Stocks Up & Crypto Flat...Why? | Jim Bianco

if you look at Nvidia what the fomo around Nvidia is not necessarily the price breakout but the narrative I get it it's going to be the biggest thing since the internet maybe bigger than the internet that's how you got to get people into the crypto space not just talking about whether or not we're going to make get to 100,000 and fomo in everybody after that but what does it do what do we do with it other than cust it and wait for the price to go up

welcome to bankless where today we're exploring the reason why stocks are up and crypto is down or flat this is not the bull market we were promised this is Ryan Sean Adams I've got a solo episode for you guys today David's out at ECC and he's climbing mountains so I am here to help you become more bankless that's the question for today why are stocks up but crypto isn't we have macro investor Jim biano on the podcast today and whenever I'm trying to make sense of something that doesn't make sense to me in macro in the broader uh Finance World

Jim is just the perfect guest to ask so I brought him on I had a handful of questions that were top of mine we just Dove right in number one we talk about tech stocks why are they at all-time highs is this a bubble or is it a breakout for tech stocks number two is crypto going to have its moment are we going to enter the banana zone are we headed for disappointment is this going to be a a muted cycle for crypto Say It Ain't So number three how's the US economy really doing it's really hard to find signal here I'm getting so many mixed messages should we be worried

about a recession number four we talk about poell and his quest to slay inflation did he do it is he going to lower rates on the back of this and finally we conclude by talking about the next potential events that could really move markets Jim has some really interesting takes here including takes about the 2024 presidential elections in addition to all these I even got Jim to talk about the recent crypto ETFs and he had a bit of a contrarian take on them and maybe a quick spoiler alert he's not altogether bullish on the crypto ETFs so

stay tuned for that all right let's get right to the conversations with Jim biano but before we do I want to thank the sponsors that made this episode possible bankless Nation I'm very excited to be joined once again by Jim biano he's an investor he's a macro researcher at biano research he's a friend of the bankless podcast he's been a repeat guest a number of times because for David and myself there's no better bridge between macro and trafi and crypto than Mr Jim beond Jim welcome back to bankless thanks for having me Jim you come to us uh at an important time I think because people are trying

to figure out what the heck is going on at least there's a number of questions in my mind about what's going on in macra what's going on in crypto and uh so that's going to be the focus of the discussion but this is really Loosely organized by the most burning questions at least in my mind so we're going to probably hop around a little bit here if uh if that sounds good so uh the first burning question in my my mind is this and I think a lot of crypto investors and listeners are thinking about this why are stocks up but crypto is not all

right now this this might be some recency bias it's felt like this over the summertime doldrums in crypto so maybe you'll you'll zoom out and tell us that you know it's a it's about equal but it feels like the NASDAQ the QQQ the tech stocks in particular are outperforming crypto and we're doing that thing with you know the the boyfriend the meme kind of looking over his shoulder and we're just like hey like you know the S&P looks pretty good right now stocks look pretty good what's happening to crypto do you have any

explanation for this sure first of all let me say at the top I actually think it's a good thing that crypto start becoming a little bit more independent from the trafi market you know you just don't want to basically hold out crypto is saying hey it's just you know a a high beta or more leverag play the trafi market because you know what are you offering other than just more leverage you can get that in trafi so in some respects it should march to its own drummer now that I've said that what do

I think's happening um tread fi's got a narrative The Narrative is is AI and the AI narrative is actually concentrated in the biggest companies right the Magnificent s companies there's 62% of the QQQ index seven companies are uh they're 33% of the& P 500 now those levels uh those concentration levels are some of the highest we've ever seen for a handful of stocks uh I've I've got data back to the early 1960s and I can't

find another time where we've seen five stocks or seven stocks have this big a waiting now of course what's happening is it's all around Ai and the center of the AI universe is NVIDIA Nvidia makes the chips for AI here's something I think a lot of people don't realize um who where does AI get 50% % of its Revenue gets its revenue from five companies and who are those five companies they're open AI they're Microsoft they're meta they're Tesla so

it's like it's all circular is what it is you know these companies all buy Tesla has bought $1 billion dollar worth of of Nvidia chips just this year and so it's Al because of um you know um their their their automatic pilot their driving service and they want to push um and they want to push AI down on that and of course with uh X2 and grank that it's very expensive to do that so it's got this narrative that AI is coming it's going to be as big as the internet itself and everybody is piling into that

now the problem with that is it kind of sucks up all the oxygen in the room yeah uh over here you got the crypto guys going a new a new Financial system or store of wealth if you're talking about Bitcoin yeah yeah yeah yeah yeah but I'm going I'm going for the new the new you know internet 2.0 play which is AI and that's what's got everybody rushing into those stocks so when you look at the S&P and you look at the uh uh the QQQ understand that in the S&P over half

of the return in the S&P has been seven stocks over 2third of the return in QQQ has been seven stocks and on top top of that a good third of the return in those has been Invidia um alone so that's the narrative that's been driving this so if you're a Bitcoin Maxi and you're saying no no you want to buy Bitcoin make the case that it's better than Nvidia which is up 200% this year uh and that's really what you're you're you're

fighting with when it comes to narratives if you're looking for people to move money into the crypto space well they recognize that the crypto space is a space of high volatility in Wild returns um you've got to convince them to leave the AI space the AI space has been making them a lot of money over the last two years and they're very well into it so I think it really comes down to that narrative competition right now you have to be better than Ai and it's

been very difficult okay so AI is is just grabbing all the attention and therefore all of the all of the capital I I want to what you just said I'm I'm sharing a um a tweet here from Eric balunis who uh points out that the top just agreeing on your consolidation uh take here Jim the top 10 biggest stocks in the S&P 500 contributed to 77% of the index's total return in the first half of this year and that is the second highest ever recorded of that

number the only time com yeah it's look look at 2007 which was higher but look at what the total return for the whole year was was 3 and half% yeah what's up with this so so the only time it was higher was 2007 right but if it was only three and a half% what that means is that roughly speaking that the top 10 stocks returned you 2% in a 3 and a half% world but look at 2024 look at 2023 which is an extension of 2024 24%

and 15% so those top 10% those top 10% stocks are returning you a lot more than they did in 2007 so what does that tell you what what so we've got the Consol the concentration of 2007 but we have better returns is that do that mean but you're just you're getting you're getting much bigger returns out of those top 10 stocks this year just absolute returns you're getting much big bigger returns than you did in 2007 in 2007 it was more a quirk that the basically the

the stock market didn't even out performed cash in 2007 cuz you know t- bills were yielding 5% that year and you could have made 5% in a t- bill you made 3 and a half% in the stock market and you made 2% in the top 10 stocks so a lot of people looked at that and kind of shrugged their shoulders so what it's not very exciting but this year with these big returns and these big returns being concentrated with bigger returns in the top 10 stocks that's what's capturing everybody's attention and that's why that's what makes this year

and of course last an extension of it um unique in anything that we've seen before okay so in another year I I was just noticing as you were talking that that makes the top five is 1999 and I I I want to get your take for uh like just this this chart here what I'm showing on the screen is is kind of the NASDAQ from the 1980s of course NASDAQ we've used that interchangeably if you don't speak trafi with QQQ that is a a na QQQ is a NASDAQ uh index and we just see kind of like this this chart uh going absolutely

uh you know we'd call this in crypto maybe something close to parabolic it's definitely up and to the right and uh one year that um I I just referenced was 1999 and people look at this when it comes from a narrative perspective you said that hey there's one big narrative that's just winning out uh this concentration of of stocks it sort of reminds people of what was going on in 1999 with with Dooms even this element of you know uh Nvidia where's it receiving its its cash flow well it's just a bunch of tech companies right

like five of them uh for instance and and you're pointing out that it's very self-referential that was going on in 1999 as well I remember a stock my early investing days uh yeah I was still a youngster at this stage but I was looking at the do stocks like Yahoo and uh Yahoo's Revenue at that time the late 1990s was like off the charts it was amazing right it was just like growing so fast and yeah revenue is a real metric isn't it this is Cash turns out a lot of that Revenue was advertising revenue from all of the otherc tech

companies and it was self-referential yet again so there there is kind of this question right it's like AI is going to be transformational it's an incredible narrative I mean all of us have used AI tools uh by now chat GPT really is amazing I'm running it on my machine it's like like a AI agent that I I use on a regular basis so there really is this transformation happening but there's this question of are we in a bubble is that why stocks have become discor related from everything else in particular these these large tech stocks

and and the NASDAQ what do you think about that when you hear the word a bubble is this is this chart does this remind you of a a breakout or is it a bubble you know that's a good question I think we're somewhere in between let me explain if you look at that 2000 Peak on the chart um it doesn't look very big cons because it's an arithmetic chart it' be much different if we put it on a log scale but that said look at when we that was 5,000 on the NASDAQ that that's what that horizontal dotted line is when was the time that it really broke through 5,000 it was 16 years later so

when you basically made that in 2000 Peak it held for 16 years before the stock market or at least the NASDAQ made a new high now what happened in 98 and99 was people got excited about the entire idea that the internet was going to be on everybody's desk and it was going to be this transformational tool which it was and we started to buy anything and everything associated with the internet and by the way one of the leading stocks back then was Cisco which made routers

the hardware for the internet and where Nvidia is making the chips which is the hardware for AI so there's definitely been a lot of people pointing out that parallel as well and so what the stock market is doing is it's pulling forward future gains you know with adoption of the internet it pulled forward so many of those gains by the end of 99 into early 2000 that it took the internet adoption 16 years to catch up yeah and so really what you're talking about is

all the AI hype that you have now yes every single inch of that AI hype is going to happen but is it going to happen in the next 12 months or is it going to happen in the next 16 years because if it happens in the next 12 months then these stocks will stay at these levels if this AI hype is going to take 16 years to un fold then we might see some kind of a replay of where we are or where we were in the late 90s now I tend to think that this AI hype is

getting to be a little bit over that yes we will eventually get there look 25 years later whatever the Wildey estimates were for what the internet meant in 99 has been fulfilled it just took a lot longer than we thought it was going to take and that's the the risk that you face with AI you'll get there but you but the price where the prices are now you have to get there next year otherwise there's going to be a massive disappointment with a lot of these companies I think I hear you saying that

Jim more towards it's getting more frothy it's getting more foamy it's getting more bubble territory right now and so is your radar going off towards the the b word yes it is it is but what if I if I could mix my metaphors and throw in a baseball analogy I know what people say when you say bubble they say Okay ninth inning two outs two strikes well no it still might be the sixth or seventh inning but it is getting maybe it is in the ninth inning yeah but you know it is Bubblicious but

that doesn't mean you know go ahead get a cup of coffee and then sell every stock that you own right now because it's going to crash this afternoon it could still last for several more months or a year or two more or maybe it's really you know there right now so I don't know that part but yes it is getting definitely that towards that b word I mean we could be over here on the charts we could be like a 1997 or something here which did look like a spike up but there was still a lot more to go on on this chart and exactly I I'm

I'm curious what what your take is on uh stocks overall and I I was looking at this uh this is um tweet on the buffer the buffet indicator I should say the buffet indicator has officially crossed 195% for the first time in history it's higher than the dot bubble than the global financial crisis and the 2022 covid crash I had to remind myself what the buffet indicator is it's actually the the ratio of total stock market to GDP right so GDP is the total economic output of the of the US and uh it's

taking a ratio of um the stock market all of the the market cap of all stocks to GDP uh it says in Buffett's eyes this is the the best value indicator and here's the chart right here and we can see it's uh all-time highs uh as of as of right now and so this would indicate that stocks are expensive they're overpriced at least according to the buffet indicator but also when I look at this chart Jim and it was this way in in the late 90s in 2000s the Buffett indicator was kind of like unprecedented

at that time now it's above 2000s I look at this chart and I'm like okay I see some overvalue here potentially but also it looks like the metric is kind of broken because we've been overvalued for uh a very long time at least in you like the start of quantitative eing uh seem to you like start to pump all asset prices so what does this mean to you like is a metric like this even even useful in trying to assess the relative value of of stocks versus everything else it is but you has to put it in

context by the way um think Plan B stock the flow that's what this is you know it's basically you know the the the size of the stock market GDP is flow uh and so it's but it's stock to flow for the entire US economy and what it's basically telling you is the stock market is at overvalued range now the one thing you've always got to remember is valuation is never a timing tool in that so you can be overvalued and you can be overvalued for

a long time so what good is a valuation tool it tells you when the correction comes it's going to be very painful because if you start a correction from a very overvalued place it's going to go down a long way if you start a a correction from a not overvalued place to use bad English it's not going to correct this much so what this indicator is telling you is yeah everything's fine you're making money you're making money and then be careful because if you're not paying attention you might wind up losing two-thirds of your value because

there could be a very stiff correction coming at some point in the future when the stock market turns and I'll end this idea with by the way who is a big proponent of the Buffett indicator is Warren Buffett and himself uh Warren Buffett currently is largely defensively positioned he owns 3% of all treasury bills that the US government has issued really yeah I mean he owns more than central banks do right now he is positioned that he is so worried about

the def about the level of the stock market right now he is hiding in getting he's getting 5% a year in treasury bills so it's not like he's getting nothing sure but he has definitely been very defensive and fighing and he's really well away from the stock market basically what Buffett is thinking you got to remember the way Buffett is thinking yeah I like this company and I like that company and I think I'm going to be able to buy it 40 or 50% cheaper in the future so I'm going to hide away in cash and then when they when they all crack up and fall in half then I'm going

to swoop in and buy them maybe it's a couple of years from now maybe it's later this year but I'm 92 years old and I learned how to be patient that's kind of the way the Buffett thinks about things so do you think he's right I mean to wait uh he's waren Buffett because that's the way he's operated for 60 years yes I mean I mean remember remember this is the guy this is the yes he I think he is right but he is a a unique he is of a unique style that everybody wants to emulate but very few

can Warren likes to say you know you should buy stocks or buy a stock index likey and then don't even look at its price for five years there's only one person who's ever existed that can do do that and that's Warren Buffett the rest of us can't go five minutes without looking at it so his style works and his style works for him and others have tried to emulate it as well so I think you know for the Long Haul I think he he's probably right but for the rest of us do we really want to be that patient do we

really want to take that kind of approach we would like to you know it's it's kind of like you know we all like would we'd all like to improve our diet exercise more and lose a couple of pounds but that but it's hard for us to do it just like it's hard for us to emulate buffet style well something else I was I was mentioning so we've had a um High rates highish rates for for a while now which has led to Buffett apparently uh getting up to up to 3% of uh of all treasuries which is uh incredible to me I was looking at money market funds and

uh this is a a source where where I keep um some of like my value I'm excited about honestly treasuries these days at a 5% yield relative to other things uh and this is a money market fund assets reaching a new record there's about $7 trillion in Money Market funds and what's happening is I think like if you think about a small retail investor they're looking at their Wells Fargo savings account it's delivering like you know 0.25% something just like it's not even worth it and some of that cash is

is bleeding out into money market funds into into treasuries um but the overarching Tweet here is uh money market funds are at an all-time high what do you think is going to happen if pow starts increasing the rates again well that Capital will leak out of money market funds leak out of treasuries and back to risk on assets back to uh back to stocks and so we will get a another pump into the stock market and risk on assets as um you like the the rate

interest rates uh decrease because you know people will be in search of um I guess yield in other locations what do you make of what's going on with money markets bonds treasuries and could this be a positive Catalyst for uh some of the assets that we were talking about maybe you know uh pump pump the bubble to new highs yeah it can be but let's let's let's put this in the P you know a trafi perspective you know what do most trefi investors think that the stock market is

going to do well let's look at the book stocks for the long run written by Dr Jeremy seagull he put out a new edition of the book last year and in it he said what is the long-term return potential for the stock market that it's about 8% a year right it could be 16% one year zero the next year um and but usually you should get around an 8ish percent return historically that's been the case and it makes sense why you should expect that in the future okay so most trafi investors go into the stock market go

into structuring a portfolio either by themselves or with a wealth manager thinking I want to get eight% a year is what they think I know that most gen Z in younger Millennials go into crypto thinking I want to get 8% a day but that but you got to keep in mind that that that's their that's their mentality is that they want to get about 8% a year okay then they look over and they look at a money market fund and they say okay that's yielding the average money market fund in the United States right now is yielding

5.3% they go wait a minute isn't that about 2/3 or 70 % of that 8% number and a money market fund has a net asset value its price is $1 every single day it has no risk because it just has the same price every day and they go okay I'll take 2third or 70% of what I should get out of the stock market without any risk and that's why you've seen this big rush in the money market funds and

you're right it is not going to stop until interest rates are cut and then you could scream that word that we used to use before the pandemic called tina there is no alternative you got to get your money back in the stocks but it's going to take more than one cut to get that money out of money market funds it's probably going to take three or four and we are now talking about potentially the First Rate cut coming in the middle of September the second rate

cut maybe maybe towards the end of the year and you know we can talk about this later but I have I'm a little bit more hawkish I don't think the fed's going to cut as much as everybody thinks but if when are we going to get those three or four rate cuts it might not be for another year or so unless the economy goes bad real fast so yeah this can be a a source of funds to push into riskier assets but not for several months or

maybe a year assuming we get those rate Cuts as everybody points out I might add if I was here in January we were talking about fed's going to cut rate six times in 2024 well here we are now in the middle of July and they still haven't pulled the trigger so it's easy for us to say yes they're going to cut in September and yes they'll cut one more time in December but let's all remember that the people that are saying that have been wrong for eight months and now eventually if they just keep saying forever the fed's going to cut at some

point they're going to look like nostr damus because they will cut but that's the issue that they have you you know you have to face is that we're going to need lots of cuts before we could really start turning to those people and say you don't want to get 4% you want to get eight in the stock market um so then you might start to see some movement but right now I don't think that money's going to move at all if anything I think as the line shows on that chart it's going to keep going up over the over the near term the near term being the next couple of months all right I said we were going to uh jump around a little

bit and I I do want to get into inflation and and pow and if you what the broader context of uh all of this that's going on is but uh you before that let's let's jump to crypto really quick because okay my starter question was why are stocks outperforming crypto and we talked about the the story around stocks and I think you gave uh like a reasonable explanation as to why stocks are outperforming so hard but crypto why has crypto been underperforming uh at least in the last couple of months it's

been flattish underperforming and uh so so let's talk about the crypto story and I want to maybe ask um in the broadest way what your base case prediction for crypto this cycle is I would say um for for you know like most bankless listeners um let me describe the base case as we're in another four-year cycle right we've had three of these before this is the fourth and so we're expecting something like the other three right where we get the seasons in crypto

we've we get we get winter uh we get spring we get Summer we get fall and we get winter again right it's you know four years Four Seasons and we are maybe somewhere between spring and summer maybe we're in summer we're just in the summer doldrums but we're still in a bull market and The Best Is Yet To Come our friend uh R Paul calls this a banana Zone uh where he thinks things are going to you know like shoot up as they have in other Cycles um so that's probably the base case prediction that uh most

crypto natives have been thinking about this is another four-year cycle and of course you know these Cycles don't play up up only it can get slow for times but we're still in the bull season we're still in summer entering summer something like this and The Best Is Yet To Come what is your base case prediction for crypto let's call it this cycle so I I I'll tend to agree with that you know I think we're kind of you know late May and the weather's a little bit below average and it's raining out but you know summer is still coming uh and I am generally bullish on the space

and my maxi friends on crypto Twitter are still trying to rip my heart out because I've been saying some not no nice nice things about the ETF so let me explain my position okay I'm on the bankless podcast which is the perfect place for me to explain this position I look at crypto and I look at the entire space and I say this is the creation of a new Financial system a permissionless digital Financial system

decentralized as well as long as the space continues to move in that direction I'm all in I am and I still am all in and I am bullish on the space but when you start getting deviations from that you know and piss off some other people here one of those deviations might be salana because I'm not so sure how decentralized it is um convince me guys that it's decentralized this is what I want to say cuz I'm skeptical of it another one is what's happening with

the ETFs the ETFs the 10 uh uh spot Bitcoin ETFs have come out and as a group they have been the most successful launch of an ETF in terms of new money coming in in history but what is that new money that's coming in now a lot of the Bitcoin crowd has just decided that it's the Greenwich Country Club calling their wealth manager saying put 5% of my net worth into into the spot Bitcoin

ETFs and what we're learning is it's nothing like that at all uh you know it is it is all the institutions adopting it yeah there's a handful of exceptions but it's nothing like that at all it's coming from largely two spaces the money that's going into the ETFs it's coming from small retail momentum players I used to call them Deens I'm going to stop calling them dents cuz I realized that that's a inflammatory word and I don't want to get hung up on that and most of it is coming from onchain crypto

Quant JP Morgan have done some analysis that at its peak $16 billion dollar has gone into the ETFs where has that money come from they're estimating 13 billion of it was on chain in a wallet and they just moved it back to the regulated brokerage account and they bought Larry Fink's magic ETF if that's what we're doing with these ETFs is we're giving people an incentive to get off on chain it's too hard to do your taxes it's too tough I don't have to remember that you know Eric

balunis tweeted out that um no one's got time to remember a 12 word seed phrase the ETF fixes that yeah well that's the end of the crypto space if we're all going to just say screw the l2s and screw all the dexes and screw all the electronic wallets and sorry metamask and everybody else we're just all go back into our Schwab account and we're going to buy Larry Finks ETF we're not going to get there and that's what my concern has been is that we're going in the other direction it should be a wake

up called that the devs that is you know I've been in this space since 2017 and I would argue to you it's 100x easier to to traffic in the digital space now than it was seven years ago but for most normies it's still impossible even coinbase is impossible for them they're just comfortable in their current trfi account and they want to buy the faximile of crypto which is the spot ETF but again if if you want to go the next