Key takeaways

• The spread between front and back-end oil futures reflects market expectations about potential supply disruptions.
• Oil futures pricing is significantly impacted by geopolitical events and market assumptions.
• Technological advancements and energy costs play a crucial role in the interplay between inflation and deflation.
• The Federal Reserve’s actions are closely aligned with the fiscal needs of the US government.
• In times of crisis, the Fed is likely to print money to support government spending.
• There is a quiet emergence of a gold standard through trade with China.
• Bitcoin serves as a liquidity smoke alarm, indicating potential problems in the financial system.
• Deflationary pressures from AI could hinder Bitcoin’s price recovery.
• Misplaced inflation expectations led to Bitcoin’s significant sell-off.
• The central banks’ belief in AI as a productivity miracle is fundamentally flawed.
• AI is causing deflation in certain sectors by displacing knowledge workers.
• The global economy is heavily influenced by energy costs, acting as a derivative of energy.
• The spread between oil contracts is an objective measure for assessing oil flow amidst geopolitical tensions.
• The expectation of inflation from tariffs was misplaced, leading to a deflationary period.
• Bitcoin’s role as an economic indicator highlights broader financial issues.

Guest intro

Arthur Hayes is Chief Investment Officer at Maelstrom, a family office fund investing in crypto infrastructure and services. He co-founded BitMEX in 2014, which became one of the world’s largest crypto derivatives exchanges and pioneered the Bitcoin perpetual swap contract that transformed how traders manage digital asset risk. With a background as an equity derivatives trader at Deutsche Bank and Citigroup in Hong Kong, Hayes brings deep expertise in leveraged trading and macro markets to his current investment strategy across decentralized finance and emerging crypto opportunities.

Oil futures and geopolitical tensions

• The spread between front and back-end oil futures indicates market expectations about future supply disruptions.

• So basically I have a a chart up that I made on my on my bloomberg and it’s a spread between the first and the sixth contract out in the future for wti oil futures prices… the market assumes whether or not that’s the right assumption or not that over the you know short to medium term something is going to some accommodation is going to be made and oil will go through the straight.

  — Arthur Hayes

• Oil futures pricing reflects geopolitical events and market assumptions.
• The spread between front month and back month oil contracts serves as an objective measure for assessing the flow of oil amidst geopolitical tensions.

• So that’s why I’ll make sure that I look at you know for the iran war is what is the spread between those two contracts… if you know if oil is flowing… we always look for an objective measure that you know puts a price on it depends and that’s the spread between you know front month and back month oil contracts.

  — Arthur Hayes

• Understanding oil contracts is crucial for evaluating market dynamics in geopolitical contexts.
• The dynamics of oil futures are influenced by geopolitical events and market pricing.
• Market expectations about oil supply disruptions are reflected in the spread between oil futures contracts.

Inflation, deflation, and AI’s impact

• The interplay between inflation and deflation is influenced by technological advancements and energy costs.

• I think that the AI thing that you’re talking about right, the displacement of knowledge workers is accelerating… that’s causing deflation in what we want… the entire world economy is essentially a derivative of energy.

  — Arthur Hayes

• Energy costs and technological changes affect inflation and deflation dynamics.
• AI is causing deflation by displacing knowledge workers and impacting employment.
• The global economy’s dependence on energy costs influences inflation and deflation.
• AI’s impact on employment contributes to deflationary pressures in the economy.
• Technological advancements play a crucial role in shaping inflation and deflation trends.
• The economy’s reliance on energy costs is a key factor in inflation and deflation dynamics.

Federal Reserve’s role in economic policy

• The Federal Reserve will always act in accordance with the needs of the US government.

• The federal reserve is an arm of the us government and they’re gonna do whatever the us government needs to have done so that the us government can afford to pay its bills.

  — Arthur Hayes

• The Fed is likely to print money to accommodate government spending, especially in times of crisis.

• If there’s a deflationary ticking time bomb that is ai and they need to print a bunch of money to save the banking system they’re gonna print a bunch of money to save the banking system.

  — Arthur Hayes

• The relationship between the Federal Reserve and US government fiscal policy is crucial for understanding economic decisions.
• The Fed’s actions are closely aligned with the fiscal needs of the US government.
• In times of crisis, the Fed’s monetary policy responses are likely to support government spending.
• The Federal Reserve’s role in economic policy is influenced by government needs and fiscal policy.

Emergence of a new gold standard

• There is a quiet emergence of a gold standard facilitated by trade with China.

• What that tells me is there’s essentially a new quiet building of a gold standard… you go get gold in you know from the us or from the west you bring it to china you sell off what you want and then you buy the goods that you need to buy.

  — Arthur Hayes

• The dynamics of international trade and currency exchange are shifting towards a gold standard.
• Trade with China is facilitating the re-emergence of gold as a key currency.
• Understanding global trade practices is crucial for recognizing economic trends.
• The potential re-emergence of a gold standard highlights significant shifts in global trade.
• The role of gold in international trade is becoming increasingly important.
• The emergence of a new gold standard is facilitated by trade dynamics with China.

Bitcoin as a financial indicator

• Bitcoin acts as a liquidity smoke alarm indicating problems in the financial system.

• I believe in this sort of ai deflationary thing and that bitcoin is sort of liquidity smoke alarm and telling us there’s a problem.

  — Arthur Hayes

• Bitcoin’s function in the economy serves as an indicator of broader financial issues.
• The role of Bitcoin in the current economic landscape highlights its importance as a financial indicator.
• Bitcoin’s price recovery may be hindered by ongoing deflationary pressures.

• I think we still have this AI issue and this is a very very big issue because you’re basically saying what is the value of human labor… the mediocre the average… engineer is not needed anymore.

  — Arthur Hayes

• Deflationary pressures from AI could impact Bitcoin’s value and market trends.
• Bitcoin’s role as a liquidity smoke alarm is crucial for understanding financial system dynamics.

Misplaced inflation expectations and Bitcoin’s sell-off

• The expectation of inflation was misplaced, leading to Bitcoin’s significant sell-off.

• Bitcoin as you say is like the smoke alarm and it just realized that everyone was expecting inflation from the tariffs we didn’t get that and actually we were gonna have this like deflationary period.

  — Arthur Hayes

• Misunderstandings in market expectations directly affected Bitcoin’s performance.
• The role of economic indicators in crypto markets is crucial for understanding market trends.
• Misplaced inflation expectations contributed to Bitcoin’s sell-off and market dynamics.
• The relationship between inflation expectations and crypto markets is significant.
• Understanding economic indicators is key to recognizing crypto market trends.
• Bitcoin’s performance is influenced by broader economic expectations and indicators.

Critique of AI as a productivity miracle

• The central banks’ belief in AI as a productivity miracle is fundamentally flawed.

• The fed says oh ai is this productivity miracle it’s gonna elevate productivity… to date all it’s meant is a bunch of people who made a lot of money have gotten fired.

  — Arthur Hayes

• The disconnect between productivity gains and employment highlights flaws in the AI narrative.
• Understanding the role of AI in productivity and employment is crucial for economic discussions.
• The prevailing narrative about AI’s impact on the economy is critiqued for its flaws.
• The belief in AI as a productivity miracle overlooks its impact on employment.
• The role of AI in the economy is complex and requires careful consideration.
• Central banks’ views on AI and productivity are challenged by economic realities.