Macro Expert Tom Lee | What's Next For Markets?

Welcome to Bankless. This is RyanChawn Adams. I've got a big question going into today's episode. I'm sure it's a question on your mind as well. We had this insane sell-off earlier this week, and uh it feels like everyone in crypto is just caught licking their wounds and wondering. They've got a question on their mind. Is the bull market over?

We have a guest today, Tom Lee, who says it's not over, not by a long shot. My goal in today's episode was just to get a few basic questions answered. They're basic questions, but there's a lot of nuance to them, as you'll hear in today's episode. First, I wanted to know why exactly did markets get thumped so hard on Monday? Is there a method to this madness? And is there more pain to come? Next, the question on my mind is of course, is the bull market over? This word recession, is that actually going to come to pass? Are we going to have to pause the bull market and get over some things first? What are the bear and bull cases at this point in time? And lastly, what are Tom's predictions for price with respect to crypto? He's been a longtime crypto bull on CNBC. I saw him as early as 2017 talking about crypto. So he's seen a pivot in Wall Street appetite here recently, and that's been a fantastic pivot, a positive pivot. What's next? Bankless Nation, I'm very excited to introduce you to Tom Lee. He is the head of research at Funstrat. He's also a CNBC contributor, and that's actually where I saw Tom first. I remember it was way back in 2017 before Bitcoin and crypto were cool on Wall Street, no ETFs back then. And uh I remember Tom being contrarian bullish on crypto way back then. I think maybe some of the anchors thought he was a little crazy. Uh my have opinions changed in 2024. Tom, welcome to Bankless.

Thank you.

Hey, we're gonna get to crypto in just a minute. I know you have thoughts and have had longstanding thoughts on crypto, but first we we just have to talk about this the downturn. I mean, some people are calling this uh actually Black Monday. I don't know if it warrants uh that title, but um it you just like the the market events popped on my radar when I saw on Sunday, just this last Sunday, Ethereum was trading down like 25%. Bitcoin's like down 15%. Anyway, can you tell us what happened earlier this week? What what is the what is the event on Sunday and into Monday?

Uh well, Ryan, that's a great question. I think that we'll probably never know the true reasons, but

I I would say the things that are high on the suspect list are

two things that happened um

starting last week.

One was

I think sort of the most immediate trigger

was the Friday jobs report,

uh, which was the employment report for the US for the month of July.

And that showed a pronounced weakening of hirings. You know, there were only 114,000 jobs added. That was really one of the first big misses

since the start of the pandemic.

And I think it really

uh laid to

it really fueled fears for investors that two things were underway. One was

there's this uh

rule called the Psalm rule that Claudia Som wrote, which is if unemployment picks up 50 basis points, you're already in a recession. And

That report showed unemployment had picked up

50.5% from the lows.

And

the second was that the Federal Reserve had a chance to cut rates just two days earlier that they didn't. So now the market sort of panicked because they're like, well, the Fed can't really do anything until September.

And it put

downside pressure on markets. That was, I think, the first trigger. The second trigger,

which might actually have a trigger to the trigger, but the second trigger was

um

That same week, the Bank of Japan raised their overnight rates by 15 basis points.

It really was slightly positive already, but it went to 0.25%, which for Japan's

the highest overnight rates

since the financial crisis. And

that triggered what looked like to be a reversal of a lot of

what they call carry trades because the yen

weakened further. I'm sorry, the yen started to rally.

Uh yen had been weak, but it had been rallying, and that was making

uh the carry trade, which is you borrow yen and then you buy other currencies look unattractive. The only reason I'm not sure if these are the triggers is you know you never know.

Um

and I know some of my colleagues uh at FundStrat have actually pointed out that

the intervention, you know, there could have also been intervention by the Bank of Japan on currencies

because the that started on July 12th. That's really when the yen began to weaken.

And uh I'm sorry, to strengthen. I'm getting these conversions mixed up. And the reason is that

at 160

uh conversion, that sort of offsets the benefits of weaker currency on exports versus the inflationary pressures. And so,

you know, it was really on that date that the yen started to rally. So sorry for the long explanation. We really won't know, but there was a lot of panic and deleveraging that took place.

Okay, a lot of panic on uh the back of recession fears due to unemployment numbers on Friday and then this this yen carry trade, which people are talking about. There's uh there's also talk about maybe the conflict in the Middle East and something heating up there that's kind of unknown. Uh Kamala Harris White House, sort of the the market maybe reacting to that and saying, well, you like maybe it's not as favorable if if the Democrats win uh the the White House again. AI just being incredibly frothy this year. Could it have been one of those things as well?

Yeah, I mean those are all like valid contributing factors too. Yeah. And

as you know, like when it comes to war, markets don't like um

the buildup, you know, so they always say you sell the buildup, you buy the invasion. So

we'll we'll have an idea of how markets really feel once

uh the retaliation starts.

Okay, so uh can I get some context on how bad this actually was? I I I saw this chart of uh uh of the VIX, right? And uh like you see these lines going up on the VIX in uh 2008, it goes crazy, and then like COVID 2020, and then um and then this event on on Sunday and into Monday, and it looks spiky. And of course, like 2008 was uh world-changing, and uh as as was COVID, and this had a similar kind of like effect on the market. And in indeed, I haven't seen a uh down day on crypto on a weekend of like 20% plus in in quite a long time, and and crypto kind of reverberates uh some of this as well. But like, f how bad was this? And uh, what's the likelihood that we get some aftershocks, after booms that this continues?

Uh I mean it was pretty bad. I think you kind of highlighted one of the best measures for it, which is um

the VIX the spot index, and it and it did it hit 60 and

You know,

again, it's not clear why

the VIX hit that level. You know, there's many reasons it spikes. I mean, it's basically

the expected volatility in markets, and it did soar.

Is it because the carry trade was already short vol, so that's why they had to cover, and that's why it spiked, or is it the longs were trapped

over the last few days, especially over the weekend? And one way to protect is to go

uh