Marco market, Energy Crisis, Crypto - Interview with Arthur, Laura, Felix

I have gone through the interview so that you do not have have to. Though highly recommended to watch it. Else, just stick around here as I have noted the key points of the discussion. Probably, one of the best interviews I came across with the top people in the industry:

• Laura Shin @laurashin – Moderator; crypto journalist and host of the Unchained podcast

• Felix Zulof - founder of Zulof Consulting

• Arthur Hayes @CryptoHayes - co-founder and CEO of BitMex.

Jammed packed with so much information in this video covering:

• the macroeconomic outlook

• energy crisis faced by Europe how it affect other countries

• crypto predictions and take

The YouTube video link is here. This is a long form interview, and I will be summarising what was discussed for personal reference, while sharing it here with everyone.

TLDR:

• 1H2023; very weak world economy and there could be some credit events and problems. Central banks will probably swing around and that is what the people call the “Fed pivot”

• Supply chain disruptions causing inventories to pile up and then after post-holiday price cuts, which will feed into the CPI

• Next year could be a terrific year for bond investors at least for a window for 6 months or 9 months or so because once the economy weakens then all of a sudden you get the Fed turning from a seller of treasuries into a buyer of treasuries

• Big strategic mistake by getting into a conflict with China because the West won’t come out as a winner.

• China shipping to you directly for everything you need with one of the most advanced manufacturing apparatus with lowest cost goods and the highest quality

• Energy prices flying very high so in 2024, 2025 we could see oil price at the 150 200 dollars and natural gas prices at the double the current level

Q1: What do you think is the main driver of inflation in Europe and in the US?

• Too much money chasing not enough goods

• Monetary framework that was too big for our economies; rising prices

• High energy prices fuel many products and services, causing many prices to increase

• Energy has been one factor but it's not been the factor of driving inflation.

• We had a tremendous fiscal support, tremendous money being spent by the governments to the consumers and we had at the same time the lockdown supply chain disruptions.

• Push on the demand side up and we had a constrained supply side

Q2: What do you think are some of the ways the Fed could combat inflation or what do you see the Fed doing?

• All Fed can do is it can constrain demand; reduce demand so that demand and supply gets into balance at the lower level of price. Leading to a weaker economy

• Monetary policy works with a time lag of maybe 12 to 18 months and so what they are doing today will be represented in the economy 12 months out

• 1H2023; very weak world economy and there could be some credit events and problems. Central banks will probably swing around and that is what the people call the “Fed pivot”

Q3: What do you think? How do you see the Fed?

• The treasury is issuing a record amount of debt because they have to fund the deficit to help the politicians get elected

• Coming next year we have a record issuance of debt in the US that you need to be rolled over where there's new debt that needs to finance

• Next year could be a terrific year for bond investors at least for a window for 6 months or 9 months or so because once the economy weakens then all of a sudden you get the Fed turning from a seller of treasuries into a buyer of treasuries

• Investors and the speculators come up and they turn from a seller into a buyer of treasuries

• Possible short period of time for 6 to 9 months where 10 year treasuries declined by 200 basis points.

• The equity market would benefit dramatically and all risk assets actually would benefit dramatically if the long end of the bond market comes down by 150 to 200 basis points we could have a tremendous rally.

• Looking for an opportunity to turn bullish in the first few months of next year on bonds and on equities and then also on commodities.

• That sort of move in the bond market is bullish for crypto as well.

Q4: How that aspect of ongoing supply chain disruption is going to play into all of this and how that will affect the market?

• Inflation has peaked for this first mini cycle and we will see declining inflation next year.

• First of all due to the weakening demand in the global economy. Secondly due to decline in commodity prices including oil prices.

• The price of oil could go to $50, $60 in summer of 23.

• Exporters are going to cut prices to just get off the merchandise.

• Inventories are piling up.

• Bank loan statistics show that the bank loan growth is going up to finance stale inventories.

• Once the holiday season is over you will see that the retailers and the producers want to get off the involuntary inventories they have accumulated and then you get price cuts.

• Price cuts will feed into the CPI as well

• All of a sudden it could be at 3% in summer of next year.

• China reopens is that sort of make production of goods easier, faster.

Q5: Did we order a bunch of stuff because we thought that there would be stimulus checks continuously handed out quarter after quarter in the richest country in the world in America?

• The next rise of inflation from the second half, 23 into 25, you will also have  a geopolitical situation factor in because the conflict between the two blocks, the autocratic block and the democratic block will intensify.

• This will continue to disrupt supply chains on many goods.

• And therefore, when you have a de-globalization process, it makes prices go up and it's inflationary. Globalization was deflationary.

Q6: The US Treasury, why do you think they're financing the Ukrainian war? What do you think the economic impacts will be in the US short-term and long-term and we can sort of blend it in with all the other trends that you noted?

• There is distrust and once the war ends, there will be continued distrust.

• And the trade between the eastern and the western block will slow down.

• So China is the more important trading partner for the vast majority of countries in the world than the US.

• The world has changed a lot and it's a big strategic mistake by getting into a conflict with China because the West won’t come out as a winner.

• People place a huge premium on social cohesion

• The lockdowns that they are using they are using them to not show the structural weakness that is popping up in the Chinese economy and they are trying to hide what sort of economic  problems they really have in China at the current time the fallouts of the of the previous boom

• They can justify the weaker economic numbers by the lockdowns and the virus

Q7: If you were to go back and change something about Europe's energy policy what would you do?

• Energy policy change particularly in Germany and also in Switzerland was very naive

• You cannot really turn off power plants

• People are beginning to understand that the green movement and the climate apocalyptic are all were doing things and to the detriment of the citizens

• Green climate movement may begin to lose attractiveness by many citizens over the next few years and you will see in the forthcoming elections in the European countries where it has been most extreme

• The whole point is to keep Germany down but you see France has that nuclear energy and is preaching all these things about climate change

• At the end of the day France is the most secure because they actually invested in this ecosystem of nuclear and are reaping the benefits of lower energy prices

• The bad thing about the French nuclear power plant is that they have only a half of them operating 150 days per year

• They can only operate at about 50 to 60 percent in the nuclear power plants

• This is very bad but the French are at least building new nuclear plants so in a few years

• Perhaps even they sell it at an expensive price to the Germans

Q8: Wanted to ask also about this energy shortage in terms of the rising prices in Europe for energy how much would you say the shortage is responsible versus the Fed?

• There is shortage in electricity, natural gas

• Storage capacities at full but lasts only a limited period of time

• Problem is next year when you cannot fill up your storage with Russian gas which you could last summer and they have to turn to buying all the LNG from USA

• LNG is sold out until the year 2026

• Real problem is next winter not this winter so the structural problems will stabilize us

• Economy will be weak in the first half of 2023 and trying to recover through 2024

• You will see energy prices flying very high so in 2024, 2025 we could see oil price at the 150 200 dollars and natural gas prices at the double the current level

• This will give us the second wave of inflation

• This will be terrible for the bond market because we know from experience of the 1970s that the second wave of inflation is the waves that really smashes the bond market

• Second time around if the Fed is again committed to fighting inflation and raising rates into this next inflationary sparrow and the ECB has to print money because they just don't have the energy available

• EU is not like the US where they have Canada or Mexico who are you know willing partners they hand over energy to the Americans

• The problem for Europe really is that we have a much higher level of energy prices than elsewhere and that will remain the case structurally and that is a big negative for our industry

• The risk is that a part of Western Europe is going to de-industrialize to some degree because certain production entities cannot live with the higher price of energy

• It doesn't make sense to produce in in Europe, it is not profitable again anymore

• There is a certain movement from Europe to other places and Europe have entered a period of structural de-industrialization and decline in prosperity

• If Russia and China build a necessary infrastructure and China continues to advance in the quality of the goods, you have the biggest commodity producer next door as an ally

• China shipping to you directly for everything you need with one of the most advanced manufacturing apparatus with lowest cost goods and the highest quality

• You are not going to be buying German stuff or Japanese stuff

Q9: We've seen the crypto markets reach an all-time high of about 2.6 trillion a year ago it's now deflated to about 800 billion or so. What you thought were the drawdown or causes of this drawdown and how this kind of volatility has made you look at crypto as an investment class?

• Crypto is a reaction against the flagrant money printing of the US dollar system

• When you ramp up credit creation to the largest ascents in the United States from 2020 to 2021, Bitcoin went from 37 to 70,000

• When you then restrict credit and remove dollar liquidity from the market, it comes down

• We're now gonna enter the phase of the very boring part of the bear market which is when Bitcoin is ignored

• We're in that sort of phase this is no different, it's a credit crisis and they happen to every single asset class so this is not anything different

• Blockchain technology is a great innovation a great innovation that will be very beneficial to the world economy in the future in at the current time and in the future

• We are probably in the later stages of this washout

• When you have an item that has been the attractiveness of one cycle and in the next cycle it will not attract that much money usually

• You have one cycle where it underperforms and does not go back to the highs maybe then the second cycle after the current one, it could go back to new highs

• You have such a big bull market followed by a devastating bear market, it usually takes quite a while to recover and that doesn't mean that you could have nice moves.