YouSaid · the spoken record

Alf Pecca

lines on the record: 71
first: 2022-08-03
most recent: 2022-08-03
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Well, Preston, I just want to thank you for the hour we spent together, your questions are very good, and that's not a surprise for me. I'm used to listen to your interviews. All I want to say is that if people enjoy this, indeed, they can find much more at the macro compass. It's free. There are, I think, 75,000 people reading it. It's quite a lot. So thank you for everybody who's reading that. If you want to find out, you can just Google it. It's free. And once a week I release a piece, which is my macro analysis and some investment ideas as well.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“maybe foresee the possibility we need to redesign it. That's all you need to ask yourself what is the role the digital assets can play in this reshaping effectively. So maybe I didn't give a definite answer and it's very difficult to give one, but at least I hope I gave some frameworks that I'm using to consider the asset class both cyclically and structurally.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“We are used to deal with money, it can be relatively complicated to imagine a deflationary system. Also, just thinking about it and designing it in our head as we have been born and raised in an inflationary, in a system where money supply can expand, thinking of a system where it can't expand, it brings a lot of questions around. Can you create credit in Bitcoin? Can you lend Bitcoin? Can you expand its supply at least temporarily until you bring it back? But all these questions need to be addressed thinking that the world isn't becoming a less technological place, it's becoming a more technological place, and also that, to be honest, the monetary system we are living in, as we describe it for an hour, tends to be very shaky. And the more time goes on, the more this leveraging episodes are stronger and stronger and stronger. And the more the wealthy inequality tends to widen to a point that you can”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“For instance, Bitcoin to serve as an anchor or a potential anchor when it comes to redesigning our monetary system. And that is the other big consideration that these asset classes in at the moment. And there, I think it is okay to consider it as a potential co-option. So that's a theory that many people have come across with and they're like, okay, what is the probability that's going to play a role in reanchoring a new monetary system? Is it 0%? Well, assigning a 0% probability to something generally in investments is not a smart idea. So if you think there are some good macro reasons why Bitcoin could be more than 0% part of this basket that anchors the next monetary system, then only for that very reason you should structurally own some. So I tend to be extremely open about that. I have some, maybe we should record another session only on this because of how money works and how we are.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Investigating, and I tend to be very much open minded. One is the role that the underlying technology has and will have likely over the next 10 to 20 years. The world isn't becoming an industrial world anymore. Whatever people say when they talk about onshoring, when they're talking about the importance of energy and labor and capital being depreciated against labor being appreciated, that's the 70s. That's the 80s. Our business models are not likely to reflect that again. They're likely to reflect more technological advancement going forward. So from that perspective, this asset class tends to fit pretty well into that structural development we're looking ahead of us over the next 10 to 20 years. So I have sympathy from that structural perspective. The other theory is a basket of digital assets, mostly the scarce one, let's say Bitcoin or defined to be scarce in supervision.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Come into the space. And you can see that they treat it somehow as a proxy for tech. You tend to see that Bitcoin tends to trade in certain parts of the cycle as a leveraged version of a tech stock, right? So that is the result of institutional investors coming in, having to design and allocate the asset class in their models in a certain role. And the role that Bitcoin tends to have right now, cyclically speaking, is that of a risk sentiment asset class, a tech-driven risk sentiment asset class. Okay, so that is the cyclical analysis you can do on Bitcoin and you can do it on Ethereum and you can consider that as part of your asset allocation from a tactical perspective. From a structural perspective, that's a different story. So from a structural perspective, you are considering the digital asset space and you have to ask yourself what is the role it could play over the next 10 to 15 years. And there are two line of thoughts that I'm still...”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“So Bitcoin, I'm a very top-down macro person, Preston. So Bitcoin for me serves as the main indicator for the digital asset space in general. And the digital asset space in general, I treat it as a macro asset class, which means that it has certain features, certain characteristics, certain implied and realized volatility, and certain collocation basically in my quadrant and in my cycle analysis, right? And at the moment effectively, it tends to behave in the cycles as a pretty leveraged risk-intensive asset class. You can see that it tends to be very volatile across cycles, and its wings are very wild, which tend to appreciate capital and depreciate capital very rapidly. Also, you see that its correlations are evolving in a very interesting way as more institutions.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“and keeping the temperature in the kitchen very high because they'll be looking not at the pen whose oil frying oil is exploding then only be stopping when the kitchen is off on fire that's what we're talking about and if you if you're talking about that then you cannot be positive about risk assets you cannot be positive about other currencies the only thing you can be positive about is preserving your purchasing power in such an environment is to own dollar dollar cash protection very defensive assets it doesn't sound fancy but there are cycles every time and my role is to make sure that i am looking at macro models that point towards what's coming next and what could be the best asset allocation in this cycle without having my ego attached to a certain asset class i mean investing and protecting purchasing power it's all about being nimble intellectually honest and trying to steer your asset allocation according to which cycle you're in and right now it's not the cycle to”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“So the DXY is basically about 57% euro against the dollar. So let's say Euro against the dollar went through parity. It's now roughly a little bit above that. I think we bridge parity pretty easily and sustainably. So that would be my base case scenario. As always, I can be wrong. I would expect 0.9, 0.95 to be totally doable on a euro dollar, especially Preston. If we are right on them keeping the pressure on.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“No, sorry, I'm just saying that the labor market is a slightly lagging indicator too. So before it weakens to a point where the Federal Reserve gets worried enough to consider another item into their equation, it's going to take quite a while. So right now they only have one item. It's an equation of one line, bring inflation down, down, down, down, down. It's the only thing they care about right now. Before something else becomes bad enough to enter that equation in the first place, Going to take a bit longer when it does enter, then I'm going to be looking for them to actually start cutting rate, accommodate so the two-year yield can actually finally come down and you don't need to flatten the curve anymore because you can just buy the front end of the bond market and it's going to be okay. But sorry, so you were saying.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Be looking in the rear view mirror. They'll be looking at the most likely indicator and try to slow it down as much as possible. They'll be as hard for us long that I think the earthcraft will invert further and further and further.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Significance in explaining how GDP will do in a year from now. And if you look at the service today, they are forward-looking because they anticipate changes in economic activity. A coincident indicator would be maybe the labor market. It's a coincidence to slightly lagging indicator. Labor market worsens or improves only after the forward-looking indicators have pointed towards a certain trend in the economy, right? And then the lagging indicator, one of the most lagging of all is inflation. Because to develop or to slow down inflationary pressures, you need some time for all of this to feed into the economy and the elasticity of prices and the consumption habits and all of that. The Fed will be looking at targeting the most lagging indicator of all, which is showing its worst behavior, not only in absolute level, but in composition and momentum over the last 40 years, Preston. So they'll be big and”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“You don't care if you're going to worsen the recession. You don't care if unemployment rate is going to go up, at least in the early stages, you really don't care. Later on, maybe you'll care a bit more if the damage you're doing becomes larger and larger and larger. But right now you have RET recap, inflation at 9%. And the momentum of inflation is accelerating. The composition of inflation is going towards a trend where you don't like it's broadening. Inflationary pressures are broadening towards a sticky components of the CPI basket. I'm sorry, but you gotta do something about it and you won't stop resting until you see results. Now, the interesting thing is there are two things that are interesting is that inflation is one of the most lagging indicators. And in macroeconomic analysis, you have forward-looking indicators, coincident indicators, lugging indicators. And so, for instance, the forward-looking indicators would be some surveys that have a set.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“So this is one of the traits that I have on my book. That's also what I do, by the way. I just share everything I'm buying, both on a long term and on a tactical basis. I'm an open book. I've managed money. I know I would be wrong. I have nothing to hide. It's full honesty from my side. This is a trade which is working. It's a very tactical, relatively sophisticated trade. But what I did is I bought a 10-year bond and I sold a two-year bond and I made sure that I weighted enough, well enough that the only thing I care is the slope of the curve. So I'm betting that this slope between tenure and two year actually goes even more negative and I'm targeting minus 50 basis points, 50 as my next target. I started it when it was positive, way positive. It's been going very well and I keep on running it because you're perfectly right, Preston. If you're the fed and you look at this.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Those are also accelerating, and you see that inflation is broadening overall to especially to categories which are very sticky, Preston, like services inflation, rent of shelter, services X energy, very sticky late cycle baskets of inflation, sorry, components of the inflationary basket are becoming, are seeing inflationary trends that are becoming entrenched. And those who don't bring down very, very quickly, it's very hard to actually bring this down. And that's why the Fed is becoming more and more aggressive at each iteration.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Buff 4% is way above the Fed target, which is 2%, right? And I found out that over 70% of the CPI components are running at over 4% year on year when it comes to the inflation rate. These scarce the Federal Reserve big times, because you can't say anymore that inflation is due to used cars or other very volatile goods. Everybody's stuck at home and has fiscal stimulus and is buying stuff on Alibaba and Amazon. And that's why we have inflation. With over 70% of the CPI basket above 4%, you can't argue that anymore. So the composition of this inflationary pressures is as important as the absolute level and the pace. The other thing that is very relevant is that the momentum of inflation isn't slowing yet. So if you look at months on month inflation and you analyze that or you look at three months over time, three months, so measures of momentum rather than only the absolute level.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so again, this is all about nuances and I think they are very important in macro analysis and most of the analysis out there tends to stop at headlines and I try to do my best to look at a little bit under the hood, especially on the macrocombus. And this as well is one of the charts I published on this free newsletter I write. And it shows Preston that it's not only the pace of inflation. It's not only the absolute level, which is above 9% in the US, but it's the momentum and it's the composition of this inflationary pressures which is freaking the Fed out. And this chart shows basically the components of the CPI baskets which are running above 4% inflation year on year. So the CPI is a basket as we know of many items and with this chart I try to look at how many in percentage terms, how many items of this basket have an inflation rate above.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Demand that comes from China. So we should watch this trend very carefully and it's not looking good because to stop the leveraging process is a very, very difficult effort once it's put in motion is very difficult to stop very quickly.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And to the entire developer sector and also to other sectors which are, let's say, adjacent to the real estate sector in China, it is pretty big and also it has ramifications when it comes to global macro. China with its credit creation has been the engine of cyclical growth all over the world with the big amount of aggregate demand that they were creating because they weren't growing structurally and on top of it they were also creating credit, adding leverage very, very quickly. They had such an amount of aggregate demand to export towards the world. And now if you deleverage, you go towards the opposite trend.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“wealth and basically of the wealth that China as a country has been able to create since they joined the WTO in 2000 in the early 2000s. If you look at the share of consumption that comes from the private sector in China as percentage of GDP, it is amongst the lowest of every developed and emerging markets out there. So the Chinese people aren't getting aren't basically getting rewarded for the effort and for being the engine that has been basically behind the Chinese growth miracle over the last 20 years. And on top of it now they're getting damage when it comes to one of the few ways they had to somehow create wealth. It was of course fueled by unproductive credit creation, laxer regulation. The Chinese policy making actually supporting this machine, but they're not going to stand behind this and we're seeing weakness that spreads actually beyond ever.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Preston, together with Evergrand, which is a very famous story, if you look at all the indexes which are trying to track real estate developers across the board and other sectors that highly depend on real estate developers in China, you see that the weakness is not only in Evergrand, actually most of these sectors have been decimated when it comes to market cap. So you have to think that the weakness is very widespread and the fact that Chinese people are even stepping up and saying to the CCP that the Chinese Communist Party, I'm sorry guys, but you made sure that this leverage machine and this wealth creation machine basically could work and we rely on that to increase our purchasing power you can't just stop it and reverse it all of a sudden because don't forget as well Preston that the Chinese population has received an extremely small percentage of the”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And they're refusing to pay mortgage installment. And we are witnessing a very large deleveraging process in the largest market in the world, which is not covered enough, I think, from a macroeconomic standpoint.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“All of a sudden, China decided that that had gone too much uncontrolled and decided between the end of 2020 and beginning of 2021 to apply some tighter regulation when it comes to financing real estate projects. And as they did, many developers started to have a problem because when you are very leveraged, it's exactly the same mechanism as we discussed before. When you are very leveraged, you are relying on more credit and cheaper credit and laxer regulation. That's what you want the all-time to oil the mechanism. And as you stop and reverse that, you go through deleveraging. And now the deleveraging, the size and the magnitude of this deleveraging has caught Chinese policymakers by surprise. And we're having Chinese people refusing to pay their mortgage installments on new houses projects basically that have been promised, they've been delivered by a certain time, they'd invested in them. And obviously the developer went belly up.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“big deleveraging process when it comes to residential real estate. People in China have a problem when it comes to allocating their resources. It's very difficult as a Chinese guy to invest abroad because of capital controls, regulation, restrictions, and the Chinese stock market can be pretty volatile and not representative of the Chinese economy overall. So people have invested and basically supported the Chinese real estate market big times and regulators in China have allowed a buildup of leverage which is incredible. So China has basically expanded their leverage and the real estate market in an incredible way all the way up to 55 trillion dollars. Most of these projects, infrastructure, real estate projects were actually not very productive, Preston. So we are talking about credit creation for unproductive purposes to a reasonable extent.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Of house transactions in the US, 87% in 2021 were backed by a mortgage. So the mortgage market is underlying the housing market and it's pretty big and it is what allows this very large leverage. 300 trillion. Okay, that's incredible. Now, what is the biggest geographical single asset class in the world? Must be the US stock market, the US bond market. Not really. So U.S. bond market is around about 20 trillion dollars. And the Chinese real estate market, Preston, it's 55 trillion dollars, two and a half times larger than the entire treasury market in the US. And it ranks as number one geographical single asset class as the biggest in the world, $55 trillion. It's gigantic. What's happening over there, it's also pretty large. China's going through an unexpected”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And we're talking over 300 trillion dollars. It is bigger than the bond market, the equity market, and the gold market all together. I mean, when I first saw the chart, I'm like, wow, I know it's leveraged. I know it's a big market. And obviously it also has an inherent utility to humanity. I mean, we need to leave somewhere in the first place, right? It has a utility scale tool, at least a utility which is much more tangible than buying a stock, let's say, or buying a bond. But the fact that it is bigger than the equity and the bond market combined and the gold market on top of it combined, it's pretty mind-blowing. Now, why this so big is because as we explained before, Preston, you can actually lever up your purchasing power on houses via mortgages. And as people tell me, off, it's not true. People in the US buy houses cash all the time. Again, I invite people to look at the big picture.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And now, don't cheat, guys, but especially if you're not watching, the question you should try to answer in your head is, what is the biggest market in the world? And then the answer you'll give me is obviously is the stock market. It must be the stock markets. It's so big. And the reality is that the stock market is huge. It's 110 trillion dollars, globally speaking, that was at the end of 2020. Now it's probably a bit higher even. But it's 110 trillion dollars. The bond market is bigger. So if you thought it was a stock market, you're wrong. The bond market is 124 trillion dollars worldwide. So it's bigger than the equity market. Gold is roughly 12 trillion dollars. That's a figure that most people are familiar with. What about the real estate market? Would you guess it's 100, 200, 90, 30? Well, summing up, the residential real estate, commercial real estate, and agricultural”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Oh man, so Preston, before we talk about China, we should talk about this chart for a second at least. And for people who are not watching but listening, this is a chart that shows the market cap of all biggest asset classes in the world. So it's total market cap of the global equity market, the global bond market, the gold market, and the real estate market.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“For the first time between 2028 and 2032. So as a new cohort of people with different incentive schemes will be voting, perhaps we can shape the politics and the policy making towards something that is a bit more sustainable that this infinite credit creation wealth effect machine that basically feeds wealth inequality to extreme levels.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“It is really the foster child of the side effects of this wealth effect monetary policies we are running where by all in the credit machine we make credit access cheaper and cheaper by a lower borrowing rates so the people who can get their hands on this leverage and on these assets they will become inherently richer by a wealth effect and people who are late to the game simply because of demographic change and demographic cohort they find themselves in they'll have a very hard time getting their their foot through the door. The only thing that can change all of this Preston is actually politics and voters. So if you look at 2028-2032 elections in the US the composition of boomers let's say voting and the share of boomers amongst the voting population will start shrinking and if you sum all the older generation they will drop below 50% in terms of voting counts, voting shares across the voting population.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Unfortunately, that's not likely to happen. And if it happens, the house prices are going down, they are going down in a deleveraging process. So if the Federal Reserve keeps monetary policy too tight for too long, there is a moment at which unemployment rate picks up. People don't have a job anymore. House prices are unaffordable because they're too high and mortgage rates are too high on top of it. So the only release value is for house prices to drop simply because there's not going to be enough demand to meet these high prices and high mortgage rates. But at that point, prices are dropping and you probably can't afford a house anyway because you are one of the guys that is facing high interest rate, high borrowing costs and probably you lost your job. So housing prices dropping as the economy slows down, as the side effect of a recession basically, it's nothing to be particularly happy about. The situation is honestly not easy on housing and it is the poster child for wealth inequality.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Yes, right now it's really a tight spot. You can't afford anything decent because prices have gone to the moon and mortgage rates have gone to the moon, which make, again, as we said in the previously, your installment, your mortgage installment completely unaffordable against what you are buying right now. So to make housing more affordable, basically Preston is to say you want to make a leveraged, inherently leveraged assets because a house is a very leveraged asset because of mortgages, how common is to get a very high leverage on a mortgage to buy a house. It's incredible. So you're talking about a highly leveraged product, highly dependent on interest rates. You want to make that cheaper in a world where we are talking about interest rate being structurally low and credit creation to be the engine that oils the system such that this wealth effect can be reversed.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Goods and services, they're receiving dollars back, you want to charge them negative interest rates that can be complicated. Still, you could be headed towards 0%, and I think the path of least resistance for long-term bond yields because of weak demographics, because of productivity trends which are stagnant, because of a system that keeps relying on unproductive debt, keeps relying on more leverage to make the whole machine oiled the long-term perspective for long-term interest rates, especially real interest rates keeps being lower, lower and lower”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Preston, if you would go to the Arabs or anybody else who has sold commodities and get dollar in exchange for the last 10 years and you would tell them, okay, guys, so now you're going to be charged for the luxury to own these dollars. Because that's what negative interest rates are, right? You're going to be saying to an oil exporting country, you export oil, you get dollars back, and now you have to do something with these dollars. And if you want to buy treasuries, I'll give you a negative nominal return. From a political standpoint, that might be a bit complicated to accept, I would say. Actually, there are many central banks around the world that have somehow limited their euro composition of the FX reserve basket exactly for this reason, because euro yields on German government bonds were negative for so long, and they do not want to be charged for the luxury to own reserves that are resulting from their exporting ability.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Yes, pretty much. The only negative thing about the negative interest rates that can be politically complicated in the US is that don't forget the dollar is the reserve currency of the world, which means it acts as the denominator for about 70 to 80 percent of transactions and commodities and instruments about anything is priced in dollars. Basically, that's what I'm saying, right? Trades, invoices, commodities, instruments, anything is priced in dollars. So if you then, what this does is it also effectively forces or brings foreign reserve managers, so people who accumulated surpluses in dollars everywhere in the world, to have again a large pool of liquid instruments in dollars to be able to actually get their hand on them or sell them or buy more when they need to manage their domestic currency, right? So it's an effect stability mechanism.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“rally in the dollar or in 10-year treasury yields actually tends to be sharper and sharper and sharper so you're now seeing also the dollar for instance preston going all the way to highs reached only a decade ago and the dollar is sucking away liquidity from every every everything else so you will be seeing the next time that you have a systematic crisis somewhere in the world you will be seeing the Rellington year treasury yields that is at least as big as it was last time That's by the design of the system that has probably added more leverage, more complexity and more financialization in the meantime has sucked everybody in and every time you need to deleverage the problem becomes bigger and bigger so I would expect on a long-term basis that every time you see a new problem the reaction will be even”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“No, I don't think that is the bottom. So of course with these predictions you have to think about what is the time horizon for this to happen but what we are doing here. Is we are taking a system that is basically built on its core, let's say, and we are leveraging up more and more at each iteration. That's what we are doing. We are financializing the system as much as we can. We're adding leverage on the government balance sheet and on the private sector balance sheet. We are adding complexity and financialization into the system. So every time you have an unwind for some reason, last time you had it for a pandemic, next time can be for a credit crisis or it can be because of a recession or it can be because of a default. But every time you have to deleverage a system that has become bigger and bigger and more leveraged and more leveraged each and every time, it's very simple. The reaction is going to be worse and worse every single time. Actually, you can even see that in this chart. You can see that every time you had a crisis of some sort, the”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Since the 70s. After abolishing the gold standard, what we have basically done is we have made money supply completely elastic. There is nothing that pegs, pins hard money supply to anything. We can extend credit every time we want. And there is nothing that is pegging this credit creation to anything. The only thing that is pegging it to anything is the ability to afford new credit creation, which is nothing else than borrowing rates need to be low. And if the Federal Reserve wouldn't ease back all the way again, these borrowing rates wouldn't be coming down again and nobody would be able to continue to borrow, which would deleverage the system and actually cause a 2008 plus sort of outcome that nobody wants, no elected politicians actually wants to have that happen under their watch.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“How you simply are not able to borrow the same funds and to face a monthly mortgage installment rate at the new mortgage rates to buy the same as of before because borrowing rates have doubled. And so what before the median house in the US, after mortgage would cost you whatever, $1,500 a month. Now it's going to cost you $2,500 a month. Are you making a thousand more per month in salary? No, you probably are not actually inflation-adjusted terms. You're making less. So what happens is that if the Federal Reserve wouldn't ease and they would keep monetary policy very, very tight, this borrowing rates wouldn't be coming down. And as they don't come down, Preston, we simply can't afford borrowing anymore. And if we do not borrow, what happens is that we are not creating new credit. We are not oiling the credit-driven monetary policy mechanism that we have put in place.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“They do that, what happens is that as our system is based on continuous credit creation, continuous leverage, we need to feed the leverage beast and the money printing beast every single time if the Federal Reserve doesn't accommodate this process, if they keep interest rates too tight for too long, the system doesn't work anymore. Because if mortgage rates, let's make an example, with mortgages, I think it's very, very clear. Mortgage rates in America have moved from 3% to 6% in the span of only three to six months. That's the fastest ever increase in mortgage rates that has ever been recorded in the US.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Well, the reason why this can't stay down there is that if it would stay down there, it would mean the Federal Reserve wouldn't give up on their titling plans at all, Preston. So it would mean that they would keep the front-end policy very, very, very tight, even in the face of the economy slowing down.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And if we are overeating, guess what they're going to do? They're going to try and impose upon us a cycle of tight monetary policy right here, right now. As they do that, guess what happens all over again? The front end yields go up to reprice this tighter monetary policy. The private sector is like, what are you talking about? I cannot handle these rates. It's too high. I cannot borrow at these rates. I cannot buy a house at these rates. I can do anything at these rates. At the bond market, it's like, oh, you can't? Okay, so if you can't, I'm going to price that future growth and future inflation are going to come down and the earth curve tends to flatten all over again back to 2022. Unemployment rate 3.6% and the Federal Reserve is telling us they need to tighten like there's no tomorrow on top of it we have an inflation problem right now that we didn't have for the last 10 years so their commitment to tighten increases even more which guess all over again flattens the yield curve even more aggressively so”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“as unemployment rate drops. So let's say let's go from 2012 all the way down to 2020. After the great financial crisis, we did quite some damage, structural damage to the economy. And then we tried to actually fix it. So we kept economic policy and monetary policy pretty loose for a long time. And as we did that, unemployment rate actually kept grinding.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“All of a sudden much higher than they were before. Well, the bond market is going to do at the long end, so 10 years, 30 years, it's going to price that future growth and future inflation will be very weak. So the 10 year tends to prize what comes after the two years. So from year three to year 10, what's going to be the contingent result in terms of growth and inflation we're going to achieve when the Federal Reserve is going to put upon us such higher borrowing costs in the short term? Well, the result isn't going to be great. They're probably going to be forced to cut interest rate back all over again to try to stimulate the economy. And that gets priced in in lower 10-year interest rates. And as you see this happening, the shape of the yield curve is between two year and 10 year tends to flatten very aggressively all the way to actually inversion. And unemployment rate chart you show there also tracks this very, very good.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Be over the next two years, and therefore markets are somehow forced to adapt their price into what the Fed tells them the pricing has to be. This is the short end of the curve, the two-year treasury yields. The 10-year treasury yields, they're completely different beasts. A long and bond deal tends to reflect the perspective for structural growth and inflation over the next 10 years, right? So if the Federal Reserve is forcing upon us a cycle of tightening, which is going to bring in their head funds rate all the way up to three and a half, 3.8, 4%. But the bond market is smelling precise and that these very tight monetary policy stands right now over the next two years is actually way too tight for what the economy can handle because of weak demographics, because of productivity rates, which are not exploding, because excessive debt in the public and in the private sector is very hard to be sustained and refinanced if interest rates and borrowing costs”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“So, first, let's explain why, I think. And then this very nice chart you brought with unemployment rate, which also helps us bring everything into one picture. The reason why a sharply flattening and inverting yield curve between 10 years and two-year predicts economic slowdowns is the following. Let's take the example of now. The two-year government bond yields in the US have actually spiked up very aggressively over the last six to seven months. And why? Because two-year government bond deals have to reflect by design the very shorter monetary policy the Federal Reserve will try to force upon markets. A two-year yield is nothing else than the sum of all Fed funds rates over the next two years, you can say. So the discounted value of all the Fed funds future prevailing, we will see over the next two years. You can think the Federal Reserve has quite a way to when it comes to imposing what the monetary policy and therefore the Fed funds will.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Yes, it is. The eel curve is a super good economist, actually, I have to say. It has a almost immaculate track record in predicting sharp economic slowdowns. Now, why do I say that instead of recessions? Because there have been maybe a couple of cases in the past where an inverted yield curve between 10 year and two year has failed to predict a recession, but nevertheless has predicted quite a sharp economic slowdown. And when it comes to investing Preston and protecting our purchasing power, all that matters is that we are able to understand the change in cycles. Is growth accelerating? Is growth sharply decelerating? That's all we need to understand. If it turns into a recession, okay, but if growth is moving from four to zero percent, that's not a recession because it's not negative, but it's damn if it is a strong economic slowdown, right? And so from that perspective, a flattening yield curve between 10 year and two year is a fantastic.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“So I think at the end Europe will try to do whatever it's necessary to try and stick together. It's becoming every time more and more and more. And so it's becoming every time more and more difficult to achieve.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“you can negotiate contracts when it comes to energy security that should be much better than your bilateral negotiations. Italy doesn't, sorry, the Eurozone hasn't done a great job at the energy security at all, but in principle being a block rather than a single country delivers disadvantages. It also delivers advantages for weaker countries because you can argue that also being part of this bigger bloc to a certain extent allows you to have closer connections to neighboring countries, allows you to have a different way when it comes to geopolitical negotiations. So the sort of the incentive scheme is just good enough for everybody to want it to stick into it a press term while people do not like uncertainty and getting out of a project which has lasted for 20 years and has brought peace and a certain amount of wealth increase over the last 20 years, the uncertainty that getting out would provoke is actually pretty big.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“I have to say that it's a chicken and egg game, or actually it's a game theory problem here because the Eurozone is roundabout convenient enough for all the members to still be part of the Eurozone. And why? Because the northern European countries have benefited from a much weaker currency than in reality they would have had if it wasn't for the Euro. They would have had a Deutsche Mark or another Northern European domestic currency, which would have been much stronger than the Euro was. So by design of the Eurozone, they effectively had this competitive advantage of being able to being export driven nation for most cases and being very productive and relying on a weaker currency than their structural domestic currency should have been, they effectively have ripped quite some benefits out of the Eurozone. And on top of it, do not forget the geopolitical benefits that the Eurozone brings, which is you can negotiate if you do it smart enough.”
2022-08-03 · We Study Billionaires · BTC089: European Fragmentation Policy & Mounting Global Pressures w/ Alf Pecca (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT