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He’s bombastic, and he’s full of sh*t.
But he doesn’t have a mean bone in his body.
That’s how one of Mike Novogratz’s friends characterised him at a school reunion.
At age 4, Novogratz and his older brother went door-to-door in their neighbourhood, selling leaves. It was five cents for the yellow leaves and ten for the red.
He was a kid, but you’d be right in thinking they were a useless commodity.
People would open their doors and ask why the red leaves cost more. Mike’s mother, Barbara, recalls that he’d respond with — “Look around you. There are hardly any red leaves.”
Intuitively at such a young age, Novogratz had a grip on the concept of supply and demand and the differences between two asset classes even though they were just leaves.
You’re probably reading between the lines if you’re a crypto sceptic. You can easily see the parallel between Novogratz’s childhood entrepreneurial spirit and his current bet on Cryptocurrency.
Some would say Bitcoin and crypto rely on the same make-believe evaluation as the red leaves he tried to talk his neighbours into buying.
In 2013, he put $7 million of his own money into Bitcoin when it sold at around $100 a coin. He puts this moment down to a massive degree of luck, saying he was in the “Right place at the right time.”
There’s something about the story of an underdog that people can relate to more. And sometimes you need god given talent hardwired into you to understand consumer behaviours early before the stampede arrives.
Novogratz credits the years of long hours and suffering as a trader learning about economic, social and psychological trends that allowed him to recognise opportunities before they happened.
He’s now saying that the current state of Cryptocurrency makes him feel nervous because we’ve just lived through the most significant asset bubble in human history. Still, the markets are now rallying as if there will be no recession.
He points out that Bitcoin has been the best-performing asset, but we’re still above pre-covid levels, and it doesn’t make sense for us to be out of the woods yet.
Mike Novogratz — Source
“Just intuitively, it makes me nervous it’s hard to think you’ve had the greatest asset bubble in the history of the world and then fuelled, you know, with the cherry on top by Covid and 11 months of a bear Market is all you get.
We’re still above pre-covid levels in everything.
Everyone says oh, crypto sucks. I’m like, what are you guys talking about? Bitcoin has way outperformed all growth stocks.”
Novogratz goes on to say that he was out with the world’s best trader Dave Tepper who shares a similar view on consumer behaviour and where the economy is. Tepper is arguably his generation’s most outstanding hedge fund manager.
Mike Novogratz — Source
“You know I was out with one of the world’s great traders of all time yesterday.
We both look at what’s happening in China right now with their reopening, and we know what happens when you reopen.
There’ll be a consumer surge (spending), and there’ll be a travel surge.
I mean, those protests two-three months ago were shocking, and they were all over China.
Xi Jinping wants to be Emperor for life, and he was like uh oh, I need to make some changes, so really quickly, let’s rewrite the script on Covid and forget the zero covid rule.
Let’s back away from regulation and let people make money again, and so you’ve seen Alibaba and lots of tech stocks come up now fifty per cent.
I’m hearing more and more that the environment will be more business-friendly than it was two months ago.”
He’s anticipating that China and Japan’s economy are being kick-started again, which could be positive for Crypto.
As more places open, you’ll likely see more consumer spending.
Mike Novogratz — Source
“So the US is slow, but the consumer isn’t, and employment’s still strong.
I have a friend who’s got like six businesses, and he said, “five of them suck, but my hotel business defies the laws of gravity.”
It has high room rates and full occupancy, and if you come to New York, it’s hard to get into a restaurant, even on a Wednesday night.”
Mike Novogratz — Source
“What was so interesting about the response to Covid in America was how fast it was. There was not a day when personal incomes went down.
Not a day.
Covid happened, and the government said, here, we’re giving you money, and they gave a lot of money.
So income growth went way up during covid, and savings went way up during covid because you were stuck at home and couldn’t spend anything.
Then it started coming down, and Biden got elected. And then they turbocharged it even more because the Dems and the progressives, said this is our turn.
So they introduced another $1.8 trillion that wasn’t needed.
All this money was pumped back into the economy, so personal savings go way back up, and Personal incomes go way back up.
Saving rates have come back down now, but the pile of money isn’t gone yet. So while savings is negative, the net saving, what people still have to spend, is still positive.”
He says you’ll see spending pick up again, borrowing increase, and people travelling and spending more. But the money will eventually evaporate, and we’re almost certainly headed for a recession.
Mike Novogratz — Source
“The money will eventually evaporate, and we’ll go into recession.
You see layoffs in lots of big companies, and the wage surge is coming down, so we at least have a mild recession.
The Market is pricing in a pause of interest rates and then an immediate cut, but there’s a long way for interest rates to fall to 2%. We may see inflation come back.
There’s a distinct possibility that things recover too fast, and we create inflation again.”
Final Thoughts.
I was at a conference last year in Minnesota, and Gary Vaynerchuck introduced Mike Novogratz as one of the most skilful people in the world to understand consumer trends.
Novogratz can understand where our consumer attention will be before it happens. Although he says he got lucky, I believe his multi-million dollar high-conviction bet on Bitcoin in 2013 wasn’t luck.
He’s right. There is excess money in the system, and although saving rates have come down, people still have savings that they’re spending.
If you’re wondering why consumer spending is such a big deal, it’s because it increases the cost of goods, which increases inflation, which means the fed will have to continue its rate hikes.
If this happens, Cryptocurrency will be in for another challenging ride. Along with every other investment.
In March 2022, the Fed raised its federal fund’s benchmark rate by 25 basis points, from 0.25% to 0.50%. The rate hike was the first time since 2018 that the Fed had made an increase.
It wiped away $1 trillion of the Cryptocurrency market capitalisation. You might think things are now priced in, but it could get a lot worse.
This article is for informational purposes only; it should not be considered financial, tax or legal advice. You can consult a financial professional before making any significant financial decisions.