#244 Michael Novogratz on Consumer Confidence in Markets

Mike Novogratz is the founder of Galaxy Digital, a merchant bank focused on the digital asset and blockchain industry. He is an ex-hedge fund manager, formerly of the investment firm Fortress Investment Group. In this conversation, Anthony and Michael discuss the current macroeconomic chaos, coronavirus and its impact on society, various social justice issues, how Mike is personally navigating the uncertainty, and how he thinks Bitcoin and digital assets are affected by recent market movements. =============================== CRYPTO. COM-----The only all-in-one platform that allows you to BUY / SELL / STORE / EARN / LOAN / INVEST crypto all from one place. Join over 1 million users currently using the Crypto.com app. Download and earn $50 USD using my code ‘pomp2020’, or use the link http://platinum.crypto.com/r/pomp2020 when you sign up for one of their metal cards today. TAXBIT-----Refund-maximizing, cryptocurrency tax software you can depend on. Visit taxbit.com/invite/pomp and receive 10% off your tax plan today by signing up for a free trial. LEDGER----- Ledger hardware wallets empower you to optimally secure, own and control your crypto. Visit ledger.com and give yourself peace of mind by knowing that your cryptocurrencies are safe.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:09Anthony Pompliano?

  Mike Novogratz is the founder of Galaxy Digital, a merchant bank focused on the digital asset and blockchain industry. He's an ex hedge fund manager formerly of the investment firm Fortress Investment Group. He was ranked a billionaire by Forbes and prior to joining Fortress, he was a partner at Goldman Sachs where he spent much time abroad, including leadership roles in Asia and Latin America. In this conversation, we discuss the current macroeconomic chaos, coronavirus, and its impact on society, various social justice issues, how Mike is personally navigating the uncertainty, and how he thinks Bitcoin and digital assets are affected by recent market movements. This conversation was recorded remotely due to social distancing, so the audio is a little shaky. Please bear with us throughout the recording. Before we get into

• 0:53Anthony Pompliano?

  the episode, I want to talk about the three sponsors for this podcast. The first is Crypto.com. This is an all-in-one platform that allows you to buy, sell, store, earn, loan, and invest crypto all from one place. You can join over 1 million users to buy, sell, store, earn, loan, and invest crypto in the Crypto.com app. That's right, they've got a mobile app. Go over, download it, and you can earn $50 US dollars with my code POMP2020, or use the link in the description when you sign up for one of their metal cards today. Those metal cards are Visa cards, and they're tied to your mobile devices. Mobile payments are now available for the Visa card in the United States. You can pay in a fast, easy, and secure way with Apple, Google, or Samsung Pay.

• 1:35Anthony Pompliano?

  It will work with most of the devices used every day, and card details are never stored on your devices. Also, they just added Tazos to their Crypto.com Earn product with interest paid in Tazos. So head on over, Crypto.com, use POMP2020, and you'll get $50 US dollars. Now, our next sponsor is TaxBit. They've been with us for a while now, and they make your taxes easy. The IRS recently released new tax forms for the 2019 tax year and just extended some of the tax season as well. So you're going to need to pay taxes on all of your crypto gains and losses. Taxbit helps automate this process by enabling you to effortlessly track, calculate, and report your transactions, easily connect your exchanges to securely sync your transactions, and run them through Taxbit's tax engine.

• 2:19Anthony Pompliano?

  You can generate your completed tax forms with a single click. That's right, super easy. They're founded by tax attorneys and CPAs. Taxbit is the most trusted cryptocurrency tax solution. Get 10% off your tax plan today with a free trial by going to taxbit.com/invite/pomp. Again, taxbit.com/invite/pomp. They've got live support with experts whenever you need it. Those experts are on hand who have experience facilitating thousands of crypto tax filings and Irish crypto tax audits. Taxbit.com/invite/pomp. Now, for the third sponsor, who's Ledger, we're going to do something new. They've pre-recorded an ad, and we're going to play it now. Once it's over, we'll then get into the episode with Mike, so I hope you enjoy this one.

• 3:01Speaker 02

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• 3:44Speaker 02

  Control, scalability, agility, because security is not enough.

• 3:49Anthony Pompliano?

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I'm here with Mike Novogratz. Thanks for jumping on to do this so quickly on short notice, my friend.

• 4:25Speaker 03

  Hope we have some fun.

• 4:29Anthony Pompliano?

  Yeah, look, I think one of the big things right now people want to know is just what's going on. So how do you think through, given the fact you've lived through so many of these, you've traded through so many, how do you evaluate what's going on in the global market right now?

• 4:45Speaker 03

  You know, every once in a while, you know, and it's happened, I don't know, three or four times in my 25, 30 year trading career, you get a category seven hurricane where it becomes just global risk off. And the, the system goes through a massive deleveraging and that's what you're seeing right now. It's usually, you know, comes from intense uncertainty. Sometimes it comes from intense leverage. This one I think is really from intense uncertainty. You know, with the coronavirus and how it's going to end up and are we going to, we've never really had economy

• 5:27Speaker 03

  going into complete shutdown on a global scale, almost like a rolling blackout. And so, you know, things that intuitively should make sense necessarily don't because it's where people have positions, they are selling them to get to cash and it becomes a self fulfilling prophecy. And so you think, look like things like risk parity, which is being unwound at an immense pace. And so the Bridgewater hedge fund posted 20% down, you know, you know, for the year so far. It's worse drawdown, I think in, you know, 20 years.

• 6:03Speaker 03

  Crypto, which, you know, a lot of people were talking, you know, Bitcoin, and I was a big advocate of Bitcoin as this digital gold, this, this hard money asset, which should do well when central banks flood the world with liquidity, when fiscal becomes irresponsible and, you know, we just start opening up the checkbook. I mean, it's exactly what's happening, yet. It's a leveraged risk asset, right? We forget that it's still mostly retail hell and a lot of retail buys on leverage out in, you know, Bitmex and, and, and Binance and all the, the, the great Asian exchanges slash casinos.

• 6:40Speaker 03

  And, uh, you know, people are having a hard time. They need to make their bills. They're losing money and other things. They start selling and you just have a, a rolling, uh, snowball. And new money is scared. Like even if you have a ton of cash on the sideline, you're in the middle of a shitstorm and you're not gonna be like, yeah, let me step in right now and buy some Bitcoin, which I've never bought before. And so you got some old hats that maybe were smart enough to sell it, that are buying some, but you don't have a whole lot of new money coming in and you're not gonna have new money come in for a while. And so I think as far as crypto is concerned, you know, this probably sets the, the, the story, the narrative of new adoption in Bitcoin is a store of value.

• 7:25Speaker 03

  Or in the other coins as part of the future of building a decentralized internet.

• 7:33Speaker 03

  You know, it sets it back 12 to 18 months. Just, you can kinda tell, cause it's gonna, we're gonna have to get through this and then you gotta rebuild confidence.

• 7:45Anthony Pompliano?

  Yeah. How do you think about, um, kind of these, uh, quote unquote safe haven assets, right? So you see gold, the, the treasury issues, et cetera. Forget crypto for a second, but just when we get to these, uh, deleverage points or kind of these liquidity crisis. Do you almost expect most of those assets to get sold off as well? Or do you actually expect them to hold up pretty well during those liquidity crises?

• 8:07Speaker 03

  I, I think in a liquidity crisis, in a liquidity crisis, anything people are long is gonna get sold. And so people are max long gold and they're selling it. Now, you can, with hindsight, look back and say, well, this is one of the greatest deflationary impulses we've ever seen in our lives. And so you're going to go through a period of intense deflation. And crypto and gold were supposed to be inflation hedges. And even if they cut rates to zero and print money and drop it out of helicopters, can they beat deflation, which we've had a hard time beating, you know, in Japan for 30 years now, and the rest of the world, we've been trying. And so, you know, we might look back and say,

• 8:49Speaker 03

  this move in gold and this move in Bitcoin wasn't as irrational as it felt. You won't know until the dust settles. I personally think you're going to have a brief period of deflation, and you're stoking the fires for inflation, because I think the economies will come back faster than you think. Once we get through this flu, you know, God willing, and there's going to be a ton of liquidity and a real fiscal profit, profitability that we already had, that's now going to be exaggerated.

• 9:23Anthony Pompliano?

  Yeah. And one of the things you started off by saying was kind of this like rolling blackout of economic activity, because people are being forced to stay inside, etc. The thing to me that is kind of just unprecedented is the fact that it's not like people are spending a little less money. They literally are not leaving their homes at all, right? They're just being stuck in their homes. And so do you think that that's something where the monetary stimulus plans, etc., can actually stimulate economic activity? Or is it the virus kind of has to be beaten, if you will, before we can get any of that economic activity back, and the monetary stimulus doesn't really matter?

• 10:01Speaker 03

  So I think, listen, I think the Fed did what they're going to do, and they'll do more, and they're doing a great job. Lots of liquidity, they're gonna, my guess is the next step, they'll come into the commercial paper market. There's no, they want to make sure there's no saying in the gears. But this is going to take fiscal. And in some ways, they've set up Mnuchin and Trump with the blessing of, you know, Nancy Pelosi, to open the checkbook and print a ton, and the Fed is going to monetize, they're going to basically monetize the fiscal stimulus, right? You've got zero rates and unlimited repos. And so...

• 10:40Speaker 03

  In a lot of ways, this should make yield curves go steeper. It should make the dollar weaken. It should make crypto go higher over time. But in the short run, what's going to get the economy back isn't monetary. It's fiscal. And so we really got to watch what the package that, you know, again, you know, it's Mnuchin-led, Mnuchin-Trump, but you know Pelosi's going to have to bless it that they get through. If it's, you know, and some of that, they want to do the macro, the payroll tax cut. There's a lot of pressure to just put money into the system. I mean, everybody rightfully, including myself, is worried about, you know, this gig economy that we have.

• 11:19Speaker 03

  If you're a Pilates instructor, a yoga instructor, a delivery guy, well, maybe delivery guys will do all right, but a waiter, a bartender, you know, all of those jobs go to, you know, cash flow negative real fast. They don't have normal salaries. And if you think about 40% of America has less than $400 of savings. You know, we go two, three weeks of this. Forget not paying your rent. People are not going to have money for food. And so there's a fear of social unrest. I mean, I have really smart, rational friends who are, you know, leaving the city, buying 30, you know, 90 days worth of food and holding up, not because they're worried about the

• 12:04Speaker 03

  virus, because they're worried about rioting. Now, I think that's a little extreme, honestly. I think our social safety structure is better than that and that we'll have food available for people and that the authorities are already planning on all this stuff. But these are not irrational guys. These are smart investors. And so you can tell where fear has gone.

• 12:27Anthony Pompliano?

  What if you're in charge of kind of this fiscal stimulus? There's a lot of people who've come on and talked about monetary stimulus, but nobody's really kind of hit hard on the fiscal side. What would you do or what do you think should be done there that could actually have an impact?

• 12:42Speaker 03

  Well, listen, there are two angles that I think I would do, and I think the administration actually is gonna do it. I have rarely got on board with this administration, if you read my Twitter. But I think in this case, they probably are gonna end up stumbling into the right movement. I mean, the first is get money out quick. And so the most radical would be some form of UBI for people that need it. Just, you know, Hong Kong did it. I believe Australia is doing it, where you literally just cut checks to people.

• 13:11Anthony Pompliano?

  Cash giveaway.

• 13:13Speaker 03

  That. Give people money, so they can buy their food, so they can pay their rent, right? Just keep the economy going. You know, you can do that with a payroll tax as well on a broad scan. The second, and I think the administration was already planning this. I mean, one way Trump was gonna try to get re-elected is he is planning a massive, massive infrastructure build, or at least to prop an infrastructure build, a trillion-dollar infrastructure build. He wanted originally unveil it right around the Democratic Convention as his, steal their thunder and, you know, ride that into the election. That wouldn't surprise me if that gets, you know, brought forward in its timeline, and they still push

• 13:57Speaker 03

  that. So, kind of on one hand, how do you get money into the system quickly? On the other hand, how do you actually start this big build where those are big contracts that get put in place over time, and you can see at least people say, hey, these industrial businesses aren't gonna go out of business, they're gonna have shit to do.

• 14:17Anthony Pompliano?

  Yeah. But part of what I think is interesting to a lot of folks right now is, you know, last week, we spoke a lot about kind of this monetary stimulus bomb, right? It was almost like they brought like a water gun to a combat zone to start, and then they had to come out with something really big. They did that fun day. But then you saw the market reaction, right? Obviously, this morning, hitting circuit breakers in the stock market, etc. Is there anything that they can do on the monetary side? Or is it only the fiscal stuff you think that will actually have an impact and can kind of get accomplished?

• 14:47Speaker 03

  The monetary stuff in time always has an impact. It always has an impact. So, I would say on... My son was supposed to go to Jackson Hole for spring break skiing and he was going with another family and so they were gonna leave on Saturday, but he was supposed to take his SATs. So they decided to leave on Sunday and on Saturday we were talking about it and maybe SATs got canceled, but all right, yeah, they're still going, they're still going, they're still going, even though they're gonna maybe close one of the tram and it went from Sunday morning, oh, we're not gonna go because it looks like they could close down to the mountain being closed to the hotel I own a piece of literally being shuttered, all in like a 24 hour period.

• 15:29Speaker 03

  And so we went from sending our kid to the whole mountain being closed and I think there was a psychological shift this weekend where Saturday night in New Orleans to Sunday, people say, no, no, no, no, no, no, no, don't leave your friggin house. And so there was a gigantic fear shift between Saturday and Sunday that I saw and felt and a wake up call, I think where people finally got it, that translated into the market this morning and I don't think anything the Fed would have done, you know, would have, would have, you know, created a different environment. I do think we'll see how the market closes today and, you know, sometimes that initial panic has to happen. We've spiked VIX to

• 16:11Speaker 03

  almost 80, you know, VIX at 80 doesn't stay up there that often. You know, there's only one other time I remember by career that it was above 80 and that was 08. And so we're getting close to panic and I think that Fed liquidity will help. I do still think there's more to do. They need to unlock, unclog the commercial paper market and they really need on the fiscal side to speak to all these small businesses. I mean, every single hotel in America is gonna go to zero occupancy or some tiny occupancy. And so how do you, how do you throw the lifeline to businesses that need the two month, you know, break and, and then not throw the lifeline to businesses that are gonna go about a business

• 16:56Speaker 03

  no matter what you do. It's a tricky game. Break and, and then not throw the lifeline to businesses that are gonna go about a business no matter what you do. All right, Andy, I just heard myself.

• 17:08Anthony Pompliano?

  Oh, I think that, um, Mike, can you still hear me?

• 17:13Speaker 03

  Yep, I hear you. Andy, I just heard myself.

• 17:16Anthony Pompliano?

  Yeah, so maybe you can talk a little bit also about in terms of the investor seat. What do you think people should be thinking through? And how should they be looking at the various opportunities in the market versus just the flight to safety and get into cash?

• 17:33Speaker 03

  I think if you hadn't gotten to cash, it's too late. Like, could the stock market go lower yet? Could the S and P, the S and P is at 2,500 right now, or was when I walked into this office. Could it go to 2,200? It certainly could. So that's another 10%. You know, a little, it's 8%, I could go lower, I would have guessed in here. 8 to 10%. That, I think, would be the ultimate low. If you just look on the charts, there's a lot of support down there. And so I would, if I was an investor, A, not take a lot of leverage yet, right? We're still in a danger zone, but there's going to be a time to take a lot of leverage. And I would start looking at individual stories that are so bummed out that you know it's

• 18:16Speaker 03

  a good company, that you know it's not going out of business, that it's got good cash flow and you're buying it at 50 cents on the dollar versus where you were, you know, two months ago. And there are lots of, lots of individual stocks. One of my worries for crypto, quite frankly, and as I look at my own money, you know, I was, I acted decently on the macro side and slow on the crypto side. Stubborn, you know, it's a core position. And so lunged a lot of Bitcoin all the way down. And now I'm looking, okay, where do you add? There are so many individual stock stories that you feel like, even if you get in, it's a little early, you know in a few months, there's no way you're losing on this thing because they got cash flow, you're buying it at a discount, a big discount.

• 19:00Speaker 03

  And so I think there are probably easier investment opportunities in the stock market than there are in more speculative markets. You know, speculative markets take a story, they take confidence. I look back, I want to kick myself in the fricking nose, because I was always saying Bitcoin in all of crypto is a story of confidence, right? It's a confidence gate. Stores of value are only worth things because we say they are. And gold's a confidence gate right now. And we had just, and we're in the middle of the greatest global confidence kick in the gut that I've ever seen, right? Confidence is shaken and institutions is shaken and you know,

• 19:41Speaker 03

  like, and it's just shaking our ability to understand things. And so that's why the market's all sold off and it makes all the sense in the world with hindsight that crypto got the heck beat out of it. I'm hoping the liquidations of Bitcoin are coming close to an end. Uh, you know, we've had two big pukes. Uh, and I'm guessing a lot of the leverage is getting, you know, squeezed out of the market real quick. And so I'd love to see Bitcoin, for instance, stabilize. Uh, you know, I'd love to see it close over 5,000 and kind of stabilize even between five and 6,000, uh, you know, for a while, because I do think in the long run, the story doesn't go away. And why I don't think it goes to zero ever, there is a core

• 20:23Speaker 03

  group of developers, they don't care if the world's blown up, they're still developing on it. Uh, there are most of the, the guys I know that own, you know, kind of 10,000 plus coin positions, uh, they haven't sold, they don't plan on selling. And these guys are in it for the long haul, it's part of their portfolio. Um, and so, you know, it's a damn shame, you would have felt a lot smarter to have sold a lot of 10,000 and have firepower to be buying it down here, but, but I don't, I don't see that. And so I'm hoping for Bitcoin is you get stability, uh, and for all of crypto. And I think you're going to see better opportunities, literally in the, uh, in some of the bombed out equity markets. You with me, Anthony?

• 21:03Anthony Pompliano?

  So that brings the question then, like, what are you doing with your portfolio, right? You said you weren't as aggressive as you thought you wanted to be, but now that, um, you kind of realize the situation we're in, how do you think about maneuvering in these markets? And what exactly do you do to position yourself well for, um, some sort of recovery, you know, at some point?

• 21:22Speaker 03

  You know, for the, for the first time in life, I don't know, you know, since I started crypto, I would, I would now, in this brief moment, consider myself a hodler.

• 21:33Speaker 03

  I'm gonna, you know, I'm gonna hold our Bitcoin. I do think it comes back. I believe it in the long run. I think it's, you know, listen, this was a test and it didn't, it didn't look great. And, you know, but I think it's, it didn't behave much different than most of the other assets that were risk assets. And so it wasn't a magic bullet by any stretch. But I do think the story continues. And so, you know, from a investing perspective, we'll hold, hold the Bitcoin. And listen, though, they're, they're, it's not like our whole industry is going away. Like I said, it's probably been set back 12 to 18 months in terms of people's excitement to put new capital in it. And so I do think underneath,

• 22:17Speaker 03

  outside of Bitcoin, you know, the blockchain space itself continues to grow, you know, more and more companies are getting involved. And so the venture business around blockchain continues to be interesting. I think the blockchain, you know, SaaS or consulting businesses are still busy. And so that technology shift isn't, isn't gonna, isn't gonna change. How that translates into markets and crypto and us trading these coins as a, as a store of value or as a forward look on what will come, right? If you think about Ethereum or any of the other protocol tokens, they have some store of value, but they really are more a venture bet on this ecosystem being built. That's still gonna happen. It's

• 23:01Speaker 03

  just, you're not gonna see the value of the coin until the ecosystem really starts humming a little bit. You with me?

• 23:09Anthony Pompliano?

  And so, you know, one of my arguments here is that, to your point about Bitcoin, gold, everything kind of getting sold in this liquidity crisis. If you go back to 2008, gold sold off in the six months, so kind of over the summer timeframe, about 30%. And then you saw the quantitative easing and monetary stimulus, and then it ended the crisis up about 3X from where it started the crisis. Do you think there's a similar thing that happens here with Bitcoin? And kind of that, in the liquidity crisis, everything gets sold off, but Bitcoin and gold end up doing well over the long term? Or do you think that, that confidence game plays into this much more and we don't actually see that?

• 23:45Speaker 03

  Listen, I think it's gonna be, so, you know, fool me once. Smack me, fool me twice, and I feel dumb. People bought gold and would have bought Bitcoin back after 08 because you believed in an inflationary impulse, right? And it took a long time. And so, we're gonna need to... And we didn't really get it. Ironically, we were just starting to get some inflation. Not a lot, but we were just starting to before this virus hit us. And so, I mean, I always thought it was crazy that Trump was running a 5% fiscal deficit while he had full employment and low rates, right? It was... We were juicing the thing as much as we could.

• 24:27Speaker 03

  Now, you're gonna have a deflationary impulse, but you're gonna have all the kerosene on the embers to see if you can get the fire going again. I think the natural inclination will be for gold to bounce some, maybe up 1,400. That would be my target in gold for the liquidations to end. And, you know, Bitcoin, I hope we've already hit the low at, you know, 4,000 or 4,500, whatever the... You wanna call the tradable low that flashed. And it'll start going up. I don't think it will really accelerate until we actually see, you know, the debasement of currency, i.e. real inflation. You know, because people are bought into this deflationary environment, and this is a big deflationary impulse. We certainly might.

• 25:11Speaker 03

  We're gonna see unprecedented fiscal, right? It would shock me if we go to an 8% fiscal deficit, right? We were at 5, and God forbid, who knows what this is gonna cost us? Maybe it's a 10% fiscal deficit and zero rates and a Fed monetizing. And so, you'll have some people jump on that, "Here it comes." But I don't think you're really gonna see the acceleration of gold and/or Bitcoin until you see the inflation, till you start smelling the, you know, the fire pause.

• 25:41Anthony Pompliano?

  Got it. So I want to switch gears real quick because I think that the economic stuff is one half of this conversation. But then I know you're super into a number of the social justice, different movements, everything from kind of prison reform to other aspects of of social justice. Maybe talk a little bit about how you see the virus and the subsequent economic slowdown affecting some of those other initiatives that are kind of outside of the finance.

• 26:09Speaker 03

  Yeah, so listen, I'm wearing this just capital T-shirt that my friend Paul Jones gave to me. He's the chairman of this group that has been trying to tell this new story that we really need multi stakeholder capitalism as opposed to just shareholder value driven. And that he put a letter out and it didn't really get well read because we're in the middle of a crisis. Looked at the Russell 1000 and you looked at there are 20 million employees in the Russell 1000 and 10 million of the 20 million people make less than the living wage. And so the letter was asking CEOs to look at their own company and say, Jude, pay your people better, you know, both with equity and with compensation because

• 26:50Speaker 03

  those are your, those are your resources. Like, and it was co-written by the, by the CEO of eBay. I'm sorry PayPal. You know, so with that kind of in mind, and you're seeing that in the, in our politics, right? How do we have a capitalism that actually benefits more people? This is just going to exacerbate the, all of those workers are going to hurt a lot more than, than you or I will in an environment like this. The uncertainty feels worse. The medical bills could feel worse. And so I do think our politicians get that and you're hearing it every time they're talking. We've got to take care of the, you

• 27:32Speaker 03

  know, the people below. But I, you know, as we come out of this, maybe it gives us a chance to kind of look and say, hey, what kind of capitalism do we want in our country? You know, the, because it's this debate between socialism and capitalism is kind of horseshit, you know, and what, what the center has been pushing to, if it's Larry Fink, or Jamie Dimon, or Paul Jones, or Marc Andreessen, all has been this multi stakeholder capitalism where capitalism got way too skewed to the, to the shareholder. And how do you balance that a little bit?

• 28:09Speaker 03

  I've got four young kids, well, not so young anymore, but Gen Z millennials. And you know, their whole generation says this don't work from the environment to the community you work in, to your employee, to your customer and your shareholder. They kind of want that balance. And so I think, you know, this it'll get lost a little in the crises, but hopefully coming out of this, people say, hey, how do we build something that is a little more sustainable? Um, you know, then when it comes to the prison reform stuff, we're really, really worried about our prison populations getting corona. You're stuck in a, the exact reason they send kids home from college, right? Because they don't want people stuck in these dormitories where you can transmit the thing so quickly.

• 28:52Speaker 03

  Think about what a prison is and think of the sanitary conditions in a prison. And so we have been pushing and advocating for, to start with, people not getting sent back to prison for a technical parole violation. Right? We have a shocking amount of people, right? A million and a quarter people a year get sent back to prison for a technical violation. That means you've got a speeding ticket while you're out on parole, or you're, you've got an illegal U-turn, or you showed up late for a parole meeting, uh, and they send you back to the, to the can. That makes absolutely no sense. It makes no sense at any time, but especially in this environment where you're putting someone in, in a whole community at risk. Uh, same thing with pre-trial, right?

• 29:37Speaker 03

  Bail reform, you know, until people are guilty, keep them out of the, out of the prisons. And so, you know, we're pushing those things. People are looking at them, you know, hopefully some of that gets done. But this virus in general, any crises always highlights, highlights the most vulnerable people in society. And, you know, you're nervous, you know, my, and you're nervous and you're, and you've got all the resources on the planet and then you think, shit, if I'm nervous with these resources, how are the people with no resources feeling? And so, you know, it's a, I'm surprised the government hasn't set up a, a charity already where people can donate, uh, to, you know, helping this gig economy world. And I mean, it's not just the gig economy.

• 30:18Speaker 03

  I use that as the, but, but the, the, this group of people that without their paychecks coming in, without their income coming in, are really going to feel the suffer, uh, you know, put George Bush and Bill Clinton in charge or something like that, or Obama. All right.

• 30:35Anthony Pompliano?

  Yeah, and I guess part of that really is the one part is the actual workers themselves in these small businesses, but then you've got the small business entrepreneurs too, right? The people who own those restaurants, who own kind of these non corporate or chain type businesses. How do they navigate this? Because it's one thing for us to say, hey, we should help pay these workers. There's things like charities. There could be some fiscal policy, etc. But if you're reliant on a small business for your income and your family's kind of wellbeing, and all of a sudden, the country goes into a two, three, four week, you know, really just stop. What happens to those businesses? What can we do?

• 31:13Speaker 03

  Yeah, I think you're gonna have to give them, you know, I mean, they're gonna try SBA loans, you know, so loans and or grants. I mean, you think about you run a sports store, and you sell sporting goods, you know, you're the local main street sporting goods store, and all of a sudden, you go with zero sales for two months. Now, there are 100 examples. I keep thinking of the small restaurants, and I stopped at a Chinese restaurant on the way back from the Hamptons yesterday, in like a strip mall, and, you know, we were the only people in there. And I was talking to the guy, he at least had a delivery, hope. But yeah, I think this is, this is really going to be complicated

• 31:57Speaker 03

  on how you get money into those businesses. And, and, you know, and there's got to be some sense of fairness on how it happens. You're not going to be perfectly fair, but you got to have some blanket sense of fairness. I made a gallows humor joke after Bitcoin went from whatever, 8,000 to 4,000 that night. If Galaxy was able to get a small business loan, because we were, we were becoming smaller, you know, and that was a bad joke, maybe. But the, you know, it's painful for big businesses with payrolls and, you know, because businesses, all businesses are going to slow down, right? Let me tell you, there's a lot less, even if the trading business is going on, there's a lot less happening

• 32:39Speaker 03

  in the advisory business and the banking business and, you know, talking to someone about a new token. No one wants to talk about anything right now about being safe and, you know, what's this virus going? So productivity collapses. And so I think all businesses are going to have a hard time. We got to be really worried about. You know, the small ones because A they employ a ton of people and that's where all our growth comes from. And B it's, you know, again, they're in the, they're in the more vulnerable place. All right. I'm gonna grab my hat every time I finish talking.

• 33:09Anthony Pompliano?

  Got it. So one last question for you. A lot of people now are talking about MMT and kind of this helicopter money. What are your thoughts there? Do we see it happen? Should we see it happen? Just kind of maybe riff on that.

• 33:23Speaker 03

  You know, I would think of it more as a version of UBI and I don't think it's a terrible idea. If you gave everyone on the, in the country a thousand dollars, uh, you know, a month for three months, right? That's, that's a trillion dollars. That's a pretty big stimulus right there. It's fairly distributed. If you want, you can kind of cut out the rich people, but there's not enough rich people that it really makes a big difference in the number.

• 33:49Speaker 03

  And so to kind of do it consistently, uh, Hong Kong did that. Australia's doing that. That gives people some spending money.

• 33:58Speaker 03

  I don't believe in MMT. I do think at one point, if you keep printing, printing money, uh, you're going to get roaring inflation. You know, I've just seen it as an emerging market investor my whole life. You know, it's a, it's a catchy way to justify running monster, uh, you know, fiscal deficits. There's a thing in economics called the Minsky moment. It's another confidence gig. It's, you're okay until you're not. And so there's, the yield, the yield curve's flat until it stands on its head or there's no inflation until it rips up. So you have this sense that, well, look, Japan has done it. We can do it.

• 34:37Speaker 03

  We're running 5% deficits and the yield curve is still low. You know, long bonds are a buck 35. You know, we should be borrowing more and more. Well, at one point, confidence breaks. And confidence is, as we just saw with Bitcoins, a very fickle game. And so when, if you lose confidence in people's desire to hold long-term treasuries, game over, right? Then we're in, we're going back to the stone ages or we're going into the Bitcoin age. And so you gotta be pretty careful when you swing around MMT as a, as an ethos. As a short-term fix, would UBI make some sense right now? Yeah, a hundred percent. That's my hat to tell you, you can ask a question.

• 35:20Anthony Pompliano?

  Got it. And so lastly, let's just wrap up with you've spent most of your career or a good portion of your career, trading currencies and looking at these emerging markets. What are the things where you're like, hey, let's avoid, you know, one, two, and three, or here's the warning signs that people should be paying attention to because I do think that you've got kind of unique experience in seeing kind of what not to do in some scenarios. So maybe share a little bit about.

• 35:47Speaker 03

  Yeah. So the biggest mistake people make is when a crazy starts and a market breaks, everyone thinks, oh, it's time to get back in way too early, right? And oh, it's a three standardization move. It's time to buy in, you know, time to buy the airlines, it's time to sell. Shit always gets much worse than you think it's going to get. And so I tell myself, I sometimes make the same mistake, but I tell myself, hey, when you have an instinct to buy something, go on a long walk, come back a week later and look at it. And it's usually worse off. So, once things start going bad, they tend to stay going bad for a while until you get a real zenith. And so, you know, if it's, you know,

• 36:28Speaker 03

  you looked at dollar Brazil at four, it looked pretty good, and now it's at five, you know? And pick a story where the fundamentals, you know, are turning positive. And so remember, markets, it's the first derivative that matters. It's not the absolute. It's are things getting better at the margin or worse at the margin? And so if you can see things turning better at the margin, right, that usually starts the cycle of where things get better. And so, you know, that doesn't mean you can't buy bombed out things and sell them. But what you're really trying to do when there's this evisceration is buy things that you can hold for a long time. Look at, you know, Churchill Downs, Kentucky Derby is a stock,

• 37:11Speaker 03

  CHDN. They went from 160 to 80 in the last six weeks. So, one half. Now, they're going to cancel the Kentucky Derby. They make about a hundred million dollars a year on the Derby. It was a $5 billion company. So you're like, wait, they're going to lose a hundred million in revenue one year, and the company's now worth half as much? And so companies like that, you know, you do your homework, you find that where the fundamental value is, then you can scale in. You don't have to, even if it jumps right away, you don't have to sell it because you're like, okay, this is a real business that's going to... So if it's a country, that the country's on the right footing. If it's a business, if the business is on the right footing. And don't go early.

• 37:49Anthony Pompliano?

  Other businesses that you're looking at that you're kind of salivating over and saying, "Hey, I might want to try to buy them."

• 37:55Speaker 03

  Yeah, yeah. So I get what you're saying. We have this crypto business up here, Galaxy Digital, and then downstairs I have a private equity business that I'm a part owner of called Dirational Capital. And, you know, we've been looking in the food space, like people are going to have to keep eating. And so there's some, there's some really interesting plays in protein that we've been looking at putting big capital to work. And I looked like I threw the Kentucky Derby out there. I had, I had been a big owner of it two years ago with the hope that maybe we could find some way to take it private. It was an ambitious idea. We did it. We made a whole lot of money on it.

• 38:32Anthony Pompliano?

  All right. Well, Mike, listen, I appreciate you, you jumping on and doing this. I know, especially given the chaos in the markets and having to do it remote is never as much fun as in person. So thanks so much for doing this and I'll do it again in the future.

• 38:44Speaker 03

  Anthony, hey, thanks. Thanks a ton. Be well.

• 38:52Anthony Pompliano?

  Hey, everyone. Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the Apple, Spotify, and other podcast charts, please do us a favor and rate, review, and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.