Forward Guidance

Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao

Jun 6, 2022

01:41:37

AI Summary

Highlights

AI Chapters

Episode notes

Podcast summary created with Snipd AI

Quick takeaways

The current bubble in financial markets is larger than the dot-com bubble, driven by excessive liquidity from the Federal Reserve.

Valuing cryptocurrencies, particularly Bitcoin, presents challenges due to the lack of a fundamental valuation framework and contradictory narratives surrounding its true value.

The inelastic supply of Bitcoin may hinder its adoption as a global reserve currency, despite potential price escalation, and raises concerns about changing narratives and investment bubbles.

Deep dives

The Bubble Phenomenon: Bigger than the Dot-Com Bubble

The current bubble, encompassing speculative growth names and crypto, is larger than the dot-com bubble. Bubbles can be seen as capacitors for excess liquidity, storing it temporarily until it needs to be drained. The Federal Reserve has been charging the circuit, i.e., economy, with excessive liquidity, causing multiple bubbles to inflate. Crypto, including Bitcoin, falls under the category of assets that cannot be fundamentally valued. The narrative surrounding Bitcoin keeps changing, and there is no consensus on its true value. Valuing crypto based on network effects is problematic, as it lacks a framework to translate network value into investor cash flows.

The Supply in Elasticity Argument Might Be Bullish Price, but It's Barish Adoption

04:57

The Business to Reality Risk of the Bankruptcy

02:30

The Earliest That a Microstrategy Owes on Its Debt for Its De Maturity Schedule Is 20 25

02:22

Introduction

3min

What I Learned About Cantus Capital

5min

Is It Possible That the Fed Will Turn Hawkish on Oil?

2min

The Fed Is Going to Stay Hawkish for Much Longer Than Most People Think

5min

Equity Long Short Strategies - What Are They?

5min

Convertible Bonds Made So Much Money

2min

The Row Hedge

3min

Then I Had a Massive, Massive Short in Fanny May, Sub Paper as My Row Hedge for My Convert Portfolio

3min

The Federal Reserve Is Going to Save My Crypto?

2min

10.

The Fed Is Always Going to Come Back, Right?

6min

11.

The Fed's Quantitative Easing Is Not Inflationary

6min

12.

Is the Price of Oil Going Up?

5min

13.

Europe's Natural Gas Dependency Is Far Greater Than the Oil Dependency

2min

14.

What's the Biggest Black Swan Event?

2min

15.

The Export Band Was Lifted - Is That Really What We Need?

5min

16.

Petroleum

3min

17.

The Power of Capacitors for Inflation

4min

18.

How Does the Value of the Network Translate to Cash Flows?

6min

19.

The Supply in Elasticity Argument Might Be Bullish Price, but It's Barish Adoption

5min

20.

Is There a Cap on Cryptocurrency?

4min

21.

The Long Term Headwinds for Cryptocurrency - Is There a Trade Off Between the Toconomics and the Economics?

1min

22.

Real Options Versus Financial Options

6min

23.

The Business to Reality Risk of the Bankruptcy

3min

24.

Are You Not Locking in Yield?

2min

25.

Michael a Sailor, You're in His Shoes, You Would Be Losing Sleep at Night

4min

26.

The Earliest That a Microstrategy Owes on Its Debt for Its De Maturity Schedule Is 20 25

2min

27.

Is the Short Put a Big Problem?

2min

28.

A, Michael, Can We Also Disclose Your Position in Microstrategy?

4min

Today Jack welcomes Michael Kao, retired hedged manager and private investor, on Forward Guidance for a wide-ranging conversation on liquidity, energy markets, cryptocurrency, and convertible bond arbitrage.

Kao argues that risk assets have benefited from a “liquidity lottery” of quantitative easing and low rates, and that as a result financial markets are in a huge bubble that reminds him of the dotcom bubble of the late 1990s. Kao explains why he is skeptical about the value of digital assets, and he does a deep dive into the capital structure of MicroStrategy ($MSTR). Important disclosure: Kao recently entered a short position in $MSTR.

Kao is a veteran investor with a wealth of expertise in options pricing, commodity trading, convertible bond arbitrage, and global macro. He has over three decades of investing experience at Goldman Sachs, Canyon Capital Advisors, as well as Akanthos Capital Management, his own hedge fund. Nothing in this podcast should be considered as investment advice.

Filmed on June 2, 2022.

Follow Michael Kao on Twitter: https://twitter.com/UrbanKaoboy

Follow Jack Farley on Twitter: https://twitter.com/JackFarley96

Follow Blockworks on Twitter https://twitter.com/Blockworks_

Subscribe To The Blockworks Newsletter: https://blockworks.co/newsletter

To get in touch with Jack Farley about sponsoring Forward Guidance, email jack@blockworks.co.

(00:00) Introduction

(00:46) Michael Kao's Background

(08:30) The New Dotcom Bubble 2.0

(22:50) The Rho Hedge War Story From 2008

(29:16) Will The Fed Pivot? Can The Fed Pivot?

(34:45) MMT

(42:05) The Energy Crisis

(49:16) The Black Swan For American Oil

(59:09) Speculative Bubbles As Inflation Capacitors

(1:02:12) How Do You Value Crypto?

(1:10:05) Housing Bubble?

(1:11:14) Will QT Steepen The Yield Curve?

(1:14:38) Digital Assets

(1:18:00) How MicroStrategy Funds Its Bitcoin Purchases

(1:28:58) "He's Not In Trouble Right Now"

Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.

Get the Snipd
podcast app

Unlock the knowledge in podcasts with the podcast player of the future.

AI-powered
podcast player

Listen to all your favourite podcasts with AI-powered features

Discover
highlights

Listen to the best highlights from the podcasts you love and dive into the full episode

Save any
moment

Hear something you like? Tap your headphones to save it with AI-generated key takeaways

Share
& Export

Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more

AI-powered
podcast player

Listen to all your favourite podcasts with AI-powered features

Discover
highlights

Listen to the best highlights from the podcasts you love and dive into the full episode

Forward Guidance

Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao

Podcast summary created with Snipd AI

Quick takeaways

Deep dives

The Bubble Phenomenon: Bigger than the Dot-Com Bubble

The Challenges of Crypto Valuation and the Store of Value Argument

Implications of an Export Ban and the Challenges of Valuing Crypto

The Fed's Role, Liquidity Bubbles, and the Need for Withdrawal

The risk of artificial supply scarcity in Bitcoin adoption

Analysis of Microstrategy's capital structure and potential risks

The Supply in Elasticity Argument Might Be Bullish Price, but It's Barish Adoption

The Business to Reality Risk of the Bankruptcy

The Earliest That a Microstrategy Owes on Its Debt for Its De Maturity Schedule Is 20 25

Get the Snipd
podcast app

AI-powered
podcast player

Discover
highlights

Save any
moment

Share
& Export

AI-powered
podcast player

Discover
highlights

Forward Guidance

Inflation Is Popping The Biggest Asset Bubble Of All Time | Michael Kao

Podcast summary created with Snipd AI

Quick takeaways

Deep dives

The Bubble Phenomenon: Bigger than the Dot-Com Bubble

The Challenges of Crypto Valuation and the Store of Value Argument

Implications of an Export Ban and the Challenges of Valuing Crypto

The Fed's Role, Liquidity Bubbles, and the Need for Withdrawal

The risk of artificial supply scarcity in Bitcoin adoption

Analysis of Microstrategy's capital structure and potential risks

The Supply in Elasticity Argument Might Be Bullish Price, but It's Barish Adoption

The Business to Reality Risk of the Bankruptcy

The Earliest That a Microstrategy Owes on Its Debt for Its De Maturity Schedule Is 20 25

Get the Snipdpodcast app

AI-poweredpodcast player

Discoverhighlights

Save anymoment

Share& Export

AI-poweredpodcast player

Discoverhighlights

Get the Snipd
podcast app

AI-powered
podcast player

Discover
highlights

Save any
moment

Share
& Export

AI-powered
podcast player

Discover
highlights