"Reformed" hedge fund manager James Lavish (@jameslavish), the author of The Informationist, joins Julia La Roche on episode 52 for a wide-ranging discussion on macro and a deep dive into the debt problem in the U.S.
In this episode, Lavish makes a case that the world has changed in a way that the market understands, and that is — we can't go into economic turmoil because we're walking a "very thin tightrope over a cliff" because of the massive amounts of debt in the U.S.
Lavish explained that the tax base in the U.S. currently brings in about $4.6 trillion, which could get impacted by a recession. At this same time, a massive amount of entitlement spending goes to Social Security, Medicare, Medicaid, and unemployment in addition to long-term contracts for defense spending and, finally, interest payments on bonds we've issued. Adding up all those expenditures, it's over $6 trillion annually, so the U.S. is spending $1.4 trillion more than its bringing in tax revenue. As Lavish puts it, if the U.S. were a company, it would be considered a "Zombie."
"The Fed's got to either lower rates to appease The Treasury because the Treasury has got all these payments it's got to make, or [The Fed's] got to somehow get inflation under control without crippling the economy. It's a problem," Lavish said on the show.
Right now, the U.S. is in a precarious position. The big picture is this tension between inflation versus recession, where the Treasury needs inflation to help inflate away all this accumulated debt, while at the same time, the Fed wants to curb inflation via rate hikes and quantitative tightening, which creates a risk of pushing the economy into recession.
As Lavish puts it, the Fed and the Treasury are "painted into a really tight corner here, and the market knows it. And they know the first sniff of what would be instead of inflation — deflation — the first sniff of that, the Fed's got to print again."
It's one of the reasons Lavish, currently launching a hedge fund, The Bitcoin Opportunity Fund for accredited investors, wants to own bitcoin because it's a system that doesn't depend on inflation.
0:00 Intro
0:41 Macro view
2:00 Understanding money
2:50 Inflation vs. Recession
4:00 Market participants terrified of missing the pivot
6:00 Why did the market melt-up on Thursday
7:54 Market conditioned to Fed put
11:00 We can’t go into economic turmoil because we’ve got so much debt
12:20 Fed and Treasury painted into a tight corner
15:42 How does the sovereign economy work?
18:20 U.S. is essentially a “Zombie” country
20:00 We’re in a debt spiral
23:00 We’re going toward Japan
28:00 There’s no longer free money
29:40 High probability of a credit event
30:40 Money printing is the root of all evil
33:50 Bitcoin thesis
36:00 Money will continue to pour into Bitcoin
38:40 Bitcoin is still seen as a risk asset
42:00 Bitcoin Opportunity Fund
46:00 Bitcoin should not be correlated to anything
47:00 Treasury needs inflation, Fed doesn’t want inflation
49:30 Likelihood of a recession
54:27 Why inflation is higher than what’s reported
58:00 Parting thoughts
