The Pomp Letter

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To investors,

Treasury Secretary Janet Yellen participated in an exclusive CBS interview last night about the US economy. When asked whether she and President Biden were happy with how inflation is going right now, Yellen said the following:

“We know that Americans are experiencing discomfort because some important prices are higher than they were pre-pandemic, but what I think is really important is that wages have gone up along with prices, so people are better off than they were pre-pandemic.”

This seems like a difficult talking point to continue reiterating because majority of the population disagrees. Only 14% of American voters say they are better off financially under the current administration. So 86% of citizens believe they are the same or worse than when Biden took office.

To Yellen’s credit, wages did rise from 2020 to 2022. Just as the price of goods and services increased with higher inflation, wages went up too. But as inflation has come down, wage growth has come crashing down too. Here is the overall unweighted wage growth since the 1990s from the Federal Reserve Bank of Atlanta:

The same wage growth decline is present for hourly workers as well. The trend has not discriminated in who it is affecting.

So why is this important?

Wage growth is slowing and it appears that things are going to erode for many citizens. We can use real wage growth as a measurement to understand the difference between inflation and wage growth. Here we can see that Americans experienced negative real wage growth for majority of 2021 and 2022.

Real wage growth had improved for 7 straight months as inflation year-over-year came down to more manageable levels. But with the re-acceleration of inflation in the January 2024 numbers, real wage growth has turned negative again. This spells disaster for the average citizen.

For approximately 2 years, Americans saw inflation outpace the growth in their wages. The prices that were increased are not going to come back down, plus the current annualized inflation rate from January’s number is over 3.5%, so unless an employer is planning to give employees a 4-5% raise each year it will be unlikely that wages can keep up.

Secretary Yellen, President Biden, and others want to tell a story of a strong economy that is creating more opportunity for the population. Words fall on deaf ears though if the story is not true.

The countdown has begun till the election. They have less than 9 months to get things turned around or many voters will enter the ballot box and vote based on their wallets.

Cut rates. Print money. Get liquidity into the system. Make voters flush with cash. If you wanted to enhance President Biden’s chances of winning in November, that would be the playbook. The Fed and Treasury claim to make decisions regardless of the political outcomes, but we will see what happens in the coming months.

Hope you all have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Reader Note: Today is a free email available to everyone. If you would like to receive these letters each morning, please subscribe to become a paying member of The Pomp Letter by clicking here.

Lexy Franklin is the Founder & CEO of Sidebar, and a former Facebook employee who has tons of lessons learned from one of the greatest companies in all of Silicon Valley.

In this conversation, we talk about professional development, future of work, importance of small groups for career growth, lessons from Facebook, and how Sidebar can accelerate your career.

Listen on iTunes: Click here

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Former Facebok Exec Explains Product To Help Get Promoted

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* ResiClub - Your data-driven gateway to the US housing market.

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You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

READER NOTE: Today is a free email to everyone.

I am hosting a webinar tomorrow morning at 930am EST for all paying members of The Pomp Letter. This webinar will be a review of a massive amount of data, charts, and graphs to explain the US economy, inflation, the global liquidity situation, and where I think various asset prices are going in the next 24 months.

You can join us by becoming a paying subscriber here. I will send out the Zoom link to all members in the morning. Thank you.

To investors,

I went on CNBC’s Squawk Box yesterday morning. The conversation largely revolved around bitcoin’s recent price increase, the significant inflows for spot ETFs, and what I anticipate to happen in the future.

You can watch the full interview here:

This conversation was well received by the bitcoin community, except one sentence I said. Towards the end of the discussion, I stated “The return profile is going to come down. And so if you think you are going to buy bitcoin and retire, those days are probably behind us.”

While it may not be popular, I believe it to be true.

Let’s look at some math. 57% of Americans are uncomfortable with the amount of emergency savings they have and 22% of Americans don’t have any emergency savings at all.

Add in the fact that 91% of Americans have a net worth less than $1 million. This means that majority of the population can’t invest $100,000 or more into any investment opportunity, let alone bitcoin.

So we will have to make an assumption in our hypothetical situation — the average person could find $20,000 to invest in bitcoin. This amount is highly unlikely but we will give the detractors the benefit of the doubt for our example and use an inflated number.

Next, let’s assume that bitcoin goes up 20x in the next decade. This would bring the digital currency from $50,000 to the coveted $1 million per coin. 

If this happened, then the person who put $20,000 into bitcoin would have $400,000 of bitcoin at the new, higher price. Sounds amazing, right? 

Not so fast.

If bitcoin is trading at $1 million than it is likely that the dollar has been significantly devalued. $400,000 in a decade won’t be worth what $400,000 is worth today. Inflation punishes everyone.

But inflation is not the only problem. If we completely remove inflation in our example, and say that $400,000 holds its purchasing power for a decade, than the subject of our hypothetical situation still can’t retire.

What do I mean?

A recent Northwestern Mutual study reported that the average American adult believes they need $1.3 million saved in order to retire. That is a BIG number.

This study also proves that our $400,000 of bitcoin, which only occurred because bitcoin went up 20x and inflation wasn’t real, would still leave our hypothetical subject 70% short of what they would need to retire.

But maybe our math is wrong. Maybe some of our assumptions are incorrect. Let’s go with the common belief in the bitcoin community that a holder “will only need 1 bitcoin to retire.” The thought process is that holding a single, whole bitcoin will allow someone to breach the coveted retirement threshold.

But again, if bitcoin is trading at $1 million and you only hold one of them, then you don’t have the $1.3 million necessary to retire today. The $1.3 million number will continue to go up in value too because the dollar is being devalued.

So, this brings me to the conclusion — the hardcore bitcoin holders may not like what I’m saying, but the future returns of bitcoin are unlikely to be enough for the average person to reach a comfortable retirement.

That doesn’t mean that bitcoin won’t go up in price. It doesn’t mean you shouldn’t own any (you should own some after doing your own research!). It doesn’t mean that your favorite bitcoiner is wrong.

I like bitcoin. I hold bitcoin. I think bitcoin is one of the best risk-reward investment opportunities currently present in financial markets. But we should be realistic about the dire financial position the average American is in and how unlikely it is that they have enough money to buy tens of thousands of dollars of bitcoin.

The future returns won’t necessarily look like the past returns and assets historically have seen their financial returns dampen as they get larger. This is all part of the process of bitcoin being adopted by the mainstream.

It is less risky to buy bitcoin today than any other time in history. Naturally, you will get paid a lower return for taking a lower risk.

Hope this explanation is valuable to you. I’ll talk to everyone tomorrow.

-Anthony Pompliano 

Travis Kling is the Founder & Chief Investment Officer of Ikigai Asset Management.

In this conversation, we talk about cryptocurrency prices & protocols, the ultimate use case, liquidity, bitcoin vs gold, Saylor vs Schiff, financial nihilism, allocating capital in today’s market, and more.

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My Appearance on Fox Business with Charles Payne

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* ResiClub - Your data-driven gateway to the US housing market.

* Bay Area Times - A visual newsletter explaining the latest tech & business news.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

Reader Note: Today is a free email available to everyone. If you would like to receive these letters each morning, please subscribe to become a paying member of The Pomp Letter by clicking here.

To investors,

Everyone saw inflation spike in 2021 and 2022. You could feel it in the economy. Goods and services got more expensive. A single meal at a restaurant would shock you. Filling up your car at the gas pump became a horror show. The world had gone crazy and you were left wondering when it would end.

Now that inflation’s year-over-year growth has dropped significantly, many people are being lulled into believing things are going back to normal. That is not true. Majority of those price increases are not going to come back down. We have simply entered a new normal.

But there is another trend that you must be aware of — shrinkflation. Historically, this term has referenced manufacturers who sell goods at the grocery store putting less goods in their packaging, even thought they still sell the item for the same price.

We are now seeing this trend clearly playing out in the housing market. Yes, home builders are building smaller homes at the same prices! ResiClub’s Lance Lambert wrote a guest post below that breaks down exactly what is happening. (You can subscribe to read Lance’s analysis daily by clicking here). I hope this is helpful as you all try to better understand what is happening in the US economy.

Lance Lambert: On last month’s earnings call, D.R. Horton CFO Bill Wheat told analysts that “to adjust to changing market conditions during fiscal 2023 and into fiscal 2024, we have increased our use of incentives and reduced home prices and sizes of our home offerings, where necessary, to provide better affordability to homebuyers.”

In 2023, D.R. Horton reduced its average square foot by 3%. Heading forward, the nation’s largest publicly traded homebuilder told investors that they expect “continued gradual moves down from a mix shift perspective in terms of average square footage.”

In economics, there’s a term for when a business reduces the size or quantity of a product while keeping the price roughly the same: Shrinkflation.

To find out just how much shrinkflation might be occurring in the new construction sector, ResiClub reached out to Parcl Labs, a fast-growing real estate analytics firm, to get the hard data.

Before delving into the hard data, it's important to emphasize that ResiClub isn’t implying anything negative by our use of “shrinkflation.” From an economic perspective, it makes sense that a rapid deterioration in housing affordability—with mortgage rates rising from 3% to over 6% in 2022—would lead builders to opt for strategies that could, at the margins, keep affordability in check and maintain sales.

According to Parcl Labs, the median square footage for new construction fell from 2,098 in 2022 to 2,036 in 2023. That 3% year-over-year decline marks the biggest single-year dip over the past decade.

So it isn’t just D.R. Horton. A lot of homebuilders are reducing size.

The trend has been accelerated by strained housing affordability; however, new construction was already getting smaller before mortgage rates spiked.

In fact, Parcl Labs data shows that 2023 marked the 9th straight year that new single-family homes got smaller, going from a median square footage of 2,328 in 2014 to 2,036 in 2023.

“While the median size of single family home square footage has remained constant over the last 10 years, with a notable exception being during the pandemic where larger homes were trading hands as consumer preferences shifted from urban environments to suburban environments, new construction footprints have declined over 12% over the last 10 years,” writes Jason Lewris, co-founder of Parcl Labs.

While passing through Elm Trails, a community being built by Lennar in San Antonio, Scott Davis took the photo above last year. Single-family homes in the community range from just 350 square feet to 660 square feet and were priced last year from $135,000 to $171,000.

In the grand scheme of the U.S. housing market, tiny home communities like Elm Trails are still outliers. However, Davis, who is the president at Location Strategy, a real estate consulting firm, has seen more builders consider smaller lots and homes given the ongoing affordability crunch.

“Over the last few years we have seen home sizes decline slightly in response to pricing pressure. But that's after 40 years of increasing home sizes. What's new is builders are now going small—building homes that are similar to what we saw in the very early postwar suburbs. Builders are responding to more than price; the move to smaller houses is a result of demographics: more single households, fewer children and families having children later in life. Lack of buildable land is also a factor—builders have been pushed to sites previously considered undesirable for single-family [homes] where more lenient restrictions allow them to experiment with products that are more affordable and more responsive to the needs of a broader array of consumers,” Davis tells ResiClub.

In the view of James Hughes, a land developer in Charleston, S.C., this gradual shift to smaller lots and smaller homes is being pushed more so by “entitlement groups” who are trying to get as much development into the building plans as possible before exiting at top dollar.

“The market has been flooded with high density sites from entitlement groups. Entitlement groups are not land developers and they aren't home builders. These entitlement groups put land under contract, get the required permits, and have the site engineered. Then they sell "paper lots" to land developers and home builders. Land developers and home builders don’t necessarily want the high density, but that's what's on the market,” Hughes tells ResiClub.

Hughes added, “This is one factor contributing to smaller footprints.”

NOTE: If you would like to receive more analysis on the residential real estate market every day, you can subscribe to Lance Lambert’s ResiClub by clicking here.

Anthony’s Reaction: It is not surprising to see producers of any good or service trying to use shrinkflation to their advantage. Home affordability has reached a horrific position, so there are only so many options that the home builders have. It is not ideal to have an economy where the average family can’t afford a home. This is what happens when a debt-fueled, growth-at-all-costs approach is taken. Hopefully we can reverse the trend, but I am not holding my breath. Hope you all have a great day. Talk to you tomorrow.

-Anthony Pompliano

READER NOTE: I am hosting a webinar Wednesday Februrary 14th at 930am EST for all paying members of The Pomp Letter. This webinar will be a review of a massive amount of data, charts, and graphs to explain the US economy, inflation, the global liquidity situation, and where I think various asset prices are going in the next 24 months.

You can join us by becoming a paying subscriber here. I will send out the Zoom link to all members. Thank you.

Alex Kruger is a trader from Argentina, and he continues to figure out what is going on in the macro economic world, along with cryptocurrencies.

In this conversation, we talk about why he is incredibly bullish on risk assets, relationship between Milei, Bukele, Trump, Zelenskyy, United States national debt, bitcoin, cryptocurrencies, how he evaluates assets, and portfolio construction.

Listen on iTunes: Click here

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Trader Alex Kruger Explains Why Bitcoin ETF Is A Trojan Horse

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* Espresso Displays - The world's thinnest touchscreen portable monitor. Expand your workspace and work from anywhere.

* Trust & Will - Estate planning made easy. They are fast, secure, and simple to use. Get your will or trust created today.

* Base - Base is shaping the future of the on-chain world with near-zero gas fees and rapid transaction speeds.

* ResiClub - Your data-driven gateway to the US housing market.

* Bay Area Times - A visual newsletter explaining the latest tech & business news.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

Today’s letter is brought to you by Bitcoin Investor Day!

I am hosting the first Bitcoin Investor Day in New York City on March 22nd this year. It is an annual meeting for sophisticated Wall Street investors who are interested in bitcoin.

Speakers include Cathie Wood, Mike Novogratz, Anthony Scaramucci, Mark Yusko, Head of Digital Assets at BlackRock, Bitwise CEO, Head of Research at Fidelity & VanEck, and many more.

Tickets are only $50 and the venue is incredible. This will be one of the highest quality bitcoin conferences of the year. See you there!

To investors,

A popular critique of bitcoin over the years has been that the first version of a technology is rarely the version that wins over the long run. Apple didn’t make the first computer or smart phone. Google didn’t make the first search engine. Facebook didn’t make the first social network. And Amazon didn’t make the first online marketplace.

But each of these companies and products won over the long-term because they innovated on earlier versions and found some unique combination of features that led to a widening moat.

Bitcoin is not the first digital currency. In fact, bitcoin was only launched after 40 years of research and development by many intelligent, hard-working people around the world. This group was working in silos trying to create a version of electronic money that could operate outside of the existing financial system.

The pursuit led to many technology breakthroughs, but no one seemed to be able to crack the exact combination of features to reach break out success.

Satoshi Nakamoto changed everything.

The creator of bitcoin was able to innovate on the long history of electronic cash research and development to create an asset worth ~$1 trillion within 15 years. The level of success that Satoshi had, especially when compared to the prior 40 years of attempts, is breathtaking.

But we shouldn’t only apply this framework of “first movers struggle to last” to bitcoin. The area where it becomes even more obvious is with Ethereum.

The second most popular blockchain in history was able to catapult itself into a leading position by being first to launch a blockchain that incorporated smart contracts.

This innovation has obviously been valuable. The asset is valued at $285 billion today and there are millions of people who use the technology on a daily basis.

There is one problem though — it appears that Ethereum is under significant competition from various organizations that are making up significant ground. Take Solana as an example. The second most popular smart contract platform is up more than 300% in the last year, while Ethereum is only up 45%.

Price is not the only thing that matters, but it is a good indicator for what is happening in the market.

We can see in DEX volume by chain, Solana recently flipped Ethereum for a period of time. Ethereum is back on top for now, but you can see the long term trend of declining market share for Ethereum.

Why is this happening? It is hard to tell exactly, but a big reason is that Solana is faster and cheaper. The technology has been improved upon, so users are flocking to the thing that serves them best. There is going to be even more competition coming from Sei, Monad, and a host of other chains that want to improve upon Ethereum and Solana.

Improve or die. That is the name of the game here.

Bitcoin is playing a different game. It is not trying to be the fastest or cheapest, but rather the most fixed and decentralized. That is a much harder concept to dethrone for the competition. No matter how smart you are as a developer, this is not about improving the technology to unseat bitcoin, but rather you have to gain a structural advantage globally to unseat the multi-billion dollar mining industry.

I bring up this point because it is unlikely that bitcoin is the AOL of crypto. Bitcoin is the product of 40 years of R&D by some of the smartest people in the world. It is the last iteration, not the first. They were maniacally focused on creating a digital currency — eventually they succeeded. There doesn’t appear to be real competition to bitcoin as a global store of value in digital currency form.

Ethereum can not say the same thing. This doesn’t mean that Ethereum is bad. It doesn’t mean that Ethereum’s price won’t increase in the future. It doesn’t even mean that Ethereum will be surpassed by any of the competition.

But it does mean that if I had to make a bet now, Ethereum is more likely to be the AOL of crypto than Bitcoin.

The critics are correct in their critique. They just have been pointed at the wrong asset.

Hope you all have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

READER NOTE: I am hosting a webinar Wednesday Februrary 14th at 930am EST for all paying members of The Pomp Letter. This webinar will be a review of a massive amount of data, charts, and graphs to explain the US economy, inflation, the global liquidity situation, and where I think various asset prices are going in the next 24 months.

You can join us by becoming a paying subscriber here. I will send out the Zoom link to all members. Thank you.

Stefan Rust is the Founder of Truflation, it’s an alternative economic measurement platform using new data to better measure inflation.

In this conversation, we talk about the problems with the current CPI measurement from the government, what Truflation is doing differently, how they are collecting data, personalized inflation, global opportunities, and more.

Listen on iTunes: Click here

Listen on Spotify: Click here

Truflation CEO Explains How They Are Improving Inflation Measurement

Podcast Sponsors

* Frec.com - Use tax-loss harvesting to save on your tax bill, while keeping the same investment exposure you already have.

* BetOnline -  Use crypto to bet on sports, casino games, horse racing, poker and more with promo code POMP100.

* Espresso Displays - The world's thinnest touchscreen portable monitor. Expand your workspace and work from anywhere.

* Trust & Will - Estate planning made easy. They are fast, secure, and simple to use. Get your will or trust created today.

* Base - Base is shaping the future of the on-chain world with near-zero gas fees and rapid transaction speeds.

* ResiClub - Your data-driven gateway to the US housing market.

* Bay Area Times - A visual newsletter explaining the latest tech & business news.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

READER NOTE: I am hosting a webinar tomorrow morning at 930am EST for all paying members of The Pomp Letter. This webinar will be a review of a massive amount of data, charts, and graphs to explain the US economy, inflation, the global liquidity situation, and where I think various asset prices are going in the next 24 months.

You can join us by becoming a paying subscriber here. I will send out the Zoom link to all members in the morning. Thank you.

To investors,

Kyle Bass shot to national fame when he correctly predicted the US housing crisis that kicked off the Global Financial Crisis. He was on CNBC yesterday claiming that recent problems out of China are “like the US financial crisis on steroids.”

Bass has been critical of China’s economy for years.

His point recently is that the two largest property developers in the country, Evergrande and Country Garden, have more than $500 billion in debt combined. That is a very big number, especially when you consider that these two companies have been large drivers of the Chinese economy in recent years.

In fact, Bass argues that “when the Chinese ‘miracle,’ and I put the ‘miracle’ in quotes, when the Chinese ‘miracle’ was running its course…the substantial majority of Chinese GDP growth was real estate and the concentric circles that surround real estate. And now you’re having a reversal after an unregulated and unabated climb in real estate, and now you’re seeing a real estate collapse…they have three and a half more times banking leverage than we did going into the crisis.”

If the American investor’s analysis is right, China is headed towards a gnarly situation.

China disagrees though. For the last few months, the country has been manipulating the liquidity in their economy to prevent a collapse in financial markets. They cut banking reserves back in January and added more liquidity via reverse repos last night.

There was even multiple inflection points in the last 24 hours based on various comments or actions from different Chinese officials and organizations.

Why are they working so hard to keep liquidity high? As the folks at Crossborder Capital pointed out, China’s increasing liquidity creates positive GDP momentum.

This development in China is worth paying attention to because it is the exact opposite of what is happening with America’s Federal Reserve. China is easing and pumping liquidity into the market, while America is tightening and trying to drain liquidity.

The battle of liquidity on a global scale will ultimately determine what happens to your investment assets.

Too many investors in the western world get overly focused on the Federal Reserve, while ignoring the liquidity decisions of foreign central banks. The US is still the top dog, but countries like China have a significant impact that can overwhelm the US in certain situations.

These two countries are not always at odds with each other.

As you can see here, China has been growing their central bank balance sheet at a rapid rate similar to the US over the last 15 years.

The short-term trend is to expect higher volatility (China’s small and mid-cap stock index is down 25% year-to-date), but the long-term trend is obvious: asset prices are going to go up for the next few decades as central banks monetize their debts around the world.

Don’t get distracted by only watching the United States and western central banks. They may be still tightening at the moment, but there is trouble brewing in the eastern world. This is going to bring an estimated $2 trillion of liquidity into the market. If that happens, investment assets globally will likely benefit.

We live in a digital, hyper-connected world today. Your local geography can have an impact on you, but the global liquidity situation is the final boss. And it appears the Chinese are about to give a gift to the world.

Hope you all have a great day. I’ll talk to you tomorrow.

-Anthony Pompliano

READER NOTE: I am hosting a webinar tomorrow morning at 930am EST for all paying members of The Pomp Letter. This webinar will be a review of a massive amount of data, charts, and graphs to explain the US economy, inflation, the global liquidity situation, and where I think various asset prices are going in the next 24 months.

You can join us by becoming a paying subscriber here. I will send out the Zoom link to all members in the morning. Thank you.

Peter Diamandis is the Founder & Executive Chairman of the XPRIZE Foundation, which leads the world in designing and operating large-scale incentive competitions. He is also the Executive Founder of Singularity University, a graduate-level Silicon Valley institution that counsels the world’s leaders on exponentially growing technologies.

In this conversation, we talk about XPRIZE, longevity, importance of health span & life span, artificial intelligence, bitcoin, and more.

Listen on iTunes: Click here

Listen on Spotify: Click here

My Conversation with Peter Diamandis on Longevity, AI, Bitcoin, and XPRIZE

Podcast Sponsors

* Frec.com - Use tax-loss harvesting to save on your tax bill, while keeping the same investment exposure you already have.

* BetOnline -  Use crypto to bet on sports, casino games, horse racing, poker and more with promo code POMP100.

* Espresso Displays - The world's thinnest touchscreen portable monitor. Expand your workspace and work from anywhere.

* Trust & Will - Estate planning made easy. They are fast, secure, and simple to use. Get your will or trust created today.

* Base - Base is shaping the future of the on-chain world with near-zero gas fees and rapid transaction speeds.

* ResiClub - Your data-driven gateway to the US housing market.

* Bay Area Times - A visual newsletter explaining the latest tech & business news.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

Today’s letter is brought to you by Espresso Displays!

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To investors,

Federal Reserve Chairman Jerome Powell was featured in a 60 Minutes interview last night. It was the most transparent and honest that I have ever heard the Fed Chair.

The premise of the interview was stated upfront in the segment — “Jerome Powell, the chair of the Federal Reserve, may have just rescued the economy from inflation without throwing millions out of work.”

Here were some of the main takeaways from the conversation:

* While it is true that the current unemployment rate of 3.7% is near a 50-year low, it is also true that the damage of high inflation has already occurred. Powell was asked whether he expects prices to come down since inflation has been falling, but he delivered the following bad news: “The prices of some things will decline, others will go up. But we don’t expect to see a decline in the overall price level. That doesn’t tend to happen in economies except in very negative circumstances.”

* When asked whether the Fed had made a mistake in the Silicon Valley Bank crisis, Powell agreed that they had missed the risk analysis to the bank before the collapse occurred happened.

* Powell admitted another prior mistake — not acting quickly enough when it came to increasing inflation in 2021.

* When asked why the Fed is not cutting interest rates now, Powell said “We have a strong economy, growth is going on at a solid pace. The labor market is strong. 3.7% unemployment. With an economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully…we want to see more evidence that inflation is moving down to 2%…we want more confidence…I can’t overstate how important it is to restore price stability.”

* Powell says “it is not likely” that a rate cut will happen in March.

* When asked about the aggressive growth of the national debt, Powell said “In the long run, the US is on an unsustainable fiscal path…the debt is growing faster than the economy…effectively we are borrowing from future generations.”

* When asked how politics and the Presidential election play into monetary policy decisions, Powell said “We do not consider politics in our decisions. We never do and we never will.”

* When asked if inflation was dead, Powell said “I wouldn’t go quite so far as to say that - what I can say is that inflation has come down really over the past year and fairly sharply over the last 6 months. We’re making good progress. The job is not done. And we are very much committed to restoring price stability for the American public.”

I highly recommend watching the full interview. It is only 13 minutes long and Jerome Powell was in rare form. It almost felt like he was more revealing about various aspects of the Fed’s thought process as a way to combat different narratives in the market.

Specifically, it was surprising to see the Fed Chairman openly critique fiscal policy and explicitly call it out as unsustainable. Everyone knows he is right, but friendly fire is rarely exchanged in elite leadership circles — maybe Powell just doesn’t give a F*** anymore.

While most people will focus on the substance of Powell’s comments, I want to call out the form factor. It is powerful in a digitally-native world to sit for an interview like 60 Minutes and be frank / transparent. The 13 minute segment produced a plethora of viral clips all over the internet. If the goal was to get a message out to the American people, it is safe to say Jerome Powell accomplished the mission.

So what was that message?

The Federal Reserve is going to cut interest rates multiple times this year. Since the monetary policy is created and led by human decision-making, the Fed does it’s best to signal future decisions to the market in advance. Create certainty, not surprise.

It doesn’t mean that the Fed can’t change it’s mind between now and decision time, but it does mean that the communication strategy can be just as important as the actual rate decision.

Lastly, financial markets nailed this one. They have been pricing in multiple interest rate cuts for months, including the first rate cut to happen before the end of the first half of 2024. Everything Powell said last night seems to line-up with the market’s predictions.

Crowds can be full of genius or full of madness. Sometimes both. At the moment, it looks like the crowd is going to be right. The various market participants who have been aggressively allocating capital in the last few months in an attempt to front-run the Fed are going to make a lot of money too.

After listening to the interview, I have much higher confidence that the Fed will do multiple rate cuts and asset prices will begin climbing again. Remember, markets are forward looking, so some of that price appreciation has already occurred. But if 200-300 basis points of interest rate cuts are coming over the next 18 months, it is hard to see a world where stocks, real estate, and crypto are lower at the end of that timeline.

But don’t take my word as fact. There is a lot that could change in a short period of time.

Human decision-making is flawed. The Fed over-rotated on loose monetary policy. They will likely over-rotate on tight policy as well. Trying to hit a moving target with backwards looking data is nearly impossible. Powell said it himself in last night’s segment when he claimed “it is not easy to get the economics of this right.”

No one feels bad for Powell though. He is the leader of the global reserve currency. There is no room for error, nor is there an opportunity to claim the job is difficult.

Results are needed or 300+ million people suffer.

Thankfully, it seems more likely Powell and the central bank could pull off the coveted “safe landing” with each passing day. We aren’t out of the woods yet, but to have 3.7% unemployment after 11 interest rate hikes is wild.

Let’s see if the Fed can finish their magician trick in the coming months. Jerome Powell ended the interview with the following quote: “Integrity is priceless. At the end, that’s all you have. And we plan on keeping ours.”

Even though he was referring to the independence of the Federal Reserve in that comment, it highlights that history will be incredibly kind to Powell if he can get inflation down to 2% without throwing us into a recession.

Hope you all have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Jay Jog is the Co-Founder of Sei Labs. Sei is the fastest Layer 1 blockchain, designed to scale with the industry.

In this conversation, we talk about the evolution of the L1 landscape from Bitcoin, Ethereum, Solana, to Sei, various tradeoffs, use cases, what the L1 landscape looks like in the future, and what Sei does.

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My Conversation with Sei Co-founder Jay Jog

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To investors,

Critics of the new digital financial system are fond of claiming that blockchain technology has not created any real products. Their view of the world is that crypto enthusiasts are merely trading digital tokens back and forth for speculation, but no real problems have been solved to date.

This is obviously not true.

Bitcoin is an $850 billion asset that has approximately $600 billion being held by long-term holders who are seeking to protect their purchasing power. That alone should negate the critics, but they rarely accept that argument as valid for some unknown reason.

This opens the door for an even more interesting response — stablecoins have become a killer app of blockchain technology.

Let’s use Tether, the leading stablecoin, as the example. The company has almost $100 billion in various fiat currencies that have been tokenized on different blockchains.

That money is held in a variety of investments to ensure the reserves are always available and protected.

This approach to a tokenized asset (cash!) has turned Tether into one of the best businesses in the world. Yesterday, CEO Paolo Ardoino published the following statistics about their Q4 performance:

* profit for the quarter: $2.85B, of which ~$1B in net operational profit (mainly US t-bill interests), ~$1.85B from gold and bitcoin holdings.

* total profit for 2023: $6.2B.

* cash & cash equivalents cover now 90% of all issued tokens, highest percentage in the last years.

* total US T-bill exposure (direct + indirect): $80.3B.

* excess equity: $5.4B (excess equity = undistributed profits on top of 100% reserves that Tether holds to back all issued tokens. Company decided to keep vast majority of profits within the stablecoin reserves to ensure highest resiliency).

* excess equity > remaining secured loans ($5.4B vs $4.8B). In 2023, as promised, Tether accumulated enough excess equity to remove the impact of secured loans on token reserves.

* VC investments portfolio (outside of token reserves and consolidated report): $1.45B. Investments span across AI infrastructure, Bitcoin mining, P2P telecommunications and others. These are confirmed to remain outside of the consolidated reserves report within a new segregated VC umbrella, so that such investments don’t and won’t have any impact on the token reserves.

Any business that can do $2.85 billion in profit during a 90 day period is hard to ignore. This puts them on a $11.4 billion annual run rate in profit. As Bitwise CIO Matt Hougan pointed out, Tether made more money than Goldman Sachs last quarter.

Messari CEO Ryan Selkis points out that Tether is now 10% of JP Morgan’s net profit, but with way fewer employees.

As I have pointed out before, even if Tether has 100 employees, than the company would be doing more than $100 million per employee in profit.

That is the craziest statistic I have ever heard in business.

$100,000,000+ in annual profit per employee.

So much for those critics that continue to claim there are no problems solved with this new technology. The actual truth is that one of the most profitable businesses, which is used by millions of people globally, was built on top of the technology.

Stablecoins, including Tether, USDC, and others, will continue to be very popular around the world as people look for a way to send stable value quickly and inexpensively. Anyone arguing the opposite is either unaware of the facts of the market or has an incentive to see progress happen slower.

But markets don’t wait on anyone. And Tether is proving the critics wrong day-after-day. Maybe the naysayers will realize their error at some point. Just don’t count on it.

Hope you all have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Darius Dale is the Founder & CEO of 42Macro.

In this conversation, we talk about the labor market, economics, Federal Reserve, interest rates, election year, and macro outlook.

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My Conversation with 42 Macro’s Darius Dale

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To investors,

The Federal Reserve is conducting their first meeting of the year today. The market expectation is that the Federal Open Market Committee will keep interest rates unchanged.

I believe this could be a mistake.

The current CPI reading shows 3.4%, which is more than 50% higher than the Fed’s stated target of 2%. From this perspective, the Fed has a 0% chance of cutting interest rates. They want to win the war on inflation and get back to the target.

The CPI data could be wrong though.

Truflation, the leading alternative economic data provider, shows inflation at just under 2% already.

From this perspective, the Fed would have already achieved their target, could claim victory, and should be cutting interest rates now.

But the Fed doesn’t use Truflation data.

The argument to the Federal Reserve has to be rooted in a different angle. You could argue that the real interest rate of the economy is increasing as CPI falls. You could argue that private payroll growth has slowed worse than expected. You could argue that the explosion of articles arguing for a “soft landing” is actually an indicator of a looming recession.

Regardless of which angle you take, the Federal Reserve is unlikely to listen. The data they look at is telling them a different story. Jeanna Smialek from the New York Times explains:

“The United States’ economy grew 3.1 percent last year, up from less than 1 percent in 2022 and faster than the average for the five years leading up to the pandemic. Consumer spending in December came in faster than expected. And while hiring has slowed, America still boasts an unemployment rate of just 3.7 percent — a historically low level.

The data suggest that even though the Fed has raised interest rates to a range of 5.25 to 5.5 percent, the highest level in more than two decades, the increase has not been enough to slam the brakes on the economy. In fact, growth remains faster than the pace that many forecasters think is sustainable in the longer run.”

Those numbers look strong. But remember, that data is backwards looking. It tells us what already happened, not what is about to happen. This highlights the problem with most human-led monetary policy decisions.

No one knows what is going to happen in the future.

We saw the negative side-effect of this during the pandemic. The Fed continued to tell us that inflation was transitory. They took too long to act and inflation eventually went over 9% in the economy. This overshoot of inflation was a direct cause of a misunderstanding of how sticky inflation would be, along with a slow response to the data that showed inflation was growing aggressively.

My concern is that the Fed is going to make the same mistake again. If they don’t cut interest rates soon enough, they risk overshooting to the downside and causing a recession. No one should want a recession to occur.

So the Fed could wait a few more months before cutting interest rates, but they risk having to make extreme cuts very quickly if they are wrong. Instead, they should do a 0.25% interest rate cut today to start slowly pushing us back towards a lower interest rate.

Extreme reactions should be avoided. Looking forward, not backwards, should be the name of the game. The Fed got inflation down and we should give them their victory so they don’t repeat their mistakes of the past simply to pursue a reputation achievement.

I don’t think we get the rate cut, but at least I am on record now saying that we should.

Hope you all have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Leif Abraham is the Co-Founder & CEO of Public.com. They are creating technology that makes building a multi-asset portfolio fast, secure, and frictionless.

In this conversation, we talk about the shift in investing trends, bitcoin ETF, technology vs financial advisors, giving revenue back to users, and operating the business.

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My Conversation with Public CEO Leif Abraham

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To investors,

Monetary policy is thought to be the work of a central bank. The economists and bankers spend an inordinate amount of time sifting through mountains of data to understand what is happening in an economy, while simultaneously hoping to make decisions today that can have a predicted, positive impact tomorrow.

The job is nearly impossible.

But central bankers don’t operate in a silo. They are part of a larger economy that has many moving parts. Take politicians as an example — fiscal policy decisions can have a profound impact on the economy, regardless of what happens with monetary policy.

This requires the central bank to hit a moving target at all times. Their difficult job gets even more difficult.

During the 2020 pandemic, the politicians and central bankers were on the same page. The central bank was cutting interest rates and perfecting the quantitative easing playbook. Politicians were dropping fiscal stimulus packages left and right.

Cheap money was flowing through the system in a way that would make any Keynesian proud.

Financial markets responded exactly how you would expect — asset prices rose aggressively, the liquidity crisis was mitigated, and inflation took off. This is the beauty of politicians and central bankers being in lock-step with each other, even if it led to the punishment of millions of savers across the country.

The party ended at the end of 2021 though.

The Federal Reserve realized that the market became too frothy and someone needed to take the drinks away at the party. Within months, the central bank began increasing interest rates at the fastest pace in history and eventually reached more than 5%.

There was only one problem — the politicians never got the memo.

Our elected leaders continued to pass legislation that flooded the system with money. There was the Infrastructure Investment and Jobs Act, the CHIPS and Science Act of 2022, and hundreds of billions of dollars to support proxy wars around the world.

At the same time that the central bank was trying to tighten monetary conditions, the politicians were playing loose and fast with money.

Central bankers have an even harder job when they are not on the same page as the politicians.

But the story is not over yet. Recently, politicians like Senator Elizabeth Warren have begun publicly calling for the Federal Reserve to drop interest rates. She and three other Senators wrote in a letter:

“As the Fed weighs its next steps in the new year, we urge you to consider the effects of your interest rate decisions on the housing market. The direct effect of these astronomical rates has been a significant increase in the overall home purchasing cost to the average consumer.”

This is an interesting development because the Senators are not wrong. High interest rates are definitely contributing to unaffordable housing. But that is not the only culprit. The immense fiscal spending that politicians have been doing for the last 15 years is also a significant component.

This letter also raises the question of whether politicians should be attempting to influence the central bank’s decisions. Both sides of the political aisle have been doing this for years, but it doesn’t make it right.

President Trump used to publicly tweet his opinion on what the central bank should do related to the strength of the dollar. President Biden has called Fed Chairman Jerome Powell into this office like a principal disciplining a student. Now these Senators are openly directing the Fed to take a specific stance on monetary policy decisions.

If we want the central bank to be independent, which is how the organization is supposed to operate, then it is inappropriate for any politician to openly try to influence the decisions. Thankfully, I doubt the central bank pays much attention to what the politicians are asking for, but we are all human and anything is possible.

Lastly, these complexities related to human decision-making and monetary policy are highlighted when you compare it to the software-driven monetary policy of an asset like bitcoin. The former system is subject to human error, but the latter can’t be changed regardless of what is happening in the world.

Maybe there is a lesson in that comparison. Either way, the politicians and central bankers are on different pages right now. That makes the central bankers’ job more difficult. And the big losers in the situation are the American people.

Hopefully that will change soon, but I won’t hold my breath.

Have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Hany Rashwan is the Co-Founder & CEO of 21Shares.

In this conversation, we talk about the bitcoin ETF, historical bull markets, tokenization, institutional interest vs retail, regulation, altcoin ETFs, and more.

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Wall Street Will FOMO Into Bitcoin - Conversation with Hany Rashwan

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You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

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To investors,

One of the promises of blockchain technology is a public ledger that can be audited by anyone, at any time, from anywhere in the world. Industry proponents historically point to this feature as a way to confirm how many bitcoin are in circulation, how many bitcoin are created on a daily basis, and the 21 million limit has not been changed.

That is not the only use case though. Yesterday we got another use case that could change finance.

Bitwise, a $1.5 billion asset management firm focused on the crypto industry, published the public bitcoin address for their spot bitcoin ETF holdings. Their announcement read:

“Today the Bitwise Bitcoin ETF (BITB) becomes the first U.S. bitcoin ETF to publish the bitcoin addresses of its holdings. Now anyone can verify BITB's holdings and flows directly on the blockchain. Onchain transparency is core to Bitcoin's ethos. We're proud to walk the walk with BITB.”

You can see the public address on the fund website too:

This may seem like a small item, but for the first time in history investors are able to verify the asset holdings of an ETF. It is easiest to understand the difference by looking at the gold ETF. There is reportedly billions of dollars in gold sitting in a vault, yet none of the GLD investors can verify or audit those holdings when they want.

Bitwise’s bitcoin ETF allows investors to do that now.

It wouldn’t be the crypto industry without some sort of chaos or jokes, so naturally someone sent 0.00006969 bitcoin to the public wallet address. This means that Bitwise now has the only over-collateralized bitcoin ETF on the market as well. Obviously, this is a joke, but it does highlight the ability for people to send bitcoin to this wallet address without Bitwise having to do anything.

This idea of on-chain audibility, along with on-chain governance of rules, is only going to become more important in the world. Last year we saw three of the largest bank failures in history occur, which potentially could have been identified earlier if anyone in the world could have audited the various bank holdings.

There will be less interest for companies to broadcast their internal balance sheets, but anytime a company is reportedly holding assets for customers or partners it makes sense for them to be publicly auditable.

Remember, the Pentagon has failed six straight audits.

Imagine a world where the government, who is entrusted with the citizens’ assets, had everything publicly verifiable. There would be less waste, more efficiency, and probably better outcomes.

Anything that can be on-chain likely will move on-chain in the future.

This on-chain world uses software to enforce the rules as well. The phrase “code is law” gets thrown around often to describe the phenomenon. This is possible because everything on-chain is digital. The assets are digital, the market participants are digital wallets, and the rules are written in a digital database.

There will be instances in the future that can’t come on-chain for rule enforcement. Take the current southern border crisis as an example — Texas has declared an invasion of their state and is fortifying their border. The national government sued them in court to prevent them from fortifying the border. The Supreme Court ruled in favor of the national government.

Texas is ignoring the Supreme Court decision and claiming this is a state’s right issue, not a federal government issue. Now a number of other states and governors are coming out in support of Texas and Governor Abbott.

The US Constitution clearly lays out rules for our nation. The problem in the analog world is how to interpret these rules, along with how to enforce them. Comparing these challenges to the on-chain world, where software requires crystal clear rules and enforcement directions in advance, it is easy to see why people will continue preferring the digital version.

Again, it won’t always be possible, but it will be the preference whenever it is possible.

The idea of on-chain audibility and governance is at its infancy. The trend is clear though — we are going to see more things move on-chain as time passes. You can’t stop an idea whose time has come. The better system is here. The early adopters are adopting it. Eventually the masses will follow.

Hope you all have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Fred Thiel is the Chairman & CEO of Marathon Digital Holdings (NASDAQ:MARA), a digital asset company that mines cryptocurrencies with a focus on the blockchain ecosystem and the generation of digital assets.

In this conversation, we talk about energy harvesting, brand new bitcoin mining sites, bitcoin halving, hashrate, outlook for 2024, and more.

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Marathon Digital CEO Breaks Down Why Miners Are Well Positioned Post-Halving

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You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe