$50 Billion Wellington-Altus Chief Strategist: Bitcoin "Supercycle" has Begun

Let's go to someone calling Bitcoin the next big trade. James Thorne, PhD economist and chief market strategist at Wellington Altus private wealth joins us now. Uh good morning James and I want to start with the news of the day. We saw core CPI come in hot this morning above expectations with headline seeming to translate into higher core inflation. Is there reason for concern with the broader market uh with energy driving inflation like this? You know, if you look at the core number this morning, what you see is it was driven by shelter. And so, if we go to economics 2011, not economics 101, we know that higher Fed rates causes um higher shelter because of, you know, interest rates are the cost of capital. And so, if you X out shelter, um, you know, core CPI was 0.1%. I think more important was we've been hearing ad nauseium for months that there is going to be second and third order effects of the higher energy prices. Right? So everybody's anchoring off of the headline number. Well, it's not showing through in the data. So if we look at the data, right? Um you know uh yes there is headline because of inflation caused by or a price shock caused by energy because of Iran. That is a negative growth shock and the Fed should not hike in to a negative growth shock but they did. Um so we're setting up for a policy mistake. And so the interesting thing I would wait for is let's see how long it takes for people to actually start looking beneath the headline numbers and show food at home was deflation negative this month over month. Food at home CPI is 1.8% which is below the historical average. But when you're in this this echo chamber where everybody just talks about the headline number and no one stands back and looks at what the underlying numbers are and says, "Hey, guess what? You want the Fed to hike rates? Well, if the Fed hikes rates, that means that's going to affect home and owner's equivalent rent." That's really smart, isn't it? Right. So, let's just see how this plays out. Um, you know, I think by the end of 27, the 10-year will be at 4%. I I think, you know, worsh has a problem in dealing with uh the Keynesians at the Fed. To me, this feels like a lot like 94 and 95 when Greenspan had this same battle and when Greenspan finally took its his foot off the throat of the market and looked at the data and not these fears of the second and third order effects that we got in two in the 1970s. The market took off like a bottle rocket and so I think that's what's going to happen. The data was not the response to the data this morning is amateur hour. Anybody that's basically telling you that inflation is hot because of the headline number doesn't know what they're talking about. I'll leave it there. >> No, I I I love it. And you know, in the interim, would you advocate towards just kind of a neutral position by the Fed or would you be uh inclined to say we should have immediate cuts? I if if I had my wish, which I don't, right? What I want is I want the Fed to step back and get away and have a very narrow effect on the market. I want interest rates to be set by the capital markets. Having said that, we are in this transition period where we've had decades of quantitative easing and the Fed putting its finger on the scales of what interest rates should be. So look, I think the Fed I think the 10ear should be at 4%. The two years should be at 3%. That would be a 100 basis points. You know, that's the steep steepness of the curve. You know, the Fed funds rate around 275. And then you step back and let the economy adjust because what we need is we need to grow out of this like we did in after World War II. We need to have nominal GDP to be growing somewhere between 6 to 7%. But to do that we have to have the Fed and I should say Wall Street understand that this is supply side economics. Growth is not inflationary. And you know when you increase supply, when you build things, right, when growth is not demand, that means prices go down. And so I think the unfortunate thing that's happened is is is the chairman of the Fed Worsh has come out and basically poo pooed it just like Greenspad did in the 1990s. So the key is they all know what I'm talking about. This isn't cold fusion, right? They're all really smart. So I don't know why worsh is talking like he's talking but yes I would like the Fed you know I say 275 maybe it's three but get it getting to a normal yield curve and then the last thing I think we need to understand is that the credit market today is not the credit market of my grandfathers or when I got into the business. You've got too many hedge funds. You got too many hedge funds whipping stuff around. You got too many hedge funds levered up short-term views back in the 90s, decades ago. You know, it was long-term investors that were the bond vigilantes. And when they moved, you had to basically really listen to them because these guys were long-term investors. You've got you've got hedge funds now whipping stuff around, acting like they're bond vigilant. So, it's weird, guys, because this time it is different. Growth is supply, right? that mean we're building stuff. Inflation has come. Yes, we have the shocks. We need to get the Fed to change, but then we also need to respect the fact that maybe the credit market isn't the smart money in the room anymore. >> And you know, along with that, do you think that Worsh is has you know, obviously I think he's at risk of this, but but do you think he's already fallen victim a little bit to this Hall of Mirrors phenomena that he called out? Um, and then also, uh, you know, you brought up Greenspan. You know, Besson's been very vocal about, hey, this is kind of our Greenspan moment with the IT boom. Um, do do you believe AI has that capacity with with the unit cost element and GDP to kind of really replicate what Greenspan was able to do kind of in this unique moment in time now? >> Yes. I think so. First off, yes, I think AI is I I I think if you combined AI and blockchain, um, you know, we're never going to experience this evolutionary process. This is like we're finally going to get the global economy off of the analog world and into the digital world. And so that's why, you know, I write about, you know, uh, you know, Lewis Carol through the looking glass and, you know, this is going to be completely different. And then and then yes, so I I I you know, I get frustrated because uh and and I gota I've gota, you know, cut them some slack, but yeah, the worsh wor's speech at Jackson Hole was really disappointing, right? I mean, he he gave in he gave in to the Keynesian. So we know we know that Keynesians, the Keynesians, all they think about is the demand side. Growth is a demand curve shifting out which basically means prices go up and that's fair pool when since World War II we have been basically hollowing out our manufacturing base but the United States is reindustrializing we're making things right we're building fast it's a completely different environment but those economists at the Fed either by incompetence or because of other reasons are completely ignoring that side of economic theory when we say what happens when we introduce supply to the conversation. And so what I would have liked Worsh to do is descent and in the Q&A go out and explain exactly what I did. Right? That's economics 2011. And and so what we're dealing with now is an iterative process where they raised 25 basis points because they responded to the predictions market which is you refer reference the hall of mirrors which is exactly what they want to break. And so how are you going to rip the band-aid off? Eventually, they're going to have to say to the bond vigilantes today, which are the levered up hedge funds, right, which are, you know, Bent calls them the the Bloomberg Bros, right? That no, we're going to actually look at the data. He did. He missed a huge opportunity. I was I'm very, you know, I said he feels like he's like he's like uh Powell, but he's he's much more refined. He's a game show host. He's big hat no cattle. To me, it's very concerning because what he talked about to get the job, he had an opportunity to put a marker down and he didn't. So, is this guy just another he's going to be captured by the Fed? And if he is, and if the Fed doesn't evolve, then the argument of us running the economy hot to grow out of this debt mess, that's that's up for debate. Serious debate that it may not happen. >> Well, James, I do want to pivot to Bitcoin here because you've written a few times about Bitcoin entering a generational super cycle. What makes you think that's the case rather than another standard bull run? What looks different to you this time? >> Well, you know, I the thing I've got is I've survived, right? I've survived cycles. And so, so, you know, my parents are American. I grew up in Toronto. Uh, and then I went to the States a couple of decades ago. And when I got there, when you enter the business up here, um, you you you learn how to trade in rocks, trees, and water, like materials, and resources. That's basically, you know, until Trudeau got into power. That's that was our competitive advantage. So hence I go down to the United States. I'm in Park Avenue and Goldman walks in and basically pitches the brick trade to us and says China's entering the World Trade Organization. They're going to be urbanizing and that's going to change commodity. So commodities didn't change. The market structure around it changed and we had a super cycle. Bitcoin and Ethereum, we'll just use those as thing. The market structure around them is changing, right? The the Genius Act, stable coins, tokenization. So, we are going to put the global financial system on the chain on chain and Bitcoin and Ethereum are going to be part of it. So, it's no longer this libertarian point of view of who owns it. So in that essence, this is Bitcoin or or you know, crypto going mainstream. I don't and and to be clear, two decades ago, you sit there in New York and go, "Oh my gosh, we should just buy 10% energy and then the and then the passive guys are just going to have to follow along, right?" This is the same thing. People do not understand what's in front of them. You know what I mean? So this thing I don't know where it's going to go. I think yeah pain trades due north. We've never seen an asset that doesn't have a supply response here with perfect scarcity. But what we do know is that the market structure is significantly changing as did the market structure for commodities way back when. And then here's the bizarre point. Back two decades ago, there were artic nobody owned nobody owned commodities and then we had pieces of information coming out or reports saying if you put two to 5% of the of commodities in your portfolio, your sharp ratio, your riskadjusted return would increase. It's exactly what's happening with Bitcoin. So I you know I used to have I used to have hair. I don't anymore, but I've seen this trade before. Right. It's the same trade. We're early. We're going to absorb it. We're going to embrace it. Nobody's there. Nobody's there. It's a different cohort. And you know, right now on a technical basis, it looks great. I mean, is it going to chart around? I mean, I mean, I can't believe there are people still whipping this thing around between 83 and 86, right? But that's what the younger. Okay, go ahead. knock yourself out. The trade is once you break through, this thing's going to go due north really fast and nobody's there. And the thing you've got to get is narrative follows price. So, I don't think Wall Street the investors are ready for it. It's not rat poison. And yes, the market structure is changing. It's as profound as China getting into the World Trade Organization. So the four-year cycle is done as far as I'm concerned the the having cycle and where this goes you know I I I focus on you know Bitcoin and Ethereum um and the reason I do is because I I I go I go back to like you know we talk about Google right um you know when Google went did its IPO there were other search engines like Ash Jeves and Dogpile and there was this massive argument Well, it may not be the best, but the thing the lesson you learned around Google was Wall Street coalesed around it. Wall Street is coalesing around Bitcoin and Ether. So for the traditional investors, they should think about having 3 to 5% of their portfolio in in it and and in in Bitcoin or Ethereum. And as as of from there, you know, where does this go? God only knows. God only knows. But it's due north. >> And you know, you mentioned um the new cohort. Uh in this paradigm you're describing in this kind of next phase or this next epoch of Bitcoin's life cycle, you know, which group of buyers do you expect to kind of be driving that next stage of adoption? It's going to be well it's funny because up here and I don't I I am not familiar as I should be with what the asset allocation um offerings are in the states. All right. Um but for example, Fidelity up here has an all-in fund which 3 to 5% is in Bitcoin. Okay. So what I'm saying is it's just traditional investors are going to get in, right? traditional 6040 investors are going to get in. Institutional investors are going to get in. I would say to you, there's a lot of folks that are already there. They just don't want to talk about it because it's it's it's it's not acceptable. And guys, I I I've got to amplify I just want to amplify this one point. Uh what's really funny about technology and new technology is people had a have a visceral response to Bitcoin. They also had a visceral response to Cisco, Intel, Microsoft in the 1980s. One of the most bizarre things about my career was we when I was in the states, we took out a bank in Baltimore and I got moved down to the Washington DC area. And Baltimore is a massive buy byside town, right? And you know, you walk in and why is it? Because Baltimore is, you know, I'm gonna upset a bunch of people, but it's a dump. But in the inner harbor, there's there's this massive amount of buy. And you go, what happened? And it was do Alex Brown. Wall Street would not bring these big tech companies public. And it was Baltimore and San Francisco back in the 80s that did. So think about next time you think about and we're talking on Zoom, okay? And I'm sitting here on a with a Dell computer. Traditional technology today was discuss was was was viewed upon with the disdain that Bitcoin and Ethereum are today. And that was the bizarre point about living down there is meeting people go hey what you know what do you do? I go yeah I work I go what do you do? Oh I took Cisco and Intel the I was the banker for Cisco and Intel. Right. and you sit there and go, "Oh." So, basically, when new technology comes in and it threatens the status quo, you get the response that we're doing right now. And so, to me, it's the same trade. I just don't think anybody's there. I wish the Bitcoin bros would stop fighting amongst themselves, right, and understand where this is going and recognize that this is going to the global economy is going to be going on chain. It's going to be massive. Wall Street understands now that when you tokenize assets, they can make a ton of money on that. and look at how Ethereum and Bitcoin can benefit from that and as opposed to sitting there and you know so that that's how I look at it. I also look at the charts and the Bitcoin chart looks fantastic and I would be using the choppy period right now where the boys are whipping it around to basically say I would load in. I think you look at look at that's a perfect cup and handle. Absolutely. It's above its 200 day exponential moving average and the slope of the exponential moving average is shifted from negative to positive. Could we have noise between now and the midterm election? Sure. But then it's going to take off and the point is you're not going to be able to get in. And so I I would do that. I also think the treasury area the the micro strategies of the world is another very interesting area because you know everybody start you know talking about what happened in in in the global financial crisis. It was a settlement crisis. It wasn't a subprime crisis you know countrywide blew up. The market could handle that. What it couldn't hap handle was when the dollar broke the buck when mutual funds broke the buck. the counterparty risk for near cash assets could not be identified. That's what Greenspan talked about in the testimony. Bitcoin solves that problem, right? It solves the problem. It's going to happen. Get enough position the portfolio. Do your work. It is a m I think it's the next trade because you know a ton of money has been made in the AI trade and now we need to basically consolidate that trade and to get that AI fear out of it. So I I I am thinking that the next run in Bitcoin is going to be one for the ages and you know position it, do work on it and uh you know uh and just enjoy the ride. >> Bitcoin, what I really care about is the final amount of Bitcoin I'm getting for my dollars. When every sack counts, even a small spread can make a difference. Cash App charges zero fees and zero spread on Bitcoin buys over $2,000. The same applies to Bitcoin purchase through AutoInvest roundups and paid in Bitcoin. The number that matters is how much of your money ends up in Bitcoin. For a limited time, new customers can get $21 added to their balance. Just use code BMTV21 when you sign up. And don't forget this part. Send at least $5 to a friend in the first two weeks. Terms apply. Bitcoin services by Block Inc. See the Bitcoin disclosures at cash.app/legal/mpodcast. >> I love the bullishness and uh we agree. Um, you know, we're also, uh, uh, you know, earlier in the show, we covered the treasury companies. Um, you know, Michael Sailor yesterday, uh, gave a speech at the World Bank, uh, for a conference, uh, in DC. I'd love to hear kind of your directional uh, thesis on on how these treasury companies may fare as Bitcoin kind of enters this next phase of its growth cycle. Well, first step is if you really and you know obviously I've gone down the rabbit hole of Bitcoin, right? And I'm very comfortable with it. So you first off you go and you spend a ton of hours and you know going through and thinking about digital assets and Bitcoin and you know the double spend problem and you know all that stuff right and you're purchasing an internet platform right you're not buy you know all of that all the narrative is there we need to build a new internet this is it and then you sit there and then you have to spend another equal amount of time going down the rabbit hole of the treasury companies right and if you go. And so for me, the way I look at it is I remember watching the testimony of Alan Greenspan in in after 9/11. Sorry, not 911, um, the global financial crisis. And he said it was a cash, it was it was a cash cr. I lived it. I remember when the mutual fund industries broke the buck, right? When the m the when the cash when the money market funds broke the f that stopped everything. And so when you think about what he's done for him specifically, he's basically got pristine collateral capital, right? I mean, Cityroup right now is trading at close to book, right? But you really don't know what book is, do you? JP Morgan's trading at 2.5 book, right? I and I I haven't checked my Bloomberg, but you know, you get my point. But the book isn't transparent, right? I know what book is for for Sailor's company, don't I? I know it's trans completely and totally transparent. People must understand how destructive that is. So, you know, I ignore the haters. I'm sitting here. He's going to get it up. He's going to get it up to a million coins. the perpetual preferred classic move, right? It's it's and then you got then you sit there and you have to ask yourself the question and this goes back to like a decade and a half ago. They're harvesting the vault within the Bitcoin industry or the crypto. If you can harvest volatility is an asset class and if you can harvest the V that sailor is doing would you be willing to pay for it and as an old CIO I mean we've all you know that's the question how do we harvest vault well sailors crack the code right now if you want to even go further is buy a covered call strategy on micro strategy right so you know you sit there and go pristine collateral. It's, you know, digital credit. He's got the first mover advantage. He's almost got a million. And if if you understand that and then you recognize the fact that when you put the financial system on chain, you really have to ask yourself the sustainability of the traditional banking model. The traditional banking model is the model of the analog world. Now there will be so this is no in its simplistic form this is like putting you know when Amazon started you know selling stuff and nobody believed it and then it started taking out you know department stores started getting wiped out okay now to be clear Walmart responded and has a wonderful online offering so it's not like everybody's going to get wiped out I'm not saying that but they need to evolve And what's happened with this change in the market structure, right, when we could get into, you know, what the Biden administration did to to slow down innovation, banks are going to have to innovate. Banks are going to have to embrace this. Banks are going to have to recognize they're no longer going to be able to stall the innovation that exists. tokenization of real world assets. The platform has been built and beta tested five or six years ago in the Boston option exchange, right? Gendling got in and basically with Elizabeth Warren and the Powell Fed, they delayed this. So, you've got a lot of pent-up innovation that's going to be released in 27. add on to the stable coins that basically are money market funds, right, with cash, uh, you know, backed by US uh, 90-day paper, let's say, and and US dollars. And you've got the genesis of the evolution of the digital global financial system or what percent would call Brettonwoods two 2.0 where this what this looks like in five years, I don't know. But it definitely the error of delaying innovation is coming to an end. >> James, just want to ask you real quick before you go. I mean, we've covered so much here, but Bitcoin versus gold, how do you see the role each plays in a portfolio? >> They play there they're they're different they're a different manifest they manifest the same idea right now, right? which is a you know for for in the very simple is you know bit now think about this bitcoin is trading significantly lower than the market cap of nvidia okay so let's just say it trades at nvidia look at that run there if it trades equivalent to gold which it should which it should um look at the run there and it has perfect scarcity um and but if we're trading right now let me just say like I you know I don't like you know I'm a I'm a gold bug. But at the same point in time, it it it's had a big run and it needs to digest. Same thing with the memory. Memory is going to be fine. Needs to digest. Bitcoin needs to have a big run. Um but the thing that's different from gold is is that I think that the neutral asset of the new global financial system is going to be Bitcoin. So somewhere in my lifetime, Bitcoin is going to trade at a market cap greater than gold. But it has the same type of characteristics. And then the last thing I would say to you is do we get to the point in 10 years guys where we're not talking about the price of Bitcoin but we're talking about the price of Satoshi's right because people don't even realize that there you know in a Bitcoin there's 100 million Satoshi's right. So you know how does this evolve? Are there's going to be esom flow? Hey, look. If Bitcoin could go hypothetically to a half million and then correct to 300,000 and we're going to hear the same noise that we hear here now that Bitcoin is done. We're hearing Bitcoin is done at 81,000. Really? Or 83,000? Come on. But it's the same noise, right? >> Well, James, it was great having you. Um, thanks for bringing the energy. We really appreciate it. >> Cheers. Another rate.