With Giacomo Zucco, Parker Lewis, Cory Klippsten and Brady Swenson. Broadcast live on 03/18/2020. Long time Bitcoiner Giacomo Zucco shares his stories from on the ground in Italy, one of the epicenters of the Coronavirus pandemic, and Unchained Capital’s Parker Lewis breaks down the macroeconomic implications and gives us the latest updates on the reactions from the US Government and Federal Reserve. We talk about potential economic fallout and riff on some potential silver linings as well.
Giacomo Zucco, Parker Lewis, Cory Klippsten and Brady Swenson. In this episode of Swan Signal long time Bitcoiners Giacomo Zucco shares his stories from on the ground in Italy, one of the epicenters of the Coronavirus pandemic, and Unchained Capital’s Parker Lewis breaks down the macroeconomic implications and gives us the latest updates on the reactions from the US Government and Federal Reserve. We talk about potential economic fallout and riff on some potential silver linings as well.
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Brady Swenson (00:00:11):
Welcome to the Swan Signal podcast, a production of Swan Bitcoin. The best way to buy the coin at SwanBitcoin.com. I'm your host Brady Swenson. The Swan Signal podcast is an audio archive of our Swan Signal live broadcasts. Every week we host a hangout with a group of bitcoiners live on the Swan Twitter account and YouTube channel to chat about the latest bitcoin news and news about a bright bitcoin future.
Brady Swenson (00:00:38):
In this episode of Swan Signal, longtime bitcoiner Giacomo Zucco shares his stories from on the ground in Italy, one of the epicenters of the coronavirus pandemic and Unchained Capital's Parker Lewis breaks down the macro-economic implications and gives us the latest updates on the reactions from the U.S. government and Federal Reserve. Swan founder Cory Clipston joins up as well to add his insights. We talk about potential economic fallout and riff on some potential silver linings as well. Glad to share this with you all. Hope you enjoy.
Brady Swenson (00:01:11):
Media is now streaming live. We are coming to you live. This is Swan Signal Live, the second edition with Giacomo Zucco live from Italy. How's it going Giacomo?
Giacomo Zucco (00:01:30):
Not bad, not bad. Hi everybody.
Brady Swenson (00:01:33):
We got Parker Lewis. I assume you're somewhere in Austin Parker?
Parker Lewis (00:01:37):
Camped out, bunkered in Austin.
Brady Swenson (00:01:41):
Welcome man and Cory Clipston from Cali. How's it going Cory?
Cory Clipston (00:01:45):
Good to see you guys. Just under quarantine here in sunny L.A.
Brady Swenson (00:01:52):
What a time guys, what a time. I'm glad that we got this group together. Giacomo particularly is kind of in the thick of it now. It looks like we are kind of... Italy's giving us a bit of a preview of where we're headed in the next couple of weeks in the U.S. How are things on the ground there man?
Giacomo Zucco (00:02:09):
So from the health point of view, they are still pretty much the same. We don't have, the numbers are not that high that we actually know a lot of people affected. We personally still don't know anybody, but that's because the statistics are still scary from a new, strange thing point of view. But it's not really that impactful on a normal life. But everything else except the virus itself is actually crazy. Food is starting to be out a little bit because right now you get fined and potentially arrested if you don't have a justification to leave your home. They're starting to track citizens with cell phone cells so if you now go 300 meters outside, they know it from the cell phone and you get fined or something.
Giacomo Zucco (00:03:00):
Basically, the point is that you are only allowed to go on the closest supermarket where you have to stay in a line for about two hours, three hours depending on in order to get food or medicines or nothing else. The situation with food is that basically this kind of restriction on supply is basically making the supply... Price cannot sky rise because it's a control market. Typical socialist bullshit. For us it's still good because we were prepared. We had food enough. Meat is going to become a problem soon for us because we are eating a lot of meat because we wanted to stay healthy for this situation. But it's running out and this is Italy so there's not a lot of meat in the shelf.
Giacomo Zucco (00:03:49):
And one of the reasons basically finish just a few after meat. Online deliver is still working but it's a challenge. My wife, [Mir 00:04:00] she has been up at night after midnight change of our [inaudible 00:04:05] in order to get one delivery at the end of April so it's like it will eventually arrive but it's not something you can use. We see it now that the gas pump, they are closed but nobody can drive so that should be not a problem. But yeah, economic damage are incredible. I think that in a healthy economy, sustainable, this would be enough for a serious chain of side effects probably bringing down the country for many years.
Giacomo Zucco (00:04:38):
Since we were not in a healthy economy, but in a debt ridden country, already health, socialist inside a feared economy which was already about to collapse independently this would be worse. Yeah, but the silver lining is that we were nerds so we were already use to stay home. At least we are not that bored.
Brady Swenson (00:05:03):
Yeah, thankful for remote work and thankful for the Internet more than ever right now as we're quarantined to be able to maintain some human connection, see some faces, familiar faces and support each other virtually. Parker, Giacomo brought over there the economic, potential economic impacts. Really, they're guaranteed at this point. Economic impacts, we're seeing it play right now. Can you give us an update on where the markets are, what the actions the Fed has been taking, and maybe even just kind of play out how this might effect the economy, some paths we might take over the next couple of years?
Parker Lewis (00:05:46):
Yeah, so I think well one, if you hear a noise in the background, I've got a 70 story despite coronavirus, they're still putting up a skyscraper next door to my apartment and I'm self-quarantine here. But yeah, I think just giving a summary of what's happened over the last week which has been a pretty remarkable set of events. I guess Thursday, the fed announced a billion and a half repo program. Really what that is, that is geared towards... Or trillion and a half, I'm sorry. Three $500 billion dollar facilities, I believe two three month and one one month or two one month and one three month. That happened on Thursday and then over the course of Sunday, they decided to reduce the benchmark interest rate from the range of one to one and one and a quarter to zero to a quarter. A full 100 basis point rate cut along with a $700 billion dollar quantitative easement program.
Parker Lewis (00:06:50):
The distinction between a formal QE program and the fed's temporary repo program is that the fed will not only be buying longer duration bonds, but they'll actually be buying those bonds outright so I think it's a split between of the $700 billion. I think it's between $500 billion of treasuries and $200 billion of mortgage backed securities. In terms of my personal view, I think from 2009 to 2014 the fed's entirety of their QE1, 2, 3 was 3.6 trillion. My personal perspective is that when the dust settles here that the aggregate injections that they have to put in this time exceed what they had to do to "save", I don't think that they actually saved the market in 2008/2009. I think that they created the setup for what's happening now.
Parker Lewis (00:07:55):
I'm certainly recognizing of the fact that there do seem to be two "Black Swan" events that have happened. Whether it be kind of the almost entire economic shut down that's been induced by coronavirus, but then also happening at the same time that both Saudi and Russia have signaled to the market that they are going to not cut production and actually increase production. That sent the energy markets into a tailspin. What I think is missed, I don't want to say missed. I think it's, I'd say it's easy to forget that there is a market structure that existed before these other two events happened to occur. I really view, it may be extreme to say that it's a fool by ran in this situation but I really think of it as if it weren't these two market events being kind of the impact of coronavirus or the impact of what's happening in the oil markets that there was a large setup for something very similar to happen. If it wasn't this, it would be something else.
Parker Lewis (00:09:05):
And then the fed has responded, I think, as we would expect them to. I think the only thing that it can do is do what it did in 2008 and 2009. It can only setup for greater instability down the road. May they be able to kind of stabilize things for the here and now. I think that that's, there's a greater chance of that than not but that it ultimately sets us up for a world of greater instability in the future because what they're ultimately doing in trying to stabilize the market is create a condition where more credit can be created and the problem actually is the debt laden and the instability created by the amount of system leverage.
Parker Lewis (00:09:53):
So, the only way to fight the fire is to create a world in which more debt can be created and existing debt levels can be sustained. But if those end badly and it likely ends, ultimately in the instability of currency. Kind of I don't necessarily have a picked out level in terms of where I think the equity markets bottom out. But I am very focused on the credit market, so we can talk about kind of what I'm seeing in the credit markets if that makes sense.
Brady Swenson (00:10:23):
Yeah, let's definitely do that. I want to kick back to Giacomo real quick. Giacomo, what's happening in Italy with the Central Bank there? I assume it's something similar. They're following cues from the U.S. Federal Reserve?
Giacomo Zucco (00:10:35):
No, actually the point here is a little bit more encompassed because we don't have a working Central Bank anymore. Banca d'Italia still exists, but it's just as like regular. The printing function are moved to the ECB, the European Central Bank and the ECB will follow the fad as it did many times. There is culturally the ECB has some kind of resistance to quantitative easing, hyperinflation because most of the organization is driven is basically managed by less over-simplified Germans and German culture about that is very strict because they remember hyperinflation pretty good probably. The cultural standing in Germany is a little bit against hyperinflation and super [inaudible 00:11:24]. There was the shift of [Dragi 00:11:29], the Italian guy at the head of the ECB and he was super activist, he said, "Whatever it takes, I will print. I will print." Now there is Lagarde. Lagarde, she's not German obviously but she's also pretty much conservative so they will probably pull the United States but slower and with a little bit more of caution.
Giacomo Zucco (00:11:50):
The Italian markets and basically prices of government debt collapsed a few days ago because Lagarde said that the function... She's publicly said, "We are not here to fill spreads between German bonds and Italian bonds so our function is not a function of stability", which is literally true but then politically not really true so I don't think there will be any difference at the end. The euro will be just the same.
Giacomo Zucco (00:12:25):
One main different is that the U.S. dollar, except for the ultimate fate of every currency, which is hyperinflation, is actually fine and strong in itself while the euro is not because the European Union itself and the monetary union after Brexit. I mean, the U.K. was not even in the euro but Brexit and everything is basically creating a lot of stress on the [inaudible 00:12:48] so the free-trade and free-movement agreement across borders was removed so now the European Union idea is basically collapsing so the European money is not that wealthy as well and so probably they cannot force it even more by explicitly dragging the market as fast as in the U.S. but the will. When the U.S. did quantitative easing one and two, European Bank, they said, "We're not doing quantitative easing, but we're LTRO" which is basically pseudo-sterilized quantitative easing so they will do the same eventually.
Brady Swenson (00:13:34):
Is there a concern about an existential threat to both the euro as a currency and to the union itself precipitated by these event?
Giacomo Zucco (00:13:47):
I don't see it very very discussed actually. Everybody was freaking after Brexit because of that. Everybody was. It's a little bit like the discussion we were having before. Already, the system was super ready for something like this, including the precipitation of the fragmentation of European Union so it was already priced in in a way but this is just One of many possible triggers so just like market collapse after the Piet Pablo, centralization and later Balkanization of Europe politically was already basically dreaded and feared by many analysts, even without this. Now I don't see anybody talking about that because everybody's just freaking about the virus but eventually the discussion will come for sure.
Brady Swenson (00:14:42):
So Parker, what do you see in the credit markets here and what does what you're seeing concern you?
Brady Swenson (00:14:53):
Hey, Parker. You're on mute.
Parker Lewis (00:14:57):
Apologies. I was trying to save you from the hammering in the background.
Brady Swenson (00:15:01):
Parker Lewis (00:15:02):
So, there's two things that I look at. There's credit volatility and particularly the volatility in the treasury market, where kind of I think last week or maybe even the week before the tenure collapsed below 50 basis points in the U.S. and essentially over the course of 18 months dropped from 250 to 300 basis points to 50 basis points. So, thinking, about that as a highly volatile market then in the last two weeks the tenure treasury is swinging sometimes 30 40 basis points in a day and that sends ripple effects throughout the credit market and so the first piece is the credit volatility on the treasury side.
Parker Lewis (00:15:51):
Second piece is credit spreads and the risk premiums that exist between say, investment grade credit and treasuries as well as high-yield credit in treasuries and I think that what we're starting to see and what we can easily see is the move-in in the equity markets. We can see the actions that the fed takes. When I look at the high-yield, it's a market that I particularly look at because it's not an insignificant market but it's a large funding market for kind of middle market to the large cap equities and when I look at that index, I look at it as a general index of kind of the health of the underlying economy or at least to see where it's trending and when I look at that index, there's 1,000 bonds at leas in the index that I look at. To give context, when I would look at this two years ago when I was doing a lot of the research that I was doing on the fed, nearly all of those bonds there's 1,000 bonds in the index and nearly every single on of them was at or close to par. I think it was between 80% or 90% were over par and those that weren't were really very close to par.
Parker Lewis (00:17:12):
Just over the course of the last week, I keep tabs on it almost daily, last week those bonds I think 650 of them were above par. Today, 74 of those bonds are above and you see the just the steady day in day out deterioration in that market and that when we look at the equity markets and we can see the volatility, I think what we haven't yet seen is the flow through in the credit events kind of debt that are directly correctly to the true underlying economic activity and that we can't really know how bad and how long term this even will ultimately be until we actually see kind of the number of default kind of the actually impairment on the corporate side in terms of not only earnings, but then kind of the restructuring that needs to happen. I don't think expect this to I reserve judgment until we actually see the impact on the economic side flow through in companies and so we're already seeing. I think people often times look at the DAO and they look at the SMP but the issue is credit and we're starting to see the negative.
Parker Lewis (00:18:38):
And one thing to keep in context and this is one of the reasons why I think that everything that impacts the world is so systemic is that once the credit market starts to delever on a system-wide basis, it's very difficult to reverse that course. It essentially feeds on itself. Kind of the initial economic slowdown cause GDP growth to slow but really GDP growth is driven by the expansion of the credit market and because the credit market is orders of magnitude larger than the base money supply and so once that credit market starts to contract, then it has kind of pro cyclical negative feedback loops on general economic activity because so much funding is dependent on that credit so it's kind of like once dominoes start to fall it's very hard to stop them from falling further and fast and that I wouldn't expect things to normalize until, at least on the corporate credit side, the full extent of that pain and that people start to come out on the other side in terms of restructuring credit because I can't.
Parker Lewis (00:19:52):
Giving a sense and there's very broad macro themes but then there's also idiosyncratic kind of sector themes and giving a sense of the transport industry, at least on the high-yield credit side is trading at $0.80 on the dollar in terms of the bonds in that index. Energy is trading at $0.59 now. There's obviously always a range between certain bonds in that index are trading at $0.10 on the dollar. Other still may be trading at $0.90 or $0.80 but when you look at what's happening individually on the aggregate, it's just the equity market can rebound 6 7% tomorrow. Once the credit impulse is broken, it's almost nearly impossible to reverse without going through a restructuring cycle and that doesn't happen quickly. So, it's almost like I view it as the pin to the grenade has been pulled and we haven't yet seen it explode.
Brady Swenson (00:20:48):
Right. Yeah. Ominous times. Giacomo, we've been talking about this as bitcoiners this situation for a long time. Bitcoin was born in the 2008 2009 economic crisis. This is the first economic crisis that we've seen bitcoin be alive and operate in. What do you think is going to happen with bitcoin during this crisis? Do you think it comes the other side stronger? Do you think this is an opportunity for us as bitcoiners to really carry the light forward on why bitcoin exists and why it's important?
Giacomo Zucco (00:21:27):
So, first of all I think that this crisis resemble much closer. I mean, as an entity, it's giant. It's comparable with the 1929, probably not even 2008 but as a type, it resembles more closer the crisis of 2001 just after 9/11 terrorist attack because in that time the market collapsed a little bit. I mean, a little bit much and there was a lot of shock going around but people overall they didn't have a lot awareness about the intrinsic variety of the financial system and of the problems created longterm by moral hazard of banking bailout, printing money, and stuff like that, manipulation of interest rates. In 2008, there was no terrorist attack, no virus, nothing so when everything collapsed and people started to freak out. I mean, everything collapsed because it wasn't sustainable and sure there is a subprime mortgage problem but it was created by this financial system and government intervention. I mean, not everybody understood government intervention as part of the problem. Many just said, "Oh, it's the free market. It's capitalism, the Jews, or whatever." But most smart people understood that that was a crisis in the system itself.
Giacomo Zucco (00:22:52):
In this case, we have a short term in which not as much as we could hope for are actually understanding the valuable position of bitcoin better because they are living this crisis as something, again, exogenous like 9/11. There are terrorists, there is a virus. We need the government to protect us and to bring money because the government must protect us from the terrorists so we need the War on Terror and reign changes in Iraq. And now we need the War on Virus and generalized lockdown and tracking people and stuff like that so the reaction is paradoxically. One, people is selling us speculative asset and savings for cash, the most liquid cash possible because they want to buy toilet paper, they want to buy random emergency stuff so they want consume good and they want to give up savings for consume good and bitcoin is mostly a saving technology so of course it suffered just as well as gold and every other asset. And also the general sentiment among people, including very sadly many many bitcoiners, is actually a new pandemics of fanatic statism so, "Oh, please government. Please save me. Lock me down. Control me. I need you. I'm scared so I need your heavenly force to save me from evil." So it's not actually the perfect storm for bitcoin yet in my opinion.
Giacomo Zucco (00:24:29):
The only thing that would be a counterargument for this because if this argument is true then we see bitcoin just faring relatively week compared to the rest and then be rediscovered when the scare for the virus is passed, how ever that happens, but eventually it will happen. Either for immunization of the survivors or a vaccine or whatever, but it will happen. And when that happens, either people will discover bitcoin... Well, actually people should actually discover bitcoin and understand the intrinsic weakness of the financial system but one thing that could be a counterargument to what I'm saying is the [inaudible 00:25:11]. We have this kind of supply shock in a positive sense, which is a negative sense of course, at the same time of the bitcoin supply shock in the negative does positive sense and this is very strange in theory. This is like 5D chess and so I have no idea.
Brady Swenson (00:25:36):
I was just going to bring that up actually. The having. The narrative that will come out of the having just less than 60 days away at this point. So we'll be two more months into this crisis. I think we'll have a lot more information about how things are going to play out and we'll have a narrative coming out on the financial news that bitcoin is now roughly the same inflation rate as gold, which I think will make it look, you know. First, it'll remind everybody that hey, bitcoin's still around because it's going to make the rounds and second, I mean that number I think is one of those big round numbers that's not the price but is a milestone for bitcoin to reach and everyone then will also learn that in four years bitcoin will be half the inflation rate of gold and become the scarcest monetary good that we've seen. That's fascinating to me about how that's going to play out. I don't understand the game theory exactly either but I think that narrative is obviously very positive for bitcoin so I think it will probably be good.
Brady Swenson (00:26:45):
Cory, you want to chime in? What's your take on what's going on here, man? You've got a lot of experience in corporate America. You got a lot of strong network around. What are you hearing about what's going on?
Cory Clipston (00:26:58):
Yeah. Well, you guys have covered a lot of the general stuff. I'm kind of inters to see what happens with global housing and to see if we've often talked about this massive store of value and how people have essentially been using housing particularly in the U.S. but really around the world, but really using housing as a place to store wealth and I'm very curious to see if this is the cycle where people start to not to think of their house as much of a store of value. It's just the place that they live and not to expect that that asset will always increase because fool me once, shame on you, fool me twice. So, this I think will be the second time that people's houses that they were kind of counting on as a piggy bank or maybe their way over leverage, having essentially taken out a ton of equity form their house.
Cory Clipston (00:27:53):
To ground this in reality a little bit, I live now for a year after leaving Santa Monica, had a second kid when we got to Calabasas. At the end of my street is a giant building that was originally constructed by Lockheed Martin way back in the days then it eventually got taken over by a company rather famous for playing a central part in the subprime crisis, so it was the countrywide national headquarters. It was right down the street from me and it's this massive building like a fortress and it's just empty. Still, all these years later. There's like a co working space in one corner of it that takes up about 10% of the square footage and it's never been filled and I wasn't in this community 12 years ago when that went down but I can only imagine the number of executives, the number of real estate agents, the number of people that bare those scars. And then you also kind of look around... I've never lived in suburbia. I grew up in semi urban North Seattle and then spent all my life basically in New York and Chicago before coming to LA and you couldn't really visualize how much people actually live by taking out the equity in their homes.
Cory Clipston (00:29:15):
So as you get kind of plugged into a, let's call it suburban community and Calabasas is definitely not a normal place but you can really sniff out that people have fairly normal jobs that aren't necessarily all that high paying but they bought a house like 20 years ago and they've got sweet cars but can never leave the house and they probably don't own very much of their house. It's pretty obviously that a lot of these people are just kind of living and spending the equity in their homes, refinancing over and over again and the rates go down and I think that's kind of fascinating.
Cory Clipston (00:29:51):
That's kind of point one and I guess the second one, just kind of looking at bitcoin with regards to the market. I mean, we've all noticed the massive correlation between MSP and bitcoin over the last week and a half and even longer than that if you look at it but like really close moves and a lot of people kl front running what they expect in markets because bitcoin trades 24/7. I mean, obviously I'm pretty known on Twitter for calling that that would happen in the short term and then we'll see a divergence. I'm wondering when it actually happens and I suspect it might be sooner than people think so I'm seeing bitcoin kind of flat today and DAO way down and I think we'll start to see a string of those days where bitcoin is up or flat and the market still goes down.
Cory Clipston (00:30:45):
Not to prognosticate at all, but it just seems to obviously and there's too many people raising their hands and there's too many people asking about bitcoin and they're not asking about bitcoin because they saw the price drop, they're asking about bitcoin because we as bitcoiner and the world in general has effectively memed bitcoin into their brain and they know on the back of their list somewhere in the back of their mind, they were going to check into bitcoin. They know that bitcoin is one of those things they're supposed to be checking into when everything goes to shit. Well, everything's going to shit and a lot of people are raising their hands. I don't know about you guys. I know Brady, you've told me the same thing and we've heard from a lot of people that last Friday probably was the most we've heard from [precoiners 00:31:31] since December 2017. It was literally the day after 50% drop and most of them weren't really all that aware of the bitcoin price drop. They were just freaked out about markets.
Brady Swenson (00:31:44):
Yeah. There's been a lot of incoming inquiry about bitcoin in the past week or so on my end, just anecdotally speaking. I've got a question from Joe Rogers in our telegram chat room and if you are listening and you want to ask a question, you can ask on Twitter, just DM Swan Bitcoin. You can find our telegram group, which is in the Swan Twitter feed if you want to track that down. This is from Joe Rogers. He wants to ask Parker, one would you and Nick [Batea 00:32"16] collaborate on an explainer on repo and bonds but also if you can just give a quick overview on how the repo market works. We've really been just kind of been hearing about that. The normies, including myself, have just really been hearing about the repo market for the first time it the past six months or so.
Parker Lewis (00:32:36):
Yeah. So, I mean, I think, one, Nick Batea could probably write a better primer on this than me so I'm going to collaborate with Nick on it but I'm going to ask him to take the lead and I'll give a high level just so the people understand when the term repo is used what they're referring to. When say in the funding markets, a bank needs reserves or actual dollars, they would post treasuries as collateral and borrow dollars to fund on a very short term basis. And as part of that lending agreement, there's essentially a repurchase agreement that would say, okay, I'm going to post my treasuries or other generally good or acceptable collateral, which are generally agency backed securities or the largest piece being treasuries, and such that if I post my treasuries to you and then you give me dollars, I owe those dollars back at some point in time and if I don't provide those dollars to you, then you can basically claim the treasuries, sell them in the market and get your dollars.
Parker Lewis (00:33:54):
And often time in those lending relationships, depending on the types of security, if I need nine dollars, I may have to post $10 worth of treasury as collateral and essentially what happened in September was there became a shortage of dollars being lent into those markets and the repo is a very large funding market in terms of short term funding and such that there were borrowers in demand and the dollars that had formerly been available to lend into that market, I don't want to say disappeared but, were no longer there and that cause the massive spike in repo rates, which ultimately induced fed to come in and provide dollars directly to that market. So rather than, I wouldn't even call it a free market, but rather than there being a truly [inaudible 00:34:53] mechanism to say okay, where is the supply and where is the demand, well, the supply and demand caused rates in the repo market to increase and don't quote me on the specifics but between 2.5% to 3% on an overnight basis to 10%, so approximately tripling the cost of credit to those markets.
Parker Lewis (00:35:11):
So what the fed did in response was they stepped into say, "Okay. We will lend $100 billion to the repo market at x-rate." So they basically just became a price setter in the repo and then they subsequently had to increase the facilities that they were providing for these markets I think between September and last Thursday, they had supplies net about 500 billion to the repo market and then on Thursday of last week, they announced the $1.5 trillion term grant so I hope that answer just kind of mechanically on the front end it's people posting treasuries and receiving cash but then under the construct of those that provide the cash and receive the treasuries can liquidate the treasuries if a borrower fails to pay back and that the feds' response to it was to lend directly into that market rather than the market sort out what the interest rate would be because if the interest rates were doubling overnight then those market would've completely shut down.
Parker Lewis (00:36:23):
You're on mute, Brady.
Brady Swenson (00:36:26):
Yeah. That's crazy, man. That's the way these Keynesean age works. Giacomo–
Parker Lewis (00:36:36):
The other thing that I was going to point out just because Cory brought it up in terms of the impact on housing. And I definitely agree with him that people are going to have this fool me once shame on you, fool me twice shame on me and I've written about it in the past but it's a really mind boggling number when you think about.
Parker Lewis (00:37:02):
What the fed had to do in the last crisis to essentially save the housing market in their view save the banking system. They went out and bought 1.7 trillion over the course of a year so they didn't just go in the market tomorrow and buy 1.7 trillion but they had to buy 1.7 trillion in mortgage backed securities to stabilize the housing market and there are only 10 trillion of mortgages total and I say "only" like the fact that trillion is even in our vocabulary is kind of a problem but essentially the fed bought 17% of all the supply of mortgage backed securities and just in the last week when they announced the $700 billion QE program, they announced the plans to buy $200 billion worth of mortgage and ultimately I think in their view or what they recognize is at least based on their world view of solutions that if they're going to be effective, they have to keep the housing market propped up and they're likely Is no greater market that is more manipulated than housing at least individually based on its heavy dependence on credit but then also what the fed has done directly to manipulate the supply of credit within that space and just looking at $200 billion relative to all bitcoin that will every exist it's $9500 per bitcoin and I can promise you that they're going to need a bigger boat then $200 million to stabilize the housing market this time.
Brady Swenson (00:38:44):
Thanks for that Parker. Giacomo, quick question for you. This is all from Joe Rogers. Knowing from our episode that we did together [inaudible 00:38:53] bitcoin that you were a libertarian activist in Italy for a while, do you see bitcoin sort of exporting those ideals, the economic ideas of libertarianism to the rest of the world?
Giacomo Zucco (00:39:09):
Indeed, now is actually a moment of absolute counter movement because of what I said before so people scared tend to become irrational and to get into superstitions like and statism is a superstition and so right now it's not working very well but historically, yes. I actually stopped doing anything libertarian-related in public in Italy a few years ago because I started to think that the only solution was more on an individual plain so I moved to Switzerland. As a resident in Switzerland, I started to just detach from the system, then I got interested in bitcoin mostly because it was a tool of individual sovereignty but then people that was lured into bitcoin mostly from the financial point of view so just to make money or because it was a new cool technology. A lot of those people started actually reading about economics, about libertarian ethical principles, about stuff that bitcoin about [inaudible 00:40:21] ideas and all this cultural stuff that bitcoin is based upon. So, yes, I think it did work. I think it did work great.
Giacomo Zucco (00:40:29):
A few of the friends that I had in the libertarian movement did not understand bitcoin. There are a few but really a few and many people who did got passionate about bitcoin first then they actually switched to libertarian either ideas or analysis framework so libertarian/[inaudible 00:40:54] because you can be ethically a libertarian but be absolutely ignorant about economics or you can be very very knowledgeable of the dynamics of axiology but not really but not really ethically ethically interested in libertarianism at all. Bitcoin is actually very good tool. It's not just and action tool. It is an action tool, but it's also a learning tool so it taught to a lot of people what it is it all about. Of course, again, I'm sad to see right now a very very strong counter. A lot of Italian bitcoiners are just starting to appreciate the fascism and Chinese communist party again, but I think this is a temporary irrationality mostly driven by fear and eventually panic, I mean, panic is a evolutionary reaction that we develop for running away from lions in the Savannah. It's not something that lasts a lot. After you sit down a bit, the things you keep thinking about they are not that scary anymore so you get back reasoning again.
Brady Swenson (00:42:16):
Oh, I was on mute again. Sorry guys.
Cory Clipston (00:42:18):
Brady Swenson (00:42:21):
Yeah. [crosstalk 00:42:22]
Cory Clipston (00:42:21):
Hey. If you want, I can... I'm sorry to non sequitur but I dug up that chart from Fun Strat from Tom Lee that basically lays out the global store of value. I'm just going to show how important housing is to that market. Let me just grab it real quick. There we go. It is there. So this doesn't even include currency so it's a little bit there's 30 trillion of marrow money and another 60 if you include broad money so basically the global store value's actually more like 370 trillion, which is why when we say if bitcoin moons if we does what we think it can do, the total addressable market is something like 370 trillion, so it's not completely insane to talk about numbers like 20 trillion or 100 trillion or whatever it is but with the existing market, real estate is such a huge part of it, which is why the fed as Parker was saying is going to do everything that it can to prop up mortgages. Going back to basically post World War II, the whole system is just save your wealth in your home and we'll make sure that it always goes up or stays stable at least and it's kind of the underpinning of everything that we do.
Cory Clipston (00:43:44):
I was listening to Ansel Lidner's podcast this morning, his most recent one, bitcoin and market. He was basically just making the case with some good data and a lot of experience that 25% of the U.S. is directly related to just building and all of the different services that splinter off of building residential and commercial real estate and that really almost everything else because you're serving the people that make money on that. The farm, the condo, the house, the office building, the factory, we've bet everything in this country on continuing to build and that's the fed is watching that so closely and will do whatever they possibly can to prop it up.
Brady Swenson (00:44:31):
Parker, question for you. This is from [Zender 00:44:34] in our telegram chat. He wants to know how gold fared in the Great Depression maybe as a analog to how bitcoin might be seen in potential recession or depression coming up.
Parker Lewis (00:44:50):
I haven't closely gone back and studied kind of gold during the Great Depression. I did go back to the crisis and I think that my perspective on it would be that during the height of the financial crisis, gold sold off by 25%. Kind of depending on what estimates you use, a $7 trillion to $8 trillion market and I think as we're seeing today, virtually everything is being sold for dollars and my explanation for that is that the market and all market participants or not all market participants but on the margin an increasing number of participants are figuring they're short dollar so when I look at it and I say, the fed just increased the supply of dollars or plans to by 700 billion, you can take that over the amount of bitcoin and it's a certain significantly larger dollar value than the price of bitcoin is today.
Parker Lewis (00:45:55):
That can be true at the same time that people are short dollars and that they need dollars and so my expectation, I think this is consistent with Cory's view is that in this interim period, while people are all figuring out that they still need dollars that bitcoin is a highly liquid asset that can be a source of dollars and that because of that that in this interim market move while there is kind of panic and people are trying to figure out equilibrium.
Parker Lewis (00:46:29):
People are trying to scramble to get the dollars that they didn't know they needed but that they are starting to figure that they don't have, it can be the case that the fed is significantly increasing the supply of dollars when those who are short dollars are continuing to have to scramble to get them on a forced basis and so kind of my perspective, and again I forget price levels of bitcoin for the short term or longterm, all I know is that there will likely be continued pressure so long as people have a strain for dollar liquidity but that on the other side of that tunnel or kind of once we've reached that point, that it will be the single greatest thing that causes people to have to learn about bitcoin or for bitcoin to become intuitive to them because it is really the function of the fed and overnight dictating that there's suddenly going to be 700 billion more dollars and I think that will ultimately be 400 trillion if no more in terms of this program.
Parker Lewis (00:47:40):
I would expect it to be similar to gold, you guess, in insure during the crisis. There was 25% draw down in the price of gold and then once those people that kind of needed dollars that were in the gold market were tapped out then gold sky-rocketed past where it was at the prior high and I would expect something similar to bitcoin. There are people that are exposed to bitcoin that need dollars but that at some point that washes out and there will be no bitcoin for sale and when we see that there will be a dramatic rise and that will be a function of kind of the market structure, the market dynamics but then also I think of it just as kind of an x and y axis and the y axis is time. Knowledge distributed exponentially and what greater incentive to understand this thing bitcoin that oh it didn't die. It may have dropped significantly overnight but that is kind of unobstructive price discovery and that ultimately creates help for the bitcoin market that everyone is maximally accountable and that we don't have manipulation of price. We actually have a free market and so I do view that there will be continued turbulence so long that there's a dollar liquidity crisis, which I think is what we're starting to see.
Parker Lewis (00:49:06):
But on the tail end of that, then we'll be like the phoenix rising from the ashes.
Brady Swenson (00:49:12):
What do you think about this helicopter money proposal? Do you think it could make a difference in the short term for people or for the economy as a whole?
Parker Lewis (00:49:22):
Well any dollars that they give me I will buy bitcoin with first and I think it's just late stage people giving up all common sense that kind of ascribing a symptom to a problem but not really understanding the problem itself and applying the what they appear to be a solution as I think in what my view is actually the problem that that the problem is debt and credit and that the only way for the fed, if they want to start depositing $1,000 into everybody's bank account, the only way for the U.S. government and the treasury to do that is for the fed to finance it. So, if you are going to create, whether you plan to do a tax cut or to authorize a program via Congress where every American gets $1,000 and Americans get 300 billion, that is one for one going to blow out the federal deficit and the only way that gets paid for is if when you see that they're going to do that you will also see that the fed has increased the quantitative easing program 700 billion to a trillion or 1.2. It'll be incremental.
Parker Lewis (00:50:47):
They'll say, "Oh. We're going to do another. We're going to expand." Right now, I think they're doing 40 billion a month. They're going to say, "Oh. We're going to be doing 80 billion a month." And they're not going to tel you when it ends and I really think of it as it doesn't solve the problem. It is the problem. So you're just doing more to incentivize what got us here in the first place and I think that with what's happening in the oil market, what's happening obviously it's significant and it's something maybe we've never seen in terms of the economic shut down that's being driven by the coronavirus but that what this allows is it allows the fed to almost they are the arsonists and they're leaving through the back door in the middle of the night and then they're coming back around the front as firefighters to say we're, "Oh. We're here to save the day." And that kind of the news around the coronavirus and the news around what's happening in the world markets provides them the cover to be the firefighter, to present themselves as the person that's trying to solve the problem.
Parker Lewis (00:51:46):
And in my view, all of it is I think it does a disservice to say that it's a distraction, but it certainly is a disservice to ignore that the problems already existed and that if it wasn't these things that cause the fire to accelerate, it would've been something else down the road and that the true underpinning of why the system is so fragile. It shouldn't be the case that even if the entire economy needed to shut down for a month or two months, this shouldn't cause a depression. It probably will if it doesn't. It likely will cause a financial crisis, possibly even a depression and that that's because the system is set up in such a fragile structure and that I think the world of bitcoin will ultimately be a [inaudible 00:52:36] that's more stable, more anti fragile and that we'd be able to deal with something like this in a way that didn't result in mass unemployment just because everyone socially distanced for a month or two months.
Brady Swenson (00:52:51):
Giacomo, are you back?
Giacomo Zucco (00:52:53):
Yeah. I'm back and now they are just fine.
Brady Swenson (00:52:56):
Okay. Great. We've got a question for you from Twitter. How do you think the stability of the European Union versus the United States will play out in the coming years?
Giacomo Zucco (00:53:12):
I don't think that it's even comparable. I think that it will be very surprising for the European Union to remain the same after this. Again, I set it before, even without this specific crisis, the Brexit process initiated some kind of irreversible fragmentation process so everybody was actually predicting the U.K. becoming like Zambia after the Brexit. It didn't happen. They were doing pretty well after this and I think that due to the fact that apparently Boris Johnson is less crazy than others, they will probably do economically better after this coronavirus crisis so it will be clear that there is not a strong reason to stay inside. This crisis will just accelerate that when people have time to metabolize it.
Giacomo Zucco (00:54:08):
While in the United States, on the other hand, I would be surprised if any process of secession can actually succeed. I would be pleasantly surprised. I mean, I look forward nothing more than to move in an independent Texas or New Hampshire but without federal agents being able to come in but that sounds a little bit politically unrealistic yet. So, if we talk about dream, then yes. Every nation state will actually just disintegrate into micro city-states like Hong Kong after this. If we want to be realistic, European Union is probably over, while the United States are probably going to resist until we move to some really unforecastable and unimaginable scenarios.
Cory Clipston (00:55:08):
Let's lighten this up a little bit. What are some really positive things that may come out of this whole coronavirus thing in particular? And I'm thinking about a lot of us realizing that we can get work done remotely and therefor people just escaping from desk slavery and cubical hell because it's just so obvious that things can be done a different way so that's one thing I think may take hold. We've got a lot of people like our friend Daniel Prince, who've done the world schooling home schooling thing. A lot of parents are experiencing. My wife and daughter right now are on Zoom in my daughter's room just doing their hour in the morning kick-off with their class and they just kind of see everybody and say hi and then get some work to do for the rest of the day. So maybe school's get affected.
Cory Clipston (00:56:08):
Maybe this is the thing. Our buddy [Udi 00:56:10] obviously going nuts with bitcoin VR and all these meet ups. Maybe this is the thing that really makes everybody really take a second look at VR, which wasn't quite ready five or six years ago with the fact there are headsets now that you can be untethered and don't get too hot on your face and you can wear them for an hour or two and not really bother you that much. Brady, I know you and I just ordered our Oculus Quests and start messing around and stuff. So those three things may be huge positives for society. What else are you guys looking at that might be silver linings in this whole situation?
Giacomo Zucco (00:56:48):
So, yeah. I would like to add to this. In a way, I fully agree because if you look at some parts of this crisis it looks like the [cipher pant 00:56:58] dream may be reality. Basically, everybody's interacting only online and when they interact offline they will be wearing masks because so [inaudible 00:57:07] recognizable so it's a cipher pant paradise. I agree, especially for schooling. I mean, I think that mass schooling was a both seriously unhealthy for the physical health because I mean, it's not just coronavirus. Every kid in the world is basically bringing home any kind of disease from these massive [inaudible 00:57:31] that are modern state schooling so a collapse of [inaudible 00:57:38] school in mass schooling, state driven mass schooling is very good.
Giacomo Zucco (00:57:41):
And for that's true as well. A lot of people just spending entire lives inside the gray office without understanding the point of mobility, interaction, and the internet itself. So, I think that one side there is more statist fanaticism going on. On the other side, there is a lot of thinking about that we can do things different, especially about working and school.
Giacomo Zucco (00:58:10):
Another positive affect os that everything we can do now online is only due to the fact that everything may be collapsing, I mean the stock market is collapsing, our freedom is collapsing, our ability to get food is collapsing, but the internet is surprisingly fine but that's not necessarily something that we can take for granted. So, I think that many many people will think. Okay. Now that we know that everything we gave for granted can actually be taken away, what about the internet? Are we really sure? We were scared about the internet being censored one year ago, but now if even that can get censored, than now it's really a tragedy. So, people can become more aware that we really need to find ways to protect the internet, to decentralize the internet a bit, to make the internet resilient to crisis, which is fundamental because right now everything we need is just a few DNS provider shutting everybody down and we are completely isolated from the world.
Giacomo Zucco (00:59:18):
So it's really important to be concerned about the health of the internet and in general, there is a health distrust, I mean, there should be, there is not yet because people are scared, but there will be irreversible damage to the reputation of experts and academic [crosstalk 00:59:36]. Those people like the government appointed experts, they started people OMS... Those clowns spent two months saying people that it was just a flu and everybody spreading panic was actually a troll that needed to be censored from going to supporting full [inaudible 00:59:56] measures and in between they just told everybody to not use masks because magically from a droplet transmits the diseases, masks are useless. So, the level of obvious idiocy coming from, yeah I say the OMS because it's Italian, from WHO and from similar [clownsicles 01:00:20], I think it's becoming quite obvious and people is realizing that they don't know what to believe but they're starting to understand what not to believe, which is already a good step.
Cory Clipston (01:00:31):
I'm seeing that at the micro level too. Obviously, we had something going down in the U.S., which was ludicrous which was mask related which was all of the media and the government saying you don't need masks because it's not going to protect you but we also need them for our healthcare workers. It's literally the same sentence, the same headline, and it just caused all this cognitive dissonance for people, so that was ridiculous. Obviously, a virus doesn't float around by itself so it doesn't matter if the virus can get through the mask. It's usually in a droplet, and even a bandana is going to stop that droplet from getting into your mouth so, really stupid and [inaudible 01:01:09] false.
Cory Clipston (01:01:12):
The other thing kind of on the micro level and I don't know if this is good or bad for society but people are realizing that their friends and people in their social circles that they thought were expert on different things don't know what the hell they're talking about. I don't know how many friends I've had that have said, "What do you know? You're not a doctor. My doctor friend says blank." And obviously, I don't know if it's bitcoiners' love for macro collab just kind of generally seeking truth or just being plugged into the hive mind of Twitter all day every day, but most bitcoiners obviously had this right from late January or at least by early February, and so it's starting to be there's a way that people are learning to find truth and it's based on the signaling that we get from really smart people being good at judging, and this is again a very sort of Talebian but also kind of a Rumsfeldian approach, which is like know what you know but also know what you don't know and be able to figure out and be able to judge when someone you're talking to or listening to or reading probably does know.
Cory Clipston (01:02:29):
And it's a skill a lot of people are developing and I think people in the macro investing world have always been pretty good at it and I think bitcoiner are getting really really really good at it because you're skin in the game, owning bitcoin and having to find truth and develop a sense for what is true that is counter to what you are being told at all times by experts in the mainstream media and all of your friends is basically creating this force of humans that have a way of learning and a way of discovering truth and insisting that there is a truth and that it's not all relative. That's probably the best training ground you can have for this situation.
Brady Swenson (01:03:21):
What about you, Parker? Any silver linings?
Parker Lewis (01:03:24):
Bitcoin. Always bitcoin. I think that this is ultimately going to cause people in an accelerated basis to have to question kind of very core assumption. And I view it as, every time there's an announcement about a $1.5 trillion dollar repo program or $700 billion QE, whether it's the fed, the ECB, however they want to term it, that increasingly and on an accelerated basis, central banks are going to have to do that and each that they do, it's going to cause people to wake up about their money and to get more and more people interested in why this thing bitcoin exists, why it hasn't died and that the net result of that will be a much more stable, more resilient world. One of the thing that I find almost baffling is how many people when this stuff happens, there's like an instant reaction to look to the government to do something.
Parker Lewis (01:04:30):
It's like we've become conditioned to rely on government to fix a problem or that there's some expectation that government should fight disease and I've seen stories about how there were universities who wanted to work on their own testing kits for their own vaccines or virus and they were told to defer to the CDC and it's like wait, what?
Parker Lewis (01:04:57):
Why is that? Why can't on a decentralized basis people figure it out? And so I think that kind of on the economic side, it will force people to on an accelerated basis to learn about bitcoin and then I think just in terms of a response mechanism, it's going to train people that the government, at least as intended or was intended is not supposed to fix all your problems. It's generally supposed to do as few things as possible and that has been a trend that has not gone our way and I think that kind of response, again, whether that be on the monetary side or the fiscal side, what happens here will cause people to realize that no, we are resilient. We can figure things out and that we'll actually come up with better solutions if it's a market of, whether it's the United States 325 million people, trying to all solve that rather than a few people kind of in windowless rooms trying to come up with singular solutions for everybody.
Brady Swenson (01:05:59):
Yeah. That's one that's big for me is just reminding us that communities can work, that local is good. Just an example, in our neighborhood, there're already lots of planning going on through Facebook groups and other similar online groups for community gardens. We live in a town of about 100,000 people. It's a college town, but the neighborhood we live in is actually sort of we have a bunch of big yards and stuff. It's right across the river from down but it's a interesting neighborhood. It's urban but also a little rural feel to it so people are coming together to plan on growing food and bringing in some chickens and livestock to co raise together to provide protein. It's interesting.
Brady Swenson (01:06:49):
And for instance, yesterday. This si just another little anecdote. I know everybody's for Saint Patrick's Day looks forward to hanging out and partying and there's a big parade usually in this town and all that stuff was canceled. We're all self-quarantined, so everyone came up with the idea that we're going to put homemade shamrocks in the windows and over a 150 homes in this neighborhood did that participate. And people were out on walks on their still practicing social distancing but able to kind of feel some connection with our neighbors. So, I think that that's going to be a big silver lining for coming out of this for sure.
Brady Swenson (01:07:29):
That and just the, like you said, Parker, the fact that bitcoin's going to move, I think, in people's minds away from this speculative asset to a serious alternative to what we're seeing play out in the fiat regime.
Brady Swenson (01:07:44):
All right guys, we're at about time that we had scheduled and I want to be mindful your guys' time. I really appreciate you joining us Parker and Giacomo. I think it was a great conversation and I think it's really important now more than ever for bitcoiners to be out there and talking and kind of carrying this light forward and bringing the community together to kind of do that collective so thanks guys. I appreciate it.
Parker Lewis (01:08:07):
Yeah. Thanks for having me.
Cory Clipston (01:08:09):
Giacomo Zucco (01:08:09):
Brady Swenson (01:08:10):
Brady Swenson (01:08:15):
Thanks for being here. Hope you enjoyed the second episode of the Swan Signal Podcast, a production of Swan Bitcoin at SwanBitcoin.com. Swan Bitcoin is the best way to buy bitcoin. It's easy set up of automatic buys focused on stacking sets, not trading. There's no distractions. Swan will always be bitcoin only. We encourage automatic withdraws and we're committed to bitcoin education. Follow us on Twitter at swanbitcoin and subscribe to the podcast at swansignalpodcast.com. That's it for this week. Thanks for joining us.