Senior analysts spoke: What does it mean for Powell to leave and Walsh to replace encryption

Compile & Collapse: Deep tide TechFlow

Guest:Noelle Acheson

Moderator:Steve Ehrlich

Podcast source:Unchaind

Original title:Powell Is Out, Warsh is in:

Date broadcast:22 May

Edit Guidance

The former IMF chief economist Gita Gopinath, “Bliss Trade” in FT, is replacing “Taco Trade” as the bottom logic of the market. This is a structural, cross-party, cross-government fiscal front, a true moat that constitutes the current valuation of risk assets and a central reason for currency devaluation transactions。

Crypto is Macro Now, current correspondent, Noelle Acheson, has made three core judgements in podcasts: first, the current stock stock market is extremely deviating, the bond market is pricing for global austerity, and the stock market is driven by AI, similar to S& before the Internet bubble in 1999; the P500 weight index and the market value weight index in 1999; and, second, Powell's tenure, both to affirm its defence of the Fed's independence and not to forget that he dominated the banking debanking of Silvergate and encryption companies in 2023; and, lastly, inflation will not come back very soon, even if the Holmuz crisis ends tomorrow, energy price transmission and consumers expect to be repaired at least in months, and inflation rises early on the Tramp tariff, driven by globalization。

Expensive Notes

Stock Deviation, Bliss Trade and System Vulnerability

• "The global bond rate of return is up, and this is a global austerity, which is not good for markets. But it is not new that the stock market will always follow another drum, but rather the scale of this departure is amazing.”
• "The bond market has traditionally been referred to as "smart money" because they look only at macrodata, narratives and trends; and the stock market is subject to various cycles of speculation. The situation now is that the stock market follows the fire, the debt market follows the macro-indicators, and the two drums are completely different stories, but they do not need the same.”
• "Bliss Trade is structural in nature, not limited to the Trump term, as Taco Trade. It means that no Government today chooses not to pay for help when people are in trouble, whether markets collapse, banking crises or high oil prices. This has nothing to do with political parties or even with democracy, as we have seen so many times south of the Equator line.”
• "The Bottom" is now part of the system, which, of course, overlaps with another layer of vulnerability. This is one of the reasons why risk preferences remain so strong in such uncertain circumstances.”
• "HISTORY, THE TOP OF THE MARKET IS OFTEN TRIGGERED BY A MASSIVE IPO."
• "What I'm most concerned about now is that everyone's cheering for S& P500 innovation, while ignoring the gap between S& P500 and the parity index. The last time I was raised at this rate was 1999. Anything top-heavy, according to the laws of physics, turns over."

Inflation won't come back soon

• "I HAVE TO REFUTE THE ASSUMPTION THAT INFLATION IS NOT ACTUALLY FALLING BACK AS MANY PEOPLE THINK. SINCE 2024, THE CORE CPI HAS BEEN RUNNING BETWEEN 2.6% AND 3% ACROSS THE BOARD, WITHOUT ANY DROP
• "The real reason for the rise in inflation is globalization, a trend even earlier than the Trump government, which began with Biden. Trump's just accelerating, boosting the turbine. Customs duties have been running repeatedly, and the Holmuz crisis has lit another match under it.”
• “Even if the Holmuz crisis ends tomorrow, it will take time for energy prices to fall, and it will take longer to transmit inflation indices and expectations. So this round of inflation stories, no matter how Hormuz acts, will not end in the short term.”
• "The target rate of 3% would have been reasonable, as many Fed officials privately thought. But they can't change the target because much of the Fed's work is managing trust. Once the goal has been changed, the market is told that `we cannot achieve our original goal', the entire Federal Reserve trust system will be damaged."

Powell has done his job

• "Powell looks like the kind of grandfather you're willing to go with him for a marshmallow latte, but we can't forget that he was also behind the banking of the encryption company, the leader of Silvergate's shutdown and the March 2023 series, and he misjudged inflation."
• The term "independence" is also worth torture. It was certain that he had come forward when the summons from the United States Department of Justice had been served; however, there was no independent reflection on the closure of the encrypted banking business, which was politically influenced. Does independence mean that there can be no accountability for any decision-making? Does that mean you can ignore the subpoena?"
• "He wanted to shrink the balance sheet, but the market wouldn't let him. That's it. The bond market is the one that owns it, and the Fed can’t let the bond market get out of order because it affects the dollar and price stability. So he can make a wish, but he won't. I wish I was a professional pianist, but that wouldn't happen either."

The cost of micro-assessing bitcoin and the future of Clarity Act

• "bitcoin is a hedge tool for currency devaluation. In the banking crisis of 2023, Bitcoin surged, and everyone said, “because people are aware that the banking system is corrupt and fragile”. I was wrong because people expected the central bank to release water. Bitcoin's real reaction is this."
• " BITCOIN IS A GOOD THING TO BE A MACRO ASSET, BUT AT A COST, AND IT IS NOW ONLY ONE OF MANY MACRO-ASSETS. FOR THE TIME BEING, IT WAS NOT BITCOIN. THERE'S NOT MUCH OF AN AI CONCEPT RIGHT NOW, AND THERE'S A LOT OF STUFF TO PLAY WITH IN THE MARKET
• "Clarity Act, even if adopted this year, has little impact on the bitcoin, which is not without regulatory clarity. What really benefits is ETH, which tends to rise with bitcoin because they often fluctuate in the same direction."
• "I'm worried about the details of the innovative exemption. If third parties are allowed to issue tokens for the packaging of their shares without the company's knowledge or consent, then it is purely a speculative market for derivatives rather than a market of capital formation. This contradicts the very purpose of the existence of the market and is detrimental to the `pure speculation' stigma inherent in the encryption industry.”

Steve Ehrlich:Hi, everybody. Welcome to Bits and Bips, we're here to discuss the intersection of macro and encryption. I'm Steve Ehrlich, Research Manager of SharpLink, and I'm also the present moderator. Today is a very good show. There is much going on in the macro-world, where stocks and bonds go completely the opposite, and the encrypted market is held hostage. There will be a new Federal Reserve Chairman tomorrow and more to talk about。

Now let me have a guest. She served as research director for CoinDesk and is currently author of the very influential newsletter Cripto is Macro Now, Noelle Acheson. Welcome, Noelle。

Noelle Acheson:Steve, hello, nice to talk to you again。

Steve Ehrlich:How was your day

Noelle Acheson:I'm still recovering from a high temperature of almost 35 degrees in Philadelphia, just like May。

Steve Ehrlich:You know, you'll have to adapt to this weather. Like many friends watching today, I am trying to figure out what is going on in the market. As the opening point says, the stock market is still strong。

Noelle Acheson:Yes, but there have been some warning signals。

Steve Ehrlich:Yes, Nvidia handed over another very beautiful financial report, but the market response was flat. There's a great deal of panic in the bond market, 10 years and 30 years, and that's the direction you've been following. To make matters worse, we got our first inflation data after the war in Iran. No one is sure what happens next. Powell is leaving on Thursday as Chairman of the Fed, although he will continue to vote on the Board, at least for the foreseeable future. The encrypted market is also in there, where bitcoin went up to 80,000 to 83 grand, and ETH went up to 2400, and now it's falling back。

So let's go one by one. First of all, how do you interpret the panic in the bond market? The rate of return has been pushed up, 10 years up, 30 years up, and, in my view, these are all signs of concern, but the stock market is basically not moving。

The stock debt is a departure from the "smart money" of the bond market

Noelle Acheson:You are right, these are indeed signs of concern and a global warning signal. Global bond yields are on the rise, a global austerity that is not good for markets. But the stock market has always followed another drum, which is not new, but the scale of the departure。

As you may recall, we all used to admire the 60/40 portfolio, and the theory of equity would be reverse. We do now see a reverse, but on an alarming scale。

THE STOCK MARKET IS CURRENTLY DRIVEN BY ENDOGENOUS, AD HOC FACTORS, MAINLY THE ENTHUSIASM FOR AI, AND LOOKS AT THE PERFORMANCE OF THE CHIP PLATE; THE BOND MARKET LOOKS AT THE MACRO AND THE FUTURE. BOND MARKETS HAVE TRADITIONALLY BEEN REFERRED TO AS "SMART MONEY" BECAUSE THEY FOCUS ONLY ON MACRODATA, NARRATIVES AND TRENDS; AND STOCK MARKETS MAY BE CAUGHT UP IN VARIOUS FIRING CYCLES, WITH INCREASING FREQUENCY。

So the situation today is that the stock market goes with it, which may or may not, and we can talk about it later; the debt market goes with the macro indicators, which are not very good today. That's why the two drums are completely different stories, but they don't need the same。

Steve Ehrlich:LET'S TALK ABOUT THOSE MACRO INDICATORS. INFLATION DATA ARE A COMMON CONCERN AND PPI (PRODUCER PRICE INDEX) IS BEGINNING TO RISE. WHAT ELSE DO YOU SEE? HOW DO YOU INTERPRET THESE INFLATIONARY SIGNALS? I DO NOT WANT TO USE THE WORD "TEMPORAL" BUT IN THEORY, IF THE STRAIT IS REOPENED AND THERE IS ANY SOLUTION TO THE IRANIAN PROBLEM, THE ENERGY MARKET WILL AT LEAST RETURN TO ITS PRE-FEBRUARY 28 AIRSTRIKE LEVEL, AND THINGS SHOULD CALM DOWN。

Noelle Acheson:Things will calm down, at least on oil prices. But this does not mean that inflation will fall immediately for two reasons. First, inflation is slow. We have seen a rise in the core index of concern to the Fed, but not in a significant way, because oil prices, while affecting everything, take time to channel。

Secondly, we will see expected increases in volatility. This is interesting, especially in the United States economy, where gasoline prices have a significant impact on inflation expectations. You see the numbers going up at the gas station, and it feels like money is being pulled out of your bank account. So even if gasoline prices do not enter core inflation, consumers already feel inflation is rising. This will affect their expectations and, in turn, their behaviour and, ultimately, actual inflation。

So even if the Holmuz crisis ends tomorrow, it will take a long time for energy prices to fall, and longer for inflation indices and expectations to flow. In other words, the story of inflation will not end in the short term, no matter how Hormuz acts, because it is not new, and inflation was built up before the Holmuz crisis。

Steve Ehrlich:CAN YOU SPREAD IT A LITTLE MORE? I KNOW YOU'RE IN SPAIN. IT'S A EUROPEAN PERSPECTIVE; I'M AN AMERICAN. SINCE THE FALL OF INFLATION AFTER COVID, THE FED HAS BEEN PUSHING INTEREST RATES DOWNWARD, THOUGH NOT TO THE TARGET OF 2 PER CENT, BUT INDEED DOWN. WHAT DO YOU MEAN, "A LONG TIME AGO"

Noelle Acheson:I MUST REFUTE THE ASSUMPTION THAT IT IS NOT FALLING BACK AS YOU THINK IT IS. LOOK AT THE FIGURE SINCE 2024, THE CORE CPI HAS BEEN RUNNING BETWEEN 2.6% AND 3% ACROSS THE BOARD, AND IT'S NOT FALLING AT ALL。

Indeed, a year and a half ago, many people said, "Well, the story of inflation is over, the anti-inflation process is over, and we'll be here for a while and then we'll go up." Why does inflation continue to be expected? As a result of the trend towards globalization, this trend even predates the Trump Government and begins with Biden. So it's a long-term trend, and Trump's just speeding up, boosting the turbine. Tariffs were running out and the status of tariff refunds was not yet clear, but prices had already gone up because of tariffs; the Holmuz crisis had set a match below. But seriously, if you look at it, you'll find that inflation hasn't dropped for a long time。

Steve Ehrlich:You're right. I remember there was a discussion about the Fed's 2% target that might have to be revised upwards and re-calibrated the neutral interest rate。

Noelle Acheson:3% is a reasonable target. This has been discussed by many, even by many Fed officials privately, but they cannot change their intended objectives. The reason is that the fundamental issue of the Fed is credibility. A large part of what the Fed does is manage trust. If we suddenly say, "We're less than 2%, so we're changing our targets," it's breaking the market's trust in the Fed's ability to achieve its goals。

Steve Ehrlich:Understood. We'll talk about the Fed and trust in about ten minutes。

From Taco Trade to Structural Endurance

Steve Ehrlich:I'd like to ask you again about the "unstoppable force vs unmoveable object" of the Vs debt. This week's newsletter notes an interesting commentary by the former Vice-President of the IMF about the so-called “Bliss Trade”, which may be an extension of a more sustainable version of Taco Trade, which is expected to belong to the same family as the Fed's hideout. I read a book about the rise of arbitrage deals a few months ago, arguing that markets will always have their bottoms, and that expectation was boosted by turbines during the COVID period, because global central banks had to pour water to support the stagnant economy. Can you explain this? Which one do you think you can't handle first

Noelle Acheson:Bliss Trade, an interesting comment from FT a few weeks ago, by Gita Gopinath, former IMF Chief Economist, Vice President, and now Harvard Professor. Read the article from the perspective of her IMF background, but she says a very good point: the market's expectation of a "downside" and a "safety net" is not just Taco Trade. Taco Trade, of course, is part of it, and Trump did provide the market with numerous events that convinced everyone that he would eventually step back, but her point was that it was broader。

Taco Trade is temporary and limited to the term of the Tromp; however, the acronym Bliss Trade is structural. Her argument was that no Government today would choose not to pay for help when people were in trouble, whether markets collapsed, banking crises or high oil prices. We saw it in 2020, we saw it in 2022 because of energy prices, and now in Europe because of the Holmuz crisis. The government will not be elected for failing to pay to save people。

This has nothing to do with political parties or even with democracy. We have seen too many coups south of the Equator line. But the outlook for currency devaluation is crucial, and where does the stimulus come from? There's always a way. There's a lot of tools in their toolbox。

In the long run, this does increase moral hazard and bubbles on the speculative side of the market. That is why we still see such a strong risk preference in such an uncertain environment. But it's structural, and the "downside" is now part of the system, which, of course, adds another layer of vulnerability。

Steve Ehrlich:I WONDER WHEN THIS SYSTEM WILL EXPLODE. BECAUSE WHOEVER DOES AN EMPTY "END-OF-LIFE CYCLE" ENDS UP BEING PUSHED BACK BY THE MARKET, WHICH ALWAYS RECOVERS, USUALLY IN K, V OR OTHER LETTERS。

Before we go to the next topic, I'd like to ask you about AI stocks. OpenAI is said to be filing an IPO application in confidence as soon as possible tomorrow, and Anthropic is reported to be coming later this year. These companies need hundreds of billions of dollars to build infrastructure and buy British Chips. I hear Anthropic has made a pretty good operating profit this quarter; but OpenAI is still burning up a lot of money and building the future on debt. But this is the engine that pushes the stock market. What do you think

Noelle Acheson:MANY REPORTS ON THE MARKET INSIST THAT CURRENT AND FORWARD RATES ARE REASONABLE. WHAT DRIVES ME CRAZY IS THAT EVERYONE ASSUMES THAT PROFITS ARE EXPECTED TO BE ACHIEVED OR EXCEEDED. IT IS TRUE THAT HISTORY HAS OFTEN BEEN SO, BUT WE CANNOT ACQUIESCE THAT IT WILL ALWAYS BE SO. WHAT IS THE BASIS FOR THESE PROFIT EXPECTATIONS? IN MANY CASES IT IS THE COMPANY'S OWN GUIDE, AND IN MANY CASES IT IS SIMPLY AN EXTRAPOLATION OF DEMAND. WE'RE ASSUMING THAT THERE'S A BIG DEMAND FOR CHIPS AND AI INFRASTRUCTURE, WHICH DOESN'T NECESSARILY MATERIALIZE。

I'M NOT CALLING MYSELF AN AI EXPERT. HOWEVER, HISTORICALLY TECHNOLOGICAL INNOVATION HAS ITS OWN LIFE CYCLE, WHICH IS EXPECTED TO GO BEYOND REALITY AND EVENTUALLY TO EXPERIENCE A RETURN. WILL THIS BE THE FIRST EXCEPTION IN HISTORY? IT IS POSSIBLE, BUT IT IS RECKLESS TO PLACE THE ENTIRE BODY ON THIS EXCEPTION. AND NOW THE MARKET IS ALL ON IT, AND THIS IS A SERIOUSLY NEGLECTED BOTTOM VULNERABILITY。

YOU JUST MENTIONED THAT THE INFELTA IS BEAUTIFUL, BUT THE STOCK PRICE HAS FALLEN, AND THAT'S WHAT IT'S BEEN FOR THE LAST EIGHT QUARTERS. EVERY TIME PEOPLE SAY "AI THE STORY IS FINISHED." NO, IT'S A TYPICAL "BOT LANDING" EFFECT, AND IT'S EXPECTED TO PUSH UP AND CASH THE MONEY. SO I'M NOT GONNA READ ANYTHING RIGHT NOW FROM THIS REACTION, BUT YOU'RE RIGHT. THERE'S ALWAYS GOING TO BE A FLIP. I WANT TO ADD THAT HISTORICALLY, THE TOP OF THE MARKET IS OFTEN TRIGGERED BY A HUGE IPO。

Steve Ehrlich:This is of great concern. It's also an interesting case, and I've read that they've had 14 or 15 consecutive quarters of superanalysts. But analysts expect that there should be a realistic basis in theory, and that tweak machines can be extrapolated at will, and then those are motor traders’ funds。

WHAT I FIND INTERESTING IS THAT WONG IN-HOON AND YOUNG WEI DA THEMSELVES HAVE ALSO STRESSED THE CONCERN ABOUT THE "NEIGHBORHOOD REPRODUCTION" BETWEEN AI COMPANIES, WHICH IS A MISUNDERSTANDING BETWEEN THE CHIP FACTORY AND THE CLIENT. THEY HAVE TRIED TO ALLEVIATE THE FEAR OF CONCENTRATION BY SAYING THAT ABOUT HALF OF THEIR CLIENTS ARE NOT LARGE CLOUD MANUFACTURERS。

Noelle Acheson:The problem of high customer concentration does exist, and these clients themselves are facing problems of rising costs and rising interest rates on debt. How can we be sure that the health of these customers sustains the profit expectations that these cloud and chip manufacturers are selling to the market? Well, I admit I may have been wrong. I've been expecting a market round for a while. I've been wrong. So that's a big discount。

Powell Retiring: credit, encryption de-banking and independence dispute

Steve Ehrlich:Powell's chairmanship of the Fed covered almost the entire period from the early stages of the encryption industry to maturity. Bitcoin and encryption were originally designed to be counterproductive to everything the Fed does. Can we talk about what his tenure means for this industry

Noelle Acheson:A cult around Powell's charms can easily get people involved. He does look like the kind of grandpa you'd like to go with him for a marshmallow latte. But we can't forget that he was also behind the go-banking of the encryption company, the leader of Silvergate's shutdown and March 2023's series of events. He did a lot of bad things to the reputation of American bank supervision. He also misjudged inflation。

SO WHILE I ADMIT THAT HE HAS A PERSONAL CRUSH ON HIM, I SEE THE FOMC PRESS CONFERENCE, WHICH HE DID WELL IN COMMUNICATING WITH THE FED’S GOALS AND INTERNAL OPERATIONS, MANY THINGS HE KNEW AND SUPPORTED, WHICH HURT THE ENCRYPTION INDUSTRY AND THE AMERICAN BANKING COMMUNITY AS A WHOLE; OTHERS HE DIDN’T KNOW, WHICH IS HIS PROBLEM. THAT'S NOT EVEN THE CREDIBILITY OF THE US DEPARTMENT OF JUSTICE CASE. HIS LACK OF RESPONSE TO THOSE SUMMONSES SUGGESTS SOME ARROGANCE AND LACK OF COOPERATION. EVEN IF YOU DON'T AGREE WITH THE PREMISE BEHIND THESE WHITE HOUSE MOVES, YOU'RE GOING TO DO IT FOR THE SAKE OF PRECEDENT AND PROCEDURE. AS A WHOLE, THEREFORE, THE EVALUATION WAS MIXED. HE DID HAVE A LOT TO DEAL WITH, FOR EXAMPLE, THE CRISIS OF BUY-BACKS, EPIDEMICS AND INFLATION。

Steve Ehrlich:Yeah, I forgot that he was the Fed Chairman at the time of the buyback crisis in 2019。

Noelle Acheson:He does have a lot to do. But I'm here with a feeling of affection, but it's not an exemption。

Steve Ehrlich:That's probably what I thought. I'm an institutionalist, and my friends on my show know that I've worked for the United States government and the United States military. I have a strong belief in the objectivity and suprapartisan nature of key government institutions. Powell’s insistence on defending the Fed’s independence is very positive to me, and he is obviously under great pressure. And I do not think that this pressure comes entirely from the White House, and Congress has, in recent years, to some extent abandoned its responsibility to formulate fiscal policy, resulting in the Fed’s having to catch up. Kevin Warsh actually tried to push it back, and he tried to reduce the Fed’s balance sheet and refocus the Fed on monetary policy. So I understand. However, if Powell's first line as president's obituary is “he defends independence”, then the second line must be “he misjudges inflation”. In 2021, 2022, we all heard the word "temporary." There was a certain logic at the time, that COVID looked like a one-time tail event, and the market would fall back in theory when it restarted. But not in fact, as you said, factors such as globalization have changed the supply chain. He failed to see it, leading to decades of the highest inflation, which had to be brought down again; this led to the banking crisis you mentioned, which led to an unprecedented round of rescues for some banks that were caught up in the cycle of interest rates because of their national debt. It's hard to reconcile these two things。

Noelle Acheson:Even his "independence" reputation is worth torture. He did come forward to counter-attack when the summons from the Ministry of Justice arrived, and that was an amazing and necessary moment, and he did a good job here, in much of his work of communicating information and fostering trust in institutions. But we must also bear in mind that there is no independent thinking in closing down encryption-related banking operations, which is politically influenced。

We must also ask ourselves whether independence means no accountability for all decision-making. Does that mean that the summons can be ignored directly? So what does independence mean by that? There is room for discussion as to whether or not the Fed really demonstrated that independence. And this opens up a fascinating topic, what exactly are we saying when we say "central bank independence"? When does it become a disadvantage instead of a virtue

Steve Ehrlich:For me, he's more like Paul Volcker than Arthur Burns. There are, however, many definitions of independence。

Kevin Warsh takes over: abbreviation, forward guidance and interest rate reduction expectations

Steve Ehrlich:We speak of his successor. Kevin Warsh also experienced his own evolution between the Doves vs Eagles. In his hearing, he made it clear that he wanted the Fed to stay away from fiscal policy, and that his wording was, perhaps, “the fiscal policy is more like the choice of winners and losers, and monetary policy is more democratic and has an impact on the economy as a whole.” That is where the Fed’s Chairman should sit. He also wanted to create a new measure of inflation that would make the Fed more precise and forward-looking. Powell provides a lot of forward guidance, and Warsh does not want to. What do you expect from him

Noelle Acheson:He could say he wanted smaller balance sheets, but the market would not let him. That's it. It's the bond market that owns it. It's closely linked to price stability. The Fed should not allow for a disorder in the national debt market, as that would affect the dollar and price stability. So it's a wish, and I wish I was a professional pianist, but it won't happen。

AS FAR AS FORWARD GUIDANCE IS CONCERNED, THE FOMC PRESS CONFERENCE WILL BE FEWER, THE DOTS LESS, AND I WON'T BE SURPRISED. THERE WILL BE A BIG DISCUSSION ABOUT WHETHER IT'S GOOD OR BAD. THIS IS RELATED TO WHAT SEC IS DOING, AND THEY ARE ALSO DISCUSSING REDUCING THE NUMBER OF ANNUAL DISCLOSURES. WILL MARKETS ACCEPT LESS INFORMATION? OR WILL IT INCREASE VOLATILITY? DOES THIS MEAN THAT ANALYSTS REALLY HAVE TO WORK, NOT BE FED ON TIME? I DON'T KNOW. IT'S A VERY BIG CHANGE. HAVE WE GOTTEN USED TO SOME SORT OF RHYTHM AND TIME-FED DATA, AND IF WE TAKE THIS, WILL IT DISRUPT THE MARKET SO THAT HE HAS TO PUT IT BACK, OR WILL IT BECOME A HEALTHY TRANSITION, LOWER COSTS AND RE-INTRODUCE ORIGINAL THINKING? I DON'T KNOW. I WOULDN'T SURPRISE HIM TO TRY, BUT THE MARKET WON'T LET HIM SUCCEED, I DON'T KNOW. THAT'S PROBABLY ALL HE CAN DO. HE CAN'T CHANGE THE WAY INFLATION IS MEASURED. THAT'S NOT HIS BUSINESS. HE CAN INFLUENCE WHAT YOU CARE ABOUT, BUT WHAT PEOPLE WILL JUDGE FOR THEMSELVES. AND HE CERTAINLY WON'T BE ABLE TO LOWER THE RATE。

Steve Ehrlich:In that connection, yesterday the Fed published the minutes of its April meeting. One is the fact that there are more hawks in the conference than the final vote (maintaining interest rates). That's the environment he's going to face, higher inflation, but the president wants lower interest rates, believing that AI's productivity will hold inflation down. And then Warsh has to prove that he is "independent from the president." What do you expect from future Fed meetings

Noelle Acheson:It's up to Trump to say. He said publicly, "Warsh does whatever he wants, and I have full confidence in him." Considering Warsh going into the environment, this statement is quite amazing. We know that Warsh can't drop the rate, either he has one vote and almost no one will vote with him; or Trump can't yell at him so soon after he's been chosen. So there will be a truce。

There's one thing in the market right now that I think I've read wrong. I've been saying "no drops" for a long time, and I'm glad to see this consensus emerges; but now it's going to another extreme, with an increase this year. I think this is going too far. He was unable to reduce the interest rate, but few had the courage to raise it even after "temporary vs continuity" inflation had not been concluded. So it's "no loss." It'll make Trump comfortable, probably not making him totally happy, but he'll shut up. This gives the Fed a break and Warsh some time to build his own relationship, because ultimately it depends on the degree of trust that FOMC members have in the Chair, and whether they will follow his advice, which will affect the subsequent monetary policy。

Steve Ehrlich:I FEEL A LITTLE RELIEVED. NO ONE HAD VOTED AGAINST THE VOTE FOR DECADES BEFORE IT BEGAN TO APPEAR LAST YEAR. ON THE CONTRARY, I THINK IT IS A GOOD THING TO HAVE A NEGATIVE VOTE, BECAUSE THERE ARE SO MANY PEOPLE IN THIS ROOM, WITH DIFFERENT BACKGROUNDS, DIFFERENT REGULATORY AREAS, WHICH SHOULD BE ECONOMICALLY DIFFERENT AND FAR REMOVED FROM GROUP THINKING. I'M LOOKING FORWARD TO A FOMC SESSION IN SATURDAY NIGHT'S 52ND SEASON, AND THESE PEOPLE ARE WELL-KNOWN。

Noelle Acheson:Awesome. What if the next negative vote came from the President himself

Steve Ehrlich:That would be interesting. I'm not sure there's a precedent in history。

Noelle Acheson:I DOUBT HE'S GONNA DO THAT. HIS NUMBER ONE JOB NOW IS TO MAKE FOMC TRUST HIM。

Steve Ehrlich:Yes, not at least for the first time. But then who knows。

Cost of micro-assessing bitcoin

Steve Ehrlich:We talked a lot about macros. Talk about encryption. Bitcoin and ETH were rolled in again last weekend, and on Sunday, a possible new attack on Iran came out, and on Tuesday Trump said that several Gulf countries had asked for a little more time to negotiate and that things had been put on hold. But the encryption hasn't been restored. Several Chinese tankers have been reported passing through the Strait and have paid some kind of "fee" to Iran. I wonder if this is going to be a follow-up model. But the encryption is stuck, is it a high Beta-risk asset, or is the devaluation of currencies in a more inflationary world going to give Bitcoin and encryption back the advantage? Or will you lose to gold again? What do you think of mainstream encryption assets now

Noelle Acheson:It's probably all set up, to be honest. I don't see any catalyst that can push it out of the current zone, at least not the right one. Negative risk is always present, and the collapse of the stock market will drag down major encrypted assets, and gravity will work even if the correlation becomes weaker in the short term. But does the stock market really fall? That's hard to say。

Depreciating this line has been going on. Bitcoin is a hedge tool for currency devaluation. Bitcoin tends to perform better when there are fears of devaluation. In 2023, when bitcoin surged during the banking crisis, everyone said “because people are aware that the banking system is corrupt and fragile”. I was wrong because people expected the central bank to release water. Bitcoin really reacted to this. If there is a real deterioration in the market, and if there is a signal of stimulus (that is, the Bliss Trade that we talked about earlier), it is possible to lift the encryption from sleep。

BUT NOW THERE'S A RISK PREFERENCE, AND BITCOIN'S NOT MOVING BECAUSE THERE'S SO MANY OTHER OPTIONS. NUMEROUS AI CONCEPTS, PREDICTIVE MARKETS, CAN PLAY TOO MUCH. THAT IS THE COST OF BITCOIN BECOMING A MACRO ASSET. I'VE BEEN WATCHING THIS FOR A LONG TIME. BITCOIN IS A GOOD THING TO BE A MACRO ASSET, AND IT HAS BECOME MORE AND MORE ITS PLACE IN THE MACROASSEMBLY; BUT THE PRICE IS THAT IT IS NOW ONLY ONE OF MANY MACRO-ASSETS. IT IS NOT BITCOIN AT THIS TIME THAT INVESTORS PURSUING HIGH VOLATILITY WILL CHOOSE HIGHER VOLATILITY. SO IN CONCLUSION, THERE'S NO CATALYST THAT CAN PUSH IT OUT UNTIL IT JUMPS OUT AND TAKES OVER。

Steve Ehrlich:One possible future catalyst is the Clarity Act (market structure act). We don't have a chance today, but this is a bad topic. Can we just say a few words? Whether the bill itself or its possibility of being signed into law

Noelle Acheson:I hope to pass Clarity Act this year. But confidence isn't too high, it's probably just my wish. I don't think it's gonna have a lot of impact over TT, and bitcoin doesn't lack regulatory clarity. What's really lacking is that ETH, ETH, could benefit; and ETH, rising, often with bitcoin. Overall, regulatory clarity may make some investors more comfortable with the allocation of bitcoin, but bitcoin itself today does not lack regulatory clarity。

Steve Ehrlich:Right. I wrote a few posts on Twitter, bitcoin and ETH are almost clear. The SEC has also given guidance that many pledge acts are not securities, which is exactly the opposite of the SEC position of Gary Gensler. DeFi may be unlocked because it has given some TradFi companies greater certainty to participate; DAO will not be treated as a common partnership, otherwise there will be significant liability risks; and FinCEN and AML compliance borders will be clearer. These are the keys Clarity may bring to unlock. But you're right, Bitcoin, ETH, including XRP, Solana, even without formal legislation to say that they are commodities, there are enough traditional rulings, let alone the ETF approved by the SEC under Act 33, which essentially incorporates goods into ETF。

Noelle Acheson:It's really complicated, and I ask you the question: is the market price-fixing through Clarity Act? In other words, if it doesn't pass, will the encryption fall? Or is it over

Steve Ehrlich:IT IS DIFFICULT TO SAY THAT IT MAY DEPEND ON SPECIFIC ASSETS. I TEND TO THINK THAT IT HAS NOT BEEN FULLY PRICED, BECAUSE ENCRYPTION HAS BEEN DOWN FOR MONTHS, AND IF THERE IS A REAL INCENTIVE TO PUSH IT THROUGH IN THE COMING WEEKS, IT MUST HAPPEN BEFORE THE EARLY SUMMER, OTHERWISE I DON'T THINK IT WILL HAPPEN. EVEN IF IT'S PASSED, IT DOESN'T MEAN THAT BITCOIN RUSHES TO 140,000, ETH AUTOMATICALLY TO 5,000. IT'LL TAKE LONGER. BUT I DO NOT THINK THAT IT HAS BEEN FULLY PRICED, BECAUSE IT IS CLEAR TO EVERYONE THAT THE THRESHOLD HAS TO BE CROSSED IN A SHORT PERIOD OF TIME, FOR EXAMPLE, BY RECONCILING THE SENATE VERSION WITH THE HOUSE VERSION, AND ALSO BY INCLUDING AN ETHICAL CLAUSE ACCEPTABLE TO THE WHITE HOUSE AND FINALLY SIGNING IT. THEY SAY THE TARGET IS JULY 4TH, WHICH IS ABOUT SIX WEEKS AWAY。

Noelle Acheson:THE DEVIL IS IN THE DETAILS. LEGISLATION IS ONE THING AND SUBSEQUENT RULE-MAKING IS ANOTHER. BUT I'VE BEEN THINKING, IF IT DOESN'T, IT'S NOT THE END OF THE WORLD FOR ENCRYPTION. THE SEC IS ALREADY IN THE CAR AND MOST FINANCIAL REGULATORS ARE IN THE CAR, AND THEY CAN KEEP THE RULES UNTIL THE END OF THE TROMP MANDATE. EVEN IF THE ANTI-ENCRYPTIST PARTY WENT TO THE WHITE HOUSE IN 2028, THE ENCRYPTION WOULD HAVE BEEN TOO BIG TO BREAK。

Steve Ehrlich:Right. Encryption has proved itself to be a very powerful lobbyist, an interest group, and I believe that any successor, even a Democrat, is unlikely to be as hostile as the Gensler era, because that gesture actually brings little political gain。

Dictionary innovation exemptions, focus indicators and reverse perspectives

Steve Ehrlich:The last small topic, concerning the waiver of tokenization innovation, what do you think of its interaction between encryption and traditional markets

Noelle Acheson:The devil is in the details again. One thing I'm worried about is rumors that it will allow third parties to issue. In other words, anyone can send a token for the parcel of a stock, and he has nothing to do with the company, or even the rumor that the company's consent is not required。

In my view, the nature of the market is capital formation. Derivatives support capital formation by creating more liquid markets, providing a guarantee for investors who invest money in a particular stock. But if you create a market that is purely for speculative derivatives, such as monetized shares, that's the underlying idea of destabilizing the market. This is not in the interest of encryption, which has been heard too many times since it has been put on the "only for speculation". It's not me and you, of course, but it does。

So that's my concern. But if the details are not so bad at the end, the waiver for token innovation is good news, and it encourages some experiments. The regulator would be careful not to let anyone in and not to allow an unlimited size. But it encourages entrepreneurs, market participants and innovators to experiment with this new market architecture. We know that in five or ten years, monetization will become an important part of the market. The supervisor's confidence that "you're trying a new asset form that won't be counted after autumn" is a big step forward。

Steve Ehrlich:Last question, two or one: What is the chart/indicator of greatest concern to you in the coming weeks or months? Or what is the reverse view you want to share

Noelle Acheson:I like the questions you ask. You don't play Tai Chi, you pick out neglected stories. I choose inflation. If we can't keep an eye on it, there'll be a very bad script ahead. Inflation drives bond markets, dominates monetary policy and has a significant impact on fiscal policy at the global level. So inflation is inescapable, and you can change the index algorithm, as the new president said, but it's no use。

I'll pick a neglected thing from the reverse point of view. People are cheering for S& P500 innovation, while ignoring the gap between S& P500 and the parity index. The market value weighting index, which we are all looking at, is constantly high; however, it is not. The gap is widening. The last time I was raised at this rate was 1999。

Steve Ehrlich:Later the Internet bubble broke。

Noelle Acheson:Right. Anything top-heavy, according to the laws of physics, will eventually be overridden。

Steve Ehrlich:Fully agreed. Noelle, we'll invite you back next time. Thank you for watching。