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This is how we think uh that that innovation is going to play out in uh the equity markets, the market cap. Uh on on the right hand side there you can see what happened to uh railroad stocks as a percent of um as a percent of the total global equity market cap 65%. uh you can see where we are now and we think this revolution is is even bigger as I mentioned and really just starting in its first few years at least and you you can see where we think innovation is going to go as a percent of global market cap.
Hey guys, welcome to Everyday Finance. Although this notion sounds comforting in severe bare markets, a closer examination reveals that Bitcoin and gold act extremely differently. People frequently discuss them as if they are comparable, reliable hedges that serve the same purpose during crisis. Treating gold and Bitcoin as interchangeable oversimplifies the situation because gold is more of a stable, seasoned asset with roots in traditional banking whereas Bitcoin behaves like a daring extremely erratic disruptor.
Kathy Wood refutes the widely held belief that Bitcoin is just digital gold by citing statistics that indicate their correlation has been extremely low since 2019, indicating that they don't move in tandem. She also draws attention to a significant trend when investors seek protection. Gold typically gains strength first and only then when confidence starts to rise again does money start to move into Bitcoin.
This is particularly pertinent at the moment because gold has been clearly strengthening while cryptocurrency. Markets are still poor and sentiment is still negative. Given that markets frequently telegraph changes ahead of time, this movement might not be random. Rather, the gain in gold could be the beginning of a potential shift back into Bitcoin.
The crucial question at hand is whether the present bare market has completely altered the typical dynamics or if this well-known pattern will recur. Uh we've learned something very important and I'll spend more time on this in uh next week. Um, but what surprised me and this is up to date up to date is with the fall off in gold recently that the metals to gold ratio has not picked up.
That is really surprising to us. Um, we've learned in recent weeks uh why the treasury yield uh has been levitated. this very tight correlation between the metals to gold ratio and the Treasury yield broke down starting with the Fed tightening and you know it's still gaping wide. Um we're learning and believing more and more that this is the yen carry trade unwind.
What are they doing? Selling treasuries and buying Japanese bonds. Why? because Japanese interest rates have gone up and so the the uh US Treasury bill is less of a uh less less interesting. It's still above the short-term rates in Japan, but less so much less so actually and could continue in that direction if uh the current uh prime minister I is uh uh she just called a snap election.
and I think it's for this weekend. And um if she gets a a large majority, larger majority, she will amp fiscal spending even higher and that will probably take their interest rates higher. Uh nonetheless, the purple side is puzzling. I think it has to do with uh deflation uh coming out of China uh and impacting the global ecosystem.
Sure, we've seen some metals go up, but this ratio going down uh even further as gold goes down is most surprising. We'll just give you a sense of how crazy it got a couple of weeks ago. Gold going parabolic uh as a percent of M2 and many people pushed back on our use of US M2. You can't get global M2 back into the 20s and the US still is the reserve currency.
I don't think the message would be much different with a global M2. Uh so you can see it hit an all-time high, higher than the Great Depression uh at uh 1.6 versus 1.76 versus uh 1.71 in the Great uh Great Depression in the 20s. Today it's at 1.54. So, we do think the bloom is off the rose, but it's still at very extended levels.
Uh, and we wouldn't be surprised if gold continued to come down uh to Bitcoin's benefit. We shall see. And also, I think uh Bitcoin has been hurt uh by all of the funds flowing into AI. that became the interesting uh investment opportunity and that one is has become a little shaky. So I think you know these three gold, AI and Bitcoin are interrelated in that way.
Gold is a hedge against inflation. Look what trueflation is telling us. Uh it's telling us inflation is resolving to the downside. It is not moving up. Uh and there are a few things going on. Uh gasoline prices until very recently, maybe housing prices, and that's going to continue as rents come down.
Uh and even potato chips, Pepsi, Fredo, Doritos, cutting prices 15% and hims and hers. uh uh although the FTC or no it's yes I think the FTC uh is going after them uh cutting the price of GLP1s uh to 40 I think at $49 um whereas uh I think Novon Nordisk has cut its entry price or introductory price to $149 and then it's going to move them up to $199.
These this is deflation. This is deflation. Uh and um we we're going to see a lot more of it. We believe uh unemployment rate uh and of course all of this is uh is trying to figure out okay what's the Fed going to say next. Uh I was uh very surprised that uh Federal U Federal Reserve Governor Bostik said employment is very strong and he's looking at the overall unemployment rate and when you have 1.3 million baby boomers leaving per year um you know the overall unemployment rate is probably going to stay fairly low And we've also got um uh immigrants who are uh exiting and we don't have as much of an inflow of immigrants.
So the unemployment rate is going to stay low overall. Uh but you can see what's happening to the 16 to 24 year olds. Uh their unemployment rate has gone up from roughly 7% to more than 10%. The last time I presented this it was 12.2% 2% but uh I think there were downward revisions and we'll we'll get to the bottom of that but still 10% and the duration of employment almost a half a year.
Uh so I do think that the the concern about employment will build as more and more fed governors understand entrylevel jobs are disappearing and so a very important demographic uh is not getting jobs. Uh we do think that's going to change um as a lot of these young people go out there and go for it in terms of starting their own businesses because the barrier to innovation, the barrier to uh starting new businesses is dropping precipitously with uh AI.
Many observers are perplexed by the contrast between Bitcoin steep discount and gold's apparent early insight into market direction. But since Bitcoin and gold have never really moved in tandem, this disparity itself might have significance. Bitcoin typically follows later with greater momentum once confidence improves.
While gold typically moves first, nearly testing market conditions, this trend starts to reflect circumstances that only become apparent after a market reversal has already begun. especially when combined with the current climate of intense pessimism, waning confidence, and stealthy accumulation by seasoned investors, dramatic headlines about the demise of cryptocurrency, or far-off dangers like quantum computing, on the other hand, are diverting attention from the actual situation.
Long-term investors seem to be deliberately moving their holdings rather than panicking, indicating that this stage is more about repositioning for the future than completely giving up on Bitcoin. Uh once again we're very optimistic about GDP growth. We think we're going into a super a productivity driven boom.
And just reminder the step uh function change in GDP growth when we had the last big technology revolution which was uh the early 1900s that growth rate uh stepped up from 0.6 6 to 3% fivefold and we're saying 7 to 8% by the end of the decade. Uh so I think that's conservative given all of the well given the technology revolution underway.
And finally this is how we think uh that that innovation is going to play out in uh the equity markets the market cap. Uh on on the right hand side there you can see what happened to uh railroad stocks as a percent of um as a percent of the total global equity market cap 65%. uh you can see where we are now and we think this revolution is is even bigger as I mentioned and really just starting in its first few years at least and you you can see where we think innovation is going to go as a percent of global market cap uh again we've just begun uh we don't think AI hype is where we are at all we do not think we're in the equivalent of the tech intell telecom bubble.
We're very happy that many people are worried about it. In the tech and telecom bubble, nobody was worried about anything. In fact, I'll remember clearly uh Jeff Bezos at Amazon and I think this was in 1999. um he with some glee uh announced on on Amazon's earnings call that Amazon was going to lose so much more money in the next year because uh Amazon Jeff had decided this opportunity was so much bigger than anyone understood and by the way he was right um it was going to take much longer uh that he had to up the capital spending budget it.
Uh, and what happened that day? The stock just soared. Soared. Uh, and one of, um, our panelists on our brainstorm this week reminded me that um that a journalist asked Jeff, "Well, what is how do you spell profit in this new world? What does that mean?" and he spelled it P R O P H T. Um, so that's how Cavalier uh CEOs of innovation-based companies were back then, those driving the innovation and then of course they paid a heavy price for that uh over the next three to four years.
uh the fear in the market today when I see uh Microsoft going down 12% because it's doubling its capital spending over the next year or Amazon going down 8 n 10% because it's doubling its capital spending over the next um completely different response completely different um investor mindset uh I think there's real fear out there that was one of the reasons gold went up, uh, fear of everything.
And I just think, and this is why I wanted to do the call today, I just think we're in a completely different era. No resemblance to the late 90s. I was there. Uh, and, uh, I think we're in for very exciting times. And don't underestimate uh, the growth rates that these new technologies are going to spur.
uh we think they're going to be super exponential growth rates and Palanteer is a very good example of that. No one expects the 142% uh US commercial revenue growth to be sustained. We don't either. But you know if it were able to sustain you know 70 80% which is higher than what we have in our model um that stock would be a screaming buy today.
Uh so we are assessing all of this as everyone else is uh in the financial world. It's a really exciting time. It's a confusing time. There's going to be a lot of chaos. You saw a lot of auto manufacturers uh basically shutting down their EV efforts. They couldn't scale them uh quickly enough to capture the cost declines.
They're giving up. And one of the most interesting uh ideas I heard on our brainstorm today uh was the idea that well who's going to roll the auto sector up? Normally you think it'd be an auto company, one of the big ones. Uh someone suggested no maybe it's Google. They need cars. Uh so with that uh I know we have a we have a relief rally today in uh Friday.
Um and no one knows what the future really holds. Uh but um I just wanted to be in front of everybody because I know how harrowing it must have felt over the last week. Uh and just wanted to reinforce our point of view. uh because we think a lot of the data that has come out recently does just that.
Although the larger future still seems bright with the debut of ETFs, rising institutional interest and more regulatory clarity, the decline of Bitcoin to $60,000 rocked investor confidence at a delicate moment. The market is not failing but rather changing as seen by Bitcoin's extreme volatility which reminded everyone that the cryptocurrency still doesn't behave like a fully developed asset despite these encouraging factors.
According to Anthony Scaramucci, the drop is a normal correction for an asset that is still in the early stages of being adopted globally and that falls somewhere between being a specialized innovation and a wellestablished macro asset, which inherently causes instability. Younger investors are the main drivers of Bitcoin ownership, while older, more conventional capital still prefers gold and silver.
This helps to explain why despite significant long-term conviction in Bitcoin, gold surged first while Bitcoin trailed. Even while ETFs offer increasing support, some institutions remain wary due to ongoing regulatory uncertainty, which also contributes to volatility. This supports Kathy Wood's assertion that Bitcoin was never intended to be like gold and that fact its low correlation is a feature that makes it special.
In the past, periods of extreme panic like the current one are frequently associated with significant turning points rather than ultimate peaks. With gold rising first and Bitcoin following later with bigger gains as an emergent asset at the intersection of technology, finance, and a new financial era, volatility and skepticism are inevitable hurdles in the price discovery process, which may seem chaotic at first.
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