Michael Novogratz talks capital flows in a crisis in his latest interview. Michael Novogratz, a long-standing crypto bull and founder of Galaxy Digital Holdings gives his latest view on the financial markets and cryptocurrencies turbulence during these unprecedented times. COVID-19 has suspended liberal democracies, western society is in shutdown and so too is the global economy.
“We have never really had an economy going into a shutdown on a global scale. It looks like a rolling blackout” said the founder of Galaxy Digital Holding.
“We have never really had an economy going into a shutdown on a global scale. It looks like a rolling blackout”
Michael Novogratz talks capital flows in a crisis where global risk-off and massive deleveraging becomes the main theme
“Every once in a while and it has happened three or four times in my life in my 25 to 30-year trading career you get a category seven hurricane where it becomes just global risk-off.
“The system goes to a massive deleveraging and that is what you are seeing right now” he said.
So it is in the context of a global risk-off and a perplexing drop in the price of risk off haven assets that Michael Novogratz talks capital flows.
Referring to the recent sell-off in haven assets, precious metals, Treasuries and what some claim to be digital gold, ardent Bitcoin bull Michael Novogratz said that “things don’t intuitively make sense”.
But Michael Novogratz explains that following a stock market crash there is a period of massive deleveraging due to margin calls. Traders investors are selling everything to meet margin calls and dashing to cash, particularly USD.
“People have long positions they are selling to get cash and it becomes a self-fulfilling prophecy” said Michael Novogratz. “When people are having a hard time they keep selling and it becomes like a rolling snowball” he added.
“People have long positions they are selling to get cash and it becomes a self-fulfilling prophecy”
Michael Novogratz talks capital flows, he believes that risk parity is being unwound at a mass pace
Risk Parity is a methodology to allocate capital across multiple asset classes.
“Bridgewater hedge posted 20% drawdown for the year so far the worst drawdown in 20 years” said Michael Novogratz.
The founder of Galaxy Digital Holding is a big advocate of crypto digital gold which he believes should do well when central banks flood the world with liquidity.
Michael Novogratz talks capital flows in a crisis saying that new money is unlikely to flood into bitcoin under these extraordinary circumstances.
“Even if you have got a ton of money on the sidelines, you are in the middle of a shitstorm and you are not thinking shall I step in right now and buy bitcoin, right now, which I have never bought before” said Michael Novogratz.
“So you have several old hats that are smart enough to sell that are buying some. But you are not going to have a lot of new money coming in and not for a while” he added.
“Even if they put rates to zero and drop money out of helicopters can they beat deflation?” – Michael Novogratz
Michael Novogratz talks about capital flows in a liquidity crisis
“In a liquidity crisis anything that people are long is going to get sold so people are maximum bullish on gold and they are selling it,” said Michael Novogratz.
So the ardent cryptocurrency bull argues that the move in Bitcoin price to the downside was not so irrational as it felt. In a highly leveraged market, performing assets also get sold to raise finance.
Michael Novogratz believes that this is the greatest deflationary impulse that we have ever seen in our lives. “So you are going to go through a period of deflation and cryptocurrencies and gold are supposed to be inflation hedges” he said.
Michael Novogratz’s questions whether monetary and fiscal policymakers can do much to tackle deflation.
“Even if they put rates to zero and drop money out of helicopters can they beat deflation?” said Michael Novogratz.
“Forget not paying your rent, people are not going to have money for food” – Michael Novogratz
Michael Novogratz talks about capital flows but what is his outlook for the markets
“You will not know until the dust settles” he said. “I think you will have a brief period of deflation and you are stoking the fires for inflation” he added.
On an upbeat note, he said, “the economies will get back faster than you think once we get through this flow God willing” he said.
But in the same breath, Michael Novogratz said that if this goes longer than two weeks we could have real problems.
My worry is about the gig workers that go cash flow negative, 40% of Americans can’t raise 400 USD if we go two to three weeks of this. Forget not paying your rent, people are not going to have money for food” he said. “So there is a fear of social unrest” he added.
Regarding fiscal stimulus, Michael Novogratz believes the government should get money out to people quickly, in other words, Universal Basic Income (UBI). “Hong Kong did it, I believe Australia did it too” he said.
“The fed did what they are going to do, they did a great job lots of liquidity, but this is going to take fiscal. Fed is going to monetize the fiscal stimulus. This should make yield curves steepen and USD goes lower over time. But in the short run what is going to get economy back is fiscal” he added.
Michael Novogratz talks capital flows concerning COVID-19. Nothing Fed can do to change the market. Sometimes that initial panic has to happen; we have spiked VIX to 80. VIX 80 doesn’t stay there that often. Only one time in my career when it was above 80 and that was 2008.
So we are in panic and he thinks Fed liquidity will help.
Michael Novogratz talks capital flows, he points out that everything gets sold of the short term then bitcoin and gold does well long term
I don’t think bitcoin will accelerate until we see the debasement of currency real inflation. People have bought into this deflationary environment and this is a big deflationary impulse.
We are going to see unprecedented fiscal spending. Maybe it’s a 10% fiscal deficit zero rates and fed monetising. See Michael Novogratz’s interview.