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Bitcoin Bottom Line

Jan 26, 2022

Hosts Steven McClurg and C.J. Wilson meet for another episode of the Bitcoin Bottom Line to discuss bonds and crypto. Wilson opens by asking McClurg what changes he has seen in the bond market.

McClurg states that when it comes to bond yields, the FED tightens and makes it more expensive to borrow. More prominent institutional investors must have a certain amount of their assets in fixed income for safety; therefore, large institutions will push the yield down for companies issuing debt that should go out of business. Sears and Toys R Us survived longer than they should have, while Nordstrom is struggling to keep their doors open and cannot get credit to buy inventory. As the FED begins to tighten, they increase the size of their balance sheet by continuing to upper growth of purchasing. He believes that the market is finally starting to price in tapering but has failed to price in interest rate heights. This year, the FED has mentioned three types of interest rate heights, meaning they will increase short-term rates.

McClurg predicts that with a 10-year going to 188, which was previously down around 1%, it will cause the refinance rates for borderline companies not to afford their Debt Service; meaning they cannot afford the interest payment on their new debt, causing them to refinance continually.

McClurg explains that the U.S. government’s treasury department is selling and buying the bonds. They are issuing debt to pay for government spending, but nobody else is buying it so the FED is needing to step in and buy it to keep rates down. If the FED stops buying, that means there is an open market for treasuries and for debt and market pressure pushes yields upward causing debt on spending programs to be even higher.

Wilson asks McClurg to explain the triangle trade between spending, lending, and the debt service.

When it comes to Banks and borrowing there's a FEDs fund window. This window is the rate at which the FED will lend overnight to the bank. The bank is getting cheap money that they are supposed to lend out to their customers for items like cars and mortgages. This has led to a rise in housing prices. The bank's price is spread based on their overnight lending window which is set up by the FED. McClurg believes that the low mortgage prices will rise back up to three and three quarters all the way up to four percent, which can be devastating to people.

As interest rates go lower insurance companies charge higher premiums to new customers to offset the lack of yield that they are getting. As interest rates lower, premiums rise.

Willson questions when Bitcoin will be allowable in pentiant plans or charity funds. McClurg talks about the risks that individuals take while investing in Bitcoin and other areas. McClurg has a long term mindset when it comes to investing that not everyone has. Willson states the value of looking five to ten years ahead while investing.

Willson discussed with McClurg if Barry Bonds is a hall of famer.

Wilson says that America leads many countries when it comes to bonds and discusses debasing money around the world. McClurg states that many countries are co-mingling with America’s manufacturing. Every country is forced to stay up with the dollar whether they are debasing or not.

The biggest opportunity for China is to have a strong currency that remains strong. There are different mentailites about Bitcoin depending on location. The independence that comes with Bitcoin challenges authoritarian governments, which is why we need it.

McClurg believes that people are generally more optimistic when markets are going higher. Wilson says that the best move is to assess all the different things that are in your portfolio and ask if something were to move ten to twenty percent underneath you, will it affect you in such a way that you have to make a move before that happens. People have to decide whether they are going to trade into or out of something.

McClurg and Wilson end the episode saying the bond market has spoken, patience is key, and if you are in the space you should build.