Tuomas Malinen on Crafting a Life Raft in a Sea of Economic Uncertainty

Have you braced yourself for the economic tempest on the horizon? Tuomas Malinen joins us to share his contrarian forecasting methods and discusses why preparing for the grimmest scenarios could be crucial for survival in today's volatile market landscape. We delve into the paradoxes of global liquidity, where central banks are fueling markets while preaching monetary tightening, and what this means for your investments.

This episode is a deep dive into the ripples caused by central bank strategies and their potential to churn the seas of global market volatility. We examine the potential impact of China's liquidity strategies and the looming expiration of key financial programs, offering insights into the indicators that could signal the next big market shake-up. Plus, we navigate through the nebulous territory of inflation and fiscal stimuli, unpacking their intricate relationship and what it spells for your financial future.

In a world where economic stability can feel as elusive as a mirage, we dissect the banking system's vulnerabilities and investment strategies that could weather the storm. From the perplexities of the Federal Reserve's actions to the European banking system's struggles and the encircling clouds over US commercial real estate, we cover all bases. And as we grapple with geopolitical tensions and their financial reverberations, we also touch on the delicate art of economic risk forecasting. So, if you're looking to make sense of the economic chaos and seek shelter from potential financial downturns, this is the discussion you won't want to miss.

Nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. 

The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.

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Transcript

Speaker 1: 0:08

Of all the social networks that I'm on, I actually meet the most number of people through X right, twitter, slash X and do one-on-one conversations with them, more so than LinkedIn, and this is kind of a funny space in that. What sparked this was the great unblocking that I did last week where I said I'm going to unblock everybody because everybody's talked and I saw Goumas then said, in solidarity with me, he would do the same to his plot list. So became a bit of a joke, but looked into his background I think we'll have a good conversation. So, with all that said, my name is Michael Gaiat, publisher of the Lead Lagerboard. Show me if they are, as Goumas. Malin and Goumas Introduce some of the audience into me. Who are you at your background? What have you done throughout your career? What are you doing currently?

Speaker 2: 0:52

Well, yeah, hello, and thanks for having me here. I've actually a very well, there's many twists and turns before I get to this point, but where I'm now but I'm currently I'm leading a CEO and the main owner of a GNS economics we do basically macroeconomic and financial market analysis and forecasts and we are kind of a speciality that we are playing the role of devils advocates, so we always look for the worst option, basically, which is from. We have a rundown name, but I also hold the title of associate professor of economics at the University of Helsinki. I spent there 10 years studying economic growth and a financial crisis, basically, or economic crisis also, but I concentrated on financial crisis. So that's my background, so there's quite a bit of academic understanding, if you may. And then also, I've been doing this analysis work as a main my main work for a main job for now for six years, I think. So that's the background.

Speaker 1: 2:13

Do you find that playing devils advocate the idea of doing scenario analysis on worst options causes people to brain you as a perma bear? Or are there people that can see through the analysis in terms of you're trying to present what could be an outcome that's worth paying attention to?

Speaker 2: 2:32

Well, basically, those who understand likelihoods, probability, they don't consider us as perma bears. But those who do not, like most people, then they consider that we are perma bears. We are not. We always present well, almost always we present several scenarios, which there is also a good or optimistic scenario, and then there are the conscious scenario and after that we have also the gone for worst case option. But maybe for personal reasons, I find the worst case scenarios the most interesting ones and I don't know, they draw me. So we have also from that point of view or from that reason, we have a concentration on the, or we concentrate on the worst case scenarios.

Speaker 1: 3:24

Yeah, and I think in general people find those scenarios interesting. You can argue almost from an evolutionary perspective. In order to survive, you had to think about the worst case scenario. In order to survive the William Mammoth chasing you, you had to envision the worst case scenario. So I think it's part of our DNA as human beings to want to gravitate towards that. The challenge becomes, I think, communicating worst case scenarios when the current scenario seems really, really positive. You're always going to have people that are going to agree with the worst case scenario or be bearish, but it's hard to really kind of get people to think outside of what's going on in here now. So let's go through some of your thoughts on the way the global landscape has played out in the last year. I've made this point many times before that there are some enormous disconnects and divergences across the board that probably do get resolved with some kind of extreme negative, but certainly could not be the case. Lay out kind of your broader thesis on the state of the economy globally now.

Speaker 2: 4:30

Well, there's one thing I want to start with, because I just downloaded the new data we use on global liquidity for money supply. You have any idea how much it increased during November and December Any idea.

Speaker 1: 4:50

Yeah, it must be enormous, just given the way credit spreads collapsed.

Speaker 2: 4:55

In one trillion dollars in two months? I don't, I'm not sure I have. I had time to go back to data. We have it. We're back in history of the data. We have it from 2000,. But this must be the biggest, one of the biggest increases.

Speaker 2: 5:12

And now it looks that this year has started with something almost as got a gun to one. So it looks like there could have been in January, in just January itself, there could have been an increase of one trillion USD of liquidity again. So this is there's absolutely no question why the markets are going up. They are pumping central banks, basically the five major the Bank of China, eurozone, the Federal Reserve, bank of Japan and Bank of UK. They are pumping massive amounts of liquidity through different like means.

Speaker 2: 5:56

And this is the kind of the paradox that while the Federal Reserve and the ECB, they are doing quantity tightening you know they are they're rolling off assets from their balance sheets, but still they are using other means to pump liquidity into the market. So this is a they learned a lesson from the collapse of the near collapse of the repo markets in September 2019, and also the near collapse of credit markets in early January 2019. So it seems that they have learned a lesson, but this is, like I would call this rather immoral strategy, what the central banks are currently playing, because it's just they are telling you that they are withdrawing liquidity and they are doing the exact opposite, in amounts we haven't seen since the 2020 spring, I think, or even then. This is this is a massive increases in the series, so I feel sorry for everyone who is short on this market.

Speaker 1: 7:02

I feel sorry for everyone who is short in general because I'm so anti-curity, because the risk is unlimited. Like, no matter how bearish you get, always make that point. Shorting is the work. Puts the work. I've done back tests on this.

Speaker 1: 7:12

People make up narratives right around thinking that I short and I'm the first one to say it's not a winning strategy at all. But okay, so on this liquidity point, look towards the end of October. I have a very I have a player for the dramatic right. So towards the end of October, because I really did think that towards the end of last year there was a risk of credit events, I said, you know, very loudly, I think we could see circuit breakers early November. Right, I have egg on my face for that.

Speaker 1: 7:35

A lot of people attacked me on it. But you know, and the concern was you'd have these lagged effects for the past three high cycle in history, it would hit around towards the end of the year and some kind of credit event would take place. That was always my thesis throughout the year. It didn't happen, obviously, and it's clear why it didn't happen, because of the 1.1 trillion that you're mentioning. But is there a sense of why such liquidity came in so suddenly. I mean, I've put this up, for it's like something must have spooked the Treasury, the Fed, something must have spooked the money printers, which means maybe the whole theory ahead around there as far as risk was not that far off. How else can you explain the incredible response to something that actually didn't happen?

Speaker 2: 8:17

I think you're right on the money here, because you know we had the near collapse of the previous pension funds in the turn of September and October in 2022. I think, of course, central banks have a shitload of data we don't have, so I'm betting that they learn about something approaching. So I'm right with you on this. We were expecting that there will be a credit event in October, but there wasn't, because there's one peculiar thing we haven't been able to explain in this global liquidity injections China, or the People's Bank of China. They make the biggest injections and withdrawals. They are massive, they are in hundreds of billions of dollars, and for some reason, there are heavy withdrawals in April, june and October and then there's a massive increase in, for example, november and December.

Speaker 2: 9:21

So we have been, like now over a year, forecasting these market tops and market bottoms based on this China liquidity flows and which I think they come to the US market or the global market through Hong Kong or something. We don't currently have any China specialist in the sense that they would know the financial markets of China in detail. So we don't know where the liquidity comes from, but the correlation is with these liquidity injections and withdrawals is massive. So I think you were correct of waiting for the credit event, because the increase that the Federal Reserve and ECB, or the liquidity they added in November and December it's actually one of the biggest liquidity injections they have done for several years, so there must have been some reason. They fear that something will break in the system because of the tightening. So I think you were absolutely correct. You just didn't know that there are these hidden direct liquidity flows in the background affecting the behavior of markets.

Speaker 1: 10:37

Yeah, and I want to expand on that. I think that's an interesting point and there were a lot of strange things that were happening and I think people are forgetting just how dire it looked entering November. If you were to look at in the States micro caps and ETF IWC as a proxy, I mean it was looking like it was just at the start of a crash. It was starting to really break substantially entering 2020 levels. Small cap were not far behind, and you had. I think there was a stat that the number of it was the fastest switch from new 52 week lows on small caps to new 52 week highs on small caps like we've ever seen. So there was really something, some kind of seismic shift that was taking place. But on this point about dark liquidity, first of all, let's explain that for the audience and I need to put some light on it.

Speaker 2: 11:25

Okay, so, yeah, so the dark liquidity is there is a is what central banks have several means to push money into the system, or liquidity.

Speaker 2: 11:38

So, for example, they have these things called foreign exchange reserves, which can be anything from currency swaps to gold, and the idea is that they buy, they just print money, like Sharon Powell has said, they just push the button and you know dollars or euros or gens or renminbi's come and they buy stuff and they buy stuff from the investors which, just you know, gives them more liquidity and they naturally, as investors, they invest it into the markets.

Speaker 2: 12:15

And this is something you cannot observe directly, because it just shows in the balance sheets of central banks, which are, of course, public and they will be public, but there's a lack of like few weeks to two or three months, and this is why we call this dark liquidity, because you cannot, as an investor, you absolutely cannot observe it from anywhere. So it's it's just hidden and it's right, because these amounts are so massive, like like one trillion USD added in just two months and maybe one more trillion added in just in January, and God knows what is happening now. So you watch this. If you don't have any idea of these dark liquidity flows. You are basically investing in blindness, and that's why we call it the dark liquidity, because you cannot observe it from anywhere.

Speaker 1: 13:21

Do you get a sense? Do you get a sense of that Sorry, hold on. Do you get a sense of that's all coordinated? Meaning not to sound conspiratorial, but the powers that be are just, globally, all talking to each other and saying we need to pump a whole bunch of feed into this thing right here, right now.

Speaker 2: 13:36

Well, I happen to know several former central bankers and they all tell me the same thing, that they have told me there is coordination period. So like, if you look at what happened in November and December, for some reason both the European Central Bank and the Federal Reserve injected over 500 billion dollars into the markets through whatever means, you know, foreign exchange reserves and whatever. So for some reason there was this increase, and I think the bank term funding program probably played a role too, but it may have not been so intentional, but central banks do, at least Western central banks they do have collaboration and I think in November and December or at the end of October, like you mentioned, they saw something coming and decided that they need to add liquidity into the system due to this like dark, dark flows. So yeah, so that's what I think they did, but there definitely is coordination. I know this from a fact.

Speaker 1: 14:57

Yeah, and it's just odd to me that they got the market to think about six cuts. They crushed the vol and credit threads which are directly related, and the market still thinks that they're going to cut rates when in reality defective. What's happened was multiple recuts already.

Speaker 2: 15:17

Yeah, yeah, that's true. Yeah, it's something like, if you think, really liquid wise, there has been massive amounts of cutting and rates and also ending the quantity tightening effectively. But the thing here is that usually this like a spur of liquidity. They last only like central banks going to just enter the you know, in increase. They forward exchange reserve indefinitely. So they are these rains. They have to kind of follow.

Speaker 2: 15:57

So what we think now is that there is a possibility that the increase in liquidity pushed by the Federal Reserve and the European Central Bank, the increase will end at the same time when the people's bank of China, for whatever reason, is pulling, will pull a liquidated from the markets. And this is April. So it's our current forecast that this rally will last around mid-March and then there's there starts a period of increase in volatility and in April market there's going to be a massive downdraft in the markets. This if the previous like actions which the bank of people's bank of China has followed since 2010,. At least, if that holds, we're expecting that the top will be in the first part of March and then the bottom somewhere at the end of April. And of course, there is a if, there's a, if the bank crisis resurfaces. Well, it adds to this, but that's our current forecast.

Speaker 1: 17:06

The signals, that I use, which all relate to leading indicators of volatility, utilities, lumber, gold. Those all look to be ready to flip. I've said this publicly many times either. You know most of you hold them by next week, right. It's kind of, I think, as I look at the relationships, how they turn and their leading indicators, meaning if that historically, if utilities are strong, that's a defensive signal, safety. With lumber to gold, those areas tend to move in advance and the lead time is somewhere between one to three weeks. When those signals flip, which does put you around that sort of mid-March into April period, is there a risk that they step right in again that quickly if things start to get hey, who are they trying to preempts? Another, you know scare in markets, or you know? I guess the question is, you know what will prevent them from trying to do what they did November, December or over again?

Speaker 2: 18:37

Well, there is. The biggest question now is what will the people's bank of China do? Because we don't understand the liquid. Why is it so cyclical? They're liquidy, the injections and withdrawals, but if they follow it, it's not like the China has added by itself. If I just quickly look at the graph, in three months China has added in November, december and January China has added about $1.3 trillion worth of liquidity.

Speaker 2: 19:13

So even if they put that to zero so nothing or close to it it's unlikely that the federal reserve and ECB and other central banks will be able to be able to respond to that. So this implies that there will be at least a correction. But the thing is like that, if we don't know it yet. But if the Fed and the ECB have grown, increase their foreign exchange reserves true, also January, I don't think they can push it further and that means that there could be a massive liquidity draining. But the thing is, of course, that at some point, at that point, they may even vote the idea of ending the quantitative tightening. They actually have been.

Speaker 2: 20:13

There is some Fed speakers I don't remember who they have already said floated the idea of ending the quantitative tightening. So this may happen, but they have to happen. There's a lag. They cannot just switch the QE back on. So there is a definitely there will be a response, I think. But how fast they are able to do it is unclear, because this increases in global liquidity and money suddenly have been so massive that there needs to be a correction, simply Well, at least that's how we see it. But the question, really big question, is now what the people's bank of China will do.

Speaker 1: 20:55

That liquidity, is there a risk that it causes another sort of delayed secondary round of inflation? I mean, I get the sense that what's happening is that the liquidity flows are largely just, you know, in some way shape or form being funneled to large caps, and that's not just a US phenomenon. I put it out on the lead lag report today actually. But in the US the notable difference between small caps and large caps is actually some of you're seeing all across the globe in domestic markets, whether it's Japan or other countries, their own respective small caps are totally lagging large caps. And you can argue that that makes some sense if it's all liquidity driven, because liquidity is going to go to market cap weighted large cap stock markets and everything else be damned.

Speaker 2: 21:43

Yeah, there is the risk because actually the M2 money supply of the US it has gone down for over a year and then because of these injections it has started to grow again.

Speaker 2: 21:59

So there is an inflation kick in it. And I think what comes to the inflation front we have like two major issues in the US. Or you have it's the massive fiscal stimulus run by the Biden administration and then there's a risk of another oil shock or energy shock from the Middle East. But if you look at the some of the you know the leading indicators of inflation, like how small businesses see how they are going to treat prices, they are going to increase it, grow them, increase them in the coming months actually quite in a quite heavy margin. And also food price inflation is back. So it's difficult to disentangle, like this fiscal stimulus and the monetary stimulus or the effect on inflation at this point, and I would say that the fiscal stimulus is playing a bigger role here. But you are correct in that that this increase in money, massive, massive, massive increase in money supply, could have a kind of lagging effect on inflation.

Speaker 1: 23:14

I want to go back to the bank term funding program and that ending, because a lot of people have been referencing that as sort of a real trigger right, and again I think it's March 11th, as I recall it seems almost too obvious that that is a catalyst, but what are the real implications of that If that's going to end? First of all, again, I'm going to assume that they can always bring it back in as quickly as they did before with the regional bank crisis, but why is the BTFP such a big deal?

Speaker 2: 23:47

Well, it was well. Basically, if you look, if you look at the collapse of the Silicon Ballet Bank, there was kind of a two catalyst for it. First one was that they announced the losses they have made and then they also announced that they have the failed capital acquisition and for some reason this broke the trust of depositors on the bank and they started one of the most vicious bank runs deposit withdrawals in the history of banking systems. They withdraw 87% of the deposits in three days. I have to say that I have to go back. What a bit to see such figures like in.

Speaker 2: 24:41

Last time we saw such numbers was in the Great Depression and how the Fed quite correctly responded to this that it understood that these unrealized losses from the treasuries the banks were marked to be held in till maturity were the problem.

Speaker 2: 25:03

So the bank term funding program, banks could pose the treasuries as collateral in their nominal value, which means that they had a lot of extra. They created a lot of extra liquidity through that, because the assumption of the estimates was the banks hold almost $2 trillion worth of unrealized losses because of these held to maturity treasuries and now they are about to remove this support at the time when interest rates are once again rising, so we have a small bump route, and also the losses of the US commercial real estate are becoming visible in banks. So if I, as a former researcher of final crisis, would have to choose a time when I remove such a support mechanism from banks, it would definitely not be this hour. It's the worst possible timing ever and I don't honestly, I don't understand what the Fed is doing now. I just I don't, I don't get it.

Speaker 1: 26:21

I don't think anybody gets what the Fed is doing anymore, even the Fed itself. I can't imagine the Fed thought that collectively as an entity, that you would be at near cycle lows for credit spreads after what happened November, december, that they may be overshot or the market overshot, and they were the cause of that and that's why they had to walk it back, because it's hard to. It's hard to really get significant disinflation with that. It's kind of a wealth effect correction, which should be from the stock and housing market. From the European perspective. How are the banks there in terms of overall health? I've noted that, yeah, I like to watch the European financials ETF, eufn, just because, you know, I think it's a part of the world that you should focus on just for a financial price, this risk outside of the US borders. But are they, are the banks in Europe in in from your sense, in better relative shape? You know? Is there less of a sort of tail event risk?

Speaker 2: 27:20

coming from there, I add one thing to the Fed and the ETFB it's possible that they are this, this, this, especially trying to signal that everything's normal in the banking system, so that that might be one reason why they're remodeling the PDFB. But who knows what comes to European banks? Well, like you, you probably know, or some of you know, that Europe holds 10 of this global system and the really important banks, or GSIPS, and basically any banking crisis that starts here will go global because of that, and we had a near event with the failure of the credits in last March and April. And the problem kind of the main problem, what we call it actually the cancer in the European banking system is that with the 2008 crisis, the United States government decided that we need to get rid of the toxic assets you know, the CDOs and all that from the US banking system. Europe didn't have such a mechanism, that Europe couldn't just buy these troubled assets, so they just discontinued the mark to market for these assets. So basically, banks could just pretend the CDOs and all that have the same value when they purchase them, but of course they don't.

Speaker 2: 28:55

So there is a rotten core in the European banking system that has been the authorities and banks have been hiding it for over a decade just because they didn't handle the 2008 crisis properly. Now it seems that we have another problem, which is the US commercial real estate loans, and there are, like in Germany, for example, there seems to be several banks who have a lot of CRE loans. So, like the US, cre problem is also reaching to Europe and it's rather difficult to find out beforehand who is holding those loans. But if you combine those with the issues that the European banks have been suffering for long and the fact that we have a recession, bankruptcies are running really high in some of the European countries. So I would say that the outlook for the European banking system is not good.

Speaker 1: 30:01

So let's play it out. Let's say that there's some correction or even potentially a crisis spreads start to widen as much as I myself I'm not sure at all, like I was incorrectly so, of a credit event towards the end of last year. You never know, maybe just suddenly kind of hits out of nowhere. And I keep going back to, I think Japan could be an interesting catalyst there. But what's the way to position for that If, from my vantage point, there's really only kind of four main ways of, in quotes, playing a crisis on the long side without the risks of shorting?

Speaker 1: 30:39

You either go along the dollar versus other currencies. You go long golds, which also is a signal of a crisis. You go long defensive sectors, in particular in the state's utilities, because of the most bond-like sector of the stock market. Or you go long duration treasuries, which have been abysmal performers. You haven't seen that flight to safety trade in government debt. If we have a high-risk juncture in the next 60 weeks, which of those four do you think get the most traction Would be the best way to somewhat hedge imperfectly volatility.

Speaker 2: 31:45

Well, I would say physical gold, because it's just. All the other are Well, of course, you can assume that there will be a bailout of treasuries at some point, but in like these extreme events, if you look at through the final cell history great depression, the US long depression, wars, all that gold, physical gold, not paper golds Physical gold is the one to hold. So we have been advising our customers for some years now to hold at least 20-25% of their portfolio in physical gold, and so I think at this point, going to physical gold is the best option.

Speaker 1: 32:38

What do you talk on Bitcoin? I think a lot of the crazies come out when you have manic behavior. I've been putting out these posts saying gold is the signal, not Bitcoin. People then come back not knowing what I'm talking about, saying no, bitcoin is the signal. I'm talking about volatility dynamics on risk on assets. Should Bitcoin itself maybe be considered some diversifier for risk off, or is still largely a pure risk on play? It's really difficult to say yeah, I agree on that.

Speaker 2: 33:12

It's a wild best asset if you look how it behaves, like it's crazy, like a volatility. And the one thing is, when we had the crypto crash was it 2022, spring or May, or how was it I learned that in the crypto universe people are using 100 times leverage. That's completely insane. Like in normal economic thinking, if you have a leverage of 12 to 15 times, it's a lot, but if you have 100 times, it's just blocks. It just makes absolutely no sense. And the thing is that we don't know how.

Speaker 2: 33:54

There's two things First is that we don't know how Bitcoin will behave in crisis. We kind of know that now, already know that it's not an inflation hedge, but it may be a banking crisis, financial crisis hedge in the sense that people see if the banking system faces significant stress, it implies that, for example, you cannot transfer money from one country to another without a serious lack, and so in this case, bitcoin is a very good means of transferring funds, at least to countries that you can well. Anywhere, you can withdraw Bitcoin, so operate with it somehow. But the other thing is that we have been warning our customers for several years now is that we see that there will be a regulatory attack on Bitcoin. What forms does it take? We are not sure, but it will probably concentrate on can you transfer your funds to crypto, crypto of exchanges.

Speaker 2: 35:02

The reason for this is that the, as many of you probably know, central banks are rolling out something called central bank digital currencies, which is essentially a. It can take many forms, but essentially it means that you will have a bank account in the central bank. So central bank is making itself a competitor of commercial banks. It should control and monitor and all that and regulate, which is completely crazy too. But in this setup, central banks and authorities may become very worried that the central bank digital currency and the kind of the monetary policy mechanism they would create through it will fail if there are cryptos around or people can invest the cryptos in large quantities.

Speaker 2: 36:03

So in this case kind of the worst case scenario again they will try to ban, for example, through the banking system. They will try to ban for everyone, for most people, so that they cannot buy cryptos, including Bitcoin. So there's a lot of uncertainties what comes to Bitcoin. So I would I would hold just a fraction of my portfolio in it and use it merely, but just keep the option open. If shit really gets the plan, I can transfer my funds through the Bitcoin system wherever I am. That would be my play at the moment.

Speaker 1: 36:56

I agree with you on this 100% and actually in October, when I was most negative, I kept on saying Bitcoin will diverge. This is before the ETF talk Diverge. I was really talking about correlation because, at least in my mind, the one thing I think gold and Bitcoin do have in common is that they are a counterparty hedge. To your point. A financial crisis is all about counterparty risk. It kind of makes sense that they were both too well. There was actually a two-week period there in March of last year when the regional bank dynamic was playing out, where Bitcoin was actually up. It actually was acting like an end-quote risk-off trade, but it was only two weeks because, as we know, they plugged the hole pretty quickly.

Speaker 1: 37:40

I just wonder about how the ETF side, how that throws off those dynamics now, just because you're not going to have as many holders with ETFs as you would, with the underlying that fast money could result in that hedging possibility not really being there. But I might stuff in with you. I think it makes sense as a small portion of a portfolio waited for risk tolerance. I'm not on board with the. Bitcoin is saving mantra or that's a store of value, because, again, store of value can't have tail risk on any timeframe, but that's a whole semantic definition. Aside from gold and Bitcoin, what else do you think are worth doing, maybe as a strategy? I've talked about doing a barbell strategy, for example. In this environment, 80% to 85% conservative assets. The rest are really aggressive because there's so many different ways that things could play out. If you think about it from an asset allocation perspective, what other ideas do you have to navigate a cycle that's odd and long.

Speaker 2: 38:43

I want to add one more thing about the Bitcoin space or the crypto space. We need only preliminary analysis, but if you think how investor logic goes, so you can go from safe to speculative, and probably the most speculative asset class are the cryptos and Bitcoin Liquidity. When there's a massive increase of liquidity, it tends to go into cryptos. This is our preliminary result of our preliminary analysis. In that sense, we can expect that the rally in Bitcoin will end in March, unless there's the banking crisis. It's an interesting asset class. Well, yeah, what else? Well, if I would be a player, I would look for the short positions while somewhere around March, mid-march maybe something like that if I see a volatility growing which is the first sign that liquidity is being withdrawn or its increase has stopped, that could be a time to go short on the US stock markets or whatever you want to short. That correlates with liquidity. That would be one play if you are a player. But, like I said, there's a lot of uncertainty here now because we don't know how the central banks behave. But if everything that has happened since 2010 holds, there will be a downtraft in markets starting around mid-March or late-March, continue until April, unless there are a banking crisis, which means there are a crash and then a bailout. So that's basically how we see it.

Speaker 2: 40:41

Actually, about a year ago we said that if you have access to Russian assets, you may want to buy them. And well, they have developed rather nicely because there was a lot of upside potential, because we knew that they have a lot of assets and the economy. They will push the war economy through. So it will develop from there and the Moscow Stock Index has done really well after. But now, with the threat of ceasing Russian assets, the situation is not so simple. Russian state doesn't have so much leeway anymore, considering its financial position, to at least expand the war, so there are risks there. This is thinking purely from an economic perspective. So yeah, and at the current time, everything seems seriously bloated in the financial sector. So I think shorting is the only thing you may want to consider at this point.

Speaker 1: 41:48

Just be careful that's all I say. Just be careful with shorting. I know you want to talk about just war dynamics. I think there's still lingering concern around China with Taiwan, and it seems like the rhetoric has been picking up more recently. As far as Ukraine, russia and then obviously the election in the states. War only matters to the market when it matters. Obviously it hasn't mattered. You know its liquidity has been all that's mattered. But talk about how the Russia-Ukraine war and prospects of China, taiwan or any other conflicts, how that could maybe get back into the forefront of investor thinking.

Speaker 2: 42:27

Yeah wars are rather tricky. If you look at history there's been like well, of course, if there's a total devastation and markets will not take it, well I would say, if there is a God forbid if there would be a nuclear detonation somewhere in Europe, I think you know markets would, just you know they would scare the shit out of them. But outside that, let's not go to the apocalypse scenario here. So that's a very investing perspective. It's a really difficult play, especially now as this has been so much liquidity pumping to the markets.

Speaker 2: 43:08

But what we kind of know now is that the armed forces of Ukraine, the whole Eastern front, threatens to collapse. So there is a breakthroughs of Russia already in many places. So there will be some shocks relating to that. But honestly at the moment we don't really know how to trade them those risks. So for that, unfortunately, I have from investment perspective I don't have. I don't have a clear guidance or any kind of guidance. Actually, just that it will increase uncertainty and if there would be some like major Russian breakthrough or the collapse of Ukrainian front at the same time when the liquidity is being drawn, withdrawn, it would naturally have, it could increase or grow the negative atmosphere in the markets, but that's basically all I can say now.

Speaker 1: 44:12

So you have on your website at the front, our mission is to make black swans gray. I am just curious, maybe for the next several minutes here as we get close to wrapping up. Talk about process. How do you go about identifying big risks right, and what types of data sources are you looking at that? Maybe others aren't, and should be.

Speaker 2: 44:34

Well, I have, like I said, I have a history. I actually did. I studied economic growth even 15 years if we took my master's thesis in the account and we use mostly large data sets at the moment you know, big macro data sets of the Bank of International Settlements, world Bank, and we have the US Bank call reports now and federal reserve and all that but our process is basically shots, that we simply follow the events, how central banks behave, what happens in a world like we were. I think we were the second forecasting agency to warn on the global pandemic and on the third, the end of January 2020, for example. We just we have this. I would. I said we have this understanding kind of how markets work and economies work.

Speaker 2: 45:34

We just we build it all the time and the process of forecasting is basically just we observe what has happened and then we construct scenarios, usually starting from the worst case what can, how can, what to where this can lead and then we try to assess the likelihood, which is, of course, extremely difficult, but we start from there. So we build narratives supported by the data and the real world events and I think you know I've been, I've been involved in in academic forecasting research through one of our partners who is unfortunately not without firm anymore, but it's just something that people. They don't understand the importance of narratives in forecasting. So you need to build scenarios out of the narratives, basically, or send, you have to spill, spill, build scenarios based on the narratives. So that's how we do, we. We build the narrative of what its development means, whether it happens in, you know, just in a real world or in a data. So that's basically our process of forecasting.

Speaker 1: 46:55

My narrative is for those of our world fucks as everybody that can follow, and those who don't have a sense of humor don't seem to understand that. But for those who want to track more your thoughts and more your work, where would you point them to?

Speaker 2: 47:08

Well, I have a newsletter my personal then then the biggest kind of the widest amount of information you can get from GNS economics newsletter. You can just type GNS economics newsletter and you will find it from in there. From there you can find both my analysis and our analysis and we will publish, actually, the Q4 banking data. Us banking data came out last week and we will currently we will monitor, analysis, monitor and find the most risky US banks and publish list of those and also the most safe banks in the in the coming weeks. So but you go there, you can go both of them or either of our newsletters, or then you just make them follow me on the. On the X, but I have to warn that my X is also rather politicized due to the well, what is happening in the world Nowadays, I feel like, because I have, I have the power to at least influence in the, in the situation, in some way. So I'm trying to do that because it's completely crazy out there at the moment.

Speaker 1: 48:23

Be on X and being political, I think are a source of requirements as far as being on X, but everybody get. Please make sure you follow Google mouse, malin and again, this will be an edited podcast under lead lag live and all of your favorite platformers. Hopefully I will see you all next week and I appreciate those that I blocked. Why unblocked? Or in this space? I just like go most into the same thing. Thank you, man, appreciate it. Thanks, yeah, cheers everybody.