Fill The Gap Episode Thirteen, With Special Guest Jim Bianco, CMT

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Is the Fed raising rates in 2022?  What will happen to equities? What is an NFT and why should I care? How can I hedge my portfolio against inflation?

Answers to each of these questions and many more are covered in this month’s interview. In the kickoff to season #2 of Fill the Gap, we are joined by one of the best macro strategists on the street – and a man who came close to being a Fed Governor himself!

James Bianco, CMT is President of Bianco Research, L.L.C., an Arbor Research & Trading, LLC affiliate based in Chicago. Since November 1990, he has been a highly sought-after Fixed Income Strategist and macro market analyst. A longstanding member of the CMT Association and a familiar face in financial news media, Jim’s commentaries are primarily devoted to fixed income markets, and he places special emphasis on the money flow characteristics of primary dealers, mutual funds, hedge funds, futures traders, banks, and institutional investors.

Other topics he has researched include the effects of commodity prices on bond yields, how the ratio of the equity market’s capitalization as a percentage of the nominal gross domestic product affects price performance of the stock market, the role government regulation plays in determining inflation, how market performance affects mutual fund investors, the role politics plays in setting interest rates and measuring the stock and bond markets from a total return perspective.

In this episode, we cover all of Jim’s specialties and take a look at the emerging asset class with a clear-eyed description of decentralized finance, the protocols underlying altcoins in the cryptocurrency market, and the proliferation of NFTs.


  1. Dave Lundgren’s Charts discussed in the podcast
  4. @biancoresearch Twitter


Tyler Wood  0:13

Welcome to Fill the Gap, the official podcast series of the CMT Association hosted by David Lundgren and Tyler wood. This monthly podcast will bring veteran market analysts and money managers into conversations that will explore the interviewees investment philosophy, their process and decision making tools. By learning more about their key mentors, early influences, and their long careers in financial services, Fill the Gap will highlight lessons our guests have learned over many decades and multiple market cycles. Join us in conversation with the men and women of Wall Street, who discovered, engineered, and refined the discipline of Technical Market Analysis.

Fill the Gap is brought to you with support from Optima, a professional charting and data analytics platform. Whether you are a professional analyst, portfolio manager or trader, Optima provides advanced technical and quantitative software to help you discover financial opportunities. Candidates in the CMT program gain free access to these powerful tools during the course of their study. Learn more at

Hello, Dave Lundgren! Welcome to 2022 and season two of Fill the Gap. How are you doing my friend?

David Lundgren, CMT, CFA  1:59

I’m doing excellent Tyler. Happy New Year. Great to see you.

Tyler Wood  2:02

Happy New Year to you as well. I know as we were recording this first episode of season two, it was late December and markets were given us a whole lot of conflicting signals. But thankfully our guest Jim Bianco can help unpack what the bigger picture looks like, as opposed to just the short term trading nonsense that we all get caught up in, in our daily lives. To you, Dave, what was the most important part of this conversation with Jim?

David Lundgren, CMT, CFA  2:25

Well, I mean, it’s true of almost every conversation we’ve had so far. I mean, I’ve been in the business for 30 years managing money and as an analyst as well. And despite that, I continue to learn something from every guest. And I think with Jim, absolutely no exception here. I mean, I think his description of the NFT market and crypto and what it all means to the world, just what it is, there’s the core foundational principles of what it actually is and how it’s going to change the world in ways that we’re probably not appreciating. At this point. I think I’ve, in that short conversation, I learned more about that topic than I ever have, frankly, and he just did such a great eloquent job of describing it in a very accessible way. And then I’ll let the listeners learn more about this in the interview, but I also was surprised to find that he was came so close to being a Fed governor. Just we’ll leave it at that.

Tyler Wood  3:14

We’ll leave it at that! Let the surprise play out. You know, listening to so many analysts on CNBC, Bloomberg News, they’ve really leaned into the nautical metaphors that we love so much at the CMT Association, they’ve said that the Fed is attempting a “hard tack in increasingly choppy waters” – with the omicron variant’s arrival, just as chairman Powell acknowledged some inflation pressures may not be so transitory. So I think having a self-proclaimed “inflationista” and a 30 year bond trader and macro strategist on will really unpack what’s going on with zero and negative interest rate treasuries, what we could expect from monetary policy, and what history has told us over the decades was really helpful to me. I mean, I have some some of my own biases that are maybe anchored in more recent times, Jim talking some history about what a flattening yield curve or inverted yield curve does in a rising rate environment was was just shocking to me. And it’s really helpful to be on these podcasts and just learn from some of the best that they really do have a different perspective. So with that, let our audience enjoy episode one of season two with Jim Bianco, CMT.

David Lundgren, CMT, CFA  4:28

So when I look back on our guests from our first year, I think, how on earth are we going to talk that and we we had Bob Farrell all the way up to John Ballinger, and then some heavy hitters in between. What do we do for an encore? Well, I can think of no better way to start off season two than sharing an hour long conversation with Jim Bianco, CMT, where we dive into markets, the economy crypto in life, many of you probably follow Jim on social media and have seen him on CNBC and Bloomberg TV, but when I got started in the business in the late 80s, I actually used to call Jim very closely from his perch as a fixed income strategist at Arbor research, and like many I have come to really enjoy and benefit from his thought provoking presence on social media as a CMT charter holder. Jim has also been a very important contributor to the technical community over the years as well, both in terms of leadership, as well as world class content generation. So it goes without saying that we are thrilled to kick off season two with Jim Bianco. Jim, welcome to fill the gap.

Jim Bianco, CMT  5:29

Well, thank you. I hope I can live up to that wonderful intro you gave me!?

David Lundgren, CMT, CFA  5:33

I think I got it all accurate? I think I didn’t splurge on any of that. I think it probably understated if anything…

Jim Bianco, CMT  5:38

He forgot the year I won the Heisman trophy and the Nobel Prize in the same year.

David Lundgren, CMT, CFA  5:42

We’re gonna get to that! Yeah. I mean, we have so much to talk about. But what I think before we get into the the wide-ranging conversation, I’d love to hear about how you got into technical analysis. I mean, you’re one of the most highly regarded fixed income strategists on the street. But you also have your CMT. So how did that happen?

Jim Bianco, CMT  6:02

In the beginning, I grew up in Chicago, I fell in love with the futures markets when I was still in high school. So I was always very interested in tracking the futures markets. And back then, and dare I say this, now we’re back in the 70s. You know, I was charting the markets, corn, wheat, soybeans in the light by hand, on graph paper, and I was learning the ins and outs of technical analysis. Now fast forward, early 80s. I’m in Marquette University, Milwaukee, Wisconsin. And this is before CNBC, and this is before Bloomberg and everything, but there was a financial television show in Chicago called the stock market observer that ran from 8am to 4pm, every day, and they had the little flip boards that look like you know, the train station in Grand Central, and they will update you on, on what the stock market was doing stocks, and their big emphasis was commodities as well, too. So I used to watch that regularly. Now. This is like six years before CNBC or financial news network, which was its predecessor even came into existence. I’m getting up to an interesting thing. So there was a guy in Racine, Wisconsin, which about 30 miles away from Milwaukee, named Tom de mark, that Tom de Mark, he, he would go on that show all the time, and he would talk about certain things. At the time. My girlfriend who’s now my, my wife for 32 years was from Racine. So one time when I went to raise scene with her, I actually went to Tom’s office, and I introduced myself to him kind of looking for a job, but was no job to have. But nevertheless, I introduced myself to him. And I’ve watched him on the stock market observer show, and I started following some of the stuff he does. So fast forward now to 1987. This would be five years later, I sent my resume to First Boston then when it was before Credit Suisse, to the head, technical analysts there, Jojo Morales, I got an interview. Interesting aside was, I got an interview. And then when I went for the interview, they sent me to HR first, an HR told me that they made a mistake. They didn’t want to call me in for an interview. But they did. But so Joe said he’d honor it, but he’d give you 10 minutes, but don’t don’t promise you anything, you know, and I was 24 years old. And you know, they were trying to insult me and I wasn’t listening, you know? Okay, fine. I’ll go talk to him for 10 minutes. So we go up and we talked about 10 minutes. And I guess because remember, this was first Boston, they were top of the heap. Everybody was from an Ivy League school. I was in from an Ivy League school. And then they you know, Joe said, Yeah, I do technical analysis, what do you know about it? And I reached into my bag, and I pulled out my charts. And I said, Well, I chart the commodities markets. And I use this thing called the sequential system developed by this guy named Tom DeMark and Joe looks at me stunned and he goes, Tom DeMark is my best friend. We do everything here on the sequential system! Can you start Monday morning?

Tyler Wood  8:48

So basically, it was a 10 minute interview!

Jim Bianco, CMT  8:54

Yeah, well, it was a little bit longer than that. A lot of it was about talking about the breakout in soybeans, but we went a little bit longer than that. And so that’s how I got my start with First Boston with Joe. I followed him to UBS. One of our customers at the time was Arbor Research and Trading. They were from Chicago. I was from Chicago. They kind of lured me back to Chicago. I am still affiliated with Arbor to this day, in 1998. I spun myself off within Arbor as Bianco Research and the rest as they say is history.

David Lundgren, CMT, CFA  9:23

Wow! Married for 32 years… I mean, talk about buy and hold right?

Jim Bianco, CMT  9:28


David Lundgren, CMT, CFA  9:28


Jim Bianco, CMT  9:29

A lot of names and a lot of names have come in there because Joe’s was good friends with Tom DeMark. He was also good friends with Phil Roth. Phil Roth was the guy that really kind of talked me into taking the CMT. In 1989 It was the second year it was offered. You know, he got me… John Brooks. Here’s an old another old name for you got me involved a little bit with the Market Technicians Association or the CMT Association now. In 1996, I ran the National Conference in Marco Island, Florida. I’ve run the branch office In Chicago throughout the 90s, as well, too, and I still go visit the CMT branch. Maybe once a year or so I’ll give a presentation for those guys over at the [Chicago] Board of Trade. So I’m still sort of involved with the organization, I was a lot more in the 90s in the early 2000s

David Lundgren, CMT, CFA  10:17

Wow, well its definitely appreciated and I’m sure Tyler can speak to how much the organization has appreciated your input and efforts over the years.

Tyler Wood  10:24


Jim Bianco, CMT  10:25

I’ve really enjoyed it, going all the way back to the pre 9/11 days. And at the time, I was in New York, and I’d go visit Shelly Lebeck quite a bit. And I check out a lot of books from the library and stuff. Yeah, so the organization’s been a great organization. I’ve been very happy. It’s done me well, and I’m very glad to have been associated with it for life for now. 31 years, 32 years almost.

Tyler Wood  10:47

Well, you’ve always been quite a trailblazer Jim. In 1989, you would have only taken two levels of exam and then you had to write a paper, correct? …To finish off the CMT Program?

Jim Bianco, CMT  10:57

It the time, I believe I didn’t write a paper. That’s one of the things that Roth kind of said, you got to do it now before the paper comes. So I only had to take the I only had to take the two levels of exams two papers came after. But since I had already started the program, I didn’t have to do the paper thing. They were looking for people that could fog mirrors and would sign up for the and it wasn’t quite that easy. It wasn’t quite that easy. But the standard, well different the first couple of years.

Tyler Wood  11:21

And they were so equity-centric, I’m sure if you had written them a paper about the fixed income markets, they would have  passed you without even reading it! Right?!

Jim Bianco, CMT  11:29

Right. Right. Right. I wouldn’t first of those words like duration and convexity and everything.

David Lundgren, CMT, CFA  11:34

Yeah. So we have only an hour to spend with you, Jim. So we want to definitely, we have so much to talk about. Because your your knowledge base is so, so wide, that there’s so much we can discuss, what I thought I would do is because we want to try to keep this a bit of a sort of underpinnings with technical analysis, but then just kind of range from there, what I thought it would do is because so much is happening, I might just provide like an overview on some of the things I’ve been seeing lately, technically, that we can then have, you know, have a back and forth discussion on and then just kind of range from there. But you know, obviously, what’s happening today is that the headlines are being driven by omachron, and government budgets and surpluses and everything else. But you know, over the course of the summer, what seems pretty clear from a technical perspective, if you just kind of like look from the bottom up is it’s just been massive rotation. And then it’s kind of slowly spilling over into a breadth deterioration. All the while we have you know, growth versus value as peaked, especially in small caps, interest rates have rolled over inflation expectations have rolled over, you know, I went through last night and looked at about 150 different digital coins digital, you know, cryptocurrencies and I mean, maybe there were two of them that were in an uptrend, but the vast majority of them are in downtrend, you look at the Ark ETF, obviously, that’s pretty emblematic of what’s happening in the growth space. And yet, some of the valuations there are still higher than they were in 2000. You would think that with this as a backdrop, you would think that gold would be getting some sort of a bid, but that’s dead. And then and then quietly behind the scenes, that dollar is quietly ticking up. So these are some of the things that I’m observing as I’m looking all the trends that I’m that I’m monitoring it just, you know, what’s your take on where we are in markets today? What’s What are you thinking?

Jim Bianco, CMT  13:05

Two things that popped into my head when you were talking about that? The first one when you talked about the rotation, and the narrowing breath. I think that’s an understatement. I think this is about this is epically narrow right now is what you’ve got going on in the market. The s&p is basically driven by eight stocks in there 40% of the index right now, those are the fang stocks plus Tesla, nividia, and Microsoft. So those stocks have really been driving driving the bus. And as such, what’s been happening, I think, is two things. One, there’s a new influx of public players in the market. And they’ve come largely because of steamy checks, if you will, the $1,400 one in April, but don’t forget, don’t forget, last December, a year ago, there was 600 bucks. And then there was a $1,200. One before that. And I know that professional managers hate when I talk about this bunch of people with $2,000 or 1500 bucks. Yeah, like 100 million of them. And so when you add it all up, they tend to as a group become very important in the market. Now to that group. There are nine options in the entire world. There’s spiders, and those eight stocks. That’s it. That’s all they basically play. That’s why you see the s&p outperforms everything this SPIVA the investment active versus Index report that Standard and Poor’s puts together shows like 90% of 90 95%. Now maybe not that high, but 85 90% of active managers underperform their benchmarks. It’s very hard to beat the benchmark, when as I like to say every day as long as there’s electricity on the floor of the New York Stock Exchange, people commit to buy the stock market and that’s spy. And so that goes up. And if you’re not spy, you’ve kind of fall behind and the further away you get from spy, small cap stocks, foreign stocks, The worst you seem to do. And then if they’re going to go beyond buying spy, it’s those eight stocks, as a matter of fact that like Tesla’s like a third of the volume on the Chicago Board Options Exchange, some days it even exceeds, it even exceeds the s&p 500. Some days, it’s been so tremendous in terms of the volume that it has. So that’s where I think we are with the market is that we’ve got this tremendous flow going on with it. It’s been very difficult for, like I said, active managers, I have been arguing for the last 10 years that this is the worst stock picking environment in history. And yet all I keep hearing is it’s great for stock pickers. No, it’s not. They’re losing their jobs left and right. You know,

David Lundgren, CMT, CFA  15:42

you mentioned options, have you? I’m sure you’re you’re following the fact that the put call ratio has been so depressed for a little bit over a year. And they actually, today, it actually peaks were used to bottom. So almost like there’s a whole new regime and the put call ratio. So given your knowledge of options, whatnot, in the things that you hear and see, do you have any explanation as to what’s going on there?

Jim Bianco, CMT  16:01

70% of all options, trades right now are of 10 contracts or less. And something like 20% of all options trades is one contract. So what’s happened is, is that the options market has been taken over by small retail punters, it is no longer the market of sophisticated institutional investors doing gamma traits, they still exist, but they’re being overwhelmed by the Reddit crowd in the Yolo. Crowd. That’s the dynamic here. So these people two or $3,000, they want to they want to put it in the market, where do they go to learn what to do they sign on the Reddit or Twitter, and they just basically follow the herd, either on fin Twitter on Wall Street bets, as well. And so there’s a lot of them pushing hard into the options market as well, too. So the dynamic that’s changed in the options market is it is a mole. It is a small retail momentum driven market, again, that really upsets professional investors. You know, I have a degree in math and I understand how to do a gamma trade. Yeah, well, the red arm is going to run you over six ways from Sunday. Careful, that’s just the way that this market works.

David Lundgren, CMT, CFA  17:08

Yeah, they’re armed and dangerous, the high priest within

Jim Bianco, CMT  17:11

that. And then, like I said, the thing that sets it apart within that, which could be its own exchange is basically text, Tesla options. Those are just, you know, a whole nother level of speculation as well, too.

David Lundgren, CMT, CFA  17:23

Yeah. And that turns out to be one of the fang stocks that’s holding in the best out of this whole in this whole mess. Right. So got that gives in. Right, exactly. Maybe talk a little bit about the Fed and the economy. So I mean, I’ve heard you refer to yourself as like in inflation, Easter. So is that still accurate? You think that that inflation is not transitory? And I wonder what your what your thoughts are on it looks to me, like rates are rolling over inflation expectations are rolling over, etc. And, you know, the ultimate irony is that they’re all starting to roll over right when Jay Powell gives up on the use of the phrase transitory. So maybe he should have poor timing as it may have, actually, at least as the market is saying, proven transitory. So you obviously think otherwise? So what are you seeing that? It says it’s not transitory?

Jim Bianco, CMT  18:06

Well, yes, but you got to put the interest rate thing in context. So let me back up. Now, I guess I’m going to have to give you a bit of a fundamental answer. Yes, I’ve been in inflation east. I’ve been arguing since last fall, fall of 2020, the bond markets 39 year bull market, from 1981 to March of 2020. is done. We’re now in a multi year bear market. And in a multi year bear market, you know, you basically don’t make a new low for the first couple of years, but then eventually start, you start building up on it. Within that I’ve argued that you’re going to have inflation, the fundamental answer I’ve given people is the defining event of this generation, maybe even in our lifetime, but at least of this generation is we sent everybody home for a year. And we are still not understanding the impact that that is having either on jobs, on markets on the economy itself, too. One of the things I’ve postulated that it’s done is it’s taking existing trends. And it shoved us 15 years or 20 years ahead of where we were going to be this interview that we’re doing now, you know, virtually work from home online purchases, we were all going to be where we are now, just not in 2021. We were going to be here many years later. So we sped it up. One of the things I think we’ve done is we’ve changed the way that people’s people purchase, they buy more stuff than they pair than they do services. And we’ve stressed the supply chains and interest rates are going up. Now I’m sorry inflation is going up. Now how’s that showing up in interest rates because bonds are going down? Yes. 10 year and 30 year bonds are going down T wise and us are going down? But if you look at to us and EDS, you know the Euro dollars and if you look at the two year note futures, those are going off, those are going up in yield down in price. You’ve had a massive flattening of the yield curve. What’s been happening with this inflation is, first of all, the consensus, according the Bank of America survey still believes that inflation is transitory. Everybody’s still believes it’s transitory, I shouldn’t say the majority still believe it’s transitory. I still think the Fed believes it’s transitory as well, too. They’re just afraid to say the word because they get criticized too much for it. So what’s been happening is short rates have been just on this monstrous tear higher and higher and higher, long rates have been trending sideways, and you’ve had this massive flattening of the yield curve. Now, what’s going on there? The Fed is very, very skilled at one thing, raising rates too much and breaking something they do that over and over again, I think the market thinks that the Fed is going to be forced, because of inflation, to raise rates too much and break something. And that’s why the yield curve is flattening long rates are catching a bid, not because there’s no inflation be because something is going to break. Now, that might not be till 2023. But that’s been where I think that the market has been playing itself out with that big flattening of the yield curve. Last thought for you, why does the Fed have to to deal with inflation? If you look at the polling data, I got a whole set of data on every poll that comes out on every every politician, it does sort through these and look at them, the majority party. And I say that because I’m not trying to not be partisan, the Democrats are getting eviscerated in the polls, they’re just getting pummeled. And when you go through the polls, and you ask people, What is the number one issue in the country right now? I’ll give you a hint. Number two is COVID. Number one is inflation. They’re getting pummeled because of inflation. Now why are they being pummeled. 40% of the public doesn’t own a house has no savings, they rent and they live paycheck to paycheck. Every time they go to the store, their paycheck buys them something less. They’re screaming and yelling, and they’re very mad about it right now. So much so that the FTC had a story. Last week, the Democrat Party is pushing the Fed to deal with inflation, the Democrat Party wants the Fed to become more hawkish and raise rates. I don’t think we’ve ever seen maybe during the Carter administration, politicians want higher rates, but that’s where we are right now. So the pre The reason I say that is the Feds in a bad place, hey, the markets stumbling and maybe if it stumbles, suborn I see this on fin twit all the time, oh, the Fed will just print the market back to a new high. Okay, they’ve done that for the last 13 years. But if they print the market to a new high, they risk inflation, they risk an epic wipe out of the Democrat party if they don’t get a handle on inflation. And if that doesn’t scare the Fed house, Trump 2024 with his Twitter account back, Jay, you ready for that? That’s what you risk. If on the other hand, they listen to the Democrats and say, Okay, we got to get aggressive and hike rates. And I think that’s where they’re going, they risk breaking something. And that might be the stock market or the economy or both. And that’s what the the flattening of the yield curve is. The point is before now, whenever the Fed decided to print money to push markets, everybody won, there was no loser because we didn’t have any inflation. Now that we’ve got inflation, I got a big epic party on one side, called the Democrats with the 40% of the electric that has no savings. And then on the other side, I’ve got stockholders and 1%. In J, you get to pick one and you got to burn the other one. And it’s a bad position to be in, because you waited too long to deal with inflation. And now that it’s at a 40 year high, there is no path to if I do this policy and helps both. That was the case when there wasn’t inflation. Now that there is you got to pick one or the other. Now, I think he’s going to pick the he’s going to pick the 40% with no savings. And he’s going to be uber aggressive when it comes to dealing with inflation. And that’s what the message of the yield curve flattening or the long bond rally, even though the two year note just keeps going up and up. And the fed the market still has three rate hikes priced in as well, too, is how I interpret where we’re what the markets telling us at least from the fixed income standpoint.

David Lundgren, CMT, CFA  24:14

And based on that, that flattening of the curve. I mean, do you see the obviously the big risk is that the curve inverts, which which has 100% accuracy of forecasting a recession? And so do you think that the short end of the curve has gone up enough to reflect what the Fed is going to do? What do you think is actually risk? We actually invert here, and maybe that’s what this maybe that’s what that the market is telling us that there’s an impending recession down the road here in 2020. Yeah, I

Jim Bianco, CMT  24:37

think first of all, you’re right. The yield curve has 100% track record of predicting recession. And it also has 100% track record of what it inverts. We drag out all the PhDs to tell us why it won’t predict predict a recession. It always does, as well to say I think that yeah, the yield curve is at risk of inverting but probably not for another six months. And then if it does, it usually leads by six to 18 months. So if it inverts by the middle of the year, we’re talking about a 23 recession, if it inverts. And the other thing about the curve is it is one of the more powerful momentum things, you know, when it gets when it gets a trend going, that trend just goes and goes and goes. And there’s very little overbought or oversold in the curve. Right now the trend is just flat, flat, flat, flat flat, is what it is. And I think it will continue, it will continue to be flatter from a sentiment standpoint, all I keep reading is the markets priced in three rate hikes. The Fed as of their chart last week thinks the Fed thinks they’re gonna raise rates three times in 2022. Let me tell you why they’re gonna go less. That’s all I ever read. I have yet to find anybody says, here’s why they’re gonna go four times. And you know, when people ask me, I remember, this was on a Bloomberg interview. What do you think the Feds gonna do next year? And I said, three, three and a half rate hikes? Wow, you’re way out there. It’s like no, actually, that’s what the markets priced in. But nobody believes it. And that’s the problem is that all of a sudden, what the market is priced in is almost always consensus. But now Now, what the market is priced in is very aggressive. So I think that we’re destined to see the market is the market always gets what it wants. It’s a petulant child that will hold its breath and sandwich feet and demand you give it what it wants. And if it wants three, or maybe four rate hikes, it’s going to get three or four rate hikes, and it’s gonna do what it needs to do, no matter whatever, whatever the high reasoned explanation anybody wants to give it.

Tyler Wood  26:32

Can I just ask a quick question when that yield curve inverts? And that, you know, window that we have before recession takes hold? That tends to be a real tailwind for equities, right as as money flows out of the fixed income market back into equities? Do you see that all hitting the same eight names, and we only see a rally in s&p? Or does that get diversified as money leaves the US markets?

Jim Bianco, CMT  26:56

Now this gets into an interesting, interesting dynamic, yes, when the yield curve inverts, as it’s inverting, you usually see equities have a big rally. But that’s been 1980 forward. If you go back and you look at what the way that the equity market and the yield curve behaved from the 50s, to the 80s, you got a very different dynamic now, why the 50s 80s because that was the era of the bear market in bonds, and rising inflation, inflation just kept going for 30 years, and then you know, eventually peaked in 1980. And what Volcker Do you know, pushing rates to 21%, to break the to break something that time the economy to end inflation. But if you look at that period, whenever you started in on the period of higher inflation, and the Fed raising rates was not a good time for equities. And this has always been the big argument. Stocks are a good hedge against inflation. You know, that was a big popular one that Jerry Tsai pushed in the 1960s. As well, too, that, you know, the stocks are always a good inflation hedge. And it turned out from the 1970s to the early 1980s. They were not they were disastrous hedge inflation hedge, they lost 75% of their value on an inflation adjusted basis. The s&p 500 did its 1968 inflation adjusted peak was not exceeded until 1994. So it took you like I said, almost 30 years to just get back to to even so if we are turning the boat in into an inflationary period, and this inflation is going to be persistent, last for a long time, I think that you’re going to find that that is not going to be a good thing for equities. Now, nominally equities can give you a positive return. We’re up 6.8% This year, as I look here, boy, they’re really killing the small cap stocks again today. And as they have this, the Russell 2000 is up 10%. Year today 60 That 10% was in the first two weeks of January. So since January 10, you’ve lost money in small cap stocks on a inflation adjusted basis because inflation is up more than the markets up. You get you’ll get positive nominal returns, but they won’t be enough to cover inflation. That’s what you have to be careful of with the stock market.

David Lundgren, CMT, CFA  29:18

Why do you think gold is not is not responding yet? Is it? Is it lost its luster in an inflationary environment? Or is inflation just not enough yet to actually make gold valuable?

Jim Bianco, CMT  29:30

Have we carried Peter Schiff out yet? Once we do that gold can rally I love it. I love Peter. I love Peter, but I just had to throw that joke in he first of all gold frustrates me because you’re right. You would think this is this is the reason that we invented gold in the first place for this exact environment to buy it and it’s not working. And I think it’s not working for basically two reasons. Reason one is what is gold supposed to be in theory It’s supposed to be a way to get away from the financial system. I’m worried about the financial system itself. Where do I put my money? If I’m worried about the financial system? Well, there’s really nowhere to put it except for maybe gold. Well, the problem with gold now is so much of it is tied up in derivatives and in futures and in forwards, and in the GLD, ETF, and everything else, that if the financial system were to have a problem, like it did in the spring of 2020, gold can’t escape that it winds up going down as well, too. So it becomes part of the problem it’s trying to address, you know, Why does Peter Schiff tell you got to put money in gold, because when everything hits the fan, gold is going to be a safe place to be. The problem today now is when everything hits the fan, gold hits the fan, too. So on that respect, a lot of people have found an alternative to gold, and that’s cryptos. And so I think that a lot of money that would have gone towards gold, especially Bitcoin, less so eath. And some of the other ones, as well, too, is winding up in the crypto universe, and it’s kind of sucking the life out of gold. And again, this stick with Mr. Schiff. And maybe that’s one of the reasons why he’s been such a vocal critic of cryptocurrencies, because he sees them correctly as the biggest competition to his gold fund. Right now,

Tyler Wood  31:27

on that threat of hard assets. Are there other inflation hedges that people ought to be considering, like timber or real estate or something else that that they could hedge against inflation? That wouldn’t be so susceptible to market events? To some

Jim Bianco, CMT  31:40

extent? Yes. Because like I said, most people are not buying into the persistent story, it’s still the minority view, the transitory is still the minority majority do so I think, you know, commodities in general will continue to perform well, you know, there are some, you know, exceptions to that oil is going to be one of the exceptions to that, largely because A, it’s run up a block, but be it’s also tied to global demand. As well, too. If we go back into some kind of restriction or locked down, you’re going to drive less. If nothing else, you’re going back and work at home, and half of everybody’s driving is to go to work. And that should take the starch out of the demand for gold. I’m sorry for crude oil, and you’re starting to see that happen. Real estate is a tough one. Because there is no such thing is real estate anymore. What there is, is there’s office real estate, there’s other commercial real estate, and there’s residential real estate. Office real estate is in a whole world onto its own. That’s basically the great resignation and whether or not we’re gonna go back to the office. And that’s why that the Office REITs have been such awful performers. But residential real estate has been tremendous. So you got to kind of split it up that way as well to tips, treasury inflation, Protected Securities, real rate bonds, I think are another good option to play as well too, on the inflation front, but probably the best play for people is probably broad based commodity funds because they should continue to benefit I don’t think we’ve hit some kind of individual commodities here and there like lumber did earlier this year. We’ll you know, get into like frothy peaks and sell off but as an a group by itself, I don’t think we’ve hit a you know, some kind of frothy peak and that there’s still some more juice left in the commodity trade the broad base commodity trade relative to the inflation story.

David Lundgren, CMT, CFA  33:28

I don’t own gold right now and I certainly don’t own gold equities if you look at their performance relative it’s just it’s just a nightmare but if you look at the monthly chart of gold that I look at that bit least once a week just to keep an eye on that because that you know if you think about William O’Neal and the whole cup of handle type of setup I mean that’s that’s about as clean as it gets. So it looks to me like it has some potential building here but I’m not there yet but something I

Jim Bianco, CMT  33:50

hope I hope you’re right, I’ve been I’m currently not in gold now. But I’ve been off and on for those 32 years I’ve been Yeah, big into gold. You know, little in the gold big in the gold out of gold going all the way back to the days when I first met Ian Macavity, he got me to the central fund of Canada. Yeah, I’ve sort of throw out all the old names. They can Ferrell theme, you put me up to the desk?

David Lundgren, CMT, CFA  34:15

I did. I did. I sorry about that. So I want to definitely talk about crypto and everything that you’ve learned about it since you’ve been really doing a deep dive yourself personally to learn as much as you can. But before we go to that topic, I have one quick question for you as it relates to inflation, as I understand it, when you have a world that’s kind of a Washington debt, isn’t that deflationary? And what’s the pushback to that

Jim Bianco, CMT  34:38

that is deflationary that you cannot raise rates too much because the debt service becomes overwhelming. And you see that in the marketplace with a conundrum that the bond geeks are talking about. There’s an animal called the terminal funds rate. What is the funds rate? Where is the what’s the max When the Fed is going to raise rates, and if you look at the fed fund, futures strip, you know, all the way out to 2026 delivery, you’ll see that that level is about 1.7%. And you wait a minute, that’s it. That’s all that they can. That’s all. And so people mistakenly think, oh, so there’s no inflation problem if the Fed has to only raise rates to 1.7%? Or because the world is awash with debt. What is the rate that drives everything to its knees and breaks things? That’s what like, yeah, maybe it’s one and a half percent, that’s all it’s gonna take is one and a half percent in order to break something, or 1.7%. And that’s why the yield curve is flattening. And that’s why the market is getting itself concerned. Feds gonna raise three or four times that might be enough. Remember, in 2019, the Fed raised rates to two and three eighths. Now, if you’ve been around long enough, man that used to be the bid offer 2%, you know, might not, you know, so they raised it to two and three eighths. And the repo market blew up in September of 2019, even at rate was starting to put stresses on the financial system. So yes, the debt thing shows up in that you don’t have to raise rates a lot to cause problems, you know, and that gets me to the point of people say, Well, if inflation sets a problem, why isn’t the bond market reflecting it? And I’ve said, well, on a total return basis, this is gonna be the worst year ever, for the two year note, the worst year ever, for maybe the second worst year ever. 94 might be worse for the five year note, one of the five or six worst years, for the 10 year note in maybe in the bottom third of the 30 year note. I mean, it’s not been a good year, it’s not been a good year to be long. Treasury. Thank you any good half year, it’s been a good quarter. But if you go all the way back to January, it’s not been a good year to be long treasuries. And one of the reasons that I think that, you know, I say that because people say, but if inflation is really this problem, why don’t we have 4% or 5% 10 year notes? Oh, man, because you’d have the stock market down 60%. If you were to get back to those levels, you know, you would you would you would annihilate the economy with those kinds of high interest rates. That’s where the world awash with that I think, is showing up the market signaling is three four rate hikes, five rate hikes, we’re going to get that and that might be enough to break something, you don’t need three, four or 5% of break something, maybe one and a half, one and a quarter, one and three quarters would be enough to do it.

David Lundgren, CMT, CFA  37:30

You know, when I think about pricing, it’s all about supply and demand. And we here we have a world that is, as I said, a Washington debt, there’s more debt available to purchase than you can shake a stick at. And yet interest rates, which is the how you value debt actually went negative. So we have massive supply. And we have massive extreme valuation, if you want to call it valuation, how do you rectify that? Why would you buy a negative yielding bond? Why would somebody buy a negative yielding bond?

Jim Bianco, CMT  37:53

First of all, almost all of the negative yielding bonds are in Europe, in our in Japan, they all are in Europe and Japan. And the biggest player in the negative yielding universe is the banks themselves. And they are kind of instructed and regulations kind of, you know, encourage them to buy this debt as well, too. Why do people own negative yielding bonds? Because in one respect, there is a break even for interest rates, right? If I have a million dollars, and I was to put that million dollars in a box under my, under my bed, and I wanted to insure it against fire and against theft, or flood or something like that, how much would that cost me per year to insure that money? Yeah, probably about 30 or 40 basis points. And lo Behold, the set, the ECB, the European Central Bank has interest rates at about minus 40. So they found the perfect rate to go to negative rates. So that you know, the alternative isn’t just shrink wrap a million dollars on a wood pallet now just take it and put it in my basement, because that gives me a zero yield. Well, when you factor in the risk that it might get wrecked, then that’s where you get that number as well, too. So that banks kind of play off of that, in fact, the Federal Reserve actually did a study of this once. And they they actually looked at the volume of Vault space forever every bank in the United States. And then they looked at how much volume like $1,000 $100 bills takes up. And they figured out like how many billions of dollars of hundreds could you stuff in a bolt to earn zero yield to try and calculate where negative rates could go. That’s the way to kind of think about as as well too. And that’s where I think they came up with these numbers around negative 10 basis points zero, negative 40 for the ECB, as well too. So the buyers of these bonds are looking at these bonds and they’re buying them on the on the idea that you know, it’s cheaper and more efficient to own those negative yielding bonds than to own cash. Then finally, the other thing to keep in mind about negative yielding bonds, about the way that the bond market works The coupon payment on ALL BOND negative yielding bonds is zero. There can never be a negative coupon. Why? Because the way coupons work is if there’s a 1% coupon, the Treasury or the finance minister, whichever country you’re talking about, keeps a list of who owns the bonds on the date that they have to pay. And so on the date, they have to pay the coupon payments, they mail you a check for your coupon payment, well, if they had a negative coupon payment, they’d have to keep a list. And then they’d have to go to me and tell me, I have to pay them money on that. And that’ll never work. That’ll never work, they’ll never be able to cap so the coupon payments are zero, and negative yield comes in because they trade at these gigantic premiums. And so that effectively makes the interest rate negative. So there’s a lot of speculation about the price. Yeah, I know I bought I bought a 10 year, zero coupon tenure, German bond at 115. And I’m going to lose 15 points between now and 2031 10 years from now. But my bet is that, you know, first it will go up eight points, and then I’ll sell it and that’s somebody else. Yeah. Yeah. There’s a greater full theory in there. There. Definitely. Yeah. Yeah.

Tyler Wood  41:15

So now that we’ve boiled the central banking institutions down to value that Manhattan mini storage has all of us, I think, rights to switch over to decentralized finance. What is it? What Why is it catching such a bid this year, explain it to all of our listeners. And frankly, to me as well.

Jim Bianco, CMT  41:33

Decentralized finance or defy is basically a reinvention of the financial system. That is the the fancy words, we use a trustless and permissionless. And what that means is that the financial system is reduced to an automatic computer program that just executes on command, which they refer to as smart contracts. Today, the problem with the financial system is you need permission, go open an account at a bank or brokerage firm. And notice all the Know Your Customer and anti money laundering rules, and that you have to verify who you are, you need their permission to open an account, then do some trades, you need their permission to be able to trade in certain things I get so frustrated with, you know, some of my brokerage accounts, like some of my brokerage accounts, I have checked writing ability on and I write like two checks a year out at some of them, and now my bank account I write all the checks are and so whenever I write those two checks a year, they bounce because the brokerage firm won’t honor it, because hey, he never writes a check. This could be fraud. No, I just paid a vendor, and now you’ve bounced it on me, you know, and now I gotta call you up. And I gotta tell you, I have to verify who I am. And then I have to ask you permission to clear that check. So that’s what we’re trying to get away from when we talk about a trustless permissionless system in decentralized finance, that it runs automatically, and that everybody has the same terms and the same value for the system. Now, the big one is the Ethereum network, and that we run on the Ethereum network with all of the smart contracts that we create what’s called protocols. And those protocols can be lending protocols, borrowing protocols, trading protocols, insurance protocols, lotteries, index funds, so they have all of these in when you connect, in the defy in the crypto universe in the defi world, usually you have a wallet, a electronic wallet metamath being the most popular and you have your your cryptocurrencies in your wallet. So if you go to say uniswap, which is the most popular Dex, decentralized exchange, and you want to if you want to trade some cryptocurrencies, they don’t ask your name. They don’t ask who you are, they just want to see you connect your wallet with their exchange, oh, there’s money in that wallet, there’s Aetherium in that wallet, okay, you can exchange Aetherium for whatever you want. I don’t know who you are, I’ll just take the Ethereum out of your wallet. And I’ll put whatever you want to exchange it to trade it into, back in your wallet, done. I don’t know who you are, I don’t care who you are, as well, and whether or not you’ve got 10,000, your theorem in your wallet, or point one, if they’re in your wallet, everybody gets the same deal as well. Just others do it with more zeros after it, then some others as well. So that’s where decentralized finance is trying to go. So naturally, this has made both the regulators and the traditional banking system very uncomfortable. Wait a minute, that’s our business. You’ve reduced my business to a computer algorithm. And we don’t need these 92,000 people that work at JPMorgan anymore. All I need is a couple of dozen programmers to run this thing. uniswap is almost as big as Coinbase which is two thirds the size of the New York Stock Exchange uniswap I think Still has nine or 10 employees versus the New York Stock Exchange that you know that. So we’re taking the whole New York Stock Exchange. And we reduced it down to the founder, seven programmers in a secretary. And that’s basically what we’re running the whole thing with that, and it’s in a decentralized, permissionless kind of way. So it is the future, I think of finance. And like I said, there’s, there’s lending protocols, you know, you can lend your coins out it interest, borrowing protocols, you can borrow your coins, there’s derivative exchanges, you could trade futures, you could trade options. You could buy insurance, you would buy insurance against a hack or smart contract failure. There’s lotteries. Now a lot of this stuff is in its infancy, a lot of this stuff is very speculative. Some of it fails. But if you start going down the rabbit hole like I’ve fallen down, what you’ll see is you’ll see many, this is a whole new financial system being built. It’s not ready for primetime, but I see where it’s going. And I see where it can become in last thought as I would use for you is the Mark Cuban example, I’ve used Mark Cuban when he was a student at Indiana University back in the mid 90s, he discovered the internet. And then he discovered that there was a way that you could download an audio file of Chicago Cubs baseball games, and he would download these audio files and it was through a dial up modem. And it was very cryptic. And if you made any mistakes and like the fonts like programming the dial, it failed, it took two hours to download. The the quality wasn’t even as good as an am radio and Cuban fell back in his seat. He said, This is gonna change the world. What are you talking about Mark, this is crap. It takes too long. It’s too lousy quality. Yeah, but this will get all solved. And when it does, and we have this streaming world, it’s going to be a big deal. He started a company called And by the early 2000s, he wound up selling it to Yahoo for enough money that he bought the Dallas Mavericks. So that’s kind of why I feel like defy is yeah, in its current state. It’s not ready for primetime. But if you can envision where it’s going, it could be very, very big and very, very significant.

David Lundgren, CMT, CFA  47:05

And fts. My understanding is that this is enabling content creation in a way that has never happened before. Right. So maybe we can you can take some time to explain that but then also your content creator yourself. So I’m curious in the research business that you’re in, is there a way for you to lever NF T’s as Jim Bianco research Bianco research?

Jim Bianco, CMT  47:26

And if T’s I haven’t found one there, but defi? Yes. So let me let me step back and say, so what an NF T is a non fungible token. So think about it this way, in your wallet, you have $1 Bill, that’s a fungible token what I mean by fungible because you might have another dollar bill in your wallet, two of them, and you’re in they’re equally a value and you don’t care which one you pull out of your wallet and pay for something with one is just as good as the other so they’re fungible, and non fungible token in your wallet would be something unique. Your driver’s license is a non fungible token. It’s one yours. There’s other people have driver’s license, but that’s not the same as yours. Your credit card is a non fungible token. Other people have credit cards, but they have different credit card numbers. So my credit cards not the same as your credit card. But my dollar bill is the same as yours. That’s the difference between fungible and non fungible, so non fungible tokens. What they do is they represent ownership, some kind of an ownership value in the crypto space. The most popular use case is art JPEGs, whether you know you’re buying crypto punks, or board apes or some other digital art, that when you purchase it, you get this NFT which means you are the owner of the original. Yeah, but can’t be copied and can’t be a minute. Sure. And so can the Mona Lisa, there’s one original Mona Lisa, and it sits in the Louvre in Paris. But people have made replicas of it, you know, there are computer programs that actually paint replicas of it, that can fool some experts, and they sell for a few $100 there’s posters of it, you can buy, does that diminish the value of the original net? If anything, it might enhance it, because it makes it more popular. So owning the original becomes a very popular thing. Now, I’m not in the crypto punks, or bored apes, maybe that’s me, you know, my generational thing that that type of art doesn’t, doesn’t just get my jazz going, maybe vintage cars do. But that’s a different issue altogether. But it does for it does for the Gen Z’s and, and some of the younger millennials that play in that space as well too, but it’s opening up the idea that you can have ownership in the crypto space. And that is very, very powerful. This whole NFT thing because the argument to be made is we have these platform companies Facebook, Microsoft, Twitter, the fang stocks, Google YouTube to give a couple more examples and they have derived Millions of dollars of value. Where did that value come from? You and me and everybody else, we post to Twitter, we post videos on YouTube, we post on Facebook, and we create value for that network, we don’t share that value, they keep the value in an NF T web three world, the whole idea is to turn this equation around and say that there will be social media, there will be something equivalent of Twitter in that space, or Facebook, or Google or YouTube, except it will be owned by all of the content creators, through the use of NF T’s and through the use of cryptocurrencies, I could create my own you my own communities, my own networks, and that, through those communities and networks, I can capture the value for myself. So instead of me creating YouTube videos, putting off on YouTube, getting 100,000 people to watch my videos all the time, and maybe YouTube throws me a couple of crumbs in some advertising revenue, but they keep the majority of it for themselves. I could create 100,000 viewers in this web three world and through NFT tokenization. And through some of these cryptocurrencies, I keep 100% of it for myself, I don’t have to share it with the protocol is like a YouTube. This is the hope and the promise of the metaverse web three. And the tool that they want to use to make all of this work is cryptocurrencies and NF T’s. And that’s why there’s 11,000 cryptocurrencies, because in this world, there will be a different cryptocurrency for a different use case. Now, not all of them will survive, a lot of won’t survive, but some of them will. So hopefully, that gives you kind of a thumbnail picture of where the space is going. The last thing I’ll say is, where is it? How do I take advantage of it’s being evolved? Right now it’s being created. It’s like it’s 1992, or 93, with the Internet. And you know, it’s very crude, it’s very difficult to use. But if you can envision where this is going, in 10 years, maybe five, hopefully won’t take 20, you could see that this could be a very, very big thing that’s coming down the line, at least as big a thing as the internet.

David Lundgren, CMT, CFA  52:17

You know, it’s interesting. Well, exactly. First of all, I think that was the most valuable discussion I think I’ve ever heard on, on explaining NF T’s versus Cryptos, and the meaning and the impact on the on the traditional markets and whatnot. So thank you very much for that. So what I look at what’s happening in this in the world today, and you know, in having gone through many cycles, particularly the internet bubble, that bubble was all about fully recognizing the impending technological change, it was coming. But everybody got so excited about it, that they reached 2030 years into the future and pulled it all to the present in the technology just wasn’t ready. And so the whole thing imploded from an equity perspective, but not from a technology perspective. Obviously, it eventually eventually played out just as the market forecasts that it wouldn’t 2000 But they just got too excited, pulled it a little bit too, you know, for too much and too quickly. So and then you look today, and you have, you know, you have square is changing their name to block Inc. Facebook just changing into metaphors. What else do we have, we had video, Matt Damon is pushing crypto commercial crypto on on TV. And, of course, Elon Musk was just named Person of the Year. These are all things that happened at the peak in 2000. None of which said it was wrong. It just said that it was fully recognized. And so what do you think about that? Number one? And then number two, if you look at traditional securities today, it sounds like there’s an awful lot of disruption coming. What would you short?

Jim Bianco, CMT  53:40

In that regard? You’re absolutely right. We are pulling forward a lot of what’s happening in the crypto space. There’s a statistic that’s been tossed around towards the end of this year, that up until 2020, the total amount of money raised for all these protocols, all these venture funds that are in crypto digital asset funds, the total from the beginning of Bitcoin to 2020 was $14 billion this year was 25 billion. And so the reason that people point that out is they said See, this is where people are going to make the mistake. Yes, the cryptos prices might be ahead of themselves. Yes, they might have an 80 or 90% correction they did in 2019 had an 80 or 90% correction. In fact, Aetherium had a 95% correction and went from $2,000 to 92 bucks or something like that. And it’s low in March of 2020. And now, you know, it’s $4,000 today, but just like in 2018. Even though those coins were crashing, there was enough capital in the system that the uniswap in decentralized finance and NF T’s were being developed during that crypto winter that if we had another crypto winter and 22 or 23 There’s enough money in the system, that these protocols that are going to change the world World are going to continue to get developed whether or not these coins crash 80 or 90%. Or if bitcoin goes to $200,000. In fact, some of these some of the some of the real hard courts in the business are like, No, I want it to crash at 80 to 80 to 90%. I’d like another opportunity to buy Bitcoin for $5,000 buy point is just like 2000. The market got ahead of itself, the prices crashed. But Google didn’t disappear and Yahoo didn’t disappear and Facebook didn’t disappear. They were they were actually developed during that winter period, as well. Same thing with the with the with the crypto space. Now, as far as where do I think in traditional markets do? I think it’s showing up? I can tell you, I think it’s showing up in the 11 sectors of the s&p over the last 23 years go back to 98. The last 10 years the last five years. one sector of the 11 s&p sectors is in last place, it’s been the worst place to keep your money, the financials. And within the financials. The underperformer within the financials are the big banks. As I like to joke, why did God create money center banks is to turn fund managers into X fund managers because that’s all it’s really done. For the last 20 years they’ve been terrible performers. In fact, they’ve been so bad when you get outside the United States, the Japanese banks are trading at lower levels today than they were at the bottom of the 1987 stock market crash. So if you bought the Japanese banks on the day of the local low tech, and you held it for 34 years, you’re still underwater Deutsche Bank at its low earlier this year was at the same level it was in 1983. This is how bad these banks have been. Why have the banks performed so bad? I think part of it is we know that they’re bloated. Now I’m talking about all the banks, the banking industry worldwide, they’re bloated, they’re inefficient, and they’re heavily or the right for massive disruption. And we’ve known that that was going to be the case with the banks, which is why they’ve been kind of the Wall Street’s worst play worst enemy because all I ever see is his professional investors always say I like the financials and then it just wrecks them left and right. Because I think the the wall that and the relentlessly dropping interest rates also hurts them as well too. But I also think that so I think that it’s definitely shown up in that you know, Where’s where’s the one place that you could go that try to trued will lose you money is just stick it in a traditional financial system, you know, a bank, a brokerage firm, asset manager, these have all been terrible performers, and probably will be because now the disruption, I think is is coming as far as where you want to invest. I think if you want to invest to take advantage of this, then you have to get into the crypto universe. You have to get down beyond Bitcoin and Aetherium get beyond the Bitcoin Maxis and Aetherium Maxis and start looking at you know, the theory of Maxis Bitcoin Max disease that people think bitcoins perfect, there’s nothing else, everything else is a shit coin. You should you don’t need anything but Bitcoin or Aetherium. But when you start looking down into some of these protocols and what they’re trying to do, whether they’re Dao based, decentralized autonomous organizations, like the Constitution, Dow was to try to buy the Constitution, you know, last month, all the way on down the line, you could see that there are some opportunities to make money in the crypto space. The one last thing I give you about the crypto space is I like to say that I I hate the books invest like Warren Buffett. And the reason why I hate the books is I would love to invest like Warren Buffett. I would love a struggling Bank of America. Brian Monahan, the chairman, CEO, call me up and say, Jim, we are really in trouble here would if we sell you a 9% convertible preferred what you buy it, you’re dead, right? I would buy it, but you don’t call me and give me that deal. So I can’t invest. I can’t invest like Warren Buffett. But in the crypto space, everybody gets the same deal. It’s just Warren Buffett, or the equivalent of Warren Buffett, maybe Sam bank been freed of FTX. He just doesn’t want more zeros after his night after his trade than my trade. But the terms are exactly the same between both of us. And we’re going to win or lose on a percentage basis, the same amount. Yeah, you’d have to look into the crypto space. The last thing I’d say about the crypto space for those that want to know more about it, I’ll warn you. There’s a reason that Goldman Sachs, JP Morgan, your favorite hedge fund doesn’t just hire some 18 year old kid and give them a three day seminar on what is finance. It’s a little bit more of a complicated issue. You know, like a four year degree and maybe a master’s degree and when you’re in your early 20s And you’ve shown years of professional See through schooling and grades, then you might be qualified for an entry level job here. Okay, I get that. And it’s probably fair, the crypto space not much different. There is no okay. I’m interested in crypto space, where’s the two hour video that I could watch to learn about the crypto space might take as much work as is your undergrad degree. So get started. Take the next two or three years to start to understand the crypto space. That’s great advice. You know, as I told people, put $500 in a Coinbase account and start trading crypto, yeah, it’s not an investment. It’s an education fee. Just Just get your hands dirty with it a little bit. And if you touch the bug, you’ll start to figure it out all by yourself. But don’t think you’re going to figure it out on some Tuesday afternoon, when you’ve got nothing to do. It’s a lot more complicated than that, like the traditional system is, I can’t take my 87 year old mother and say, Mom, watch this two hour video. And you’ll just you’ll understand you’ll understand the financial markets like an investment banker after that. It’s a little bit more complicated than that.

Tyler Wood  1:00:59

Peter Lynch channel checking of cryptocurrency space, right?

Jim Bianco, CMT  1:01:03

Yeah, right. Right. I mean, yeah, you’re right, you once you understand this space, you can look at some of these coins and some of these protocols and say, If you can’t explain to me, you know, the old Peter Lynch plan, if you can’t explain to me in like three sentences, what you’re doing, then I have to wonder what you know, uniswap can, we’re creating a decentralized exchange where everybody could trade permissionless there, I said in one sentence, what they’re trying to do that the Peter Lynch argument still holds,

David Lundgren, CMT, CFA  1:01:27

maybe after our call, we can circle back maybe via email or whatever, you can provide us with a some some resources that you would direct our listeners to, we’ll put them in the show notes in terms of how they can get started with their education, and crypto and NF T’s and whatnot. I’m sure the community would would really appreciate that. I have one last question. If you were appointed bad governor, oh, god forbid something more worse than that, like chairman of the Fed? What would you do, given everything that you know is going on and FTS crypto inflation, levered banking system, negative interest rates, blah, blah, blah.

Jim Bianco, CMT  1:02:03

So I guess you don’t know. So I’ll clue you in on this. In May of 2019. Larry Kudlow was the National Economic chairman. And he invited me to the White House to interview for a Fed Governor job that eventually went to Chris Waller, he interviewed me and he interviewed Scott miner of Guggenheim T. And he was because he was toying around with the idea of maybe a market guy would make sense on the Federal Reserve. Now I’ve known Larry forever. And so when people say, How did you why did he wind up interviewing you? And I said, it’s simple. I’ve known him forever. And I was on his show. From the beginnings, you know, in the late 90s. on CNBC, we keep in touch and email back and forth a little bit over the many years, but they decided to go with Judy Shelton, and then they went with Chris Waller in wall, I got it. So the theoretical question is a lot more

David Lundgren, CMT, CFA  1:02:54

closer than it actually is. A lot more closely than I thought it would. But yeah, okay.

Jim Bianco, CMT  1:02:59

Is that what if you don’t now you’re gonna ask me what what the Fed should do? I think the Fed, first of all answer the question broadly, and then I’ll answer it specifically what I mean, but broadly, is fed is a consensus driven organization, everybody has to agree to do something at the Fed. And yes, behind the scenes, see, the way it works as a Fed governor is you can get on Chairman Paul’s calendar, whoever is the chairman and go in and go in his office and do all the jumping jacks you want and say, This is what we’ve got to do. And he’ll at least pretend like he’s taking you seriously. And then when the when the committee decides what they want to do. Everybody votes that way. Thank God, the Supreme Court doesn’t work that way. And maybe we should work more like the Supreme Court, then you should allow more independent thought. Cuz the thinking is there’s 12 voting members when it’s fully staffed, which it hasn’t been. But that’s somehow a seven five vote for monetary policy is considered a disaster. Why is a five four vote from the Supreme Court considered a disaster? No, it’s the law of the land. It’s the monetary policy, and then the dissenters can make their case and the majority can make its case. So I think the first thing I would do is I would I would encourage the independence of all of the rule makers from the Federal Reserve, a Fed governor is supposed to represent the people of the United States. Their boss is not Jay Powell, their boss is the Senate and the people of the United States. But yet what the governors now think is their boss is Jay Powell. And they have to do what their boss tells them to. So I think fundamentally, that’s the biggest mistake if you were to open the Fed, and you were to allow a lot more independent thought in dissent. I think it would really help the organization to start thinking more broadly, and more dynamically now.

David Lundgren, CMT, CFA  1:04:53

Decentralization, but yeah, a

Jim Bianco, CMT  1:04:55

lot of decentralization. What would you know if I if you were to appoint me today A and say, what do we have to do today? I’d say, well, first of all, we’ve got ourselves in a bad place. Because I think we’ve waited too long to taper to stop with the accommodation, we’re still accommodating. Even though we’ve got 6.8%, inflation, we are still accommodating these markets right now. We’ve waited too long. Well, now that we’ve waited too long, I would probably reiterate what I said earlier, you’ve got 40% of the public that doesn’t have savings and doesn’t own a home and sees their paycheck, buy less every month, and you got a bunch of people that own stocks that don’t like to break a sweat, and they expect you to just print money and make the index go up, I think we ought to start looking at those 40%. And we ought to start worrying more about them. Because if 2022 comes along, and the markets like the day we’re talking, you know, they’re a little wobbly down 1.4%, if they sell off? And your answer is we got to turn on the printing presses and we push the the s&p over 5000. And it’s another 15 or 20%, year and 2022. And all but inflation, unfortunately, kind of stuck at four or 5%, I’m really sorry, that the price of food and the price of groceries is going up, you think we have an inequality problem. Now, do that next year, until all the people that can afford to wait a year for the stock market to go up, you get a 20% gain in your portfolio. But these people over here that can barely fill their gas tanks have to pay more to fill their gas tanks have to pay more for the groceries on an income with no assets, you really drive a rift in this country. So you’ve put yourself in a bad place, you got to pick one or the other, I’d probably pick the 40% I think that’s actually the Fed is going to pick that’s if you put me in there today. I’d like to say if you put me in there a year ago, I would have been jumping up and down about saying we don’t need to accommodate anymore. The you know, with a pandemic is past the crisis is past. We got to stop. See, the last thing I’d say about the Fed is their instinct is right, you know, back to Greenspan in 87 when he gave that one sentence at the Fed stands willing to accommodate if financial, their instinct is right. And they do the right thing down to you know, Greenspan again and oh, one after after 911. But then they just do it for too long. Bernanke is pretty instinct was right, and oh, wait, what he did, but then they did it for 11 more years. So it’s like they get a good idea. Hey, we did something good here. And it helped. So let’s just keep doing it for another decade. And see what happens. Well, no, now you’re going way too far in the other direction is what you wind up doing? Is that’s what we did with with quantitative easing. Yeah, maybe it was a good idea in 2008, and a little 2009. But not all the way to 2010. Sorry, to 2020 that we had to do quantitative easing, which they did. And then we reacted again, with the financial crisis. So that’s how I would answer those questions both broadly. And specifically,

David Lundgren, CMT, CFA  1:07:51

I’m going to go ahead and order my Jim Bianco for fed Governor bumper sticker and get it going here. So

Jim Bianco, CMT  1:07:56

if you do that, if you do that, where is it? I have an end the Fed and the Fed monkey? You know, I’ll give you the Groucho Marx line, any any organization that wants me as a member, I don’t want to be a part of

Tyler Wood  1:08:13

this feels this feels more like Gladiator. You’re going to return to Rome and give it to the Senate. You know, take it back from the Caesar. Right, right.

Jim Bianco, CMT  1:08:19

Right. Yeah. My name will be max. Yeah. I love that movie, because they named the maximize, right, you know, we, yes, he was never meant to miss you never named them that right.

Tyler Wood  1:08:30

So being that fill the gap is awkward. On behalf of the CMT Association, the technical analysts of the world, I figured, as we’re wrapping up here, going back to your time with Joe generalists and understanding charting of the futures markets and trading in the bond markets, where do you see the biggest value? Now, in your career, when you’ve got all of these other tools in front of you? Do the charts still play a role? Do you still look at important trends or risk levels? And I guess you could answer that for traditional finance or even for the the defy space that you’re educating yourself on right now. Do you think technical analysis still has a place there as well?

Jim Bianco, CMT  1:09:06

Oh, absolutely. It’s a matter of fact, I think what’s happened with technical analysis is you don’t want I was a youngin, you know, doing this stuff. Like, I look back and I when I worked for Joe generals in the in the equity research department, at First Boston, there was maybe 70 analysts there. And the sum total of what they put out, I could replicate on my laptop by myself, you can too, you could probably replicate it on your phone. So basically, all of these tools are available to everybody, always, all the time. Within the technical analysis space. There’s the holy six, open high, low close volume and open interest, a friend of mine, call them that. And within the space, we have pretty much done everything you can do with those six indicators. But that doesn’t mean that there isn’t sentiment and flows and other types of cross current cross correlation analysis and lots of other technical tools that one can develop. And with the computer technology we have now, you know, you’re almost just limited by your ability to be creative. The whole crypto space is driven by nothing but charts, that everybody that trades in that space is only because there’s there’s an argument to be made. They’re not even sure what the fundamentals are of this space yet. So they are all Chartists. In fact, I would think that crypto is leading to a renaissance in technical analysis, because they’ve got all these people doing charting, in crypto, that is a whole new world of people that are doing charting. And you know, there are, there are a lot of really good technical analysts. And then just like in the crypto space, you know, you get very frustrated because you go, man, there’s some interesting in there some really good stuff. And then Elon Musk starts tweeting about Dogecoin got another stupid dog coin argument and stuff. And it’s like, you know, in the crypto space, I mean, in the technical analysis, space, boy, there’s some interesting stuff. But then all everybody wants to talk about is the Hindenburg because it’s got the word unemployment in it. So it must be or the death cross, because it’s a death cross. I was like, that’s like the Dogecoin of the technical. There are some really fun things where there are some really innovative stuff we’re doing. But just because I didn’t stick the word Hindenburg on it, no one cares. You don’t stuff. So there was some marketing to that I looked at the Hindenburg. I still don’t know what it is. It’s like three peaks in a domed house, I’ve probably tried to figure out what that is about 30 times. And I’m still trying to struggle with what what what it is and what it isn’t.

Tyler Wood  1:11:48

So our big idea for 2022 is to change our name to coin market transactions and see if we can just catch the bid on a roll and you know,

Jim Bianco, CMT  1:11:56

a crypto only meta technical analysis. Meta technician. Yeah, meta technicians. Yeah, the meta block Association, right, the MBA

David Lundgren, CMT, CFA  1:12:08

MBA though,

Jim Bianco, CMT  1:12:09

right? Yes, you got to just get all of the buzzwords in there

Tyler Wood  1:12:13

to 20 letter acronym just so we can capture of all

Jim Bianco, CMT  1:12:16

right, and you know what, since I started off it since I started off throwing out all the names so I’m going to throw you to art Merrill. Go back and revisit what he did Edson Gould, go back and visit what those guys did in the 40s. And thank you, David Graham. Fantastic work that is still relevant today as well to some of the old master guys that have long since been forgotten even even crazy cranks like PQ wall and stuff like that. I mean, I’ve I’ve nice I’ve studied all of these guys. I think they’ve all got some some interesting ideas. Just because it’s old, doesn’t mean it’s it’s irrelevant. In fact, now you can put it on a computer and do it maths. In a couple hours. I brought some other old names for you as well.

Tyler Wood  1:13:00

creative genius, they had to have to do all that computation by hand it Do they were for sure exam. As always having you at CMT Association events doing this kind of interview virtually it’s it’s always an education and I really appreciate you taking time with us. Take your time with the community. Is there any place that you would want to direct folks if they want to get in touch with you or Bianco research? Where should we be sending our listeners instead

Jim Bianco, CMT  1:13:25

of Twitter at Bianco research is a good place to start. Bianco research comm is my website or check me out on LinkedIn, Jim Bianco and that’s probably the easiest places to try and get a handle on what we do and what we’re all about. But thanks, guys, I really enjoyed it.

David Lundgren, CMT, CFA  1:13:41

This was fantastic.

Tyler, I understand the CMT registration is open for the next round of exams. Tell us a little bit about it.

Tyler Wood  1:13:52

Absolutely. Dave, we just wanted to congratulate all of the candidates who completed their exams in December. And I wanted to mention to all the listeners, if you don’t pass on your first attempt, or even second attempt on these exams, you’re in good company. These are very rigorous and lengthy exams. And for most candidates, statistically, you’ll take at least one level over again. So the period for registration for the June exams, the time to really buckle down, get back to your studies, if you are retaking or progressing to the next level is now early registration ends February 14, and the exams themselves will be administered in June the second through the 12th of 2022. Both the June and December exam administrations will use the new 2022 edition of the CMT curriculum that’s published by John Wiley and Sons in partnership with the CMT. So we want to encourage all of you who are considering the program or for those of you who are progressing through the levels to get started with your studies. Now, there’s no time like the present to invest in yourself. Make that New Year’s resolution, and we’ll be with you every step of the way as you pursue your CMT journey. Thanks so much, David. Thank you Tyler. fill the gap is brought to you with support from optima. In addition to candidates study of the official CMT curriculum, Optima provides a full video course on all of the material that candidates need to know for each level of the CMT exams. Each course is broken up into modules, ranging from 15 to 45 minutes, depending on the complexity and length of the topics being covered. Learn

Originally Posted January 7, 2022 – Fill the Gap Episode Thirteen, with Special Guest Jim Bianco, CMT

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