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Taper Will Most Definitely Come, and an Interview With Michael Novogratz of Galaxy Digital

by Risk Reversal Media
August 20th 2021
01:20:58
Description
Guy, Dan and Danny discuss risks to the rally (3:06), Nvidia’s massive run (13:12), Robinhood’s earnings (18:56), Michael Burry’s big short on the ARKK ETF (22:41), and Danny “Rips Off The Tape” on us... More
balance your trading strategy by adding futures. Cmi group helps you manage risk and capture opportunities in all market environments, capitalize on around the clock access to highly liquid global futures and options markets across all major asset classes, just visit your online broker and get started plug into valuable educational materials and trading tools and see what adding futures can do for you at CMI group dot com slash on the table. Hey everyone, it's dan here, if you like on the tape you'll love trading spaces guy and I do it every monday and Wednesday live on twitter spaces, we break down the biggest market moving headlines of the day and take your questions. We're also joined by some pretty cool guests so check it out. All you have to do is follow at underscore trading spaces on twitter and sign up for our email reminders at risk reversal dot com. That's every monday and Wednesday live at one p.m. Eastern on twitter brought to you by CMI group before we get into it. If you follow me on twitter, you may have noticed that I've been trolling, that's the word right, dan trolling steve cohen, the owner of the new york mets because he is, listen, I fail at many things, he is failing at the twitter and Danny actually said to me earlier today that I don't hate the mets and I'm actually thinking about this, I actually hate met fans and that's very, I mean that's, that's deep me, that's you, that's no, no, I'm saying that's me, it's hard not to like that team if the Met fans annoy you, I get it.

But that team is hard not to root for. I mean they're scrambling around blue collar guys, you know, it's easy for me to hate the mets, but I understand what you're saying, Danny, you're deep on this one that I got to keep on it. You're my therapist. I also tell yankee fans that Jacob deGrom when he's healthy and then listen, there's a lot to be said. He's Hall of Famer probably anyway, but he's got to stay healthy. He's Mariano Rivera for nine innings and I asked yankee fans that and someone you know, and then they think about like, you know what the guy, he may be the best picture of our lifetime when he's healthy. I have said that the run that he'd be on prior to his injury is the best run a pitcher's hat over that time period period period, maybe bob Gibson, but that's as close as you know, put Gibson's numbers up and didn't see dan hold on back to back to back to trolling steve cohen for those who don't know one of the most successful hedge fund managers, let's say in the last 30 years or so, he bought the mets last year and after being pretty supportive little rah rah on the twitter, right, you know, like kind of rallying the troops when their season started to take a little dip this summer. What did he tweet guy, the tweet is amazing and I think that finally people who know him just you know I started my career there.

I don't think he knows my name. I sat 10 ft away from him for a year but people who know him were like that I think he called you like that tweet is about right like that's how that's how professional he treats his first baseman like he does his portfolio manager. You go here is the tweet steve cohen earlier this week it's hard to understand how professional hitters can be this unproductive. The best teams have a more disciplined approach. The slugging and O. P. S. Numbers don't lie. So your comment was trolling what he was doing was sub tweeting his own players. That's called a sub tweet by the way you're listening to on the tape with dan Nathan, Danny moses said me guy adami it's been another ridiculous week for the markets. We're watching stocks off their record highs commodities are getting slammed and talk of the dreaded fed taper dan Nathan. Later we'll go off the tape with mike Novogratz, founder and Ceo of Galaxy Digital. But let's get started right now the market is a bit of a triple threat.

It's facing right now anxiety over covid china by the way this stuff going on in china is legit and fed tapering you know what it's amazing. I actually thought at one point this week the market might be ready for that. 10 12 15% correction. But it continues to sort of shrug things off. And I find myself Flomax this word I saw earlier on twitter. I find myself a bit flummoxed here. The level of complacency. When you're talking about the markets, right? We see crude oil just getting annihilated down about 15 or 16% from the highs that it made. Just in early July, we're seeing other industrial commodities do the same. Copper has had a big move. I mean, there's lots of risk assets out there that are saying something very different that I think the stock market with the S&P up 17% about 1% from its all time highs And the NASDAQ. And then obviously the Russell 2000 small caps are telling a very different story. But I guess, you know, guy, you bring up passive investing, you know, bring up tina. That's just uh, there's no alternative.

It's a tale of two cities when it comes to markets here. I think investors are hesitant to take their money completely out of the market still. And I get it because they think the Federal probably change course if this tapering spooks people too much. Speaking of china Softbank's out there selling everything that's not what you saw the deal this morning. Doordash, you know, suddenly is a great way of telegraphing things obviously into the marketplace and that's a result obviously of china among some other private potential that are out there. That's been a big buyer of things that have been out there for a long time. And we've said this all along, I know the S and P will probably make new highs when this comes out tomorrow and the market will rebound. It's unhealthy. It's been unhealthy now for several weeks. And there are stocks that are getting obliterated down 20 down, 30 down 40%. And I'll go back to the comparison to 2000 and again, that's 21 years ago. We're gonna get mike's thoughts on this later, 21 years ago. That's a generational of investors didn't see what that feels like when momentum ends. You don't buy a 40 P. Stock at a 34 P. Stock when it's going down. If it's a normal growth company, I'm saying where's the bottom? So it's happening. But to Dance Point, he's been saying this all along F mega F.

U. F. Everyone. It's been, it stayed in the market at this point here is a stat earlier in the week. And Liz ann sonders of Schwab put this out on twitter, it was that 84% of the stocks in the S and P 500 were above their 200 day moving average, but only like 46% in the NASDAQ were above their 200 day moving average. So that kind of speaks to the weakening breath that you have in the NASDAQ. And listen, we know that those top five or six games make up nearly 50% of the NASDAQ 100 they make up 25% of the S. And P. 500. So less of an impact in the S. And P. 500. And it just seems to be greater breath. We're seeing better rotations I guess in the S. And P. 500. You look at a day like thursday here when the market was down a little bit that was followed through from Wednesday's decline. And you're seeing what led the way back. It was those massive tech names. So I actually don't think guys that that's that Robin Hood, Wall Street bets trader. I think that is to your point guy. I think that is passive investing because they're always coming for those two major indices. The money just continues to flow in regardless.

And I want to just sort of stay on china because I find this fascinating. Alibaba is not a small company by any metric. Even with the selloff we've seen. And oh by the way, this was a $319 stock on Halloween of last year. That's when Jack Ma sort of disappeared. We saw Alibaba this week trade with a 1 50 handle. I think it traded down to 1 59 and change that is a staggering move that we've seen in the stock that still has a market cap of 450 or so billion dollars. And you know, one of the things that I've said incorrectly so far, You know, I thought this weakness in these individual names and oh, by the way, the FX I, which is trading towards levels we haven't seen in a year and a half was going to find its way into our broader market and it hasn't. And I'm surprised by that, but maybe it speaks to exactly that passive investing rules today. And we're gonna talk about Robin Hood later. But there was a point, there was a comment that they made on the conference call, which is about the third quarter account growth. It's going to be quote considerably lower. And they're actually citing the drop in revenue result of lack of volatility, which I don't think they know what volatility is because the stuff that they trade, we'll talk about is volatile.

But that's telling me the lack of account openings, We are nearing the end of kind of the retail, Robin Hood had no question, has had a huge impact on market levels of market participation. If that's slowing. Where's the next leg coming of buyers? The incremental buyer coming. I thought that was telling Alibaba, you know, before 2021 was a stock that people had on their trillion dollar market cap radar. It was almost there. It's been cut in half now. The guy who says about 4 50 and the fact that you can have a company, this is not something that's happened specific to their business was regulatory action. I think as it started with was an ant financial. And so I guess the question is, is something broader going on in china as it relates to their consumer and consumer demand. And I think back to August of 2015, I think it was this week in August 2015. Remember when the chinese devalued their one and remember the reverberations in almost every market around the world. So it is interesting that it seems fairly isolated to china right now. But is there we've seen disappointing economic data out of china on numerous stats over the last couple of weeks, Is that likely to come to our shores?

Yeah, it's interesting you mentioned that because it was august of 2000 and 15, 6 years ago, effectively when china did the value and by february of the ensuing year we saw an S. And P cratering, I actually remember the day the market got crushed on that low tick and I think it was 18 oh six or so in the S and P. I'm probably off, but I'm pretty close. That was the day that you had jp morgan come out. Jamie diamond came out and said he was actually personally buying his own stock. He had something coming out on the opec front and you had some sort of dead offering, that sort of took deutsche bank off the mat. And the market never looked back, but it was interesting, there was about five or six months prior to the market cratering where you saw that devil. We'll see what I also found interesting dan you like this group, widespread panic. Athens Georgia, baby Athens Georgia. By the way, R. E. M. From Athens Georgia. I mean a lot of great bands of company moses from Danny moses. Athens Georgia, Danny moses from after. I didn't I didn't know that. You learned something on the on the table. You know, guy, widespread panic Was the last band that I saw before.

The pandemic at the Beacon Theatre on February 28, 2020. I mentioned panic because the city panic euphoria model remains extraordinarily elevated and it's warning of coming losses now that city some sort of doubling down on a call they made earlier this month where I think they actually downgraded. It went neutral on us stocks, by the way, the same day That Goldman Sachs I believe put a $4700 price point on the S&P. It's interesting that on the same day Goldman Sachs. But one way City went the other, but I guess my point is sitting on to something, you know, Goldman thinks that rates are going lower in the 10 year. And they said all the cash on the sidelines market going higher. City said 10 year yields going to 2% and that's gonna be headwinds for the market. Listen, I'm in a city camp, but I've been wrong, Danny moses both might happen. Neither are going, oh, I like that. Neither are good by the way. One tells you things are slowing down and the other tells you, we have massive potential inflation that's run away. I don't think we're gonna get runaway inflation because I believe over time the economy will slow enough. We talked about stagflation before that will rectify itself and money will come out of equities.

Where will it go? It will go into the asset, the most liquid assets in the world. Us Treasuries where people believe they can run and hide Where people believe that the Fed will come back and end this tapering and not only by $120 billion $240 billion dollars a month, then you guys, they're not ending tapering. If they're going to start tapering, they're not ending in anytime soon. And I think really what it does is just kind of pushes off the coming off the desert. The zero interest rate policy. The first paper that went around several years ago, they said taper, they started in December 2013 and they paused its positive, Right? I'm just saying, I just think the market is trained that way now. But I think once you get some of that initial tantrum out of the way, You know, and maybe that's what we're having a bit of fits and starts right here. I just don't think the taper is going to be particularly impactful, it really speaks to when they start raising rates. They're definitely Trying to condition the market this time. This flies in the face of sort of the October 2018 Jerome Powell who just walked up on stage and seemingly out of nowhere said oh by the way we're gonna have a systematic reduction of our balance sheet and went on autopilot in terms of rate hikes and the market obviously didn't like that.

Why Dan Nathan because the market went down 19.9%. I'm gonna tell you right now, Palace scared. Yeah, he should be he and Andy honestly I think he's going to come across the Jackson hole is I have no idea what's going to happen here. I really believe he's got not going to exude confidence in that call. I think he's gonna 52-48 as we used to say. So here's The thing, what would be the problem let's say, hypothetically they guide to $10 billion dollars less a meeting or whatever a month however they do it. And let's say the stock market came in, you know, 567% or something like that's like a garden variety. Here's a sell off, what would it matter? You know what I'm saying like. Well really what here's the problem. The problem is that if rates actually do move higher and the cost of fund the U. S. Government moves higher physically. It's a problem. So there's two separate issues here. So we're about to pass this infrastructure. Well maybe if congress ever gets together again we're about to you know, do all these things that cost money and again we talked about the debt. It's very high. So financing the debt that can compound on itself. I'm probably getting ahead. I Actually we've talked about that for months. I don't think rates are going, you know when when Drone Powell had to do an about face in 2018 because the stock market sold off 19.9%.

Thank you. Dot thank you. What did they do? They changed their tune but I just don't think the 10 year treasury what got to 3.2%. I mean here we are at 1.2% to your point Danny, the flight to quality in the U. S. Treasuries is kind of counteracting a little bit what they might want to do to kind of combat any rise in prices. We like to look at single stocks from time to time. And earlier this week we heard from in video, I still submit despite valuation. I mean whatever metric you want to look at and video is expensive but they put out a pretty great quarter in my opinion Margins continued to seemingly improve. I mean I thought just in terms of single stock, that's interesting. I will say that's the name that needs to close above 210 to take the next leg higher. It's gonna be interesting to see what happens over the coming weeks. What I think is fascinating about NVIDIA is that here's a name like five years ago I think a lot of investors might have thought was like a Nici semiconductor. It was five years ago and now it has a half a trillion dollar market cap and it's trading at about 17 times next year is expected sales. And that that is truly astounding.

Especially in a group for the most part that trades below a market multiple if you look at many of their peers and so to me that's the one thing and I think this is where in a raging bull market who gives a crap about valuation right? Like it just doesn't matter in hindsight. People like oh well it was trading 43 times earnings and 17 times the out year. Here's the thing. I think you have to focus on fiscal 2023. That's next year, consensus estimates is calling for about 11% 12% increase in E. P. S. And about a 12% increase in sales. So if that actually ends up being correct then this is a very very very expensive stock. Now obviously data center and gaming or two of their biggest areas of growth And those were fantastic during the pandemic. But the only thing listen what I try to do here is uh stacks up 50% of the year. I'm gonna say you go and buy a half a trillion dollar market cap, semiconductor trading at a crazy multiple. No, but I think I bring it up in a dan dan, I mentioned your thoughts, your baseball family talked about the mets earlier.

Baseball ray, go ahead and do that again. Baseball, you had a gun pointed at me, Go ahead. What's that from? It's so good. Let's field of dreams. That's right, that's right, that's right. And it's topical because obviously we saw the Yankees unfortunately Darth Vader to let me hear that. I'll do that when we talk about, okay, I bring up, I bring up in video and I bring up baseball because intel got caught napping, they got picked off first base and the world is absolutely passed him by. And it's, you know, it's interesting a lot of people say these huge companies can't turn the boat around. Well Microsoft figured it out. I mean they did an amazing 1 80 in my opinion. So intel just sort of got caught napping in my opinion and they've opened the door to two companies am d on one side and in video on the other and intel sort of been left for dead. Do you think that these companies, you know, they have to adapt and they are big companies, but the world is changing very quickly. Really fascinating what you said about Intel. I mean Intel, in the 2000s they missed mobile, they missed most about it was right in front of them.

And so when you think about where they were, as far as computers, computing, I guess you would call it listen, you know, Microsoft people were very skeptical even after sata took over there. Like they're taking these things that they used to charge a licensing fee and now they're kind of streaming it and you're gonna pay a recurring thing. Well they were clearly ahead of the curve and they have to give bending off over there at Salesforce. And those guys have been able to command these crazy evaluations and that's why Microsoft grew into that valuation. People love recurring revenue. It's like your recurring revenue is that you know, it's not well that's why IBM used to get such a premium multiple because they had that recurring and then that went, well that's another story for another day. But you're Ray kinsella field of dreams saying I'm digging it. But you know what? You are moonlight graham because you would give as dan asked last week, would you trade everything just for that one moment. The guy left his life just so he could take one at bat, took a walk, went to first base and then went into the bushes and that was it. I actually think he had a sac fly is what I think he did in that at bat in the field of dreams game. But whatever it encounters an at bat, you're probably right, whatever doesn't matter, but I would be also the guy that I would leave the field to go help that little girl cough up the hot dog.

Here's another question for you. Did it, did walmart cough up the hot dog because we talked about wal mart a couple weeks ago, I thought listen, I thought it was another strong quarter, but the market's not rewarding. It actually is. I think first of all, they paid the dividend, it went ex dividend, not that it's big, but it's, it's enough to, you know, notice charts and breakout mode, I think, you know, it's not a sexy play, but as relates to Amazon have said before, walmart already had the infrastructure that Amazon has been trying to build noted by amazon's announcement today, an article in the journal that the room to be opening up retail stores everywhere. So amazon has effectively been out of space in their fulfilled by amazon wal mart's building walmart fulfillment services, but they have a much more natural feet here. So they're getting more into tech. We talked about before the multiple is gonna start to expand. I don't think the to converge necessarily, but you're seeing it now. Yeah, I gotta tell you this because I'm sure we mentioned it on the podcast in july when amazon broke out above its september 2020 high, it was about 35 50 or something and I've been in this range have been training between like 35 50 And as low as 20 900 since last September and when it broke out prior to its earnings, you're like up the smart money.

You know, they know this is it and a new range, the fact that this has been down 15% from those highs giving back, you know, hundreds of billions of dollars a market cap. And you could say I was a bad quarter of bad guidance. They've had that before. Let's extrapolate. You look at the Apple just made a new all time high yesterday, google alphabet has been doing the same thing Microsoft today making a new all time high. If you don't think that these stocks can sell off 10 15 20% go back to last september 2020 when the S and P. And the NASDAQ each sold off about 10% an Apple and amazon each sold off 20%. I think the level of complacency right here. The fact that you were staring at this amazon chart and you see that decline on fundamental news and you're not worried about similar sort of names. Very crowded names. It seems very odd to me. We heard from Robin Hood as a publicly traded company. Their first earnings report. Watch what I'm doing here dropped earlier this week. And again, I mean this is basically a crypto company. I know Danny you have some thoughts on this one, but I actually said on fast money after the report came out.

I'm like, look, I don't particularly get it. But what I do get is this their account size will continue to grow as their client becomes more wealthy and they're gonna get more clients. So just on the back of that alone you might think it's a casino and a gambling app and maybe it is, but that might be okay dan. Yeah, the assumption though that those clients as their balances grow, might not leave and go to another institution that maybe offers more services. I mean, you know, we were talking about it yesterday as those numbers were coming out, I mean if I were putting this app in a folder on my iphone, it would be placed in the folder with draftkings coin base fanduel. I mean it really would be what my my point is is like it really is an entertainment and it's a gambling app. It is, as you said from the outside, it is a crypto company. So more than half of the trading fees came from crypto right? So what was surprising nothing in the quarter, we already knew what the revenues were going to be. They filed it right before they went public had to give an update on second quarter, but you're telling me that 62% of all the crypto trading was does coin, so no dan they're not building wealth for the future of growing accounts, I think they're now have put themselves out there massively at risk and go back to the payment for order flow 620.44.

Whether it gets shut down regulated, it can only go one way, it can't get better for them. So congratulations on the stock based comp on the charge in the court of congratulations. But The stock has no no reason being where it is trading right now, in my opinion, I'm not sure that, but there's no reason being there, but it's going to be, who knows, probably 55 tomorrow and something it goes back to what the innovation was. Hear people talk about democratizing access to the markets fine. I mean, I don't really think that's innovative. I'm really what was innovative and Danny, I think you've mentioned this A couple of occasions is that they took trading 20 basically and they forced the whole industry to do that. But if you look at some of these huge companies that They're trying to take market share from their trading revenue is not even a big deal. They have trillions of dollars in balances. You know, they have tens of millions of accounts, they have other ways of kind of making money off those people. So $5 trades didn't really matter. So I'm just not sure what the innovation is, I would say this if you want to focus on crypto obviously coin base here, this is a huge competitive issue for them. And and let me tell you this if the biggest pillar of the bear case for coin base is their fees right now then Robin Hood has the potential to take market share from them by just crushing fees.

And so that would be something that I really want to pay attention to. The existential risk to Robin Hood is exactly what you mentioned before. If this payment for order flow goes away, that's it. Game's over. I just don't think it's going away. So I think Robin Hood can grow who's bothered by Danny? I'm gonna ask, you know, I don't let to a separate episode on that who's bothered by but right now the customers don't really because they don't know what, they don't know, they don't know what they don't know and it's not this trading in dark not lit market. Do you think that the regulatory issue like this is a huge issue for them. It's gonna be something that's gonna be dogging them. As long as they primarily make their, let me just say this renewable market still barricaded. It feels no one cares about any of this shit until the market goes down. It's when the market goes down and people want a scapegoat then you'll get it so you're not gonna get anything while the markets with me. I'm just I'm just upset, we should do this, we should do it on the tape back slash big short E. T. F. And we should basically that's a great that's an easy segue.

You just made into Kathy would Michael berg there it is there and check it out. They think it's a bit of a natural segue here because earlier this week, Michael Burry, Michael. So what I did this the way it's diction is very important. See the way enunciate my words. Well, he came out and talked about buying options, put options on Cathy Wood's RK E T F basically. Look, it's another way to be short. Tesla, I think we all understand that, but it was interesting because then Cathy Wood was on the CNBC earlier this week. So, Danny, you have some background. I will tell you this. Michael Burry doesn't just randomly trade thing agreed he does his work and so 100% say it's just Tesla. I I know I know you're saying that, but he's looked at it, he's looked at all these small cap names that ran there, which he owns 30% of He knows that's not sustainable. He sees the way that, you know, she probably comes up with her thought process and her modeling and he doesn't agree with it. So he figures that's the best D T F. I get short. Why would I buy calls on the vics? Or puts on the queues.

I'll just short Kathy would because I think the process is flawed. So they couldn't get into it directly and by the way, I haven't talked to Michael burry and probably two years we email every once in a while. I'm begging him if you're out there, Michael to come on the podcast here, I would love to get you steven porter and Vinnie in here. But her answered him was I think he was good at what he did back then, but he doesn't understand innovation. Well you know what, he did understand innovation in the bond market. He went after he slaughtered it right? He would have just ordered and to his credit, Michael Berry is one of these guys who will always be early and most of the time right? And to be able to stay in that trade, the guy was talking about water rights and water shortage 10 years ago. You know the guy's a deep thinker. Do you think it's interesting that this arc innovation E T F. Is down 7% on the year? It's down 30% from its highs and I think one of you guys just said that this might be another way too short. Tesla and it really isn't. If you think about Tesla's about 10% of the weight, there's Teladoc that thing is down a lot from its highs that's the second largest holding Tesla's obviously down a lot roque who is up a lot coin base down a lot from its highs Unity software recent I P.

O down from its high zoom down from its highs, I mean they're going after big names. I mean this is kind of like some whale hunting that's already they're already been wounded a little bit here. Yeah. You know again I'm sure there's names in there that he probably wouldn't be single name short. I don't want to speak for him. But I think on the whole I think if you keep going down that list you'll find very illiquid names right that are in there. This is a significant bet. I mean he bought 2355 puts against that E. T. F. I mean that's not just pedestrian stuff and it's interesting because then Cathy would obviously tweeted because that's what people do in today's world. I'm quoting, I do not believe that he, Michael Berry understands the fundamentals that are creating explosive growth, an investment opportunities in the innovation space. He definitely understands the investment opportunity. That opportunity is too short. This CTF. So listen I we'll see how this plays out. I think everyone would agree that that portfolio doesn't have tons of upside the chart looks absolutely horrendous. Thank you dan for flashing that to me. I don't even need to be a technician to tell you that that just broke the uptrend, that's been in place from the May lows and and granted it did go from like $98 to 130 to its recent highs in july just broke that uptrend.

It's been in a downtrend. Its all time. High was up there at 1 60 back in february. That was when Tesla was at its all time highs. So you know again listen I think what Cathy does, she's really transparent, she comes on tv she tweets they put out their annual innovative report, their quarterly reports. I mean she's saying you know you want to short it shorted that puts on the thing, she knew what she was opening herself up. Listen, the one thing about Kathy would I think that she believes what she says and so you can't take that away from her Danny in terms of Tesla now you've got the government once again investigating is Tesla going to be sort of as Tesla goes well the market Go. I do think that if you told me without telling me where Tesla was that the S&P was down 30% from what I will tell you that Tesla's down more than that. I don't know when that's going to happen. But I'm saying it will be I believe the stock that represents everything in this market that is wrong with valuation, wrong with corporate governance, wrong with euphoria. It has everything. Just listen, there's a lot of companies like that but this happens to be the biggest one that size. And I will tell you this maybe the sec can stop letting firms like hindenburg research do their work for them.

Look what hindenburg research has uncovered. They got the Nicola, they got the Lordstown hindenburg, right. And it's from their reports in Clover. It's their reports. The sec started to look into things. Well, there's been a lot of reports written on Tesla and I believe that the sec, we've said this before, it doesn't want to be responsible or blamed for taking a stock down to letting things take its course. Now now you have an N. H. T. S. A. You know, investigation into autopilot. Now you have two senators calling for the FTC to scrutinize the fees. The Federal Trade Commission. Yes, you sold the product to a consumer. That does not work. You've been charging the consumer for a product that does not work. Not only does it not work, it can kill you. So those are, that's a bad parlay right there. So to Danny's point about Tesla being down, you know, versus the S and P. Or that sort of if that were to happen. So, so Tesla was already ripping in the start of 2020. Pre pandemic got up to 200 they got as low as 70. And then by the end of the year it was trading, I don't know, near $400. It traded almost $900 earlier this year. Here we are at 6 74 draw a line From the low in March of 2020 and connect all the dots all the way to where it is right now.

And you have a massive uptrend that is sitting right on here. We need carter worth to give us a quick breakfast. I Love Carter Braxton worth. So it's interesting. So I have my Tahoe. Okay, it's a 2001 Tahoe. It's got, it is quarter of a million miles and my wife has been on me for a while to sell the car and when those used car numbers came out a while back, I'm like, here's my opportunity. I'm gonna say this. It makes me feel bad, but here's my opportunity to flee. Somebody. Somebody out there is looking for a 20 year old Tahoe with a quarter of million miles. So I put it up for sale and maybe my price is too high. But I bring up used cars Danny because we're now going to do a little segment. We call the rot. The Danny moses rip off the tape in the used car world. The mic is yours. People will come Ray come too short. These stocks for reasons they can't even fathom. Anyway, maybe we should get James Earl jones is the best night of all time. Anyway, so there's something called the Mannheim for those people out there, wait a second.

You knew I was going to do this is that mannheim as in Lou Mannheim and man looks in the abyss. Um, that is one of the great, I love, but I like you anyway, go ahead. It might as well be because a little mannheim lou mannheim index. So it comes out monthly, it measures used cars values that are out there. They've been kind of slacking off here the last couple months. Why don't mention that? We talked a couple of weeks ago just about these stocks in general, how they're trading looks cheap on this year's pE but looks very expensive. You go to the out years. But the source of a lot of income for a lot of these used car companies is the securitization market. What does that mean? They make loans to guide Tommy on the lot to go buy a 1999 dodge something and the car is, you know, $17,000. It was 13, but that's fine because it looks 10. You alone will make it a seven year loan instead of a five year loan, which is another problem going on, extended duration, never good. And they get you into the car, they do the securitization, they do the loan, they package it into securitization, it goes into the market. Well, we saw in the 2008 financial crisis nine, what happened?

The government had to bail out the entire auto securitization market with the talf, the term asset back loan facility that happened right And again, back to the moral hazard thing. What's been happening? Let's look at a couple examples of some companies that reported recently, look at America's car marked down on your, on your Bloomberg, their Crm t right there used car dealership basically and they do financing on the spot. The stock got hammered. Why, ironically The prices are so high now that they're offering loans there so long in duration that the monthly payments aren't enough from a margin perspective they can make money. So that's an issue. But I want to talk about car Vonna here a second and I just think it's worthwhile. I don't think people again go back 20 years ago, didn't know 12 years don't even know about the securitization market and backing up. People know about mortgages that get securitized. People know about student loans, it gets securitized. Well autos of $1.5 trillion market of securitizations anyway, the performance is peaked in subprime. I would say used car market for securitisation subprime in particular, people are buying cars. Think about this 57 year loans.

Guy, give me your attention here with your, what, what if they default on these, which by the way they default. That's what this market is for. What do they start defaulting on them? Who owns that car? Where does that go? Guess where it goes, goes back into the trust or the bank that owns it? An evaluation that never made sense. So pick up trucks have dropped in the last month. That's the kind of the first sign for me of what happened, I'll associate that with the homebuilders survey, which has been dropping. Also, associate pickup trucks and building and construction kind of together. But carbon a sold in the first half of 2021 $3.1 billion of loans into securitizations, right? That's up 100% year over year. Good for them. These used car companies are supposed to by definition sense of financial crisis, maintain 5% ownership of the securitizations of which they create. They normally on the bottom piece of the same with saying that happened in the housing market, why these mortgage companies they offloaded and they grow on the balance sheet. So I know this is getting a little bit maybe to gradually, but they have an affiliated company that's basically run by the Ceos father that services the loans for him. And what does Carbonneau do?

They don't keep 5% They go out and buy 5% of the securitization itself. Again, I'm getting technical in nature. There was an article written the Wall Street Journal all tweeted out, just go read about it. I'm not even sure Carbonneau right now because other fish to fry. But it is going to be the poster child for what I believe is the used car market and the used car financing market. And listen, Carmax is a great company, great business model Autonation, great company, but earnings as a percentage of earnings for all these companies. The securitization mark has provided a massive boost that is not sustainable, especially if used car prices go down last thing guy when you drive a car off a lot unless it's a, you know, one of your vintage 100 Ferrari's that are made, it's down 30% when you drive it. Imagine a used car driving off of a lot. Sorry, that's it done with that. Well, I will tell you this about Car Vonna. Their sales for 2021 are supposed to be up 110% year every year. So about 5.6 billion in 2020, which was also up 42%. So to nearly 12 billion this year, they're still losing money. They're still losing money making the only money they're making money only because of securitization, they have a $56 billion dollar market cap and we've done a little.

Would you rather on fast money? I have a fast pitch guy. Autonation on a relative basis to carve on a because to me They're doing 50% of their sales and their primarily new cars online. And if car Vonna has that valuation for the reasons that people don't know which is what you're just telling us is because they have this online model that supposedly is the new way to buy cars that doesn't make. Listen, they had that I want to say one of the things this relates. I always say not dot your I's and cross your teas, Read your Q's and K's or 10-Q. Comes out quarterly, your 10-K comes out annually. Grant thornton is the auditor for Car Vonna they actually said and they're not accusing them of anything. But they said on the audit, it says this issue of the securitization for them is a quote critical audit matter in 2019 and 2020. I'm sure it's going to be a continued, but again, someone to write a show report and the sec might start paying attention. But you know when they won't pay attention, not when the stocks at 3 50 when it's 125 sec opens up investigation in any way. I mean that stock Carbonneau went from 60 I think that it's low in March of 2020 just traded up to 3 75 or some crazy thing and it does, dan mentioned the market cap, it's significant.

I will say this. The other things you mentioned 10 cues and all those things and blah, blah, blah. I don't, I don't read any of that stuff. I read the sports page but 13 chefs came out. Third point your fan of the third point of course they liquidated their 400,000 share position in carbon adjust something to put out there if you're playing our home game but I appreciate what you did there, Danny. One last thing please. Car Vontaze market cap is greater than ford and I know that we used to play that game a lot with Tesla and ford and GM or whatever didn't work out too well, but that doesn't make a heck of a lot of, you know, again, they don't like ford and GM, they service their loans, right? They keep them on balancing, they don't take gain on sale, they don't sell those things up front and do that. They saw the car, right? They got them into trouble back in the financial crisis. Anyway. I think people believe auto securitization market don't get bailed out. Here comes the government just to wrap this up to Danny. The total auto securitization market 1.5 somewhere I want to have Children I believe don't at me if that's not right, but it's somewhere which is about the same as the school loans. What's up? But going back to the financial crisis, I mean those were some of the Canaries in the coal mine, weren't we seeing subprime defaults in autos that led to that.

And then once you have one domino fall, they all kind of worked Well, it's funny people pay their car first. So if you're living paycheck to paycheck, you have a job, you pay your car before you pay your rent. And so I think part of this obviously with steamy checks going and people going out and buying cars, but it is not sustainable used cars. Guys wake up, you don't think 2,014 Christ with 40,000 miles on it, it's going down in value. The more miles you put on it, so there'll be people stuck with this, but it's going to be again in the loan market. It won't be a devastating deal. But to the companies that have these things on boundaries, Let's make a market on guide. I'm in 2001 Chevy time. I think I'm three at five. That's a good Market. I put it out for like 74 99 figuring somebody out there on Carbonara on, on facebook sales with like what's the question? I forgot the question. How much is my car much making a market on the two 1001 time my, my son had a pickup truck. Right? He's a general contractor, he's young, he's a student, but he has a Gc Gc. So I begged him, I made him by his own car, pickup trucks a month ago. I said sell it. He goes, you made me sell Bitcoin at 100 bucks.

I'm telling you, I got this one. Right, trust me, I probably got it right. You can sell it for $57,000. Yeah. For whatever the dodge ram 2500. Don't even know what the thing was, but for what he paid for it 18 months ago. What do you think Ray Liotta trips? I mentioned Ray Liotta because people don't realize he was infielder kidding me, he was shoeless joe any movie. I shouldn't say anybody look at you. I love when you do that. Ray Liotta movies are great. I love Ray Liotta. We share the same birthday by the way, if anybody is playing our home game. And just to sort of tie up thank you to tie a bow on this entire thing as we sit here today. You know, we can wax poetic all we want but the market, for whatever reason doesn't See all this shit we just talked about for the last 40 minutes. The market just doesn't seem to care about. It will be interesting to see if no vote. That would be Mike Novogratz cares. And when we come back we're going to have Mike Novogratz join us on the table with CMI Group Micro futures and options.

You can get the same access and capital efficiencies of our standard contracts with less upfront financial commitment, diversify your portfolio and add flexibility by trading CmI Group Micro contracts and precious metals. FX Energy and equity indices, learn more about what adding futures can do for you at cmI Group dot com backslash Micro's Mike Novogratz is the founder, Ceo and chairman of Galaxy Digital Financial services and investment Management company in the digital asset Crypto and Blockchain technology sectors. He's one of the earliest and most active investors in the Crypto space. First buying Bitcoin back in 2000 and 13. Mike was formerly a partner and president of Fortress Investment Group and spent more than a decade At Goldman Sachs. He served on the New York Federal Reserves Investment Advisory Committee from 2012 to 2015 and was a helicopter pilot in the United States Army Mike Welcome to on the tape As you know, we probably coincided our careers at Goldman Sachs, you are far more successful than I, but I was a fan of yours long before we met, so it's a real honor to have you here.

I know a guy, both dan and dani have some macro questions but I just want to start this way. You come from an amazing family. Your father was at West Point guy, I think he won the Newt Rockne award, new york post just wrote an article about your family, comparing it to the Kennedys. The similarities are obvious, but the one thing that sticks out to me is you're not from a family of wealth, you're from a basically an army family guys and gals that really had to do things on their own. Can you speak to your upbringing, your father, all those things that got you where you are today. Yeah, listen, you know, I had a great family, I have a great family, were a big tribe, you know, we grew up middle class, my mother was very aspirational. It was kind of a joke. They wrote that article because I always kidded my mother that she wanted us to be like the Kennedys, I mean she named my daughter or my first sister Jacqueline, my brother robert, I've got a brother john john, you know, she got married in 1960 so there was a little bit of family joking about it. But my mom was very aspirational.

She in a very positive way, just always told us we could do whatever he wanted to do and growing up without stuff makes you commercial when we would complain that the other kids have really fancy tennis shoes and we had the crappy converse or worse, my mother would be like, and you think you need converse to be cool. I mean you think you need Nikes to be cool. And so I give a lot of credit to my mother and my father was a big, strong, silent type because he was a great football player. You know, he was kind of revered in our, from the boys in our family. We call him the big band, He's a giant guy, but he was a really kind of moral compass of the family didn't talk nearly as much as my mother. And so listen, I think big families are rare today, but they're great because when you do really well, your brothers and sisters will tear you down and when you do really poorly, they'll pick you up. And so you never get too big for your britches, but you have a support structure that catches you when you screw up. All right mike. So guy and I got to know you back in 2000 and 17, you were coming on CNBC a lot. But you weren't talking about traditional Makro assets.

You were talking about crypto. Let's go in a time machine. Let's go before that. Let's go before crypto. You made your bones in this business trading macro. We're in a pretty funky macro environment right now. Ex crypto give us a take on what you think is going on right now. Yeah. Listen, we're in one of the most complicated and exciting markets any of us have ever been in. It's complicated because we are running a fiscal monetary experiment that I think we all know how it ends. Not well, right, You can't run deficits of this magnitude forever. The combination of central bank and Treasury department or administrative finance, you're not the United States. You know, that combo always has had some mission to try to guide economies and we had this idea of independent central banks. That was what every one of us grew up with paul Volcker as kind of our first central banker for most of us on this call and anyone listening is probably younger than the rest of us.

And so all of a sudden we have a central banker who's running Treasury. Like just the metaphor of that is crazy. Like who thought that was a great idea and about taking shots at Janet Yellen, but she ran the central bank, she regularly central bank and now she's a treasury. And so this idea of independent central banking just got thrown in the toilet and we now have a central bank that's monetizing the treasury debt. That's a dangerous dangerous position to be. There is a small landing strip for the plane to land. Can we run the economy hot enough and drive inflation to 33 and a quarter percent but not accelerate from there so we can monetize this giant giant deficit. All this debt we have and slowly devalue the dollar and land the plane gently without either the market collapsing into deflation are accelerating into inflation After the 2012 crises. Ray Dalio wrote this great paper on the 2009 crises on a beautiful de leveraging how you can slowly de leverage yourself out and get into a healthy economy.

Again it was possible I think after 2000 and 12 but after both trump's tax cut and then Covid and the response and with the political situation we have today where biden just wants to spend more and more because he feels it imperative to right we have the rich poor gap is why does it's ever been. And so there's not a tea party that's saying don't spend money. There's a progressive party that's saying you're not spending enough so you add it all together. It feels like the chance of us landing that plane is really, really slim. And so what do people do? They buy hard assets. So real estate is going to continue to go higher. You should borrow long term and buy real estate in good neighborhoods. It's the simplest trade. I see out there. Yeah. You know mike one of the things I've said, first of all, I just want to be on record saying this once again, I think some of the biggest villains of the 21st century will be central bankers full stop. That's my opinion that I'm entitled to. But I believe there at the core of this wealth inequality, this wealth gap which has never been wider in this country. Are you on board with that on my way over my skis on listen, I think they're part of the wealth gap shows for a couple of reasons what is Central bankers are inflating assets and make it really simple.

five of us live on an island and I have the most coconuts and you guys have only one coconut each and there are 1000 people with no coconuts And they all have $10 each and someone gives them $1,000 each. Listen, the price of coconuts goes way up and since I have the most coconuts, I've become much richer than everyone else. Like that's what's happening, whoever has the most assets is getting much richer because assets are all going up and so you're exacerbating the calcified really the social strata that we have like the rich to have assets just keep getting richer but their sport to it right? We have a earnings is percent of the S and P. At all time highs 30 years ago before the baby who was got into power. That number was about five or 6%. Now it's like 14 15% that 10% difference in earnings came right out of labor. And so we have had this slow creep where labour has just taken in the in the midsection.

It's been justified by boards and ceos as well. I'm very important and I'm, and that's an ethical and moral decision people make. And so you've got these two forces working. It's moved slowly, right. The gap between the supports move slowly. How ceos get paid have moved slowly and you're only looking to your left or your right. And if you step back and look at the big picture like we've completely screwed this up and we're seeing a shift Now finally people are screaming the first part of the stimulus one, you know, because unemployment insurance and the and the stimulus checks. It got to the point where people were making about 50,000 year, right? About a $25 an hour. That was kind of what the government was giving you and lo and behold the people that were on the bottom of the pyramid said this feels about normal fare for the first time my life, I can breathe. And I think one reason we're seeing people not want to go back to work at fast food restaurants or big box retail. Why McDonald's is having to pay bonuses is because people got used to this, Hey, $50,025 an hour should be the minimum wage.

And it will be interesting as I think that's sticking a little bit so we might have the first wage inflation in America that we've had in a long time. But I think that a quality thing is an unbelievably important question because it's defining are the last 30 years. So mike, let's, let's stick with that wage inflation. I know you mentioned that asset values are up the feds pushing everyone out on the risk curve. They're hoping that inflation can stay stay tame obviously, but wage inflation is the real measure of inflation in my opinion. I just get your thoughts on that and I know how you feel about the Fed, but if you think like they're pretty far behind on that and what that may mean for corporate earnings, it's, you know, it's a good question. I think we're going to continue to see both social pressure for wage inflation, an actual almost labor strike. The question will be, are we going to have a one off jump, are we taking the 8 50 an hour, workers to 18 50 an hour, the $13 an hour, workers to $25 an hour and get get to a new equilibrium and in that case it won't be terrible, right?

It will be a one off one off shock or is it gonna be every year and I think the jury's too, it's too early for us to judge that yet. That's, I think what you've got a key on and focus on, it feels to me like the easiest trade, which I haven't made any money on this, You haven't lost any money, a short fixed income because if you have a portfolio of equities are crypto or anything that's going up because of all this money, the perfect hedge is to have a massive short fixed income because there's so much convexity. If the Fed really screws up and confidence breaks down, you're gonna see rates go much much higher if the Fed does their job and the economy grows enough for them to then have to nudge rates, they're not going to nudge them a little, you're gonna end up making money and if the economy continues to be soft enough that the Fed is going to just keep printing and pumping money, you're gonna lose a little on your fixed income, you can't lose a lot, you're gonna make a lot of your assets. And so I can't imagine owning a big asset portfolio without having a monster rate hedge, like one of the things that kind of dovetails with that credit spreads obviously or you know, the market for securitizations obviously are all trade on that the used car market, I find fascinating because you and I both traded through obviously the financial crisis and homes went out the door, funny people pay their cars in subprime before they pay their homes because they need their cars to go to work, but we're seeing unsustainable things and dan and I argue all the time about inflation as transitory or not one area for certain, I think where it is used car prices and so those cars are being financed right now to subprime consumers again, here we go again and the securitization market is eating them up for now.

But to your point where you should focus on not telling you where you should focus on. One of the areas is obviously used car prices and used car financing. Yeah, listen, you know, we had a supply chain, you know, shut down because of it, you know, people were grasping for cars to drive, right, you needed more cars because no one in the carpool because of Covid and all these other reasons. And so it was a supply demand imbalance. I don't think it's a permanent shift. It does worry me. Like if I was a little bit less focused on crypto and not so busy instead of just hedging with Euro dollars and long bonds, I'd be hedging with credit spreads because I think you're probably right there probably great great short rate opportunities to be able to call my friend boaz Weinstein and figure out what the simplest, you know, spreads to put on because that's unsustainable and we will see, we'll see fallout like we always did, you know, it's a little bit like the housing market oh eight, right? It crashed and people started stop building houses and so you got to right and right now, I think housing is going to continue to go higher because we had housing deficit.

But one thing I know about cars as they can come online really quick. So Michael, you know, I would submit the Fed has become a slave to the market in October 2018, Jerome Powell just started, he basically said, I'm paraphrasing we're gonna basically be on autopilot here in terms of tapering, we're gonna start to raise rates from October to December of 2018? The market went down 19.9%. So, again, I think they've become a total slave to the market. That's why we find ourselves at all time highs in terms of the stock market, does anything stick out? You hear that's interesting or you think it's so overvalued that you actually consider going the other way? No, listen, I think God, I better shoot myself for saying it, but what is Stephen Prince? So what was the Prince, the Ceo of Citibank dancing and so the music stops or something, you know, luckily for guys that sit in desks like mine, you can stay long and then when the world cracks, you can get out, you can head with futures and you get turned in reverse. And so it's not as hard as mom and dad with more stable portfolios, as long as The Fed is buying $120 billion 40% passed the buffet warning zones.

And so there's red lights on. But if I look at the charts, if I look at the flows, if I look at where money is coming, it feels like it's going to go higher. It doesn't mean you need to participate. You can go to the sidelines but it's too dangerous to be big short yet you can you can short credit spreads, maybe you can maybe buy some puts but to start selling the S. And P. Now listen the S. And P. Will be the last of the U. S. Market last long. If you look at the Nikkei, the S. And P. That I think outperformed the Nikkei by like 15% this year in the in the last two months uh just devoured it. If you look at chinese stocks, right? Us tech first china's Tech. I've never seen a chart like that, 99%. And so we are seeing cracks in other markets but in all great bull markets, it always ends with less and less breath more and more concentration. And so I I think the S. And P. Still goes higher. Doesn't that concentration you just mentioned, I mean you think about the S. And P. You think about that performance, you just mentioned the NASDAQ you know you have five stocks and make up nearly 25% of the way to the S.

And P. 500. Those same five stocks make up nearly 45% of the weight of the NASDAQ 100. The relative out performance. Just let's just say to china tech because you know if we look back a couple years ago, I mean people were more bullish on 10 cents on alibaba then they might have been on their U. S. Counterparts. So does that concentration worry a little bit mike? And and do we find ourselves with a level of complacency here? That is reminiscent of of other times past when we couldn't in the argument was tina. You know we've been in this rate environment before, we've been in you know this just really easy monetary policy. So what I would tell you, which makes things more difficult for all of us, None of us have ever been in an environment when the Central Bank and the Treasury Department are one. We grew up with a framework of independent central banking of this idea that there was this counterbalance and we've never seen deficits, like this we've never seen $120 billion dollars a month a month of buying.

And so it makes me question my classic risk management tools and have the ability to say. I think so, but I'm gonna literally stay close and not know. So I'm watching my instinct is, you know, if you had told me crypto was going to do what it did or even my own stock, like I lack the imagination at one point I think crypto could go as high as it did as far as it did. It took me about six weeks after I said it out loud to really start believing it post Covid what I saw what they were doing. I was like the whole world changed and I think the response to Covid really changed our investment horizon. I don't know how long it lasts, but as long as we continue to flood the world with as much liquidity, we're in an environment that we've never been in that we've never traded or invested it. And so how expensive can expensive get is a crazy question if you had told me that cardinal, which is some Cryptocurrency that I can for as far as I can tell, no one uses for, you know, utility like they would in theory, um, it's not building the future.

I think it might one day is an $80 billion dollar ecosystem. I would have told you you're smoking hashish or more and you know, we've changed the idea of value. If you look at Gamestop, if you look at that whole mean stock world, people are creating value because money doesn't have as much value. And so I've got a million dollar Lebron James Rookie card that's now worth three million. Uh you're seeing N. F. T. Traded crazy prices And so it's all over the world were re determining what value is that's probably unsustainable, but I don't know what shuts it off. It's not like a hose of money coming out, right? It's a gigantic fire hose which is like you know 14" wide blasting at you know, record speed mike. I don't want to go down this path necessarily give our ages out. Obviously everyone can, the four of us add up to over 200 that being said things go in cycles because generations come and go. So the last one that we really saw forget about the global financial crisis. That was unique was the dot com bubble.

And with the dot com bubble was 20 something 21 years ago. Right? So you figure the average age of the trader, let's say would have to have been at least 23 years old then. So there's a new generation here. And what I'm seeing is is not necessarily the top heavy names that are controlling the S. And P. And the NASDAQ 100. It really is. These names are now selling off on good news. You're seeing a lot of like mid cap large cap names selling off and you see investors like I don't get it, I got to buy the dip, but they're buying a dip into a momentum ending. Like it feels like the momentum is ending underneath us right now. I agree with you. I think we're in the last chapter here. I know something about the last chapter can go because you do see what's the stock brakes, brakes. I had the ceo of what of Robin Hood's competitors in the office a couple of days ago, european based big, what's so interesting is every time they sign up a new customer, they buy the same stocks and use only Tesla now it's Gamestop first Tesla second, right? And so these new young retail as money gets moved from baby boomers to millennials and gen z this retail frenzy of ideas and memes and Tesla and I'm hoping Galaxy, it's interesting the first stock they, by his games, he said all their customers and so I do think we're in a very strange world and you're right, stock cracks, they're not bouncing straight back.

But you're seeing the, the big guys just power along now that you brought up Robin Hood. I mean, you think it's good for the markets bad for the markets unfair to certain investors. They couldn't fair listen, I think as a country, we do a horrific job of financial market education, right? We don't teach it in high school, They don't teach it in middle school, We don't teach it in college. Um, and so I think Robin Hood and others like it are providing a service to introduce people early on in their life to how markets work. I think there needs to be more education, more education, more education. I don't think everybody should be an investor advisors. Investment banks have a huge purpose in this world, right? Doctors should, doctor artists should create uh, you know, long haul truck drivers should drive. It doesn't mean they shouldn't have a knowledge of the market, but there should be special specialty. Right? I would rather trust someone who really knows what they're doing with their money than just yellowing.

And so part of the froth around Robin Hood isn't great. But introducing people to financial markets early on it is into how markets work is probably the net good thing. You know, it's interesting morning buffet used to make jokes about the bid ask spread right, how much Wall Street makes and he wasn't gonna trade, he was long and how much he saved every year. There was a famous book where the customer shots, where's J. P. Morgan john and there's Merrill Lynch's shot. Kid says, well where the customer shots and they all laughed at him. The customers lost all their money trading. I worry a little bit about that. You know what's this bull market ends? We're gonna have lots of people like what the hell just happened to me. And so I guess I'm torn. I think we need a lot more education and finance is I would tell you there's probably not two And 100 people in America that nobody yield group is There's probably not 40% of the Congress that nobody yield curve is that's shocking. But I have spent time and so we should have a generic education and certainly in high school and then a little bit more in college.

So mike stop me if you heard this one Alex Karp joe Lansdale Nathan Gettings and Peter thiel walk into a room and they decided the best thing they can do with $51 million is by gold bars. What the F. Is going on there before we get into the crypto conversation. I don't get it. I don't care. Listen, I think gold is a decent asset. Kryptos way outperformed it because it's new and gold is old. I think if you really have a hyper inflation or even worry about it, gold will do fine. It's a hard asset. I'd rather buy real estate than gold. I just bought a new house in New Orleans if you guys everyone to get down there for some drinks, but I I don't dislike gold as an asset. Uh There's more exciting things to do right now for me. All right, so, so mike when you were just a macro investor before Crypto was a thing you kept a pretty low profile at least as it relates to the media. Like I said earlier, we got to know you when you went big into crypto talked to us about that transition. How did you get involved in it? And why do you think um, this is the macro asset of let's say the next century?

Well listen, it's a really important week to be talking about crypto in a lot of ways. I had my two all all hands call today with our company which is growing like a weed will be 450 people by the time we close our merger with a go and I told them I've never been more optimistic. I think three big things happened this week. I'm gonna answer your question and go backwards walmart amazon both posted help wanted signs for crypto engineers, crypto crypto expertise to big retail companies. The most powerful retail companies in the world said, okay, we're getting in pretty much that signifies to me that everybody is in. Everyone's got to figure out they all understand now that there will be a new architecture. It will maybe completely replace the architecture. But a portion of the financial market architecture, if not a large portion is gonna be Blockchain based. We are moving from bank accounts to wallets on phones and so you know that plus the fact that the whole transportation bill almost got sidetracked by a tiny little poison pill that the White House Treasury was trying to slip in so they could regulate crypto.

And on a sleepy weekend every senator got deluged by phone calls from smallholders to influential big holders. Jack Dorsey and Elon musk tweeted and calling senators. And for the first time Washington heard crypto roar in, they realized, oh shit, there are 60 million american crypto holders that are single issue voters all of a sudden. And so the constituency that we have in Washington, even though they end up passing uh, that provision of the transportation bill, which is a really crap provisions for crypto crypto rallying because everyone knew there gonna have to change it. Everyone knew that this is now a real industry. And so I think for employees like mine, their career opportunities, the risk we have to execute, we have to execute like crazy or we're not going to do great. But the idea that, oh, you're a knucklehead for joining this industry, that that's, that's, that story is gone. Uh, if I look at my analyst class or my summer analyst class, I couldn't get a job in this place.

They are the smartest kids from the best places. And so I couldn't be more optimistic, like how did I get into a crypto is back up. It was a generational move. It was a reaction to the financial crisis in oh eight, right? The Bitcoin white papers written in oh nine when they saw Jpmorgan almost go bankrupt and morgan Stanley must go bankrupt and you know, the Federal reserve deciding who lives and who doesn't live. And there was a sense of uncertainty, there was sense of unfairness bailing out the rich guys at the expense of the poor guys. And so it was a reaction where people said, I don't trust the center. It was a big middle finger to the center. It was gen z subconsciously and millennials saying, you know what, why do I keep listening to the goddamn baby boomers in 30 years since they've been charge of our country, they run up debts that they can't repay 30 years ago, the average American was £30 lighter. So they turned us at a bunch of porkers.

We are £30 heavier on average men and women in the last 30 years, 30 years ago, 17% of Children and 17% of seniors lived under the poverty line today, 17% of Children and 3% of Seniors live under the poverty line. What the hell does that mean? It means the grandparents ate the apple before they gave it to their grandkids. Oh, they polluted the country in the world, right? We've got global warming. And so if you're a young person like why in the hell am I listening to these people, why do we keep elected nancy Pelosi and donald trump and Richard simmons. What's really interesting is trump Bush and Clinton were born the same year, 75 years old, they've had 20 years that one birth year, you're supposed to get one to be in charge. And so the crypto revolution was like enough, we're going to rebuild the system in a fairer way and were egalitarian away. We're going to create our own means of exchange. The genius of crypto to make it simple is if the internet allowed us to have access to information for free yesterday I found out that the GDP of kenya was $95 billion to one second.

I just googled it when we were young. We have to go to go to the library, look up encyclopedia Britannica or buy them. Right? And so the internet made information free. The Blockchain revolution is going to allow you to charge for content to charge for I. P. To charge for the information that deserves to be charged for. So it's going to be the exchange of value and once we start exchanging value, all the rules change music, right? It cuts out the middleman, it's a peer to peer system. And so what people are waking up to is this was not just about Bitcoin and Bitcoin, beanie babies are not beanie babies. This is about really building a new architecture that is better. Right? That's transparent. We would not have had a mortgage crises. If all banks balance sheets were transparent. Right? The defi protocols, things like you can look online and see exactly the leverage they have exactly how many loans they have exactly who the loans are too and me and you are going to because we're too lazy, there's gonna be A I.

Programs that actually look and monitor this stuff and governance tokens and so there's this amazing new world coming and I think people are waking up to it that goes way beyond Bitcoin right? Bitcoin is really easy to understand. It's a report card on how the central bank and the Minister of Finance, how the central bank and the treasury are doing to report card on how the government is dealing with our finances. We buy it because we're like, oh shit they're gonna debates the dollar. I pray. They don't the base the dollar that fast because we have a breakdown in civil society Right? I pray Janet Yellen wins with this 3%. But even so the dollar is going to get a little weaker. You've said in the past that the price of Bitcoin serves as a, you know, you know, report card on the Fed. I'm gonna ask you what that grade is right now. I think I know the answer but one of the things just in general is I know Bitcoin and crypto people, they want government to a degree, they don't want them intervening too much. They want them a little bit and I say that because I know you've applied for Bitcoin futures E. T. F. And you want someone like again so that can go in and protect people.

So give me the grade. Tell me how much you want the government to be involved at all. Yeah. Listen, I think we're getting a C right now A. D Internet and start feeling like you're Venezuela or maybe even a C. Plus we have very competent people in the civil civil service jobs in America, Janet Yellen has high integrity, jerome Powell has high integrity. They believe what they're doing is right. They have a brutally hard job they've inherited from politicians who have a lot less high integrity this mess and they're doing the best they can with it. Will they be able to land the plane and get the A I think doubtful Is this your ass Ray Dalio? And he said he can't comprehend saying this, but he thinks the only way out is at one point the US debt restructuring. He thought the window is so short and I'm not, Ray Dalio is not the oracle, but he's a smart guy. But so when all the macro thinkers start getting worried like I would rather bet on stan Druckenmiller that I would on Janet Yellen and trucking, mother's worried right, worried about the dollar, worried about inflation.

And so there are enough smart guys that I that I followed these things and bet on them for a long time that it's hard to feel confident right now. And so that's where my C comes from. Listen, there's part of crypto and the constituents kept in their pure libertarians. And I was like, I hate libertarians like to eat them for lunch by being in government. You give up some rights. There's there's a concession to be in government to be in society, right? I just can't walk over and smash it to have with, you know, my fist because I want to That's not that's not allow. There's there's there's rules of engagement and we're going to have some rules of engagement with crypto. And so the key is to get the right rules of engagement. And I have a lot of things. I you know, I know Gary gets here. Well, he's smart. He's ambitious. He tried to just sneak in and he wants to regulate his fear about me that I want to be the sheriff. And I think he thinks he knows best. I think this is such a young industry that that generation and quite frankly, our generation should have some humility and go slow with regulation.

It takes so much work for me just to keep up with what's going on each week. So when I go in to get a feel like a fool, the end of t space didn't exist four months ago. It's a huge business today, right? We helped set up candy digital raising money at a billion dollars. That was an idea five months ago. It's going to change the way sports fans interact with their clubs, how they buy collectibles. And so we definitely don't want to stop innovation. And all the politicians don't think they do, right. And so I think what was promising about 10 days ago was People were put on notice that people care a lot about this industry and I think about our company right we'll have 450 people by the end of the year with an average salary over $200,000. Those are good jobs. That's what America wants to create. And I'm one of 100 companies in crypto. And so this is a growth industry that's just getting started. Like just quickly on tether you mentioned how transparent crypto can can be but it can also be a little bit murky.

You're gonna you're gonna have bad actors in every industry especially when it's new like this. What are your thoughts on on something like that and how it can impact you know just the industry in general. If I think of Occam's razor right? What's the most obvious? The guys that tether have so much to lose Their probably not cheating, they try to be transparent. I think they have a lot of chinese commercial paper. And let's hope that chinese commercial paper pays well. Tether created a non bank bank that's not regulated and people that are participating with heather know that it's pretty clear Tether tells you what they have invested in broadly it's not fully transparent. You know it would be bad for the ecosystem but not catastrophic if there was a run on tether there are lots of alternative stable coins today. Right? The terra luna networks got one that's blowing up right down circle in coin base have U. S. D. C. That's over 25 billion. I hope what the U.

S. Central bank does is say hey we're gonna sanction these eight projects that all basically have to keep the reserves that back the stable coin at a fed bank because then there will be real confidence like U. S. D. C. Keeps all their money at U. S. Bank court. So there's no there's no murkiness. Why would I own tether? If I could on U. S. D. C. I wouldn't you know and so good actors will migrate to one. People use tether now because it's most likely good that it is most likely good. It really is. Again it would make so little sense when you have such a huge their exchange and they're stable coin, it's such a huge money making machine to try to get cute. So my coin based on their cue to call, they talked about ethereum fees from trading were greater than that of Bitcoin the first time ever here give us your take, we know you're very early ethereum investor. We also, I've heard you say recently that really the best use case for Bitcoin right now is a store of value.

And we talked a little bit about gold and talked about the debasement of the dollar. So just real quickly will ethereum overtake the market cap of Bitcoin at sometime soon and just give us a sense you mentioned FTS you mentioned defy these are all applications being built on top of a theory and we know interoperability is going to be a big, big theme going forward but give us a sense for for one versus the other. I honestly don't know. So Bitcoin is pretty easy for me to have evaluation framework. I know goals 11 trillion. I know bitcoins 900 billion. We're going to go from 900 billion towards 11 trillion over some period of time and it's not going to go in a straight line, it's gonna go with adoption. I think it's one the lane for institutions as a store of value in the crypto world there's other stores of value can buy dodge clean if you want but for this idea it's got its value because we say it has its value right? Just like gold. I think Bitcoin is going to win and head up ethereum is fighting and leading what we'll call the level one solutions the block chains to be built on top of chris.

Dixon was a brilliant writer just did a great tweet storm and called it like it's the app store. It's a great way to think about it right what's going to be built on top of the app store. It's defi it's out of t s it's this whole world. What's the tam of that? What's the tama be the currency of culture? I don't that absolutely no regrets done. The theory is the currency of culture. And so it's it's much harder to tell it's gonna get valued as a network effect. Think of how facebook the more people to use it, the more shit that's built on top of it. What's different between Bitcoin and ethereum is Bitcoins finished. Doesn't need to be fixed. It works Today. The way it's gonna work in 10 years ethereum is growing like crazy but there's big changes that need to happen for it to live up to its potential. It's got to be able to process faster and faster, more amounts of information in a decentralized way. And so we have this really interesting Experiment going out.

There is six or 7 good layer when protocols. The theory is really the only one that's really decentralized but if I decentralized lesson, make it faster. It's a lot easier for people to use in the long run we'll consumers care well regulators care those questions no one knows the answer to. And so when I invest. I have a lot of theory but I also have terra luna. I have Salon a I've got polka dot, we've got some room coin which is try to make these changes inter operable. And so I warn listeners that this part of the market should feel more like venture even though the companies are getting bigger? There are huge numbers at stake, evaluations are so high because this is going to transform the way shit happens. And so the possibility of this monster ecosystem really does exist. It will happen. It's just what concoction or what connection of all these these protocols is gonna win.

No one's fighting a Bitcoin for store of value for real and so I You know I moved my portfolio around, I started the year with 70% Bitcoin and 30% of theory. Um we recently have been more like 40% Bitcoin and 60% ethereum and its competitors throw defy in there. I don't know if there's a there's a right or wrong answer. I see them as different bets a lot of the D5 bets are interesting because they can feel like equities so you can actually look at the revenue they are generating and how the governance token is being burnt or being stopped giving a synthetic revenue and you can say that growth this P. E. And so things like sushi seems cheap mike there are a lot of things we could talk about just briefly talk to me about the bail project. Yeah. Listen I five years ago, four years ago stumbled really into the criminal justice reform space when you look at our system of justice in America from who gets arrested from why we cage people for certain crimes and not for others, how we process them, who gets bail and who doesn't get bail, what parole looks like when you take it the whole space.

You literally get sick to your stomach When I took 30 people to Germany and Norway to look at their system and their prisons and you'd give Germany a 92 out of 100 and the Norway and 98 out of 100 on the ethos and how they operate in the humanity there you give the United States not a 60 but at 12. We are as bad as anywhere in the world. It's embarrassing. It's unjust. It's an economic, it's infuriating. And so I started with the bail project because I met the woman who ran and she made the pitch and I was like oh my God you had me at hello Robin Steinberg. She's just a badass woman. And you know it's really a simple story tonight. Close to half a million people would go to bed in a dangerous dirty dale cell having been arrested but not convicted of a crime. You're innocent until proven guilty in this country. Unless you're poor. Any one of us who got in a fight who stole something, who got a D.

U. I will do I. They might may have spent one night in jail all the rest of the stuff were bailed out within hours for 50% of America who can't afford a $500 dental bill. They're staying in jail two weeks, three weeks, four weeks In the 1st 21 days in jail. 50% of prison rape and 50% of prison suicide happens, right, you go in their prison is actually far more organized in jail for people that know jail is one year and under prisoners one year over. And so most people in rakers 95% haven't been convicted of a crime there waiting trial and they're waiting trial and awaiting trial. And the D. A. Says just plead guilty and I'll let you go, 98% of cases are played out in this country. There's not a system of justice and you know, they're predominantly poor, black and brown families and then they got a criminal record. And so we said this doesn't make any sense. And so the bail project just pays people's bail, they all come back to bail was supposed to make sure you come back. We had a New York had over 98% return, right?

And so we also then tell the story and have tried to change the rules and it's working the criminal justice reform. It's a bipartisan movement, right? I work with the cook family on many of things and I think it's bipartisan because America believes in second chances. Like we're a country of redemption shit. I didn't have second chances. I wouldn't be here right now. And I think deep down we believe in justice and fairness and the system we have however, we got it and you can, you can tell the story of starting from slavery to mass incarceration. However we got here when you look at it. If I took you there and give you proximity, you would literally be embarrassed for our country. We have four people that have been formerly incarcerated people that work here in the galaxy offices, Smartest, nicest, most decent people. One guy spent 23 years, you know, I spent 16 years in jail. You don't spend that much time in jail unless you're accused of something, you're convicted of something really shitty. I'd let these guys babysit my kids people change part of the beauty of being human and so it's become a huge part of my life.

It's become a monster part of my philanthropy and it wasn't for crypto being so busy, I think I would do a full time mike, I appreciate you spending time with us. I want to be respectful of yours. Check out mike Novogratz at no regrets on twitter. The Bell project is unbelievable on behalf of dan and dani. I want to thank you for joining us on the tape today. Thank you Michael thanks once again to cmI group for sponsoring this episode of on the tape, if you like what you heard, make sure you hit follow and leave us a review. It helps people find our show when we love hearing from you and we also want to hear from you via email at on the tape at risk reversal dot com anytime of the day follow and connect with us on twitter at on the tape pod and we'll see you next time. On the tape is a risk reversal media production. This podcast is for informational purposes only all opinions expressed by me, dan Nathan, guy, Danny, Danny moses and any other participants are solely our opinions and should not be relied upon for specific investment decisions.

Taper Will Most Definitely Come, and an Interview With Michael Novogratz of Galaxy Digital
Taper Will Most Definitely Come, and an Interview With Michael Novogratz of Galaxy Digital
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