The Podcast of the Lotus Eaters - PREVIEW： Brokenomics

00:00:00.000 Hello and welcome to Brokernomics. Now in this episode I wanted to respond to a lot of you at

00:00:06.280 once because some of you have been panicking. I know this because I've been getting lots of

00:00:11.500 you know messages and DMs and all that sort of thing by people saying oh the markets are down

00:00:16.860 should I panic should I sell everything and I must behave because I started off by responding

00:00:23.620 to all these people by saying yes all is lost panic now and I think actually some of them took

00:00:28.740 me seriously on that so I then had to follow up and say no no no it's fine don't don't don't worry

00:00:33.480 you know this is this is this is quite normal what's going on at the moment but it's a good

00:00:38.100 opportunity to talk about market dips and pullbacks I mean actually it's all part of the game you know

00:00:45.400 you get you get uptrends you get your pullbacks you get your crashes you get your recoveries

00:00:49.100 you know even a even a perfectly boring market like the S&P 500 it is actually quite normal

00:00:57.320 for about three times a year for there to be a five percent pullback at least once a year these

00:01:02.840 are these are historic averages at least once a year you'll get a 10 percent correction and you'll

00:01:07.360 get a 20 percent bear market every three to four years and that and that's in something nice and

00:01:11.820 simple and boring like the the S&P 500. You go to something with a bit more volatility

00:01:17.900 something like Bitcoin which is obviously much further up there although not quite as far as you know

00:01:23.940 the the assortment of altcoins and all the rest of it um although on Bitcoin you get maybe seven

00:01:30.620 six seven um dips of about 30 percent in a bull market so even in a bull market I mean yes in a

00:01:39.400 bear market it's it's a bit it's a bit harsh but even in a bull market you're going to get seven

00:01:44.140 30 percent dips um you know was it two 2017 in fact I'll look it up in a second 2017 the market dropped

00:01:53.620 35 to 40 percent several times in fact before then going on to run up at 24x so look don't panic is

00:02:04.840 basically what I'm here here to say I'm not panicking I haven't sold anything um I'm I'm adding a little

00:02:10.720 bit here and there although actually uh I've maxed out my my tax-free accounts um and so I've I've had

00:02:18.200 to start putting money in the children's name but but the point is I'm buying the dip um I am

00:02:23.800 absolutely not panicking and running away so so let's get into understanding dips understanding uh

00:02:30.920 why they happen how to measure them how to think about it and um well yeah give you a better

00:02:37.300 understanding of dips as a whole uh the one thing I would say is if you have been panicking during

00:02:44.000 these these um uh you know these last couple of weeks when the market's been down a bit

00:02:48.100 uh it probably tells me that your position size is too big so if you're not going to watch the whole

00:02:55.740 video if you're one of those you know YouTube chaps who just watches the first 30 minutes on the

00:02:59.720 YouTube the the if I had to boil it down to one salient lesson it is get your position size right

00:03:05.140 which basically don't put too much in because clearly uh if you're panicking you are psychologically

00:03:11.340 um ill-suited to having a position that big uh now in my case I I my my um my portfolio over these

00:03:21.660 past few weeks has been down by a big number you know a big I won't tell you what the number is but

00:03:28.140 but it's a big I mean it's it's a lot more than my house is worth the portfolio is down and I just

00:03:34.340 I just don't care I just really really really don't care I've barely kind of noticed it I've

00:03:41.340 only noticed it because so many people have messaged me I mean I've got a simple trick which

00:03:45.600 is I just don't check the portfolio when I know it's down so that way I don't really need to worry

00:03:50.320 about it but you have to understand that if you are going to invest in high volatility assets well

00:03:57.300 that means you get both upside and downside that I mean that's literally what volatility means you're

00:04:01.380 going to get you're going to get sharp downside but also sharp upside and as long as overall the

00:04:06.680 volatility is up and to the right you're good but obviously you're not going to get the best performing

00:04:12.620 asset in the world with no risk it doesn't it doesn't work or no volatility it simply doesn't

00:04:19.760 work like that so um yeah so if if you are if you have been panicking and and you're panicking at

00:04:25.880 the moment I mean mind you these these go out on a delay so so maybe in the in the week between me

00:04:31.720 filming this and this going up on the on the youtube and the website maybe the markets are

00:04:36.300 absolutely romping again but if they're not um just you've invested too much you've invested more than

00:04:42.880 you are psychologically um able to withstand and it goes back to the episode I did on that little

00:04:52.560 series I did on investing I did a couple of episodes on investing um a while back maybe I'll

00:04:57.380 try and link that in the reading notes um you know where I talked about you know what what what is it

00:05:02.600 that you need the money for is it if if this is your deposit for your house you shouldn't be in high

00:05:08.940 volatility assets if it's saving up for a life-saving operation uh or or next terms school fees don't be

00:05:17.920 investing in high volatility assets if you're if you're 28 and you're saving up for when you turn

00:05:22.760 65 go go volatility you know make sure you make sure you have an income uh make sure you can service

00:05:29.640 your day-to-day but if you've got time scale on your investments um then the next limiting factor

00:05:36.540 becomes your personal psychology how much can you tolerate without freaking out and this is why I've

00:05:41.460 always said to people you know don't invest lump sums just drip feed into it a dollar cost average

00:05:47.040 you know take um you know whatever for you is a is a fairly negligible sum you know let's say

00:05:53.280 in in a given month you'll blow 50 quid on um I don't know a few extra beers or Chinese or something

00:06:03.060 and you know that that is a negligible sum for you well put that in then and just drip feed it in every

00:06:09.500 month and that way you're not tied to a particular price and actually when the market does dip you're

00:06:13.440 very happy about it because you're now buying at a lower price and therefore you get more

00:06:17.120 um is the way to think about it anyway without further ado um let's get into the details in this

00:06:23.340 in fact let's start off with I called this up on my on my screen so I'm going to read it off to you

00:06:29.180 I'm just going to remind you of the historical picture here so I've called up uh listen I'm hoping

00:06:35.840 I'm not getting out of frame on the camera too much but right I've called up um bitcoin price

00:06:41.240 measured in usd and I went back and I basically shortened it to just the what have I done I've

00:06:46.760 done 2016 to 2018 period um well 2016 and 2017 actually is what I've done which was bull market

00:06:55.640 times so this this overall was a very good two-year period and I'm just going to remind you of what it

00:07:03.760 looked like so um jan 2016 there was a 35 percent pullback uh march um there was a 27 percent pullback

00:07:15.400 june going into july there was a 38 percent pullback and september there was a 40 percent pullback

00:07:26.800 and then in november uh there was a 38 percent pullback right so I've told you about one two

00:07:34.400 three four five five considerable very large pullbacks in the market and yet in that period

00:07:42.760 uh bitcoin went from a little over a thousand to about 17 000 right so it was a brilliant two-year

00:07:53.440 period five massive dips that freaked a lot of people out and if you've been investing in bitcoin

00:08:00.800 for that long you probably know this and therefore you just you're just not bothered at this time

00:08:05.760 but obviously there's a lot of you who are first timers or or newer investors or or whatever it is that

00:08:11.700 you and you just don't have this perspective of just how hard this asset will try and shake you out

00:08:20.260 because basically I don't want to be rude but um you can't rock up at the 11th hour with this stuff

00:08:27.560 into the best performing asset in the world with your paper hands and expect to get rich um without

00:08:33.520 it trying to throw you off basically you you need to you need to ride the bucking bronco machine and

00:08:38.620 prove that you deserve the money and if you could be shaken out with your little paper hands well you

00:08:46.740 don't you know you've got a diamond hand this stuff right what else have I got um I think like yeah

00:08:52.120 here we go so the other chart that I pulled up was uh bitcoin usd um 2022 to to basically now

00:09:00.080 so this is a period in which um you know bitcoin went from 16 000 if you remember long-term brokonomics

00:09:07.900 viewers will know that I went mental when bitcoin was at 16 000 I did loads of episodes on it and I tried

00:09:14.080 to get everybody to to get into it uh because I could just see that well for reasons I've explained

00:09:19.720 many times that this was a an absolute gift so over the period in which bitcoin went from 16 000 to

00:09:26.220 basically today so a very strong return because of course we went up to 110 something can't remember

00:09:33.520 what it was 110 something yeah we dipped down to 80 now but from 16 000 okay so it was it was a very

00:09:41.600 solid period the last 16 months is that something like that so let's let's take a look at the dips

00:09:47.060 over the last 16 months okay so um no it's very slightly longer than that okay um oh I've compressed

00:09:55.200 it haven't I okay fine so in um march it was um a 22 percent pullback uh june it was a 20 percent pullback

00:10:05.320 september it was a 21 percent pullback um the following uh what is that january maybe so on to january

00:10:16.340 um 2024 that was a 21 percent pullback uh by april that was a 23 percent pullback

00:10:26.120 in uh september that was a 30 percent pullback and the pullback that we're in at the moment

00:10:32.920 is uh 27.8 percent pullback so yes you know we are down you know close to 30 percent but um

00:10:45.440 you know when you when you view it in the context of all of those different occasions when you know

00:10:50.920 this is this has come down this much I just I just don't care I just you know I know I I nothing

00:10:58.880 in my fundamental analysis has changed uh well actually let's still man the other side I've

00:11:05.460 always said the biggest threat to something like bitcoin and this this this transferred to digital

00:11:10.340 assets uh would be if the if the us suddenly became fiscally responsible and stopped issuing more debt

00:11:20.000 and inflating the currency now to be fair that is starting to happen a little bit right with doge

00:11:26.300 little bit and big fan of what musk is doing big fan of firing government employees I love watching

00:11:36.700 the the videos on on tiktok of government employees crying and saying how unfair it is I mean it is

00:11:43.280 it's wonderful to watch um but however good that work is the u.s government is still going to be

00:11:52.260 issuing a vast amount of debt and inflating the currency for quite a while you know maybe if doge

00:11:58.260 does absolutely tremendous work over the course of the next couple of years maybe you know 10 years

00:12:05.080 out the u.s will not be offering um so much debt but but but for now you know it's not got that

00:12:12.300 fiscally responsible that quickly so so that's the only argument I'd make on the other side right

00:12:17.820 um the main causes of of markets dips let's look at that biggest factor is going to be the liquidity

00:12:24.580 is tightening I mean as I've told you many times it is it is all about liquidity so when you know

00:12:30.420 money gets more expensive um you know higher rates quantitative tightening uh risk assets fall

00:12:36.180 basically risk assets like cheap money risk assets like money just being you know spaffed off

00:12:42.060 um you know printer go burr all that all that kind of stuff um central banks and fiscal policy drive

00:12:49.780 liquidity I mean there's other well actually no there's the whole there's the whole underlying

00:12:53.140 business cycle uh which we'll come back to as well but a a big player is going to be central banks

00:12:58.620 and um fiscal policy and and what we've seen at the really the latter end of last year is that

00:13:06.500 there was a big m2 money um contraction so less money flowing into markets essentially uh the big

00:13:14.660 four banks so the fed uh the ecb the bank of japan and the pboc uh the people people's bank of china

00:13:22.040 um all of them were contracting their balance sheets at the end of last year

00:13:26.200 and basically there is a uh there's about a 10-week lag between bitcoin and also between

00:13:36.200 liquidity and something like bitcoin i'm using bitcoin as a i'll mainly talk about bitcoin in

00:13:41.960 this episode but it applies largely to all the risk asset the the high um the long duration um high

00:13:49.880 alpha risk assets that i like so it's a high performing tech and other digital assets but i'm

00:13:54.840 just i'm just gonna say bitcoin because it you know catches it all there is about a 10-week lag period

00:14:01.200 i'll go in i'll go into why that is a bit more in a minute um second factor is investor psychology

00:14:07.420 the whole fear and greed cycles definitely want to be coming back into that but you know i think

00:14:15.200 everybody intuitively knows on some level that you're supposed to buy when things are cheap and

00:14:20.380 sell when they're expensive but actually most retail investors do the do the complete opposite of

00:14:25.640 that um and and therefore you tend to get these rather ethereal spikes and pushes either way so so

00:14:31.780 let me put it like this when the market is rising people tend to get a bit carried away the retail

00:14:35.940 investor gets a bit carried away and um yolo's into it but there's but there's no fundamentals behind

00:14:43.360 that it's just sentiment so the price spikes because of course the the price is assuming that the last

00:14:50.340 trade that was made um reprices the entire asset so we only need a small amount of of froth basically

00:15:00.720 to for the markets to shoot up quite significantly even though that was a bit ethereal it's just it's

00:15:08.060 just market sentiments on that uh likewise with dips you can get people sort of panicking and selling

00:15:13.720 off pushing pushing prices down and again because it's because the whole price has worked out on the

00:15:18.040 on the last marginal share or or coin traded it just reprices the entire stack in theory well for

00:15:25.460 the prices that are shown on the on the apps and they're you know reported in the news and stuff

00:15:30.020 um it's worth bearing in mind keeping in mind the um relative strength indicators rsi is it's commonly

00:15:36.960 known this this is something that you will see thrown up on twitter and maybe mentioned in the news as

00:15:41.660 well uh basically whenever it is a measure between one and a hundred when it's above um 70 it's basically

00:15:49.940 indicating that the market is is is very overbought and when it's below 30 that it's very oversold

00:15:56.480 uh bitcoin at the moment is is below 30 i can't remember what it is now i should have looked it up but

00:16:02.680 um it's very oversold um some of the assets are even more oversold than that so that's the next factor

00:16:08.900 um three uh macro events short-term panic selling so so look if there are macro events that trigger a

00:16:19.240 panic these can be considerable factors great examples here are going to be and actually none

00:16:25.980 of these apply in this case there's different factors going on but completely slate you know let

00:16:30.440 this cover it uh the covid crash so that was covid crash was early 2020 when we kind of really

00:16:38.200 realized that oh my goodness um this covid thing is is going to change the world um or at least

00:16:45.780 governments were going to make sure that it changed the world bitcoin dropped 50 percent in a day

00:16:50.360 right and then it was up 600 percent afterwards so there is that um the china mining ban i'm thinking of

00:17:00.660 the 2021 uh china mining ban you have to distinguish because china has banned bitcoin so many times

00:17:08.320 that uh you tend to lose count but every couple of years you get a news story that china has banned

00:17:13.320 bitcoin again and everyone goes oh and panics right so so the china bitcoin ban um it was down 53 percent

00:17:22.360 right and then it hit a new all-time high a month later right that was really um you know

00:17:29.880 uh beginning of the of the proper proper bear cycle that was ftx collapsed in 2022 uh bitcoin was down

00:17:38.840 75 percent um but subsequent to that has gone on to rise 600 percent so again um you know high

00:17:50.480 volatility assets big moves down as well as up uh and anyone who's been in for a while just doesn't

00:17:57.000 just just just knows that this volatility is the price you pay for high return essentially

00:18:03.800 uh we should also mention the dollar the dollar is falling um rather than the dollar i would prefer to

00:18:14.240 say dxy dxy is a is a dollar index against a basket of major currencies so if i if i say dxy just think

00:18:24.480 dollar but it's a bit more it's a bit more accurate and you can measure it against something if you if

00:18:29.220 you just say the dollar's falling we're falling against what but if you say dxy well it tells you

00:18:34.040 because there's a whole basket of currencies that they map it against so if if dxy falls um that's

00:18:40.320 actually quite positive for bitcoin right why is it positive for bitcoin because a weaker dollar

00:18:47.060 basically reduces global funding stress now what i mean by that is uh the world has a lot of dollar

00:18:55.980 denominated debt so if the dollar is high you are going to be spending more of your resources servicing

00:19:02.760 your debt there's going to be less liquidity available and you know the effect i'm talking about

00:19:08.880 here might might be very small it might be one percent of global liquidity but you have to

00:19:12.360 remember that one percent of global liquidity is a vast absolute amount of money so even if you make

00:19:19.520 if you ease the um funding stress of the world through a weaker dollar by only a little bit the absolute

00:19:29.040 amount of liquidity available is just well it's a big number don't know what it is but take it from

00:19:35.940 me as a big number so anyway more liquidity um and that flows into risk assets um why is there a

00:19:42.900 10 week delay i mentioned i come back to that well because uh where does it go well first of all it goes

00:19:48.060 into if you've got a bit more liquidity you pay off your debts um you build up your your cash reserves

00:19:53.680 um then you buy you know your nice sensible safe stuff and then you've got a bit left and it's like

00:19:58.780 well i've got a bit of speculative money here um and i've paid my debts i've built up my cash

00:20:05.500 position i bought my sensible stuff and i've still got money left what do i want to achieve with this

00:20:11.060 you know what i want um i want to get a bit more speculative and exciting and that's when you then

00:20:16.380 flow into higher risk assets after that process has washed through thus the 10 week lag between changes

00:20:24.780 and liquidity and high performing assets responding such as such as bitcoin so um look examples here

00:20:33.100 dxy peaked in about quarter four of 2022 and as a dollar was up at the end of 2022 bitcoin was down

00:20:44.780 bottomed it went slightly below 16 000 actually but that was a bit where i got excited because i could see

00:20:50.860 that liquidity had bottomed um and therefore bitcoin had been pushed down so it was like 15 15 5 or

00:21:00.380 something like that was that the bitcoin got down to um and then dxy fell all through 2023 and bitcoin

00:21:10.780 rallied at 300 during just 2023 so the connection between the dollar the funding stress that it places

00:21:19.420 on the rest of the world and therefore risk assets such as bitcoin there is a there is a connection

00:21:26.300 there and i think that it took in october sort of november it took about two months for there to be

00:21:35.020 an impact so um of course that was the that was the sort of the more turn to bearish so it looks like

00:21:43.260 bitcoin does respond a little bit quicker on the downside than it does on the upside um i suppose

00:21:50.780 potentially because people recognize that the need to sort of pull the funding soon so just be aware

00:21:54.940 yeah there is there is it lags maybe 10 weeks on the upside but it's a bit tighter on on the downside

00:22:00.940 right now let's get into um what's going on in uh february stroke march 2025 what's happening in this

00:22:10.220 particular case now we've outlined the the general theory behind market dips uh in a otherwise

00:22:17.660 positive market well government liquidity has been flat in february so there hasn't been any sort of

00:22:25.260 fresh stimulus um the ism is down uh oh god ism we have covered that in a previous episode right

00:22:34.860 basically it's it's international purchasing managers index um you may never have met a

00:22:43.180 purchasing manager nor have i but apparently there are lots of them and they work in businesses and

00:22:49.340 their job is to purchase stuff or to manage the purchasing of stuff and when they're purchasing a

00:22:55.260 lot of stuff that indicates that the economy is going up and when they're not purchasing much stuff

00:22:59.420 it indicates that the economy is going down somebody has cleverly put this into an index

00:23:05.180 and basically when it's above 50 um all is good economy is expanding and when it is uh below 50 uh

00:23:11.660 economy is is is is contracting based on the fact that firms are basically purchasing or not so ism

00:23:19.820 did collapse over that period um and the service sector which drives a lot of the us economy has been in

00:23:26.300 the decline um china there's a lot of uncertainty there so the uh there was there's been this long

00:23:33.500 running expectation of stimulus um which is playing against the threat of tariffs which trump has been

00:23:42.220 talking about the effect of all of this has been to push dollar down and to suppress liquidity

00:23:49.020 thus when that was when we were sort of in the in the peak of this about 10 weeks ago the follow

00:23:57.340 through gets to gets to now um and markets have been down so liquidity how important is that again i've

00:24:07.500 covered this on many every episode uh it is crucial if you chart out global m2

00:24:18.220 and then compare it to um asset prices you need to shift the high risk assets across by about 10 weeks

00:24:30.620 and they largely line up so why am i still optimistic why do i still think that we're in a bear market

00:24:38.700 i'll tell you why if you map the global m2 from uh that period that we talked about on that bitcoin

00:24:47.340 chart earlier the 2016 over 2017 so about 2018 period uh basically you've got a you've got a chart that

00:24:54.860 goes sort of down like that and then up as the liquidity cycle comes why is that liquidity cycle

00:24:59.900 well as we talked about many times it's because basically governments can't afford to they can't

00:25:03.980 afford themselves and so they keep issuing lots and lots of debt and they need to refinance that debt

00:25:09.180 that is that is certainly something we're going to be coming onto in a moment if you map

00:25:13.260 that 16 17 18 period to the current uh period basically the liquidity cycle is is matching so

00:25:25.260 you take the liquidity m2 from four years ago you shift the the graph four years to the right and

00:25:32.700 compare it to where we are now and it's it's the same bloody chart you know we the the cycle is the

00:25:39.580 cycle it is repeating the overall conditions are the same which is governments have an awful lot of debt

00:25:46.380 that needs to be rolled over so that the big picture here has not changed the liquidity cycle

00:25:54.540 is intact and so far it's playing out exactly as it did last time the us government has something like

00:26:03.740 seven trillion of debt that it needs to roll over in the next six months if you go out to a year

00:26:12.220 it's 10 something 10 trillion of debt that needs to be rolled over that debt is not getting rolled over

00:26:19.660 that five percent you know it's not it's not getting rolled over in local liquidity conditions

00:26:25.260 liquidity is going to get driven up one way or another um in fact the business cycle is going to

00:26:30.620 do a lot of the work for them anyway but you know there's other uh liquidity enhancing measures

00:26:35.740 measures that they will take uh to roll over the debt none of that has changed if you would like

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The Podcast of the Lotus Eaters - March 11, 2025

PREVIEW： Brokenomics ｜ Market Dips

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