The Pomp Letter

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To investors,

Fidelity manages over $11 trillion in assets. They are one of the titans of the traditional financial system. When their team shares an opinion publicly, people around the world pay attention.

This is why it is so interesting to take a look at recent comments by Jurrien Timmer, Director of Global Macro at Fidelity, who has been tracking bitcoin’s rise over the last 3-4 years and periodically updates his perspective.

Timmer tweeted that bitcoin’s current price rise is in-line with past bull markets, which is objectively true. But that is not the interesting part of his analysis.

He followed this chart with the following paragraph:

“In my view, Bitcoin is a commodity currency that aspires to be a store of value and a hedge against monetary debasement. I think of it as exponential gold.”

This is the first time that I have heard someone use the phrase “exponential gold.” It is a perfect way to describe bitcoin though. The digital currency embodies the sound money principles of gold (outside the system and can not be debased), while benefiting from the asymmetry of new technology adoption.

Downside protection of gold, upside of tech stocks—exponential gold. Truly an unique asset.

Timmer followed this comment with two more charts. The first shows purchasing power trends for various assets from 1900 till today. He writes “gold is money of course, but it’s too deflationary and clunky to be used as a medium of exchange. Hence, investors own it primarily as a store of value – and one of the many reasons Bitcoin is often compared to gold.”

Then Timmer explains in the past “during structural regimes in which inflation runs hot, real rates are negative, and/or money supply growth is excessive, gold tends to shine and gain market share relative to GDP. Notable examples: the 1970s and 2000s.”

Gold has done a fantastic job of preserving purchasing power over the years. I don’t know many young people who are interested in holding the precious metal though. They look at it as an asset with no upside return, regardless of whether that is right or wrong.

If bitcoin can leverage the sound money principles to benefit from these periods of high-inflation and/or undisciplined monetary policy, just as gold has done for decades, then it would make sense that young people will continue to allocate capital to the digital version.

As Balaji Srinivasan once said, by 2040 everyone under the age of 30 will have grown up in a world where bitcoin existed. They will see no difference in the “newness” of bitcoin vs gold. Both assets will have been around forever in their eyes.

So now that Fidelity is publicly calling bitcoin “exponential gold,” we have to assume that Wall Street is waking up to this same idea. If you wanted to design an asset from scratch to benefit in a long-term loose monetary policy regime, it would be the downside protection of gold and the upside opportunity of tech stocks.

More and more it appears this is a good description of bitcoin. Exponential gold.

Let’s see if this phrase catches on.

-Anthony Pompliano

If you enjoyed this letter, you should consider subscribing to the Pomp Letter. I write 3-5x per week and explain in simple language what is happening in the economy, financial markets, and bitcoin.

Praying for Exits is a pseudonymous account that is run by one of the most interesting early stage investors in venture capital.

In this conversation, we talk about aerospace, artificial intelligence, defense technology, current state of venture capital, media, and why being pseudonymous is so advantageous for this specific investor.

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Pseudonymous investor talks Space, AI, and Defense Tech

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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

Today’s letter is brought to you by Sidebar!

Ready to accelerate your career? As we all know, navigating a big career transition is hard to do. It’s one thing to set a lofty goal, and it’s another thing to have the support system for yourself to follow through.

Sidebar is a private, highly vetted leadership program for those who want to do more, do it better, and do it faster. 

Sidebar’s approach to helping members level up their careers is focused around small peer groups, a tech-enabled platform, and an expert-led curriculum. Members say it’s like having their own Personal Board of Directors. 

93% of members say that Sidebar has made a significant difference in their career trajectory.

"Providing and receiving support from others who play a similar role to you is one of the best ways to grow your capabilities and succeed." - Vice President, Roku

“The facilitation has been great. I love the timer bar, the way the conversation is structured, the commitment and accountability.” - Vice President, Clip

“I've been impressed by Sidebar’s technology platform. The real time agenda tracker at the top of our weekly meetings really helps the group stay on track.” - Senior Director, Microsoft

Nothing will get you further in your career than learning from your peers - it’s a true competitive advantage. Join the growing waitlist of top senior leaders, and apply to become a founding member.

To investors,

Stanley Druckenmiller is an investing legend. He never had a down year in the three decades that he ran Duquesne Capital Management, while simultaneously achieving investment returns of about 30% annually during the same time period.

To say he understands macro economics and financial markets would be an understatement.

This is why it is so important to pay attention when Druckenmiller calls our attention to an issue. Lately, the famed investor has been on a roadshow of speeches and interviews to warn about the dire financial situation that the United States finds itself in at the moment.

There are three big categories that I would put Druckenmiller’s comments in:

* The United States has too much debt and should avoid worsening the situation

* The United States has a serious spending problem and should cut expenses

* The United States should have refinanced the national debt at low interest rates

This is not the first time that Druckenmiller has raised these concerns, but given the recent explosion in spending (and the increase of $500+ billion in the national debt) he seems to have a renewed interest in surfacing the warning yet again.

Rather than spend our time debating the nuances of Druckenmiller’s comments, including controversial analysis related to whether the Treasury could have found a bid in the market for extremely long duration bonds, I want to call out my biggest takeaway—the solution is not going to come from the government.

The national debt is over $33.5 trillion according to government measurements. The actual debt, including future entitlements that have been promised, is actually over $100 trillion already. In order to get spending under control, politicians would have to make incredibly difficult decisions that would be unpopular with voters. This would include cutting entitlements (which Druckenmiller has been saying for years) and refraining from sending hundreds of billions of dollars abroad in support of proxy wars.

Some of you will read that last sentence and say to yourself, “that is impossible” which highlights the lack of popularity in both decisions.

Essentially, politicians would have to do the hard thing that would guarantee that said politician would lose their job at the next election. It would be a personal sacrifice for the future of our country.

There are some great Americans who serve in positions of leadership, but the majority of politicians appear to be more interested in gaining and keeping power, rather than sacrificing themselves for the collective long-term good. So I would not hold your breath waiting for decreases in spending, regardless of which political party is in office.

Instead, the American people will have a choice. We can either brace ourselves for the economic pain that comes from crippling national debt, a tailwind for higher inflation, and a complete lack of monetary policy discipline, or we can choose to build our way out of the situation through entrepreneurship, innovation, and technology.

The default state for any human is entropy. A society is no different. If we do nothing, the economic pain will be brutal. We can look to numerous examples around the world where this has already happened.

If we don’t want our fate to follow these failed economies, then we must create a renaissance of innovation. Rebuild our national infrastructure. Rebuild our military industrial base. Create the next 100 companies that reach $1 trillion market cap. Ensure we are the leader in aerospace, bitcoin, artificial intelligence, virtual reality, nuclear power, and a plethora of other important technologies.

It is time to build. It is time to create. It is time to innovate.

We have to grow GDP faster than the government can take on debt. Builders vs destroyers. That is the competition now. And we don’t have time to sit around and complain, this will require a herculean effort from our smartest and most skilled citizens.

Let’s just hope it is not too late. I’ll talk to everyone tomorrow.

-Anthony Pompliano

If you enjoyed this letter, you should consider subscribing to the Pomp Letter. I write 3-5x per week and explain in simple language what is happening in the economy, financial markets, and bitcoin.

Lyn Alden is the author of a brand new book called "Broken Money: Why Our Financial System is Failing Us and How We Can Make it Better." This book is almost 500 pages, and it is a fantastic breakdown of the history of money, why the system is broken, and where we go from here.

In this conversation, we talk about how the average individual is being impacted, saving vs investing, diversification, energy as the arbiter of truth, interest rates, US treasury, national debt, and more.

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Lyn Alden on How Bitcoin Fixes Broken Money

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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

Today’s letter is brought to you by Trust & Will!

Trust & Will is the most trusted name in online estate planning and settlement.

The company has helped hundreds of thousands of families create their estate plans, and they’re just getting started. Trust & Will enables every American to create a plan that’s customized to fit their needs, their life, and their legacy.

Their mission is to make estate planning simple, affordable, and inclusive.

All of Trust & Will’s documents have been designed and approved by estate planning attorneys to meet the highest legal standards. Their process is simple, secure, complete, and customized for your specific needs and state requirements.

To investors,

The idea of safe haven assets is not new. These are assets that should retain or increase their value during times of uncertainty. Historically, US Treasuries have served as the ultimate safe haven because the bond came with a fixed rate of return if held to maturity and the only way you would not be paid back your principal is if the US government defaulted.

Given the low likelihood of this situation, investors have been pouring capital into US Treasuries for decades whenever things got shaky in financial markets.

But something weird has been happening over the last two years—US Treasuries are starting to lose their appeal as a safe haven asset. If this trend continues, it will force investors to recalibrate how they think about risk, safe havens, and capital allocation.

For example, Arthur Hayes points out that TLT - the US Treasury ETF - is down approximately 16% since Russia invaded Ukraine and the same ETF is down about 3% since Hamas killed hundreds of civilians in Israel.

US Treasuries being down in value weeks or months after these geopolitical events would not necessarily be noteworthy if all asset prices were down collectively. You could blame the macro market conditions, certain actions from the Federal Reserve, or claim that investors were spooked across the board.

That is not what has happened though.

At the same time that US Treasuries are falling in value during uncertainty, bitcoin continues to rise in value. These two assets have decoupled and investors appear to be treating bitcoin as the safe haven asset. In a way, investors are dumping bonds to buy bitcoin.

Since the Russia/Ukraine conflict started, bitcoin has appreciated around 50%. Since the Hamas/Israel conflict started, bitcoin is up about 24%. Not only is bitcoin up materially on both time frames, but remember that bitcoin has appreciated at the same time that TLT has gone down.

This development is surprising enough that people across the market are starting to verbalize their surprise. Mohamed El-Erian, the Chief Economic Adviser at Allianz, recently was on CNBC and said the following about US Treasuries losing their safe haven status:

“We haven't seen the flight to quality and the flight to safety that you would expect, given what's happening in the world…So yes, it should be the safe-haven, it should have already benefited. But the reality is that the 10-year yield today is a good 70 basis points higher than it was before this latest conflict erupted.”

El-Erian also pointed out that bitcoin and US equities appear to be the beneficiaries of this trend change, which each asset class becoming more of a safe haven in the minds of investors.

In my opinion, US equities will always have a bid in the market. It goes back to the idea of Warren Buffett’s famous line: “Never bet against America.” Whether Buffett is right or wrong, an entire generation of investors are going to heed that advice.

The more interesting conversation is around bitcoin. Why is a “risk asset” going up in value during times of uncertainty and tight monetary policy? The simple answer is that investors are starting to recognize that bitcoin is not a risk asset at all. In fact, these professional investors are actually warming up to the idea that bitcoin is the ultimate safe haven asset.

As I wrote in March 2021, bitcoin already proved to be the best safe haven asset coming through the first 12 months of the pandemic crisis. But many people, including some of the smartest investors in the market, brushed this price performance off as an anomaly.

It is getting harder to do that with each passing day. Take Blackrock CEO Larry Fink as the prime example. He previously said bitcoin was an “index of money laundering,” but has changed his tune in recent months and recently stated that bitcoin was a flight to quality. Fink is not an insane anon on the internet. He is the leader of the world’s largest money manger.

So why is Larry Fink and the rest of the financial industry waking up to bitcoin’s role as the ultimate safe haven asset?

Bitcoin provides certainty and predictability regardless of what is happening in the world. Whether there is peace or war, and whether we are in loose or tight monetary regimes, bitcoin will continue to produce 900 bitcoin per day until the next halving. At that point, bitcoin will produce 450 bitcoin per day for the next ~ 4 years.

This level of predictability is foreign to financial markets because the legacy system has become a reactive cesspool of guessing and human error.

On top of the certainty that bitcoin provides through its monetary policy, the decentralized protocol also allows anyone to audit the system at any time. This real-time audibility is increasing in importance as financial markets become more uncertain. If I asked you to confirm how much money has been printed by any central bank in the last 24 months, how would you do it with 100% confidence? You can’t.

Drop bonds, buy bitcoin.

This was previously something that was parroted by the hardcore bitcoin community, but it appears to have permeated into traditional finance and the global financial market.

These large financial institutions, coupled with pensions/endowments/foundations, hold trillions of dollars in bonds. If that capital was to flow in a different direction, it would be catastrophic for the United States and an asset like bitcoin would have to re-price at substantially higher levels.

The Editorial Board at the Financial Times recently wrote about the decreasing interest in bonds:

“The US government’s widening deficit has driven higher bond issuance, while rising spending needs and political turmoil are raising expectations for future Treasury supply too. But demand has fallen, particularly with the Fed shrinking its Treasury holdings via quantitative tightening. Belief that the underlying interest rate could be higher in the long term is also growing. This is pushing up yields, but uncertainty also remains high. While 10-year yields have been on an upward march since the Fed began raising rates, intraday swings are common.”

Let’s not get ahead of ourselves though. Ultimately, assets benefit or suffer from a confidence game.

Capital flows suggest investors are decreasing their trust in Treasuries and increasing their trust in bitcoin. This phenomenon will be worth watching over the coming years. It could mark one of the most significant changes to financial markets in the last few decades.

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

-Anthony Pompliano

If you enjoyed this letter, you should consider subscribing to the Pomp Letter. I write 3-5x per week and explain in simple language what is happening in the economy, financial markets, and bitcoin.

Will Clemente is the co-founder of Reflexivity Research.

In this conversation, we talk about bitcoin, why the price has gone up, ETF speculation, various metrics, bitcoin halving, and more.

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Will Clemente Breaks Down Data Suggesting Bitcoin Bear Market Is Over

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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

Today’s letter is brought to you by Trust & Will!

Trust & Will is the most trusted name in online estate planning and settlement.

The company has helped hundreds of thousands of families create their estate plans, and they’re just getting started. Trust & Will enables every American to create a plan that’s customized to fit their needs, their life, and their legacy.

Their mission is to make estate planning simple, affordable, and inclusive.

All of Trust & Will’s documents have been designed and approved by estate planning attorneys to meet the highest legal standards. Their process is simple, secure, complete, and customized for your specific needs and state requirements.

To investors,

There is chaos and uncertainty in the world right now. Russia and Ukraine. Hamas and Israel. China and Taiwan. The southern border. Our national debt. Housing affordability. Inflation. A lack of leadership. Undisciplined monetary policy. Loss of trust in mainstream media.

The list seems to go on forever.

In times of uncertainty, humans have a desire to take action so they can feel some semblance of control. This is most obvious in central bank’s constant reaction to whatever is happening in the world. If an outlook looks bleak, they will cut interest rates and print money. If an outlook looks strong, they will raise interest rates and sell assets off their balance sheet.

The entire world runs off a reactive monetary policy which requires humans to understand complex situations, while predicting how their decisions today will affect the future.

This is not only insane, but it has proven to be nearly impossible over the years. Humans are horrible at understanding complex situations. Try to get a group of people to agree on how to handle Russia, Hamas, our national debt, or inflation.

It won’t happen.

Thankfully, the world is realizing we have another option—bitcoin. The decentralized currency benefits from an algorithmic monetary policy that has become the most disciplined central bank ever created. Bitcoin’s monetary policy does not change, regardless of what happens in the world. Changes in geopolitics, consumer demand, or articles in the media can not influence what the software is designed to do.

The idea of a disciplined central bank becomes incredibly important in a world filled with undisciplined central banks, which are obviously unprepared to deal with the ever-changing cocktail of chaos and uncertainty.

Don’t take my word for it though.

The market is screaming this message at the moment. Bitcoin’s price has appreciated more than 20% in the last 7 days. Some of that appreciation is due to speculation around the spot bitcoin ETF approval, but some of the global interest is being driven by the increasing global chaos and uncertainty. There is never one single thing that drives the movement of asset prices and bitcoin is no different.

Upon further analysis, you will find some very interesting data points regarding bitcoin. For example, Dylan LeClair pointed out that treasury bonds are now down more than bitcoin.

Think about that for a second. We have been told for decades that bonds were the safe investment. People flee to bonds in times of chaos and uncertainty. At least that is what the market analysts, investors, or economists would tell you.

Again, the market is telling us something different. We have to listen or we risk misunderstanding the current situation.

Another interesting data point related to the recent rise in bitcoin is how China’s current economic environment could be impacting the digital currency. Tyler Durden points out that “every time China FX outflows surge, bitcoin erupts.”

This chart shows an acceleration of capital flight from China last Friday, which is quickly followed by the recent price appreciation of bitcoin.

Chinese investors are not the only ones participating in the fun though. Speculation around a spot bitcoin ETF in the United States continues to drive significant interest domestically as well. Yesterday, news broke that Blackrock has successfully obtained a CUSIP number for their bitcoin ETF (normal part of the process) and they also amended their filing to state an intention of seeding the fund with capital before the end of October.

Neither of these developments are a surprise, but any updates or movement on the ETF front will continue to elicit interest from various groups anticipating the spot bitcoin ETF approval.

As if these data points were not enough, the bitcoin supply is highly illiquid at the moment. The total supply held by long-term holders is the highest it has ever been in history.

More than 56% of all bitcoin in circulation has not moved in the last two years, which is despite the volatility associated with an approximately 80% drawdown in price from the previous all-time high of $69,000.

That is a level of conviction from bitcoin holders that can not be found in any other financial asset.

Because of this market illiqudity, Bloomberg’s Jamie Coutts points out:

“For half a year, this asset danced between $25k-$31k. More coins have changed hands in this tight range than anywhere else in its price distribution. This is also the longest period of compressed volatility in its history. The next phase in the breakdown of the fiat monetary order is nearly upon us. Gold is also hinting at this. When bitcoin breaks $31k, its an air pocket to $39k.”

So to recap—we have a decentralized currency that has perfected an algorithmic monetary policy which provides the most disciplined monetary policy ever created, which is becoming better understood on a global basis, while the world is experiencing a heightened level of chaos and uncertainty.

Bitcoin is the calm among the rough sea.

Many investors on Wall Street and elsewhere would have laughed at that statement if I said it a few years ago. But they have a harder time laughing when Blackrock CEO Larry Fink is on national television saying bitcoin is a flight to quality during these tough times.

I am a big fan of Lyn Alden’s recent point about the importance of spending the time to learn about bitcoin with fresh eyes. She writes:

“If you had an opinion about Bitcoin in the prior cycle, don't go on that. Do a fresh reset. Review the facts now. Bitcoin rewards those who humbly re-assess. Understand how it consumes energy, what it fixes, etc. Spend a couple hundred hours on it, bullish or bearish.

The next cycle is likely to be volatile, as was the last cycle. I don't like the "buy bitcoin" meme. I prefer the "study bitcoin" meme. Just take the time to understand it. It's like telling someone to research the internet, but of value rather than dialogue.”

Whether you like bitcoin, hate bitcoin, or are indifferent to the asset, it is important that you spend the time to re-evaluate what is happening here. Sometimes in financial markets you have to simply find the most important thing and get it right—I believe bitcoin is that one thing that will ultimately determine the financial performance for millions of investors in the coming decade.

Bitcoin was the best performing asset over the last decade and the increasing chaos, uncertainty, and undisciplined monetary policy globally seems to suggest that the asset will be very important for the next one.

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

-Anthony Pompliano

If you enjoyed this letter, you should consider subscribing to the Pomp Letter. I write 3-5x per week and explain in simple language what is happening in the economy, financial markets, and the business world.

Lance Lambert is the co-founder, editor-in-chief, & CEO of ResiClub, a brand new media publication that I co-founded with Lance to cover residential real estate.

In this conversation, we talk about housing affordability, how we got here, why it’s so bad, impact of interest rates, specific market analysis of what’s hot & what’s not, potential solutions, and what Lance is building with ResiClub.

Listen on iTunes: Click here

Listen on Spotify: Click here

Earn Bitcoin by listening on Fountain: Click here

The Housing Market Is Completely Broken

Podcast Sponsors

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

* Auradine - A new bitcoin miner powered by the world’s first 4 nanometer silicon chip technology.

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

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 Trust & Will!

Trust & Will is the most trusted name in online estate planning and settlement.

The company has helped hundreds of thousands of families create their estate plans, and they’re just getting started. Trust & Will enables every American to create a plan that’s customized to fit their needs, their life, and their legacy.

Their mission is to make estate planning simple, affordable, and inclusive.

All of Trust & Will’s documents have been designed and approved by estate planning attorneys to meet the highest legal standards. Their process is simple, secure, complete, and customized for your specific needs and state requirements.

To investors,

The Federal Reserve pledged to “destroy demand” in early 2022 when they revealed their plan to begin hiking interest rates. For once, the Fed did what they said they would do and their actions had the intended consequences on the American consumer.

These rate hikes did not simply destroy demand, but rather they turned the American consumer into an economic punching bag.

For example, we can look at car loans. Financing for new cars can range from just over 5% for a great borrower (based on credit score) to 14% for the worst credit scores. Used car loan interest rates are slightly over 7% for the best borrowers and more than 21% for those on the other end of the quality spectrum. Imagine paying 21% interest on a loan for a used car — insane.

These rising interest rates are forcing borrowers to miss their payments at a record rate. Claire Ballentine at Bloomberg writes “the percent of subprime auto borrowers at least 60 days past due on their loans rose to 6.11% in September, the highest in data going back to 1994, according to Fitch Ratings.”

It makes sense that more consumers will fall behind on their payments as the payments become more expensive. But remember, majority of Americans need their car to get to work, school, the grocery store, etc. These are usually not exotic purchases, especially at the subprime level, rather they are for a car that is essential to the livelihood and survival of the owner.

The Fed’s interest rate hikes has beaten up car owners.

This is not the only place we can see this issue. Credit card delinquencies have been an interesting development. The second quarter credit card delinquency rate sat at 2.8%, which is not particularly concerning given that the delinquency rate was 6.8% during the Global Financial Crisis. The concerning aspect is how quickly the rate has almost doubled from 1.6% in 2021 to 2.8% in 2023.

You can see the historical context and the rate of rapid acceleration in these charts from the St Louis Fed.

Speaking of Fed data, one of the wildest charts is how depleted the personal savings of the American consumer has become. As interest rates have risen, coupled with the persistent appreciation of consumer good prices, citizens have to spend the money that is available to them, including from their hard-earned savings.

The last time that the personal savings rate was this low? Leading up to the Global Financial Crisis. That doesn’t exactly instill confidence in market participants who are watching the American consumer get punched over and over again from every angle as interest rates rise.

Related to consumer prices, food continues to be an area of concern for the American consumer as well. We have seen inflation ravage this area of citizen’s budget. There were times in the last 12 months where food prices has increased by more than 10% over the preceding year. According to the most recent data, food prices are up almost 4% in the last 12 months, which is slower growth than we have had previously, but the dirty secret is that none of the past price increases to food are going to be rolled back. Once food prices increase, they create a new normal at the elevated level.

As Bloomberg showed, food price growth can fluctuate from year-to-year but the aggregate prices of food only continues to grow at a ridiculous rate. Food prices grow faster than wages, so people have a more difficult time affording food each year.

This is just another example of the American consumer becoming a punching bag for the US economy.

There is no end in sight for the economic pain that citizens are feeling right now. To make matters worse, there is an elevated chance of a recession on the horizon, which would punish consumers who are already in a precarious financial position. The Fed’s mandate to get inflation under control has worked to a degree, but there are concerns that much of the “wins” that have been attributed to the Fed can be explained by high base effects in the CPI numbers.

Regardless of whether you think the Fed has done a good job or a bad one, it is objectively true that the American consumer is on the losing end of the current economic situation. We didn’t even get into the fact that according to the US government’s data, $1 in 2020 is worth only $0.83 today. These economic data points showcase why Americans constantly feel like they are falling behind, while simultaneously our national debt continues to explode higher signaling persistent pain in our future.

I wish I had better news for you all to start your Monday. We have to call the situation like we see it though. Strengthen your balance sheets. Prepare for more pain. And, of course, hope that I am wildly wrong and things turn out to be much more positive than they seem.

I’ll talk to everyone tomorrow.

-Anthony Pompliano

If you enjoyed this letter, you should consider subscribing to the Pomp Letter. I write 3-5x per week and explain in simple language what is happening in the economy, financial markets, and the business world.

Elbridge Colby is the co-founder and principal of the Marathon Initiative, a policy initiative focused on developing strategies to prepare the United States for an era of sustained great power competition. He is the author of “The Strategy of Denial: American Defense in an Age of Great Power Conflict.”

In this conversation, we talk about the threat from China, Ukraine & Russia, what is happening between Hamas & Israel, how this all feeds into the economic strength of America, how private sector can make an impact, and what America can do right now to put us in a better position.

Listen on iTunes: Click here

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How America Can Prepare For Conflict With China

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To investors,

The national debt has increased by more than $600 billion in the last month. That is $20 billion every day or $833 million every hour. We are now at a total of $33.65 trillion. It is hard to wrap our heads around how insane this pace has become.

Unfortunately, there is no end in sight.

At the same time as the debt is exploding higher, the US economy is showing signs of an incoming recession. Take the inverted yield curve as an example — short-term Treasury yields are higher than long-term Treasury yields.

Over the last 55 years, every inversion between the 3-month and 10-year yield curve was followed by a recession. The shortest lag between inversion and the recession was 3 months and the longest lag was 15 months.

But an economic indicator like yield curve inversion seems to be at odds with the public narrative that a soft landing will be possible, right? Well, Bloomberg recently did a study that showed a rapid increase in articles talking about a soft landing was usually followed by a recession.

You can see the large spike in recent articles mentioning a soft landing would suggest that a recession is incoming. Humans are optimistic and like to think that bad things are not on the horizon, but this study shows that we should be fearful when others are not.

Anna Wong and Tom Orlik have also pointed out that American household’s savings is beginning to run out. This savings had drastically increased during the quantitative easing period related to the pandemic, but households can only hold on for so long before the money starts to run dry.

To recap, we have yield curves inverting, a spike in soft landing articles, and households running out of money — what is the Fed going to do?

The answer is easy: If we enter a recession, the Fed will be forced to cut interest rates and print money.

Herein lies the problem. The national debt has been growing at a rapid pace, so any additional money printing would only compound the problem. Without this acceleration in debt accumulation, we are on pace to hit $41 trillion by simply extrapolating the last month’s growth rate for the next 12 months.

The number gets even more concerning if the Fed is forced to combat a recession in the US economy.

As if that situation is not difficult enough to navigate, the Fed is not operating in a vacuum of economic data. The United States is also providing monetary support to two international conflicts in Ukraine and Israel to the tune of hundreds of billions of dollars. Each of those wars does not appear to have a clear objective or end date, so we run the risk of new forever wars putting a financial strain on an already bleak US financial health outlook.

Lastly, the United States is going to be faced with hard decisions domestically as well. The southern border has become porous and there are reports that hundreds of thousands of migrants are crossing the border each month. These individuals, who are mostly seeking a better life provided by the democratic and capitalist society of America, are arriving in cities that are ill-equipped to properly support them, which has led to a series of calls from local and state leaders for more federal aid.

This obviously adds to the financial strain on the national financial situation and accelerates the national debt issue.

There are many people who will argue that the national debt does not matter. We are the controllers of the global reserve currency and we can print money whenever we want. My response is always the same, “if the national debt doesn’t matter, then we should print $500 trillion tomorrow and solve all of our problems!” If you think we could do that and there would be no problems, I am very worried for you.

The national debt does matter. We will eventually pay for our sins if we do not get this situation under control. The US dollar can’t hold its value while the debt continues to accelerate at such an incredible pace. At some point, the US may face the nearly impossible decision—save our allies or save our country?

I don’t have all the answers. This situation is very complex. I don’t envy the position of our leaders. There is no known solution on the monetary policy side that can address each problem we are facing, but monetary policy discipline would be a good step in the right direction. The concept of a balanced budget feels impossible in the United States given the current situation, but we had one less than 25 years ago—there is no reason why the right leadership team could not bring us back to that position of strength.

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

-Anthony Pompliano

Elbridge Colby is the co-founder and principal of the Marathon Initiative, a policy initiative focused on developing strategies to prepare the United States for an era of sustained great power competition. He is the author of “The Strategy of Denial: American Defense in an Age of Great Power Conflict.”

In this conversation, we talk about the threat from China, Ukraine & Russia, what is happening between Hamas & Israel, how this all feeds into the economic strength of America, how private sector can make an impact, and what America can do right now to put us in a better position.

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How America Can Prepare For Conflict With China

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Today’s letter is brought to you by Trust & Will!

Trust & Will is the most trusted name in online estate planning and settlement.

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To investors,

We don’t have to look far to realize that George Soros nailed the concept of reflexivity.

Let’s go back to March 2020. The Federal Reserve perceived a major issue, so they conducted two emergency interest rate cuts to arrive at 0%. As any student of reflexivity knows, I use the term “perceived” because it ultimately does not matter whether there was a true crisis on their hands or not. As long as the Fed believed a crisis was on their hands, they were going to act.

And act they did.

Those emergency rate cuts, coupled with a level of money printing we have not seen in my lifetime, created the perfect storm for an explosion in asset prices. It was a great example of reflexivity…asset prices had fallen from the sky in March 2020 as fear set in, but they came roaring back once everyone realized the world was not ending.

That period will likely not be the last example of the 2020s. Here is an interesting question—does the concept of reflexivity suggest the Fed will have to aggressively cut interest rates soon?

Maybe.

The Fed’s interest rate cuts back in 2020 were met with the reflexive response of the fastest interest rate hikes in history, which started almost exactly two years later in March 2022. Just as fast as rates went down, rates skyrocketed in an attempt to get inflation under control.

This boom-bust cycle is the perfect example of what happens when humans, who have been tasked with the impossible job of managing an economy, begin to make rash decisions based on perceived knowledge.

If rates went down aggressively, followed by an aggressive raising of rates, should we now expect another round of aggressive rate cuts?

I am not positive, but the odds of that scenario appear to be increasing.

The decision-making process of Fed officials is not going to change any time soon. These are humans who are forced to make decisions today based on backwards looking data, which is dependent on a perceived understanding of reality. There is a nearly 0% chance that the Fed, or almost any other market participant, could correctly articulate the current economic situation and what is going to transpire over the coming 6-12 months.

Ignore Soros’ politics for a second. As I mentioned at the start of today’s letter, he seems to have nailed this idea.

Add in the fact that the US national debt is accelerating to the tune of hundreds of billions of dollars per month at the moment, which is partially due to our decision to fund the war in Ukraine, and it is easy to see a scenario where the Fed has to conduct significant quantitative easing to be better positioned to monetize the debt. This analysis doesn’t even include potential future monetary support for Israel or Taiwan either.

Think that is not going to happen? President Joe Biden was on 60 Minutes last night confirming his intention to ask Congress for billions of dollars in support of Ukraine and Israel. And Treasury Secretary Janet Yellen said in an interview this weekend that “we can certainly afford two wars.”

Interestingly, Yellen did not mention in the interview that the US government almost shut down a few weeks ago because we couldn’t afford to operate domestically for a few days. Not sure what money she thinks we have, unless she is imaging all of the future dollars that the US will have to print out of thin air.

That means the debt will have no end in sight.

Ok, let’s get back to interest rates. These rates were reflexive from 2020 through 2023. If I was a betting man, I would be willing to bet the odds are over 50% that the Fed will have to reverse course and drop interest rates faster than expected as the government continues to spend like drunken sailors.

You can’t have a government engaged in multiple violent conflicts as a financial sponsor if said government is spending more money on national debt interest payments than their defense budget.

It is ridiculous that I even need to call that out, but here we are.

There are very few people talking about a scenario where rates continue to be reflexive and the Fed is forced to drop interest rates aggressively. The theory of reflexivity suggests more of us should be considering the possibility and the math behind the aggressive growth of the national debt is simultaneously smacking us in the face.

Hopefully this letter makes you think more deeply about what could transpire. I would love to hear what each of you believes is the likely path forward. As you know, I learn more from you all than you will ever learn from me.

Hope you have a great start to your week. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Darius Dale is the founder & CEO of 42Macro.

In this conversation, we talk about their Weather Model, economy & financial market conditions, how US fiscal policy reacts to conflicts around the world, and how investors can think through various outcomes.

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How Markets Are Reacting To Global Conflict

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To investors,

Paul Krugman is a famous economist who teaches economics at the City University of New York. He writes a column for The New York Times. And in 2008, he won a Nobel Prize for his work on international trade and the distribution of economic activity globally.

Krugman is also wrong in public A LOT. Take, for example, his analysis of the internet in 1998:

“The growth of the Internet will slow drastically, as the flaw in ‘Metcalfe’s law’—which states that the number of potential connections in a network is proportional to the square of the number of participants—becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.”

This could be cited as one of the all-time great bad takes. Not only does Metcalfe’s law remain intact, but Krugman’s analysis that “most people have nothing to say to each other” highlights a serious misunderstanding of how humans and societies function.

Krugman has not been a fan of bitcoin either.

He wrote column’s titled Adam Smith hates Bitcoin and Bitcoin is Evil in 2013. The digital currency has appreciated thousands of percent since these inaccurate public declarations. That hasn’t stopped Krugman from doubling and tripling down on his disdain for bitcoin.

But nowhere has Krugman’s horrible takes been more apparent than on Twitter/X.

Yesterday, Paul Krugman gifted us with one of his best (worst!) takes in years. He tweeted a chart of CPI excluding food, energy, shelter, and used cars, while exclaiming that the war on inflation is over.

This is so ridiculous that it may not be worth responding to, but I honestly can’t help myself. The first problem is that Krugman is correct inflation is down as long as you don’t include anything we actually need to live, such as food, energy or shelter. That horrific take alone should be disqualifying, but I’m not done yet.

As for Krugman’s comment that “we won at very little cost,” he must be forgetting that we widened the income inequality gap, made housing unaffordable, and destroyed billions in retirement savings over the last three years. Again, not a big cost as long as you aren’t one of the hundreds of millions of Americans being affected by the undisciplined monetary policy coming from the Federal Reserve.

Lastly, the Bureau of Labor Statistics would like a word with the perpetually wrong economist regarding his commentary that the war on inflation is over. We saw a 0.6% increase in the month of August and a 0.4% increase in September of this year.

Not many people are arrogant enough to claim victory when inflation is still increasing by half a percent each month.

Now I don’t want to be too harsh on Paul Krugman. Everyone, including myself, is wrong in public if you play the investment game long enough. We shouldn’t condemn someone for inaccurate thoughts or predictions, especially since we are all trying to learn alongside each other, but we should vehemently call out the intellectual dishonesty that comes from a tweet like Krugman’s yesterday.

The inflation concern is not over. Our national debt is exploding to the tune of hundreds of billions of dollars per month at the moment, so the Federal Reserve and US government will be forced to debase the dollar in response given enough time. That easing of monetary policy, coupled with the recent month-over-month increases in CPI metrics, should be a word of caution to every economist.

Paul, if you’re reading this, buy some bitcoin, slow down on the ridiculous tweets, and stop fighting the inevitable. We either debase the currency to save our country and economy, or we risk falling victim to the same errors of past great civilizations.

Hope you all have a great weekend.

-Anthony Pompliano

Darius Dale is the founder & CEO of 42Macro.

In this conversation, we talk about their Weather Model, economy & financial market conditions, how US fiscal policy reacts to conflicts around the world, and how investors can think through various outcomes.

Listen on iTunes: Click here

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How Markets Are Reacting To Global Conflict

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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

To investors,

Housing affordability in the United States has become a national crisis.

It is harder to own a home today than it has been in the last 40 years. Approximately 50% of American citizens are 40 years old or younger, so this is the worst housing affordability period in their lifetime thus far.

When a national crisis arises, it is imperative that entrepreneurs spring into action. They can use the private market and economic forces to create meaningful change. It only takes a few courageous individuals with a good plan and an appetite for risk to build something that can have national impact.

I deeply believe this.

That is why we are announcing a brand new company today — ResiClub.

My team and I have partnered with the number one residential real estate reporter in the country, Lance Lambert, to create a data-driven media outlet exclusively focused on this market.

Lance, formerly at FORTUNE, is widely recognized for his incredible work on housing inventory, residential demand, geographic trends, interest rate changes, and mortgage implications. He has been covering this market for years and brings a level of professional journalism that is desperately needed to tackle a problem that affects millions of Americans.

But Lance is not simply covering the market — he is betting his livelihood on this.

Lance quit his job at FORTUNE recently to go all-in on this opportunity. He has burned the boats and there is no turning back. This either works or Lance is in a bad spot.

That is the exact type of entrepreneur that I like to partner with — one who bets on himself.

With his expertise in the housing market, and our expertise in operations, revenue, and growth, we believe that together we can increase awareness about the lack of housing affordability very quickly.

Once we raise awareness, we plan to empower market participants with proprietary data products. Lastly, if we are fortunate enough to find success in those two avenues, we may even look to tackle real-world solutions through the building of affordable housing nationally.

Before we get there though, we have to nail the media platform.

If you are interested in staying on top of the housing market, interest rates, mortgage trends, or inventory impacts, I ask that you subscribe to Lance Lambert’s ResiClub today.

The first piece of content will go out later today for subscribers. This will be high-quality information and analysis that you can not find anywhere else.

If you aren’t into the housing market, but just want to back a founder who is betting his career on creating something that could solve a problem for many people, you should consider subscribing too.

I am excited to work with Lance on this new company. He is the best in the world at what he does. It is going to be fun to turn it into a sustainable business that gives millions of people the information they need to make informed decisions. You can read the full press release below.

I hope you join us.

-Anthony Pompliano

FOR IMMEDIATE RELEASE:

Introducing ResiClub: New outlet tracking the U.S. housing market amidst unprecedented affordability challenges 

In a period characterized by soaring mortgage rates, overheating house prices, and dwindling affordability, October 2023 has emerged as the least affordable month for U.S. housing this century. The scorching pace of house price growth during the pandemic, coupled with a significant spike in mortgage rates from 3% to 7%, has pushed housing affordability beyond the levels seen at the peak of the housing bubble in 2006. 

Faced with this challenging housing landscape, Lance Lambert and Anthony Pompliano have joined forces to co-found ResiClub, a groundbreaking media and research company dedicated to in-depth tracking, reporting, and analysis of the U.S. housing market. 

Lance Lambert, the renowned outgoing real estate editor of Fortune Magazine, will lead the charge as ResiClub's editor. Lance Lambert has solidified his reputation as the nation's foremost data journalist and beat reporter in the residential real estate space, bringing a wealth of knowledge and expertise to ResiClub's endeavors. 

ResiClub's Mission: ResiClub will serve as an indispensable resource for both industry professionals and everyday Americans looking to navigate the complexities of today's housing market. 

The company's mission is to provide comprehensive coverage and insights into the U.S. housing sector, with a particular focus on: U.S. homebuilders, institutional homebuyers, proptech startups, and regional housing data.

Research and Data Analysis: ResiClub will conduct its research, gathering proprietary local market data and producing in-depth analyses that will enable individuals and professionals to make informed decisions in an ever-changing housing environment. 

Lance Lambert, CEO/editor at ResiClub, expressed his excitement about the launch, saying, "The U.S. housing market is undergoing profound changes, and ResiClub's mission is to be at the forefront of providing insights and information to help people make better decisions. We believe this is a pivotal moment for the U.S. housing sector, and our team is here to guide you through it." 

For media inquiries, please contact:

Lance Lambert | [email protected] | Subscribe to ResiClub

Peter Pham is the co-founder & managing director of Science, an incubator based in Los Angeles. This conversation was recorded at the BUILD Summit in New York.

In this conversation, we talk about the art of fundraising for founders with startups, materials to use, timing & process, how to create a bidding war, and why up & to the right charts are so important. Peter is one of the best fundraisers I have ever met, and he drops insanely valuable information in this episode.

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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.

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Today’s letter is brought to you by Trust & Will!

Trust & Will is the most trusted name in online estate planning and settlement.

The company has helped hundreds of thousands of families create their estate plans, and they’re just getting started. Trust & Will enables every American to create a plan that’s customized to fit their needs, their life, and their legacy.

Their mission is to make estate planning simple, affordable, and inclusive.

All of Trust & Will’s documents have been designed and approved by estate planning attorneys to meet the highest legal standards. Their process is simple, secure, complete, and customized for your specific needs and state requirements.

To investors,

Tom Rees wrote an article in Bloomberg recently titled, “Gen Z Will Carry the Deepest Psychological Scars From Inflation.” My first reaction was to point out how ridiculous it would be for young people to claim psychological scarring from an economic event. This just reinforces the idea of a generation of kids who have become soft and weak, right?

Maybe.

Put aside the use of the phrase “psychological scars” and focus on Rees’ larger point—young people have higher inflation expectations than any other generation. That doesn’t seem like such a ridiculous claim. These young people just lived through the highest inflation in decades, while not having a lengthy personal experience living through an economy with low inflation.

You can only base your future expectations off your personal experience.

The Bank of England conducted a study recently that shows at least 50% of people from ages 16-75, except those 25-44 years old, expect inflation to be over 3% in the future.

This makes sense given the older generations lived through the high inflations of the 1980s and the younger generation had their formative years during the high inflation of the 2020s.

So why is this important?

It has long been the position of central banks that inflation expectations drive inflation outcomes. If a business owner believes higher inflation is on the horizon, then the business owner will begin to raise their prices in anticipation. If a consumer believes inflation is coming, they may start to buy more goods in bulk or change their consumption behaviors.

Economies are complex machines. There is no right answer on how to handle these situations. Central bankers have two tools in their toolbox—expand/contract the money supply and increase/decrease interest rates.

At the same time that central bankers are trying to manage the economy, which is a nearly impossible task by itself, they will also have to be cognizant of the increasing chaos and conflict around the world.

For example, the United States is being forced to drastically increase our national debt in response to our geopolitical strategy. Here is how it works:

War breaks out somewhere in the world. Other nations ask the US for weapons & money. The US gives the weapons and money to other nations. Then the US begins to run low on weapons & money. More war breaks out globally because the US is weakened. Other nations ask the US for weapons & money. The cycle repeats.

As the US gets weaker, and the world becomes more chaotic, we are forced to increase our national debt at a furious pace in order to pay for all the weapons and money we are giving everyone else. You can see this happening with the conflict in Ukraine already. There has been more than $500 billion added to the national debt in a matter of weeks (not all for Ukraine but a material amount in response to that conflict). Some estimates are that the US will add $1 trillion to the national debt in a single month for the first time in history.

This is insanity.

Add in the fact that Israel is now asking the US for weapons and money, along with potential conflicts that could kick off in Taiwan and other geographic regions, and it is not hard to see a situation where the US gets stretched thin. We can’t fund every war on Earth without printing ourselves into ruin.

You are watching a global chess game between superpowers. China and others never have to enter into direct conflict with the US to secure victory if they can simply watch us bleed ourselves dry. It is imperative we do not repeat the mistakes of the great civilizations that came before us.

But here is the crazy part—remember the gen z crowd with high inflation expectations? They are probably going to end up being right. Central banks can not continue to print trillions of dollars annually without driving prices higher. Instead of laughing at the young generation because a journalist used the phrase “psychological scars,” we will be better off trying to understand what the young people know that we don’t.

Hope everyone has a great start to their week. I’ll talk to you tomorrow.

-Anthony Pompliano

Emma Hinchliffe is a senior writer at Fortune, where she covers women in business. She also is the author of the 5-time a week newsletter called "Broadsheet."

Emma recently wrote an article "Kim Kardashian turned Skims into a $4 billion company. She wants to build the next generation of unicorns with SKKY Partners, her new private equity firm." In this conversation, Emma breaks down why Kim Kardashian is going into the private equity sector, advantages & disadvantages, biggest risks, and how Kim & Jay Sammons got partnered up.

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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