harder by inflation.

[00:27:16] This is what angers me than me. When you hear economists get on these shows, they’re like, ah, but you know, inflation hurts everybody. No, they, why? How do you not understand that? Of course, they do understand it. If you own assets, if you own stocks and bonds and up the last couple days. You own gold, you own Bitcoin and you own a house or you own houses and your assets have ever rise in value number one.

[00:27:40] That’s just number one. The other thing is if you’re a higher demographic, your income so far out surpasses your needs. That. Yeah. So eggs are six bucks instead of three bucks. What do you care? You don’t care if you spend $300 on groceries or $400 on groceries instead of 150, you don’t even notice it.

[00:28:01] Yeah. Whereas if you’re a lower income demographic, that 150 goes to $300. Well now you actually can’t even make your rent and do that and pay for gas in your car. So you need the gas to come down. You need the rent to come down and those will come down. And they know this inherently, those will come down with the price of oil will come down and gas will come down.

[00:28:22] Interest rates come down, rents come down. That’s just reality. And they know this. And so that’s what the prize is. Win it for Main Street, but it’s got to be painful. And then the ultimate prize is to get those manufacturing jobs back into America. Mm-hmm. Get these facilities up and running given centers to these companies to start building in America.

[00:28:40] That’s the ultimate prize I think. How do they get there without the pain? I don’t see that path. I do not see that path.

[00:28:47] Preston Pysh: I mean, if I was in the seat and I’m trying to conjure up something to give relief to people, I don’t know that there’s an easy solution here. Outside of our Bitcoin maxi like talking points, which I’m not even got to go down because everybody that listens to the show knows what they are.

[00:29:07] We’re talking about bit bonds and all these types of things that I think is really, and I don’t know that that’s got to give you interim or short term relief even going down some of these paths. I think that when you delay pain for this long and you kick the can for this many decades. You’re saying, well, how do we not pay the bill for this, I think is a fool’s errand type question.

[00:29:31] James Lavish: Yeah. The cure might kill the patient.

[00:29:33] Preston Pysh: Yeah, right?

[00:29:34] James Lavish: And that’s the situation we’re in because we’re in, we have so much debt. We are so overwhelmed with it.

[00:29:42] Preston Pysh: Debt to GDP 120%. This was also mentioned in Ray’s article, and one of the core reasons why he’s saying that the tariffs are a symptom and not the cause is because he’s saying, we’re just too indebted as a nation’s and we consume everything’s outside of our country.

[00:29:57] Exactly. I wanted to talk this. This is really interesting that this happened this morning. This was posted like four hours ago. Trump, if China does not withdraw, its 34% increase above their already long-term trading abuses by tomorrow, April 8th, 2025, the United States will impose additional tariffs on China of 50% effective April 9th.

[00:30:20] An hour later zero hedge posts this 10 year treasury yield chart that shows that the yields are back up to where they were at when the tariffs were originally announced with the headline. This is Zero Hedges Take, they said China response by selling 50 billion in treasuries. Oh, by the way, the yields on the tenure are now almost unchanged from Liberation Day.

[00:30:44] That’s the problem is their response isn’t words. It’s actions of, Hey, all these paper promises you’ve been shoving down our throat, we’re just got to sell those.

[00:30:53] James Lavish: We don’t want them anyways. We don’t want, we know that they’re a real negative yield. We know that because you guys print so much money.

[00:30:59] Preston Pysh: Yeah. Crazy.

[00:31:00] This is wild. Is this like a 1987 like kind of moment in markets in your opinion? I mean, and I’m not, and I don’t mean that from like a percent sell off. I mean it more from like a shift in global policy standpoint or like something that people will continue to talk about decades from now.

[00:31:19] James Lavish: Yeah. I think it’s different than a market shockof just you walk in one day and the market’s down 9%, 10%. But the difference here is Preston, we have these circuit breakers, so we don’t know where the market would’ve gone. Yeah. Without circuit breakers. They can pretty quickly, and I don’t, did we hit the circuit breakers this morning?

[00:31:38] Preston Pysh: I know that they hit them in Japan at the open last night. I don’t remember, and maybe there was some in Europe, but here in the U.S.

[00:31:45] James Lavish: I didn’t see them today. But the volatility is what’s so crazy. What’s so different this time around Preston, is that back in the day, if Trump said something, it would take hours and sometimes days to filter through to everybody. Now if he says something, it’s on a tweet and it’s retweeted and it’s spread around the world like that, you see the markets react like what just happened and then this morning was, you see that the market started rallying. Like violent rally.

[00:32:16] Yeah, violent cover, right? it was coming back and it rallied to positive from being down almost 5%. And it was like in mere minutes it was like, what is going on? And then you saw that headline, which was White House officials says that they’re got to put a pause on the terrorist for 90 days or something like that to give countries a chance to negotiate, which is what I think they’re ultimately got to do.

[00:32:39] But I don’t know if it be 90 days, but then the market just took that headline and rallied, and then you’ve got the White House issue statement that that’s nonsense. There’s no such thing coming. We didn’t say any such thing and the market just dumps against. Yeah, so you can see the S&P just wild swing.

[00:32:58] Preston Pysh: From a liquidity standpoint, these violent moves up, down, back and forth just is like a sponge, just literally sucking liquidity straight out of the market. To the point where now it’s just getting harder tomorrow for everybody else to manage expectations.

[00:33:16] James Lavish: Let’s talk about that for the listeners so they understand that liquidity is what you’re talking about, is in the equity markets, liquidity is taken up because of the margin calls. So why did Bitcoin sell off so heavily on Sunday before Monday?

[00:33:31] Well, you’ve got hedge funds who. Probably were unwinding and covering Bitcoin on Friday, which kept it up, right? That might have helped that decoupling. So unwinding trades where they were short Bitcoin and and Bitcoin ETFs. And then on Saturday, Sunday, you start getting this chatter and you see you’ve got Bess on that podcast.

[00:33:53] You just like, people start worrying about a black Monday. They’re like, well, if I’m got to get a margin call, I get to get my book in order so I don’t have to sell positions that I don’t want to sell. I’m got to sell what I can today and what can you today, it’s Sunday after. Yeah, it’s Sunday morning. Sunday afternoon. You can sell Bitcoin.

[00:34:11] You can sell Bitcoin. So that, I think that was like hedge funds getting ahead of the drop in the market and making sure they didn’t get margin calls or maybe helping their, the liquidity of their book. Okay. So that’s one thing. Margin call that takes out liquidity.

[00:34:25] The second thing is that when you have volatility in these markets like this, what happens is that margin. That is required on your investments goes up, which means that you can’t use that for people trying to like envision this. If you have a hundred dollars of stock and it’s apple and your prime broker is giving you margin on that, it’s not like Gregg t you’re not getting 50 50 margin like you do in your brokerage account.

[00:34:55] You could get 90, 95% margin on these names because they’re blue chip names. Mm-hmm. But when the market isn’t violent like this, which we saw in 2020, this is called Portfolio Margining. And what happens is you’ll start getting falls from your prime brokers saying, Hey, your haircut’s got to go up to 15%. 20%, 30% on names that you had 5% hair fed on.

[00:35:18] What does that mean? That means that you were able to borrow 95% against your a hundred dollars, and now you’re only allowed to borrow six or 70%. That’s liquidity coming out. You going to sell positions to bring that cash back in. Yeah, and so exactly what you’re saying, that’s one side of it.

[00:35:35] The second side of it is the collateral on the bonds. And when you have bond volatility where you can margin these things to the hilt, normally they’re U.S. Treasuries. But when you have volatility like we’re seeing here, I mean this is just, I’m looking at the 10 year here. This is pressing, it’s a four and a half.

[00:35:54] The yields are up 4.5%. That is mental. For these things to be whipping around like this. This is not normal. This is a very abnormal period. So what happens?

[00:36:04] Preston Pysh: Four and a half percent change on the day. I think it’s important for people day on the day of the yield. On the day on the yield. We’re not saying the yield is obviously for people that are listening. Just want to make sure that they understand.

[00:36:16] James Lavish: Yeah, exactly. That the 10 years yield has moved four and a half percent today. That is a violent move in the treasury, violent. The 10 year, this is the benchmark. Treasury of the world, and it is doing this today.

[00:36:32] That is just, it’s mind blowing. What does that mean for margin though? It means that it, it is not as strong collateral and for borrowing against volatility up, that means that you have to leave more of your cash in against that. On a repo or whatever you’re using it for, and that means that there’s less liquidity out there.

[00:36:54] So that’s when you’re the listener, when Preston’s talking about this volatility is taking the liquidity out to the markets, it’s just draining it. It’s like a sponge is soaking it back in. That’s what you’re talking about.

[00:37:06] Preston Pysh: James, to close this out, I want to pull up a chart. We’ll have a little fun here with this chart.

[00:37:10] So what I got here is all the global stock indices over the last decade and a half. And what I find so fascinating about this chart, and people might not know the tickers here, but I’ll call them out. So yeah, if you’re looking at the chart, the top one there is, I think this is the Russell, so this is the U.S. stock market.

[00:37:30] At the top, and you can see it’s up 350% since, what is this, the end October of 2009, it’s up 350%. What I find fascinating. Is look at the HSI, the GXC and the KOSPI, which is the KOSPI is the Korean market, and the other two are China and Hong Kong.

[00:37:51] Look how flat and down Hong Kong is down 10%. Since 2009, China’s up 3%. Mind blowing 3% since 2009. Mind blowing. This is crazy. So like, when we look around the world, I’ll just, I’ll just call out a couple others here. Japan is up 87% and India is up 153% since 2009 on this chart.

[00:38:17] I think this is kind of mind blowing when you just kind of look at it. Now, of course, since we have a lot of Bitcoiners that listen to the show, I’m got to put the Bitcoin chart and of course it’s crazy.

[00:38:25] Let’s zoom in here and let’s look at since COVID since 2020. Let’s look at what happened. What I’m got to do is go to the bottom in the market before they flooded the global economy with all this printing.

[00:38:39] This is what the story that’s being told. So we’re at the bottom in 2020, March, we still have China down almost 14%, negative 14%. Same thing with Hong Kong. Korea, up 26%. Japan up 41% since that bottom in 2020. Europe up 65%. Canada up 94%. Us up 102% and India up 145% since the bottom of COVID.

[00:39:09] James Lavish: And the reason that you’re using the Russell 3000 is to encompass more of the companies, not just the MAG 7 of the S&P.

[00:39:16] Preston Pysh: Correct. I’m trying to get a better site picture of just business at large. It was why I was using some of these indices. I’m got to put Bitcoin in here. This is again, the bottom of the COVID sell off. Bitcoin is up 669% against all those other percentages that I just told you.

[00:39:34] Now, this is the thing I find really fascinating, James. Let’s take the previous high in Bitcoin, okay? From the last cycle that peaked in November of 2021. So when we come here and we reset that as the new benchmark against all these other indices.

[00:39:50] Bitcoin is still outperform in front of everything else. Bitcoin at 19% performance since the top of the 2021 cycle. The next highest is India again at 10%. The U.S. is at 2.5%. Europe at negative seven, Canada at negative seven. Japan at negative 19. We have Hong Kong at negative 21% China at negative 36% since the bottom of COVID. It’s down negative 30 and Korea down negative 37% since the bottom of COVID. This is wild. Huh?

[00:40:26] James Lavish: That’s wild. And what is it from the bottom of Bitcoin in 23. Okay. Here, we’ll go there. So right around here is the bottom of the market. Yeah. Right. If, if you can, you can grab a bottom pick and Bitcoin on these cycles. So these troughs, well, it’s not just the bottom of Bitcoin, it was the bottom of the equity markets too.

[00:40:48] Preston Pysh: Like they both at the same time. Let me zoom out here. So if we were got to take the bottom of equities. I would say we’re like right around in this mark. You’re right. It led it by a couple months. But let’s take the bottom of equities right there.

[00:41:02] Yeah, right in here. And just, I’m got to quickly go through this so people will have, mark. So if you go to the bottom of the equity market in 23, Bitcoin is up 248%. India is up 28%. The U.S. is up 23%. Canada up 5%. Europe, up 5% Japan, 2% Hong Kong, negative two, China negative 12, Korea negative 15. Really fascinating, right?

[00:41:27] So at the end of the day, the volatility in the short term. In the short term, the volatility is brutal as a Bitcoin when it’s going down. But the performance, if you can get any type of site picture beyond a year or two. The performance against pretty much everything else you can own is spectacular.

[00:41:46] James Lavish: And that’s the thing is that trying to pick tops and bottoms in Bitcoin, which is why I was laughing about that. It’s so difficult. But you do know, you do feel when there’s market capitulation, this is the asset you want to be owning, for sure.

[00:42:00] At least the easiest thing to do is just to hold onto it through the cycles.

[00:42:03] Preston Pysh: This is something that I’ve thought a lot about more recently is the volatility. If your dollar cost averaging through this volatility, it is massive. Like we’re just showing. If you were like plucking the tops of like some of the worst moments in time, or the best moments in time, this is what the performance is, right?

[00:42:20] But if you could dollar cost average and then show the performance against these other assets, I think it would melt your brain. As to how much the outperformance is, because think of it like this. Let’s say Bitcoin was at a thousand. It went down to 200, and it went back to a thousand. You were dollar cost averaging all of that. Your performance isn’t flat, it’s not zero. Your performance is actually really, really good because there was so much volatility and it got back to its starting point. And that goes for any asset

[00:42:50] James Lavish: I mean, your, your average should be somewhere around 600.

[00:42:54] Preston Pysh: That’s right.

[00:42:55] James Lavish: Although your dollar, yeah, so your average should be somewhere around 600. And, so you’ve got probably a 66% return performance, instead of flat.

[00:43:05] Preston Pysh: That’s right. And so I don’t know. I think the more I’m watching this violence unfold of Bitcoin relative, and this is important, it’s relative to anything else you could possibly own. And so what has been the best performing stuff in the last decade? It’s been equities. If you’re not looking at Bitcoin, right, it’s equities.

[00:43:23] So when I’m looking at Bitcoin’s performance, and I guess what took me down this path, I’m a little frustrated because I’m used to the 2017 bull run or like I’m looking at Bitcoin’s past performance and I’m saying this current bull run is somewhat disappointing from a percentage performance return to what I’ve seen in other bull cycles.

[00:43:45] But then I’m saying, okay, Preston, relative to what? Relative to Bitcoin’s previous performance or relative to what else you could own. And when I look at what else I could own over this past or since the bottom of 23, which was what we just showed. The results are like astounding how much better Bitcoin’s performance is versus these other assets.

[00:44:07] James Lavish: I just made this so let me see if I can share this because I did this just the other day at BitBlockBoom. This is what you’re talking about here, Preston.

[00:44:17] Preston Pysh: And for people listening, this is Bitcoin over U.S. Treasuries instead of just over the dollar, he’s putting it over the U.S. Treasuries. What’s then account for the performance of that of U.S. Treasury?

[00:44:26] James Lavish: Yes. It’s gone from being valued at just a fraction of it to 25 times. Same thing with Bitcoin versus gold fraction of an ounce of gold to 27 times. You do the math today, just divide 78. You divide it by the 3000 that gold is trading at what?

[00:44:46] It’s trading at 29 74. So you can do the math, but that’s what you’re looking at. There’s Bitcoin versus the S&P, and here’s what you’re talking about. That’s the MAG 7. It’s still outperforming the MAG 7. Yeah. Still outperforming the MAG 7 the last 10 years. I mean, that’s what we’re talking about though.

[00:45:03] You know, and so this is what’s so mind blowing to people and, and institutional investors to what you’re saying is that, wait, what is that? Right? But it’s been so volatile. I thought it was at a halt time high. It’s just now getting back there. And that doesn’t include. The dollar cost average you’re talking about, which you would’ve been done monumentally better.

[00:45:24] Preston Pysh: That’s the performance difference that I would love to see. Hey, if you dollar cost averaged into the S&P 500 every day for the last four years, what is your performance profile versus Bitcoin? Because just taking that snapshot in time does not do it any kind of justice, I suspect.

[00:45:40] James Lavish: Here’s the other thing, and so this is the other thing I wanted to point out, that listening to these guys talk Trump, we want the United States to be the crypto capital of the world. And we know that his family is, is mostly focused on Bitcoin lunik. He understands Bitcoin and he, these guys get it and best, descent.

[00:46:00] He understands Bitcoin. He said it to Tucker, he said, I think that money’s got to flow into golden Bitcoin because those are, that’s hard money. I mean, I, and it, it blows my mind and even said it. And that’s like when the treasury put that chart out, that’s an unsustainable fiscal path. And like a shot over the bow to the, to congress kind of doing the same thing.

[00:46:20] He did mention Bitcoin, like they know. That this is decentralized asset, that it cannot be diluted, it can’t be debased, and they understand that. And so that’s the interesting part, that they get it. And so all of these tailwinds, and now you’re talking about a structural change. It may be painful, but over the long haul, what do you want to own?

[00:46:43] Preston Pysh: Nothing’s changed with respect to that thesis at all. Or the Bitcoin thesis, right?

[00:46:47] James Lavish: The Bitcoin thesis. That’s right. I’m not one of those guys who wants to see the world implode.

[00:46:52] Preston Pysh: No, of course.

[00:46:53] James Lavish: But I’m one of those guys, and I don’t want the world to implode and Bitcoin to soar to incredible values at the expense of everything else.

[00:47:02] That’s not what I want. But I want to protect my own hard earned money. And that’s why I do exactly what you’re saying.

[00:47:09] Preston Pysh: I don’t think it’s just that. I think it’s you also want to usher in a world that is fair. With respect to the energy exchange between all participants, all governments, everybody, that if you want to go to war, well you need to pay for it today.

[00:47:25] You need to suffer through the consequences of what that means for reelection if you’re making that decision now, like all of these things, I don’t know. I, I think it just rewires the natural incentives that are so perverted with fiat. So, yeah, I don’t know, man. This is from a financial media standpoint, this is like a dang feeding frenzy of interesting things to talk about, that’s for sure.

[00:47:49] James Lavish: Absolutely. Yeah.

[00:47:51] Preston Pysh: Dude, thank you so much for making time. This was an awesome conversation. I learned so much from you every time we chat and, just consider you a good friend and, just really appreciate you making time, James.

[00:48:01] James Lavish: Likewise, my friend. We’ll, we’ll do it again too.

[00:48:04] Preston Pysh: Give people a handoff where they can find her or anything else that you can highlight.

[00:48:07] James Lavish: Yeah, of course. I’m at James Lavish on Twitter. I have a substack called The Informationist. It’s a newsletter that I put out weekly that just simplifies some of these topics for you every single week and there’s a free version too. And that’s, again, a free one every month. And then the co-managing partner of the Bitcoin Opportunity Fund. We are actually raising our second fund right now. It’s just like the first fund. If it sounds of interest to you, you can just go to Bitcoin Opportunity Fund, give us your info, and we can send you some information and get in touch with you.

[00:48:39] Preston Pysh: Amazing. We’ll have links to all of that in the show notes. James, thank you, sir.

[00:48:43] James Lavish: Thank you.

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