Arthur Hayes on 2020

Arthur Hayes (Bitmex)

[00:00:00] Arthur Hayes: 2020, what a fucking shit show. I have to say that this has been the most interesting start of the year that I have experienced in recent memory. I want to thank bitcoin magazine for extending the invite for me to come on and give, my thoughts about what's going on global macro, Bitcoin, halving and, whatever the fuck I feel like, talking me about on this little video.

So I hope that everybody is emerging from lockdown, healthy and safe, and hopefully we can kick this shit behind us and get onto some better things, but for the world in general. So, global macro obviously coming into 2020 S and P is at record highs. Everything's going well. And then the Chinese started talking about this, this virus.

I was up in Japan when. I first heard about the Corona virus about the novel coronavirus [00:01:00] number 19. And it was, you know, kind of strange having lived in Asia for the past, over a decade, you're very attuned to the scares about influenza or communicable diseases in general, due to the dense living conditions that most of us exist in.

So this piqued my interest and, and I guess continued on a shredding deep pow in the mountains of Japan and taking a keen interest with this, what really switched beyond to this is something fucking serious is when China decided to shut down its whole economy, because it was afraid of how it would be impacted from a health standpoint on this COVID thing.

Now, China cares about one thing with all else and that's its economy, because the pact that it has with its people is we provide you jobs in a good economy and lift you out of poverty. You let us handle everything else. So if they're willing to take economic activity down to a zero, this [00:02:00] must be something serious.

And obviously it was when they got into February and then early March, the whole world woke up to COVID-19 and locked down and started an economic implosion of a system that has been around since world war two began. And I expounded on this in my most recent crypto trader digest. But I have to say there's been some people who've made me think about this in a little bit more or a deeper context.

Jim Bianco is one of the guys that I have been listening to on a weekly basis. I highly recommend tuning in for his conference calls and he makes a very, very good point: for us to return to the Goldilocks economy of January and February of 2020. After these lockdowns end. We need economic output to go back to 98, 99% of where we were in early first quarter of this year.

So if you believe that after you come out of lockdown, you're going to get on a plane, go spend some money at a Gucci [00:03:00] store. You're gonna, you know, go spend $15 on a coffee that you've walked physically into a location. Then yes, we're going to get back to that level. But if you're like a lot of people in the world and probably have lost your job, You're depending on some sort of government program to get you through, or you're a small business owner, and you've been told by the government that you need to reduce the amount of people coming into your store by 70% to adhere to social distancing.

Then I think we have a very big problem. And for us to get back to greater than 80% economic output is going to be a tall order, even though the markets are thinking that way now as the S and P rallies, towards a 3000. So obviously governments recognize this, and they do what they do best, which is print money to cover up structural issues.

So what have we seen in the past few months, we've seen trillions upon trillions of dollars balance sheets expanded multiple times on of central banks [00:04:00] in order to fight the oncoming deflation and has it stopped it? No, we've seen negative oil prices. We've seen commodities crashing to all-time lows because people are consuming less because they're stuck at home.

Now, how does that affect our little universe of crypto? We know that governments are going to make the money printer Go brr as much as they can. They're going to bail out selected industries. And when that all fails, they're going to start handing checks out to people. And we've already seen that in the United States, the paycheck protection program, extending unemployment benefits.

Every country around the world is trying some measure of fiscal stimulus to get money in the hands of people. But. I don't think it's working very well as usual commercial banks are part of the big problem. See, they take this money and they sit it at the central bank, and they don't lend because lending is inherently risky and banks.

You know, like anyone else would rather earn a risky profit off of the back of a government program [00:05:00] than extending credit and taking risks on their loan book. So small businesses are still finding it hard to get credit outside of these programs. Some of this money that governments are trying to get directly into people's hands is facing transmission issues, because if you're unbanked and the government needs to give you a thousand ,$2,000 check, how are they going to physically do that?

Now this is leading into the next trend, which is central bank digital currencies. Well, let's, you know, circumvent, the banks let's get money in directly in the hands of people. Let's give people an app to use some sort of digital form of value, our fiat currency, and then let them spend it freely as we continue to essentially pay for their shelter and their food.

So we're going to see the central bank circumvent, I think, the commercial banks transmission mechanism of credit into the economy and then physical cash coming from these fiscal stimulus programs and all of this is hugely inflationary because while we're protecting people's jobs and giving them money to live and exist, [00:06:00] the supply of goods is greatly diminished.

We have had a complex interconnected system that has existed and grown since world war two. And now we have said, okay, everybody's shut down. Now, restarting that, getting that back to normal is not a linear process. It's a nonlinear process. And it's not as if you can just tell a manufacturer to get back up and running.

If all the component parts don't exist for him or her to make that product. So we're going to see a contraction and supply and a lot of money chasing these goods. Now it's the first we'll get. Deflation, probably a lot of goods. They're going to trade a much lower prices. You know, your luxury house in Malibu is going to trade at a few cents on the dollar who needs that right now.

Then need an apartment in a jurisdiction that is livable for a small family. So you're going to see when some of these assets trade down a lot, you're going to see a global margin call. If you had leverage extended and now the flow of credit has been interrupted, you're going to sell whatever you can.

And that's what [00:07:00] we saw in the beginning of March until the fed and all the other central banks stepped up bigly with these bazookas of printed money. Now sitting in the back of everybody's mind is where is this inflation? When is it going  to come?  Bitcoin, what the fuck are you doing? Why aren't you at 500,000, given all these trillions of dollars printed?

Well, we have just had a whole of tens of trillions of dollars, of fiat value in stock and bond markets, across the world, wiped out. Now, central banks have printed six, $10 trillion. It's a drop in the bucket versus what has actually been lost. So we're not there yet. Now, obviously Bitcoin recently has been performing quite well and now is around nine to 10,000, but the real action is yet to come. Banks, governments.

will continue to print money, to solve a deflationary shock that is going to come and is going to be bigger than we have seen since the great depression probably. And that is going to be inflationary in the [00:08:00] long run. And I think now you're going to start seeing people front run. What are the assets they think are going to perform very well?

Gold has held up very well this year. Bitcoin is obviously up on year. And I think that as people now have to transact completely visually with their domestic, central banker government to get their stimulus check ,all the reticence towards magic internet money that exists purely in a digital form will go away.

Because now you have an app you're used to trading online. You're used to using financial services where you can't or won't go into a physical branch. For you then to say, okay, well, you know, the price of food is going up faster than the government paycheck that I'm getting. Maybe I should find something else.

Now this probably won't happen for the poorest of individuals, but with those with excess income who are looking for ways to hedge that inflation, the traditional forms of gold were very attractive and in a purely digital construct, because they're used to now digital only payments, [00:09:00] Bitcoin is going to raise the frame.

So as it laid out in my previous crypto trader digest, I believe that this is the perfect setup for Bitcoin. Now, obviously the having reduces the inflation and that may or may not have an effect on the price, but the real effect is to fight deflation governments and central banks will do everything they can.

Try every innovative way to print money and get that credit in the hands of individual customers and consumers and small businesses so that they spend, spend, spend. And because supply is going to be contracted because of this lockdown and reopening, that is going to be inflationary. And we're going to get the likes of Paul Tudor Jones and other luminaries starting to sound the alarm of okay.

This is going to be another 1970s style stagflationary environment caused by a different set of issues, but the same thing still holds true. Real goods are going to get more expensive inflation, what you need, deflation, what you want. [00:10:00] And so Bitcoin, I think reigns Supreme in this sort of new environment.

And I reiterate my call for a 20,000 or above by the year end. So buckle up motherfuckers. It's going to be a fun ride. Thank you.