The podcast delves into the current economic situation, focusing on the potential for a hard landing due to high leverage and rapid interest rate hikes. The hosts discuss the likelihood of a credit event, the challenges in the bond market, and the manipulation of markets. They also touch on the U.S. running a $2 trillion deficit, the illiquidity of the commercial real estate market, and the dynamics of Treasury auctions. The episode also explores the potential of Bitcoin and other hard assets in providing stability for distressed assets.
Potential for a Hard Economic Landing
- High Leverage and Rapid Interest Rate Hikes: The hosts express concern about the high leverage in the system and the rapid interest rate hikes, which could lead to a hard landing for the economy. They speculate on the possibility of a significant credit event occurring by the end of the next year.
- Market Manipulation: The hosts discuss the idea that markets are no longer free and open but manipulated. They suggest that investors must adapt their strategies accordingly, especially in an election year.
- U.S. Running a $2 Trillion Deficit: The podcast highlights the severity of the U.S. financial situation, noting that the country is running a $2 trillion deficit even before entering a recession.
Challenges in the Bond Market
- Significant Sell-offs: The hosts note that the bond market has experienced significant sell-offs, with a recent small bond auction going smoothly, contrasting with a previous dismal auction.
- Decreasing Participation of Foreign Bidders: The podcast delves into the details of a recent 30-year Bond auction, which had a significantly lower bid-to-cover ratio than usual, indicating a lack of demand. Foreign bidders, referred to as indirect bidders, have been decreasing their participation.
- Implications for the Liquidity and Stability of the Treasury Market: The hosts raise concerns about the implications of these auction dynamics for the liquidity and stability of the treasury market, hinting at potential challenges for government borrowing and the broader financial system.
Illiquidity of the Commercial Real Estate Market
- Significant Downturn in Real Estate Values: The hosts note a significant downturn in real estate values, with properties that were worth $150 million three years ago now selling at 70-80% discounts, indicating a major impairment of assets on bank balance sheets.
- Challenges for Managing a “Soft Landing”: The discussion emphasizes the illiquidity of the commercial real estate market, where properties may only change hands every 5 to 20 years, and the challenges this poses for managing a “soft landing” in the economy.
- Potential for a Commercial Real Estate Investment Trust: The hosts discuss the potential for a Commercial Real Estate Investment Trust or another type of Fed-backed facility to emerge in response to the resetting of commercial mortgages and the upcoming “waterfall event” for commercial real estate holdings.
Potential of Bitcoin and Other Hard Assets
- Stability for Distressed Assets: The podcast discusses the potential for Bitcoin and other hard assets to provide stability for distressed assets, suggesting that even a small mix of Bitcoin with legacy assets could reduce volatility in fiat terms, especially for commercial real estate.
- Introduction of a Bitcoin ETF: The introduction of a Bitcoin ETF is highlighted as a game-changer for investors, removing barriers related to settlement, custody, operations, and pricing, and making Bitcoin as accessible as a stock on the stock exchange.
- Significant Price Surge in Bitcoin: The podcast episode features a discussion on the potential for a significant price surge in Bitcoin, referred to as a “god candle,” anticipated to occur in 2024.
- Bearish: The hosts express a bearish sentiment towards the current economic situation, highlighting the potential for a hard landing due to high leverage and rapid interest rate hikes. They also express concern about the high U.S. deficit and the challenges in the bond market.
- Neutral: The hosts maintain a neutral stance on the commercial real estate market, acknowledging its illiquidity and the significant downturn in real estate values, but also discussing potential solutions such as the emergence of a Commercial Real Estate Investment Trust.
- Bullish: Despite the bearish sentiment towards the economy, the hosts express a bullish sentiment towards Bitcoin and other hard assets. They highlight the potential of these assets to provide stability for distressed assets and the game-changing potential of a Bitcoin ETF. They also anticipate a significant price surge in Bitcoin in 2024.