Cathie Wood: “Bitcoin Just Bottomed, And What Comes Next Will Shock You!”

Metals relative to gold? Yes, starting up. Gold is going down. Some metals are going up. Bitcoin had been going down. It seems to be in a bottoming process. We believe that it has bottomed on this basis and will resume very volatile but broad uptrend. Interest rates have gone up recently. It's going to be interesting this tug-of-war. Rapid growth versus much lower than expected inflation.

Now we're into market indicators, so still looking at this metric. Wondering if the positive correlation here will ever re-engage. We're seeing a little bit here. The gap is still wide, but metals relative to gold? Yes, starting up. Gold is going down. Some metals are going up. It's not powerful yet, but at least there's a bit of a turn. And yes, interest rates have gone up recently. It's going to be interesting this tug-of-war. Rapid growth versus much lower than expected inflation. What will the 10-year Treasury yield respond more to? We think there could be a breakdown in the Treasury yield if we're right that inflation will move away well away from the 4.2 percent headline that is the CPI right now to something much lower. True inflation is already lower and we could see that going negative. The government measures may be moving into the 1 to 2% range. Here's as you know we've been watching the S&P relative to everything. This is a measure of wealth. We think oil is a leading indicator to another one but you can see wealth fell apart in the '70s into the early '80s according to this measure. And it threatened to do that again recently with the Straits of Hormuz and the Iran war but it's rebounding nicely. And on the next page an even stronger measure of true wealth S&P relative to gold again fell apart during the '70s was threatening to do so here again. It did break below a range which made us a little uncomfortable although crude oil was not or S&P to crude oil was not validating it. Nonetheless, we're happy to see it's on its way up again and we think it has far to go in this technology revolution. Bitcoin to gold, gold is going down. Bitcoin had been going down. It seems to be in a bottoming process. We believe that it has bottomed on this basis and will resume the very volatile but broad uptrend that you see on this chart. Are the credit markets telling us, warning us about anything? No.

All is quiet. Even with the private credit outflows, I saw the Blue Owl again had to gate its private credit two of its private credit funds at 5%. I think one of them had nearly a 40% withdrawal request. So, even with that, these are quiescent. This is the bank credit default swaps. And basically, what it's saying is that what's going on in the private credit world is not infecting the banking system and therefore will not become systemic. Kevin Warsh's five task forces.

I think he's going first principles on us, which I love because I think we need a lot of improvement in terms of monetary policy. His first task force is on Fed communications. Now, Fed communications, I think means that he thinks that all of the Fed governors talking almost every day and disturbing the markets is completely unnecessary. And we couldn't agree more. It gives high-frequency traders something to do, but it really is not helpful, I think, to the markets. The second one is focusing on the Fed's balance sheet, which is still $6.7 trillion. It's down from $8.5 trillion. But I do believe that he will reinstate quantitative tightening at the appropriate time to get the balance sheet down even more. And I just don't know what the right time is. He doesn't want to spook the markets. We know that. And I've often said that quantitative tightening is to me more symbolic because what they're doing is just taking down bank reserves that are at the Fed and that have not been activated in the form of loans. So I think tidying that up probably is a good idea. Certainly taking the risks out of the kindling. The third is data sources, and I do believe he's going to turn to private sector David data sources. At least more of them. I don't think he'll dismantle government data. But he's certainly going to cross-check the government data against private data and probably introduce more private data sources into the Fed's own research. The fourth is productivity and jobs during this transformation as he calls it. Acknowledging that we are in a technology revolution and that productivity probably is accelerating and that government statistics are not picking this up correctly. So productivity is about 2.9% on a year-over-year basis right now. We think it's going to accelerate into the 5 to 6% range. This year is going to be a little confusing because productivity a year ago was negative in the first quarter. So that 2.9% is against a negative. But then there are two very big comparisons. The numbers the rapid growth in productivity last year was pretty astonishing. I think because many people were delaying hiring and using more AI and that should be even more the case. But there are going to be tough comparisons. So I just wanted to cite that as we maintain our view that productivity growth is going to accelerate on a year-over-year basis into that 5 to 6% range sometime during the next 5 years. Probably sooner rather than later. And then the last is the Fed's inflation framework. It's models, its measures and so forth. I think that's a clue that Kevin Warsh believes that the inflation numbers are somewhat distorted and hopefully he's looking at some private data like Trueflation which says inflation is much lower than the government thinks it is.

Deficit relative to GDP. The green line there is where Treasury Secretary Besant is aiming to take the deficit by the end of 28 or at least fiscal 28. So September of 28. We think that he and this administration will achieve a much lower deficit because growth is going to be much stronger we think than is in most forecasts including the government's own forecasts. Here is a chart. The green line is debt, government debt relative to GDP. So, it's over 100%. And that has many people very concerned. Now, you can look at the purple line, and that's debt relative to equities in the United States. And you can see that is on a down slope. We like to think of equities as representing wealth out there. So, debt relative to wealth going down. Nonetheless, as I was traveling around, this debt-to-GDP ratio has been getting a lot of press, mostly because people think that interest rates and inflation are going to be stuck at these levels for a very long period of time because the debt seems intractable. And we can only bail our self out of this problem by inflating it away. We disagree entirely. We're not as alarmed by this number. We do think that as this government focuses on getting that deficit down, that debt relative to GDP will start to come down again, especially if we are right that growth is going to surprise significantly on the high side of expectations.

So, here I wanted to take a look at both fiscal and monetary policy in a single glance to show the contrast between today now that we have pretty much we are on the other side of the COVID boom bust and the 60s and 70s and you can see how different it was back then. The purple line was federal outlays and you can see what so-called guns and butter did back then. Guns, we were in the Vietnam war so defense spending was booming and guns and butter the social programs that were put in place back then all ballooned government spending and you can see from the green line while it didn't accommodate it all together over time money growth accelerated and really by the late 70s was accommodating all of the spending and it was an intractable problem until Volcker came in in the early 80s late 70s early 80s and just slammed on the brakes and you can see he slammed on the brakes and he kept anytime inflation fears were reviving he slammed on the brakes again so money growth did slow down quite significantly. So, that's some of the history. You can see why so many people were afraid that we were going back into that environment and it was because of what happened during COVID and also because of 08-09 trying to get out of that mess and then having to deal with COVID. So, these are very long-term in terms of their four-year annualized rates of change. So, you can see we're on the other side and federal outlays, while they have picked up recently, defense a big reason for that. They are still from a growth rate point of view on a four-year moving average basis, still near the lower end of where they have been in this chart's history as is money growth. So, we believe that fiscal and monetary policy after, you know, the shock shocks of 08-09 and COVID, that we have reset and we are in a good place and that fears about debt as a percent of GDP continuing to climb are misplaced.

Foreign holders now of treasuries effectively. Now, from the narrative out there, you would think that every central bank is selling treasury securities and that the dollar's day is done. And from this chart, you can see that's just not true. There have been some sales, we know both China and India have been selling, but for the most part they have been a drag on the growth rate here. But for the most part, the treasury securities held abroad are still increasing. So, we wanted to put that in perspective because last time around you saw we showed a chart that where Turkey was basically out of Treasury bills. It had been supporting its currency by selling Treasury bills and taking the dollars and buying Turkish lira. So, we see that currencies around the world, Japan and Korea I mentioned before, those currencies, I think Japan's is at a 40-year low at roughly 162 yen per dollar. And so, they're probably going to take some more concerted action. We had seen that Japan, I think in April, had sold I think 76 billion dollars worth of Treasury bills attempting to support its currency. It wasn't enough. It went out to an all-time low. So, we do hear that narrative, but I wanted to present this chart because there's not a wholesale disgorgement of US Treasury securities.

We will focus on the dollar, and you can see this is our Kalshi chart. How high will the dollar get this year? And you can see the number is 104.9. And it was higher before today's employment report. And we'll get into the employment report in a moment. But it was much softer than expected in many ways, and so the dollar predictions went down in terms of the level because most I believe most of the tightening moves have been taken out of forecasts, and most people think that higher interest rates support the dollar, which it is true. The dollar does attract more buyers when interest rates here are higher. But if you'll notice, you can't see it on this chart, you'll see it on the next chart, the dollar is actually at today, this was yesterday's number, today it's at about 100.5, somewhere in that range. So the betting is that the dollar is going to go up, at least Kalshi, Kalshi's prediction markets think so. And we would agree with that, and for a couple of reasons. I've been saying for some time that fiscal policy, so the deregulation and massive tax cuts, especially for corporations that we've seen over the last year, are beginning to increase the return on invested capital in the United States relative to that abroad. There's another thing that's become very obvious, and we saw it with SpaceX's debut in the public markets, which created many many millionaires and hundred millionaires, the return on invested capital is higher here, and the return on labor is higher here. The kind of incentives for innovation in this country are like nowhere else in the world. And so I think that's becoming very obvious, and of course OpenAI and Anthropic are soon to follow, and that will be the same story all over again. So we think we are dollar positive as I've mentioned on many calls. I know that's not the narrative out there. And in fact, the end of American exceptionalism is we think greatly exaggerated. SpaceX, OpenAI, and Anthropic very important cases in point. Here is one, and it's saying something about monetary policy. This is the yield curve, and typically we have a trend line from the '08-'09 period, and you can see the trend line is down. That the yield curve it steepens up to a point, and then heads back down. It starts flattening. And what does this mean? Well, we were kind of stunned when we saw what happened during and after COVID. We expected the steepening to take place and take us right back into that 200 to 300 basis point range. It did not. And that's the first time in four major cycles. So, what was that telling us? Well, we began to think is the long end of the curve starting to sniff out some deflationary undercurrents associated with technology. And consider the source, that made a lot of sense to us. And I think we're getting some confirmation here because you can see what's happened to the yield curve recently. It is starting to flatten out again after reaching half the level that it reached after COVID. And again, we're saying, all right, what is this telling us? Long rates are rising less than short rates are. Or when they're falling, long rates are falling more than short rates are. And that I think is telling. And we do believe that deflation is a real possibility because of technology. And as I've mentioned before, this is what happened during the Industrial Revolution. The yield curve was inverted more than half of the time. And it was inverted on average by 100 basis points. So again, we believe we're in a technology revolution. And we believe that the yield curve could behave very similarly to the way it did during the Industrial Revolution.