The Pomp Letter

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

To investors,

This morning it was announced that a publicly traded company, MicroStrategy Incorporated (Nasdaq: MSTR), has completed a two-prong capital allocation strategy. The first aspect is fairly traditional — a “cash tender offer for up to $250 million of MicroStrategy’s class A common stock via a modified Dutch Auction offer.”

The second aspect is where things get interesting. MicroStrategy has taken $250 million of their balance sheet capital and purchased 21,454 bitcoin. This is not a wild, speculative investment decision though. Michael Saylor, CEO of MicroStrategy, clearly articulates his belief and thought process when he said:

“Our investment in Bitcoin is part of our new capital allocation strategy, which seeks to maximize long-term value for our shareholders. This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash. Since its inception over a decade ago, Bitcoin has emerged as a significant addition to the global financial system, with characteristics that are useful to both individuals and institutions. MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy.

MicroStrategy spent months deliberating to determine our capital allocation strategy. Our decision to invest in Bitcoin at this time was driven in part by a confluence of macro factors affecting the economic and business landscape that we believe is creating long-term risks for our corporate treasury program ― risks that should be addressed proactively. Those macro factors include, among other things, the economic and public health crisis precipitated by COVID-19, unprecedented government financial stimulus measures including quantitative easing adopted around the world, and global political and economic uncertainty. We believe that, together, these and other factors may well have a significant depreciating effect on the long-term real value of fiat currencies and many other conventional asset types, including many of the assets traditionally held as part of corporate treasury operations.”

My initial reaction to reading Saylor’s thoughts was “Wow - MicroStrategy has a Bitcoiner CEO.” This is a perfect articulation of the argument for the decentralized, digital currency. But Saylor wasn’t done yet. He goes on to say:

“We find the global acceptance, brand recognition, ecosystem vitality, network dominance, architectural resilience, technical utility, and community ethos of Bitcoin to be persuasive evidence of its superiority as an asset class for those seeking a long-term store of value. Bitcoin is digital gold – harder, stronger, faster, and smarter than any money that has preceded it. We expect its value to accrete with advances in technology, expanding adoption, and the network effect that has fueled the rise of so many category killers in the modern era.”

So there you go. We now have a publicly traded corporation that has decided to use Bitcoin as the reserve asset on their balance sheet. They aren’t in the Bitcoin business. They have no blockchain-based products. This isn’t a cash grab by adding “blockchain” or “crypto” to their name. This is a simple analysis done by a team that is worried about protecting their shareholder value in uncertain and chaotic times in the macro economy.

MicroStrategy won’t be the only company to do this. Eventually, most companies will add Bitcoin to their treasury. They will probably start small and then ratchet up to a majority percentage at some point in the future. This trend will take awhile to get underway, but it is the natural progression in adoption.

First, we saw individuals start to convert their “balance sheet” dollars into Bitcoin. It began on the fringes and then has become more mainstream. The initial conversions were small percentages of total wealth, but now there are many people I know with majority of their wealth denominated in Bitcoin. Next, we will see corporations doing this. We obviously don’t know what has happened in the private markets, but we know that a publicly traded company just did it.

It will start with smaller market cap companies and then eventually take hold with larger corporations as well. Lastly, every central bank in the world will add Bitcoin to their reserves. This has been rumored as an option by nefarious governments such as Venezuela already, but I anticipate we will see all of them do it — large or small, good actor or bad actor.

The reasoning behind why individuals, corporations, and central banks will move to Bitcoin as the reserve asset is simple. It is sound money built for a digital world. The provable scarcity of Bitcoin will lead to a higher US dollar value as demand for the artificially capped supply sees material increases in demand. Think about this for a second — we have essentially seen $200 billion of market cap created by retail investors.

There were very few institutional investors, large corporations, or governments participating in Bitcoin’s previous rise. As those large capital pools begin to enter the game, we should see an acceleration of adoption and USD price. The macro environment has definitely accelerated the inevitable. People are looking for a way to protect their wealth or that of their shareholders. Bitcoin has always served as a great tool for that purpose.

Now the corporations, and soon the central banks, are waking up to the information that the individuals have known for years.

-Pomp

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

THE RUNDOWN:

Facebook Financial Formed to Pursue Company’s Payments Plans: Facebook Inc. unveiled a new group to pursue payments and commerce opportunities and put David Marcus, co-creator of its Libra cryptocurrency project, in charge of the initiative. Called F2 internally, short for Facebook Financial, the team will run all payments projects, including Facebook Pay, the company’s universal payments feature that it plans to build inside all of its apps. Read more.

Blockchain-Based Trademark App Can Boost Australian Economy, Says Minister: A member of the Australian cabinet has said a new government-backed initiative, which uses blockchain, can help grow the national economy and create new jobs. This comes as Australia's National Rugby League (NRL) announced Monday it was piloting a blockchain-based app developed by the country's patent and intellectual property office. Read more.

Bitcoin Volatility Surges Amid Flirtation With $12,000 Threshold: One of the most alluring aspects of Bitcoin to traders and speculators is back: Volatility. Price swings by the largest cryptocurrency have reached the highest level in about a year in the past few weeks as the digital asset trades around $12,000. Bitcoin crashed almost $500 in a matter of minutes this morning after reaching that level, only to begin testing that high again. Read more.

Interactive Brokers to Pay $38M in Settlement Over AML Lapses: Brokerage firm Interactive Brokers LLC agreed to pay $38 million in penalties to settle charges related to lapses in Anti-Money Laundering requirements and failure to flag suspicious transactions, according to a recent announcement by the Securities and Exchange Commission. Read more.

Coinbase Snags Lyft Engineering Executive Manish Gupta: Coinbase has hired Manish Gupta to lead its engineering team as the cryptocurrency exchange reportedly eyes going public. CEO Brian Armstrong cited need to build "new crypto-native products and services" and its pivot to a "remote-first culture" in his Monday hiring announcement. But he was coy on specific projects for Coinbase's new vice president of engineering. Read more.

SPONSOR: The World Series of Trading (WSOT) is the biggest trading competition in the crypto space, with a 200 BTC prize pool. This bi-annual event aims to champion the spirit of competition, fair play, and cultivate camaraderie among crypto derivatives traders from around the world with the ultimate goal of creating positive change in the crypto space. This year’s prize pool is a whopping 200 BTC. Join now!

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Jason Williams is a co-founder and partner at Morgan Creek Digital. He previously built and sold FastMed, an approximately $500 million healthcare business. Jason and I spend a lot of time talking every day, so it is always fun to have one of these conversations recorded and published publicly. Hope you enjoy it.

In this conversation, Jason and I discuss:

* Bitcoin

* Ethereum

* DeFi

* The Federal Reserve

* Maximalism

* The core principles to build wealth

I really enjoyed this conversation with Jason. Hopefully you enjoy it too.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

We have started a new show exclusive to YouTube called Lunch Money. The goal is to cover current events in business, finance, and technology from the perspective of the every day citizen, rather than the talking heads on television. It is just as funny and entertaining as it is educational. Hope you enjoy it and make sure you go subscribe to the YouTube channel!

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Choice is a new self-directed IRA product that allows you to buy Bitcoin with tax-advantaged dollars, while still holding your private keys. You can go to retirewithchoice.com/pomp to sign up today.

* Helium Hotspots allow you to earn cryptocurrency by building a new wireless network for the Internet of Things and creating a more connected future in your city. Get $50 off your Helium Hotspot by going to helium.com and using my special code POMP at checkout.

* Unstoppable Domains is working to make the internet operate how it was originally intended, which means anyone can publish anything from anywhere. You can go to unstoppabledomains.com and claim your censorship resistant domain today.

* BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it by getting a loan or earning interest in their interest bearing accounts.

* Crypto.com allows you to buy, sell, store, earn, loan, and invest various cryptocurrencies in an user friendly mobile app. Join over one million users today. You can download and earn $50 USD with my code “pomp2020” when you sign up for one of their metal cards today.

* Blockset by BRD is your hosted blockchain infrastructure. Blockset enables enterprises and developers around the globe to deliver high-quality blockchain-based applications in a fraction of the time, at a fraction of the cost.

* WSOT is the biggest trading competition in the crypto space, with a massive 200 BTC prize pool and bonuses of 9,400 USDT up for grabs!  

If you enjoy reading “The Pomp Letter,” click here to tweet to tell others about it.

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

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

To investors,

The movie Wizard of Oz can teach us a lot about life. In the film, there is ruler of the Land of Oz that is highly respected by all of his subjects. The various characters in the movie believe that this prophetic ruler, the Wizard of Oz, can solve all of their problems, so they travel a long distance to speak with him.

As you would expect, this all turns out to be a sham. According to the Wikipedia description, “it is revealed that Oz is actually none of these things, but rather an ordinary conman from Omaha, Nebraska, who has been using elaborate magic tricks and props to make himself seem "great and powerful". Working as a magician for a circus, he wrote OZ (the initials of his first two forenames, Oscar being his first, and Zoroaster being the first of his seven middle names) on the side of his hot air balloon for promotional purposes. One day his balloon sailed into the Land of Oz and he found himself worshipped as a great sorcerer. As Oz had no leadership at the time, he became Supreme Ruler of the kingdom and did his best to sustain the myth.”

History has taught us over and over again that the “great and powerful” organizations and people tend to be something different. Nowhere is this more obvious in real life than at the Federal Reserve. I thought of the Wizard of Oz this morning, while reading an article in CNBC titled “The Fed is expected to make a major commitment to ramping up inflation soon.”

As you read through the piece, you realize that the Federal Reserve actually believes they are similar to the Wizard of Oz. The central bankers are finalizing a year-long policy review that is likely to end in a set of policy recommendations to keep interest rates artificially low for a number of years as they attempt to increase inflation and decrease joblessness. There is one major problem though — the Federal Reserve has been horrible at hitting their targets in the past.

The Federal Reserve has held a 2% inflation target for many years, yet they have only come within +/- 10% of that target 3 of the last 10 years.

This lack of accuracy and effectiveness around the inflation target is not necessarily because the Federal Reserve is clueless. In fact, there are an incredible number of highly intelligent people that work there. The challenge is that a large economy like the United States is a complex system that is nearly impossible to manipulate with nuanced control.

Due to this complexity and lack of control, I am worried that the Federal Reserve is about to embark on a path that could end disastrously. The general premise is that the organization will keep rates artificially low for an extended period of time. This should increase inflation and lead to less joblessness. Jeff Cox eloquently outlined the scary part though when he wrote:

“The Fed and other global central banks have been trying to gin up inflation for years under the reasoning that a low level of price appreciation is healthy for a growing economy. They also worry that low inflation is a problem that feeds on itself, keeping interest rates low and giving policymakers little wiggle room to ease policy during downturns.

In the latest shot at getting inflation going, the Fed would commit to enhanced “forward guidance,” or a commitment not to raise rates until its benchmarks are hit and, in the case of inflation, perhaps exceeded.

In recent days, Fed regional presidents Robert Kaplan of Dallas and Charles Evans of Chicago have expressed varying levels of support for enhanced guidance. Evans in particular said he would like to keep rates where they are until inflation gets up around 2.5%, which it has not been for most of the past decade.”

That is right — the Federal Reserve is talking about keeping interest rates low (probably at 0%) until we see inflation over 2% and potentially even higher than 2.5%. This is absolute madness for a number of reasons:

* The Federal Reserve believing that they have nuanced control of inflation and an economy makes little sense. They are batting .300 over the last decade, so they don’t exactly have the best track record with hitting their targets, nor being able to effectively manipulate various aspects of the system.

* Higher levels of inflation means that the wealth inequality gap will continue to widen. The rich will get richer and the poor will get poorer. Quite literally, this policy decision is a direct attack on the bottom 50% of Americans and their wealth.

* Every socioeconomic class experiences different levels of inflation. There are plenty of people who believe that coming out of the 2008 crisis the lowest socioeconomic classes saw inflation reach 6-10%, while the official numbers remained below 2%. If that is true (and I tend to believe that it is), than we could see the lowest socioeconomic classes experiencing 10-20% inflation with these new inflation targets and policies.

* Asset prices are already detached from economic reality, so a continued pursuit of higher inflation will only pump the asset prices higher. This extended detachment is the equivalent of kicking the can down the road. As I continue to warn, you can only do that for so long until you have to pay for your sins. The further the difference between prices and reality, the more painful the day of reckoning will be.

The worst case scenario would be a situation where the Federal Reserve overshoots their inflation target, we have continued economic issues, and they are caught in a situation where they can’t increase rates quickly and they are forced to print more stimulus. If that were to happen, the Federal Reserve would be accelerating inflation at the exact moment that they should be reigning it in.

I wish that I could argue that this scenario would be hard to see coming, but rather I think it is actually likely. We have seen time and again that the economy will start to gyrate and experience issues when the government stops printing money and tries to raise interest rates. By allowing inflation to overshoot in such a dramatic way (some analysts are predicting as high as 4% in the official numbers), we could be staring at an absolute decimation of the middle and lower class.

Just as the Wizard of Oz ended up being a regular Joe with no special powers, I believe the Federal Reserve will eventually be shown to be without magical powers as well. This means that investors can not blindly trust the government and Fed to protect their wealth, nor can they continue to believe that the decisions being made are in their best interest. Instead, investors must realize that low interest rates, massive quantitative easing, and artificially high inflation are all signs that asset prices are going to skyrocket.

My anticipation is that real estate, gold, Bitcoin and stocks are all going to run much, much higher than they already have. Bitcoin is going to be the largest winner out of all assets since it is the most volatile. Or as Paul Tudor Jones said, it will be the fastest horse. Regardless of how you invest your capital, just don’t get caught holding cash while the Federal Reserve is systematically devaluing the asset under the guise of creating economic activity.

The financial system is based on 50% of people not understanding how money works. Get yourself educated and position yourself to not only be protected from what is coming, but also benefit from it. The wealthiest people in the world aren’t sitting in cash when the Fed is aggressively going to work on rates and inflation. It probably makes sense for you to follow suit.

Talk tomorrow.

-Pomp

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

THE RUNDOWN:

Bitcoin’s Pause May Serve as Consolidation Before Push Higher: Bitcoin’s surge over the past week got a lot of hearts pumping. Now technical indicators suggest enthusiasts could see it make another major move higher soon. Based on its recent price trend, Bitcoin appears to be consolidating before its next jump, which could take it back to $12,000, a resistance level dating back to last August. Read more.

Anthony Levandowski Sentenced to 18 Months in Prison: Anthony Levandowski, the former Google engineer and serial entrepreneur who was at the center of a lawsuit between Uber and Waymo, has been sentenced to 18 months on one count of stealing trade secrets. Judge Alsup said that home confinement would “[give] a green light to every future brilliant engineer to steal trade secrets. Prison time is the answer to that.” Read more.

SEC Seeking ‘Smart Contract’ Tracing Tool That Can Spot Security Vulnerabilities: The U.S. Securities and Exchange Commission wants to procure a blockchain forensics tool that can analyze smart contracts and, preferably, highlight their security issues. Read more.

INX Scales Down US IPO Target to $117M – Still Set to Be Crypto’s Largest: Cryptocurrency and security token exchange INX has shifted its sights for a planned initial public offering in the U.S. The Gibraltar-based trading group filed an F-1 Form – a securities registration for non-U.S. issuers – with the Securities and Exchange Commission on Monday. Originally slated for Q2 2020, the sale is now expected to take place before the end of the year, according to the revised prospectus. Read more.

SpaceX Successfully Flies Its Starship Prototype to a Height of Around 500 Feet: SpaceX  has been developing Starship, its next-generation spacecraft, at its site in Boca Chica, Texas. The company has built a number of different Starship prototypes to date, include one prior version called the Starhopper that was essentially just the bottom portion of the rocket. Today, the company flew its first full-scale prototype (minus the domed cap that will appear on the final version, and without the control fins that will appear lower down on its sides), achieving an initial flight of around 150 m (just under 500 feet). Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Caleb Pressley is one of the most electric people on the internet. He currently works at Barstool Sports, runs the @thinker account on Instagram, and previously played football at the University of North Carolina. We had a blast recording this episode and I think people will find it entertaining.

In this conversation, Caleb and I discuss:

* College football

* Pro athletes creating content and building audiences

* Social media trends

* Default digital value of assets

* Volatility as Bitcoin's PR team

* Many behind the scenes stories of Caleb's escapades

I really enjoyed this conversation with Caleb. Hopefully you enjoy it too.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

We have started a new show exclusive to YouTube called Lunch Money. The goal is to cover current events in business, finance, and technology from the perspective of the every day citizen, rather than the talking heads on television. It is just as funny and entertaining as it is educational. Hope you enjoy it and make sure you go subscribe to the YouTube channel!

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Choice is a new self-directed IRA product that allows you to buy Bitcoin with tax-advantaged dollars, while still holding your private keys. You can go to retirewithchoice.com/pomp to sign up today.

* Helium Hotspots allow you to earn cryptocurrency by building a new wireless network for the Internet of Things and creating a more connected future in your city. Get $50 off your Helium Hotspot by going to helium.com and using my special code POMP at checkout.

* Unstoppable Domains is working to make the internet operate how it was originally intended, which means anyone can publish anything from anywhere. You can go to unstoppabledomains.com and claim your censorship resistant domain today.

* BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it by getting a loan or earning interest in their interest bearing accounts.

* Crypto.com allows you to buy, sell, store, earn, loan, and invest various cryptocurrencies in an user friendly mobile app. Join over one million users today. You can download and earn $50 USD with my code “pomp2020” when you sign up for one of their metal cards today.

* Blockset by BRD is your hosted blockchain infrastructure. Blockset enables enterprises and developers around the globe to deliver high-quality blockchain-based applications in a fraction of the time, at a fraction of the cost.

* WSOT is the biggest trading competition in the crypto space, with a massive 200 BTC prize pool and bonuses of 9,400 USDT up for grabs!  

If you enjoy reading “The Pomp Letter,” click here to tweet to tell others about it.

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

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

To investors,

It seems that everyone has an opinion when it comes to financial assets and markets. There are two very different groups of people who provide commentary though. One group has significant skin in the game and the other group does not. 

The issue historically is that the commentary provided by those without skin in the game has been more widely available than the commentary that originates from the actual market participants. This is all changing with the adoption of social media, email newsletters, blogs, and various other content platforms. 

In fact, I anticipate that we will see the individuals who have skin in the game acquire larger audiences than those without skin in the game within the next 12-24 months. While this should be a net positive for content consumers, it doesn't solve the problems that we are facing today. 

Currently, there are three types of content producers in the financial industry — journalists, bloggers, and market participants. The journalists investigate, ask questions, interview, report facts, and hold market participants accountable. The bloggers analyze and opine on the market sometimes even without speaking to market participants for their pieces. The market participants are the people who consider their full-time job to be that of an investor, yet create content as an auxiliary activity.

One of the issues with finance information today is that a plethora of bloggers are now masquerading as financial journalists. Many people will associate negative connotations with the term "blogger," but that is not what my intention is. Instead, I am using "blogger" and "journalist" as categorizations for two different types of content production. 

A journalist has specific ethics, process, and requirements to meet before publishing an article. A blogger has different ethics, process, and requirements to meet before publishing an article. I'll leave others to debate the merits of which is better.

In an overgeneralization, journalists have historically reported on the facts. What happened? When? Who was involved? What are those people saying? Why is this happening? Bloggers have pursued a different path. They are much more opinionated. Their focus leans toward their opinion on why this happened, and they often try to answer, “what will happen next?” Neither is right or wrong, but there is a clear difference between objective reporting and opinion-based blogging.

This leads us to the infiltration of bloggers in legacy media organizations. The incumbents realized they were losing the battle for attention on the internet, so they sought out those people who were best at capturing and holding attention (ex: clickbait, opinion, etc). Additionally, the bloggers desired legitimization, and they gladly answered the call when the incumbent organizations came calling.

When one of these individuals was hired at a well known publication in 2014, another media company wrote “he brings an altogether different voice: Over-the-top, all-caps headlines, hyperactive tweeting, and outspoken opinions about who is on the right and wrong side of contentious economic debates.” The piece goes on to describe an inherent problem with bringing together bloggers and journalists:

“The Bloomberg Way also insists on ample documentation and sourcing for any assertions or heavy-handed characterizations. "A story is incomplete and untrustworthy when it includes unsupported assertions," Winkler writes. "The best reporters assemble the details, anecdotes, and comments and then let the readers decide who's right, wrong, guilty or innocent.”

The writer then hammers home the point by saying “"If you tried to make [redacted person’s name] follow The Bloomberg Way to the letter, it would destroy what makes him effective as a writer.” The transition from strict, traditional journalism to internet-friendly, blogger-centric coverage is well documented. It is not about one person or one organization. This has played out at almost every publication, while also materially altering the type of content.

This evolution of content on the internet opened the door for financial market participants. They have always understood markets and assets better than anyone, but they previously only had a voice when a journalist or media organization lent a platform to them. The internet now provides the tools for these market participants to communicate directly with the audience and cut out the middle man (ex: media organizations).

This is obviously not exclusive to the finance industry, so why is this important?

There is a big difference in the quality of information being shared by the three groups of content creators that we have identified. Journalists continue to adhere to the highest standards and focus on unbiased reporting. Bloggers and market participants are more opinion-oriented. Sounds good, right?

Wrong. There is one major difference between the bloggers and market participants — skin in the game. The blogging crowd spends their time pontificating on markets and asset prices, but there is no penalty when they are wrong. Market participants stand to lose millions of dollars when their opinions are inaccurate or ill-timed. This difference between bloggers and market participants is one of the most important things a reader needs to identify to ensure they are consuming the highest quality content.

Quite literally, the market participants are not only sharing their opinions, but they are also betting millions of dollars on the idea that they are right. When they are wrong, they lose money. When they are right, they stand to make a lot of money. This idea of content creation by market participants does not come without issue (ex: bias, investors marrying their assets, etc), but I will leave those issues for analysis on another day.

To make my point clear, I will use the coverage of the Bitcoin halving as an example. There were plenty of journalists who merely reported on past halvings and/or compiled commentary from market participants. As expected, the bloggers took a different angle. They continuously shared their personal opinions and analysis about what would happen. The market participants did the exact same thing.

The quality of analysis was quite different though. Most of the "what will happen next"-style content from the bloggers revolved around “the Bitcoin halving is priced in” or “the price will go up or down after the halving.” Their analysis lacked the intellectual rigor needed to make investment decisions. This isn’t a bad thing — the bloggers aren’t investing any money, so it would make sense that they would not need deep analysis.

The market participants were a different story though. Much of their writing included specific aspects that highlight the rigor needed to make an investment decision. They included macro and micro events, an understanding of how the system works holistically, specific price movements or targets, and time frame predictions.

A simple way to think about the difference between the two content creators is that bloggers use academic theory for analysis, while the market participants use experience and expertise that can only be gained by being a practitioner. Here are a few examples.

In May 2019, I wrote about the need for interest rate cuts and quantitative easing, while also explaining the impact of the overlap with the Bitcoin halving:

“It looks like central banks are going to be forced to make hard decisions in the first half of next year, which will coincide with Bitcoin’s block reward being cut in half. As a reminder, the block reward is the amount of Bitcoin that is distributed to the network’s miners approximately every 10 minutes.

The potential scenario is that interest rates will get slashed, fiat printing will explode, and Bitcoin will get more scarce all around the same time — this is like taking a forest fire and accidentally dropping thousands of gallons of gasoline on it, instead of dropping water. Whoops!

While I believe strongly in Bitcoin’s future prospects, it would be intellectually dishonest if I didn’t mention that the scenario that I’m laying out would be incredibly painful. Average Americans (and people around the world) would get hurt by the ramifications of this type of market scenario. Hopefully it won’t come to fruition, but unfortunately I don’t think we have anyone awake at the wheel to stop it.”

In July 2019, I wrote again about the relationship between the macro environment and the Bitcoin halving:

“That means that the monetary stimulus impact will hit within 90 days of the 50% reduction in the Bitcoin monetary supply schedule. Think about that for a minute. We are going to see traditional assets being artificially pumped at the exact same time that the stock-to-flow ratio of Bitcoin becomes drastically more attractive. Incredible.

Now don’t anticipate Bitcoin’s price to see an immediate increase that causes price charts to look like they are going vertical. Instead, it will take time for the confluence of events to reveal itself in price. Regardless of the timing, Bitcoin’s value proposition is about to become painfully obvious to the world.”

And finally, on March 12th of this year I wrote about the monetary stimulus and the incoming Bitcoin halving:

“The interest rate cuts and quantitative easing is market manipulation. They are trying to bail out the economy. When they do this, investors have historically weathered the liquidity crisis and then sought out (a) sound money and (b) safe haven assets. Both gold and Bitcoin should do incredibly well during this time period.

But Bitcoin has one other other aspect to it than gold — the upcoming supply shock (Bitcoin halving in May 2020). Right when Bitcoin is about to become super attractive to people because the US government / central bank begin incredible monetary stimulus efforts, the digital asset is going to see the incoming supply cut in half. One of the scarcest assets in the world is about to become even more scarce. (This would be the equivalent of investors seeking gold because of inflation, but half the gold mines in the world shutting down at the same time)”

In order to effectively manage capital in this industry, an investor needs to understand event-based movements like the Bitcoin halving, but also possess an understanding of the macro environment and a range of other inputs. This is not an academic exercise. You can’t simply pontificate on whether “the Bitcoin halving is priced in.” That type of opinion-based, single-issue content lacks the intellectual rigor necessary to be successful in the arena of financial markets.

So as you would expect, the bloggers who were claiming the Bitcoin halving was priced in were wrong. On May 9th through May 12th, the Bitcoin price ranged between $9,600 and $8,800. Today it sits at almost $11,200. There will be people who yell and scream that the price increase had nothing to do with the halving, but it would be intellectually dishonest to believe that a supply shock of this magnitude would have zero impact on the price of such a small market cap asset.

My point in writing this letter today is to highlight two things — first, be very careful the content you consume. Journalists are an incredibly important staple of American democracy. They hold people accountable and they focus on reporting the facts. Market participants have a deep belief in what they are saying because they are willing to stake millions of dollars on those opinions. The same cannot be said about bloggers — these individuals make a living by driving attention to their publications, but they have no repercussions for when they are wrong.

Want to identify the sources of content that you should consume? Ask yourself two questions — is this person writing an unbiased piece that contains facts and commentary from an array of experts? If yes, then that is a good source. If no, then ask yourself, “Does this person have skin in the game for what they are saying?” If yes, then that is a good source.

Unfortunately, if you answer no to both of those questions, you will be better off moving on. Remember, you focus on your food diet. What you put in your body ends up determining how physically healthy you are. Your content diet is not much different. What you put into your head ends up determining how mentally healthy and financially wealthy you are. Proceed accordingly.

-Pomp

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

THE RUNDOWN:

Microsoft Confirms Talks to Buy TikTok in U.S: Microsoft on Sunday confirmed that it has held talks with Chinese technology company ByteDance to acquire its trendy social app TikTok in the U.S. Microsoft said in a statement that it will keep working with the U.S. government on a deal and that it intends to conclude talks by September 15.Read more.

Bank of Japan Puts Top Economist in Charge of Digital Yen Initiative: The Bank of Japan has moved its most senior economist to lead the department responsible for research and development into central bank digital currencies. Kazushige Kamiyama, formerly director-general of the BoJ's Research and Statistics Department, has moved to the Payments and Settlements Systems Department, Reuters reported Friday. Read more.

White House, Dems Still Agree on $1,200 Checks But Deadlocked on Unemployment Assistance: While the White House has come out in favor of reducing the federal assistance to $200 a week, Democrats have called for keeping it at the $600 level. During an interview on ABC’s “This Week” on Sunday, Pelosi said that Trump was standing in the way of an agreement. “We’ve been for the $600. They have a $200 proposal, which does not meet the needs of America’s working families, and it’s a condescension, quite frankly,” Pelosi said. Read more.

SpaceX Says Starlink Internet Has ‘Extraordinary Demand:’ SpaceX said Starlink, its nascent satellite internet service, has already seen “extraordinary demand” from potential customers, with “nearly 700,000 individuals” across the United States indicating they are interested in the company’s coming service. Due to the greater-than-expected interest, SpaceX filed a request with the Federal Communications Commission on Friday — asking to increase the number of authorized user terminals to 5 million from 1 million. Read more.

Bitcoin Ends July at Highest Monthly Close Since 2017 Peak: Bitcoin closed the month of July at $11,351, its highest monthly close since the bellwether cryptocurrency’s all-time high nearly two-and-a-half years ago. Prior to this month, Bitcoin had closed below $11,000 every month since nearly reaching $20,000 in December 2017. Bitcoin futures on CME closed July at $11,620. Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Congressman Tom Emmer has served the people of Minnesota as their elected official in the US House of Representatives since 2015. He also currently sits on the House Financial Services Committee and is one of the leading voices for blockchain technology in the US government.

In this conversation, Congressman Emmer and I discuss:

* Wealth vs debt

* Sound money

* The Federal Reserve

* Issues with centralization

* The current economic situation

* A digital dollar

* The stimulus bills

* Technology trends

* Bitcoin

I really enjoyed this conversation with Congressman Emmer. Hopefully you enjoy it too.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

We have started a new show exclusive to YouTube called Lunch Money. The goal is to cover current events in business, finance, and technology from the perspective of the every day citizen, rather than the talking heads on television. It is just as funny and entertaining as it is educational. Hope you enjoy it and make sure you go subscribe to the YouTube channel!

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Choice is a new self-directed IRA product that allows you to buy Bitcoin with tax-advantaged dollars, while still holding your private keys. You can go to retirewithchoice.com/pomp to sign up today.

* Helium Hotspots allow you to earn cryptocurrency by building a new wireless network for the Internet of Things and creating a more connected future in your city. Get $50 off your Helium Hotspot by going to helium.com and using my special code POMP at checkout.

* Unstoppable Domains is working to make the internet operate how it was originally intended, which means anyone can publish anything from anywhere. You can go to unstoppabledomains.com and claim your censorship resistant domain today.

* BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it by getting a loan or earning interest in their interest bearing accounts.

* Crypto.com allows you to buy, sell, store, earn, loan, and invest various cryptocurrencies in an user friendly mobile app. Join over one million users today. You can download and earn $50 USD with my code “pomp2020” when you sign up for one of their metal cards today.

* Blockset by BRD is your hosted blockchain infrastructure. Blockset enables enterprises and developers around the globe to deliver high-quality blockchain-based applications in a fraction of the time, at a fraction of the cost.

* WSOT is the biggest trading competition in the crypto space, with a massive 200 BTC prize pool and bonuses of 9,400 USDT up for grabs!  

If you enjoy reading “The Pomp Letter,” click here to tweet to tell others about it.

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

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

To investors,

Every business and household knows that the secret to sustainable financial success is to spend less money than you make. This simple rule can prevent bankruptcy, while ensuring that there is more money in the bank account at the end of each month or quarter. Remember, access to cash is the oxygen of a business or household.

The United States government obviously missed the memo though. The Treasury Department announced yesterday that the government spent $864 billion more than they took in as revenue in the month of June. This is more than a 10x increase in year-over-year growth of the June deficit after June 2019 only saw approximately a $8 billion deficit.

So how exactly can the US government be spending so much more money than they are making?

Frankly, the perfect storm has occurred. June 2020 saw the government spend about $1.1 trillion, which is nearly double what they have historically spent on a monthly basis. Couple this drastic increase in spending with near zero growth in historical monthly revenue (approximately $240 billion) and you get the single largest monthly deficit ever recorded in American history (previous largest monthly deficit was $234 billion).

The $1.1 trillion in spending was a direct response to the COVID-19 induced economic shock that rocked the US economy. This enormous number was part of more than $2 trillion that has been spent since April 2020, which was authorized in the monetary stimulus package approved by Congress back in March. Since then, the government has been handing out money in every way they can imagine in an effort to mitigate the economic damage. There was billions of dollars sent directly to millions of Americans in the form of stimulus checks, a significant increase in weekly unemployment benefits, and various financial relief programs for businesses of all sizes.

Another important factor to the large increase in the deficit is that the US government was previously not counting the forgivable PPP loans as part of their monthly spending. The logic behind this original decision is questionable, but the money used for PPP loans is finally being counted as government spending as of May 2020.

So the increase in spending makes sense, by what is going on with the lack of increase in tax revenues?

First off, the tax deadline was moved from April to July this year. That means that most Americans aren’t going to be sending in their final checks until after June, which drove a lack of “new” tax revenue for the month. Additionally, the government mandated shut down of most cities and local economies has led to less opportunities for traditional tax revenue as well.

For those that don’t know, here is a breakdown of the various tax revenue sources for the federal government.

Just over 50% of all federal taxes comes from income tax and another 35% is from payroll taxes. But did federal tax revenue really stay flat? It is hard to tell, but we do know one wild statistic —Federal tax revenue has increased each of the last six full fiscal years, including an all-time high record of $3.4 trillion in fiscal year 2019. Here is a breakdown of the previous six fiscal years according to Countable:

* FY2014: $3.021 trillion in revenue and $3.506 trillion in spending yielded a $485 billion deficit (2.8% of U.S. gross domestic product or GDP).

* FY2015: $3.250 trillion in revenue and $3.692 trillion in spending yielded a $442 billion deficit (2.4% of GDP).

* FY2016: $3.268 trillion in revenue and $3.853 trillion in spending yielded a $585 billion deficit (3.2% of GDP).

* FY2017: $3.316 trillion in revenue and $3.982 trillion in spending yielded a $665 billion deficit (3.5% of GDP).

* FY2018: $3.329 trillion in revenue and $4.108 trillion in spending yielded a $779 billion deficit (3.8% of GDP).

* FY2019: $3.4+ trillion in revenue leading to a $984 billion deficit.

So wait a minute, if the federal government continues to collect more and more money each year, why are we generally running a larger deficit every year as well? Welp, it is because we continue to spend more and more money. The US government is breaking the number one rule in finance of spending less than you make.

Government spending is a black box to most people, but once you start to dig into the details it can become fairly crazy almost immediately. For example, 40% of the $3.8 trillion spent in fiscal year 2018 was for Americans over the age of 65. As the US population continues to get older, we will spend 50% or more on people over the age of 65 by the end of the 2020s.

Additionally, as the national debt continues to increase, so does the amount of money needed to service the debt. The current US national debt sits at over $26 trillion. Yes, you read that right. The US government has more than $26,000,000,000,000 in debt. Absolutely mind blowing. The cost of servicing this debt is over $400 billion on an annual basis.

So the United States is spending almost half a trillion dollars to service the ever-expanding national debt that has no end in sight. Estimates from the CBO state that the cost of servicing the national debt annually will come close to $1 trillion by the end of the decade.

In essence, the United States is basically a poorly run company. This would be like a business that spends WAY more than it makes every year and even though it continues to collect more revenue each year, it actually ends up losing more money year after year. The only way that a company like this could survive is if they (a) stopped outspending their incoming revenue or (b) they went to the capital markets and raised equity or debt capital.

Thankfully for the US government, they are not a business though. They don’t have a plan for reigning in the spending and I would even argue that they wouldn’t be able to without an entire generation of baby boomers rioting in the streets. They also don’t have to go to the capital markets because they have access to the one thing that companies don’t — the Federal Reserve’s money printer.

This is the only way that the United States can continue operating in the way that they are. They have to print and print and print and print. They literally can’t stop printing money or they will succumb to the absurd debt levels and outstanding expenses that have to be paid on an annual basis. Some people may think of this a modern day magic trick. Others may consider it the most sophisticated ponzi scheme ever invented. And still others believe this is the only way to manage an economy that believes in innovation, entrepreneurship, and capitalism.

Rather than debate the merits of the system’s structure, it is increasingly clear that one of two things will happen in the future — the system will break under the increasing pressure and/or the currency will fail after being devalued for decades. We have seen both things occur in other countries, but the American elitism held by most of the wealthy in our country has created and embedded a belief that these economic travesties could never occur in the United States.

This incredible level of arrogance is likely to be a contributing factor to the fall of the American empire. It is unclear whether that is a decade away or hundreds of years in the future, but a few things are indisputable:

* You can not create trillions of dollars in deficits and hope you never have to deal with the consequences.

* You can not print trillions of dollars and hope there is no negative impact on the currency or the poorest people in your society.

There is a strong argument that the Federal Reserve and US government’s recent actions helped to mitigate the economic pain of COVID-19 for millions of Americans in the short term. But to be clear, that is exactly what has happened. We chose to deal with the short term issues at the detriment of the long term sustainability of the system. Some people believe that is the right decision and others do not.

Regardless of what side you are on, the trade-off is clear. Save people today and accelerate your demise tomorrow. Or sit and watch people suffer today to increase your odds of surviving in the long term. These are difficult decisions that have no clear answers. It definitely doesn’t help though that the government just ran the largest monthly deficit in American history.

We are not getting better at managing the finances of our country. In fact, we are getting worse and worse. There is no solution in sight and every politician, regardless of their political affiliations, continues to treat the P&L of the United States like something that future generations should deal with. Those future generations will definitely deal with it, the problem though is that it is likely going to be too late based on the pace we are operating at currently.

-Pomp

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

THE RUNDOWN:

Bank of England Debating Digital Currency Creation, Bailey Says:The Bank of England is reviewing whether it should create a central bank-backed digital currency, according to governor Andrew Bailey. “We are looking at the question of, should we create a Bank of England digital currency,” Bailey said Monday in a webinar event with students. “We’ll go on looking at it, as it does have huge implications on the nature of payments and society.” Read more.

Compound Tops $1B in Crypto Loans as DeFi Farmers Keep Digging for Yield: Compound, the leading lending protocol on Ethereum, has broken a billion dollars in total assets borrowed, according to the tracker on its website. This is the latest milestone for a project that has led the yield farming craze in decentralized finance (DeFi), where both large and small investors search for the best place to park their assets in order to earn the strongest returns. Read more.

Singapore Enters Recession After Economy Shrinks More Than 40% Quarter on Quarter: Singapore’s economy entered a technical recession after shrinking by 41.2% in the second quarter compared to the previous quarter, advance estimates by the Ministry of Trade and Industry showed on Tuesday. The latest gross domestic product estimate — computed largely from data in April and May — was worse than analysts’ forecast. Economists polled by Reuters had expected the Southeast Asian economy to shrink by 37.4% quarter-over-quarter. Read more.

SoftBank Hires Goldman Sachs to Explore Sale Options for Chip Designer Arm: SoftBank has hired Goldman Sachs to explore both an initial public offering and a sale of U.K. chip designer Arm Holdings. SoftBank has been preparing to spin out Arm in an IPO but has recently begun exploring sale options after receiving interest from an outside party, said two people, who asked not to be named because the discussions are private. It’s unclear if the outside company or entity is interested in buying all or just part of Arm, which was acquired by SoftBank for about $32 billion four years ago. Read more.

Crypto Firm Co-Founder to Plead Guilty in Celeb-Touted Scam: The third co-founder of a cryptocurrency firm plans to plead guilty to duping investors into putting more than $25 million in an initial coin offering that the company promoted with the help of celebrities including boxer Floyd Mayweather and musician DJ Khaled. Sohrab “Sam” Sharma, co-founder of Centra Tech Inc., has agreed to change his plea, his lawyers told U.S. District Judge Lorna G. Schofield in a court filing Monday in New York. Sharma had been scheduled to go to trial in November. Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Mikey Taylor is a former professional skateboarder who now spends his time investing in real estate across the United States at Commune Capital. He previously founded and sold Saint Archer Brewery to MillerCoors, along with running a number of other businesses that he started. This episode is fast-paced and full of great business nuggets. It is always fun to talk with someone who has found success in multiple industries.

In this conversation, Mikey and I discuss:

* Mikey's epic run as a pro skateboarder

* Learning to be an entrepreneur

* How he used self-evaluation to pursue self-improvement

* How the Saint Archer acquisition happened

* What he is seeing happen in the real estate market

* Why market cycles are essential to understand

I really enjoyed this conversation with Mikey. Hopefully you enjoy it too.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

We have started a new show exclusive to YouTube called Lunch Money. The goal is to cover current events in business, finance, and technology from the perspective of the every day citizen, rather than the talking heads on television. It is just as funny and entertaining as it is educational. Hope you enjoy it and make sure you go subscribe to the YouTube channel!

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Choice is a new self-directed IRA product that allows you to buy Bitcoin with tax-advantaged dollars, while still holding your private keys. You can go to retirewithchoice.com/pomp to sign up today.

* Helium Hotspots allow you to earn cryptocurrency by building a new wireless network for the Internet of Things and creating a more connected future in your city. Get $50 off your Helium Hotspot by going to helium.com and using my special code POMP at checkout.

* Unstoppable Domains is working to make the internet operate how it was originally intended, which means anyone can publish anything from anywhere. You can go to unstoppabledomains.com and claim your censorship resistant domain today.

* BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it by getting a loan or earning interest in their interest bearing accounts.

* Crypto.com allows you to buy, sell, store, earn, loan, and invest various cryptocurrencies in an user friendly mobile app. Join over one million users today. You can download and earn $50 USD with my code “pomp2020” when you sign up for one of their metal cards today.

* Blockset by BRD is your hosted blockchain infrastructure. Blockset enables enterprises and developers around the globe to deliver high-quality blockchain-based applications in a fraction of the time, at a fraction of the cost.

If you enjoy reading “The Pomp Letter,” click here to tweet to tell others about it.

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

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

To investors,

India’s Ministry of Electronics and Information Technology decided to ban more than 50 Chinese mobile apps from being used by Indian citizens. The move came as a response to violent conflict between India and China at their shared border. The banned list included many apps that I had never heard of, but it also included TikTok, which reportedly had 200 million users in India.

Timothy Bella of the Washington Post wrote that Indian officials believe TikTok and others “represented a threat to citizens’ privacy and national security. The agency noted it had received complaints that the apps were “stealing and surreptitiously transmitting users’ data” to servers outside the nation, an activity that, the ministry said, “ultimately impinges on the sovereignty and security of India.””

The threat posed by Chinese-owned technology has long been a concern in the United States as well. For example, the current presidential administration has labeled any technology products built by Huawei a security threat and they have banned any US firms from doing business with the communications firm. This is a really big deal because Huawei is the second largest smartphone manufacturer in the world, which means that it is even larger than Apple.

So where exactly is the concern about TikTok, Huawei, and other Chinese technology companies coming from?

According to Tim Bowler of the BBC, this all centers around China's 2017 National Intelligence Law, which stated that any Chinese company must "support, co-operate with and collaborate in national intelligence work.” The idea is that the Chinese government would avoid directly spying on non-Chinese users of these technologies, but rather they would compel the companies to do it themselves. In the case of Huawei, this could include anything from capturing private communications to denying service in a time of crisis. For TikTok, there have been rumors of everything from mass data collection to content being used to build a facial recognition database.

The entire situation is interesting because the facts are hard to come by, the stakes are incredibly high, and the US-China economic war isn’t helping to ease tensions at all. One thing that is clear though is that companies like TikTok have access to an incredible level of information.

If someone is collecting all this data and doing nothing with it, it begs the question of “why are you collecting it?” If someone is collecting all this data and using it for nefarious purposes, it begs the question of “why is this not already banned in the United States and elsewhere?”

Either way, India does not appear to be alone in their unilateral action to ban numerous Chinese mobile apps. US Secretary of State Mike Pompeo said yesterday that the US government is “looking at” banning TikTok and other mobile apps built by Chinese companies. He went on to say that you should only download TikTok if “if you want your private information in the hands of the Chinese Communist Party.”

This is a fairly strong position for him to take, especially given that no official decision has been made. Regardless of where the US government ends up on this issue, the writing is on the wall that we are moving towards a world of nationalized platforms. I don’t mean in the sense that national governments will own and control the platforms, but rather that entrepreneurs will be limited to putting their technology products in the hands of their country’s citizens and their allies.

We have previously seen this happen for competitive reasons, but never for national security reasons. There were hundreds of copycat versions of Facebook in various countries around the world as the social network began to rise in popularity over a decade ago. There was the Russian Facebook, the Indian Facebook, etc. Each copycat was trying to get ahead of Facebook’s global expansion and build a network effect that would force Facebook to lose in that market or have to purchase the nation-specific version.

This happened time and again with various companies. Uber, AirBnb, etc. History tells us that it very rarely worked and most times the original innovator was able to scale globally despite these copycats. I don’t think we will see the same results though if the obstacle is not copycats, but instead actual government bans on specific platforms.

When India banned the 58 Chinese mobile apps, US investors Balaji Srinivasan and Naval Ravikant immediately put the word out that they were looking to fund development of India-specific versions of the same applications.

The ramifications of this shift in development and new total addressable market will be felt for many years to come. First, companies will have much less growth potential in the future. TikTok boasts more than 1 billion users, but if it was a mobile app specific to the US-only, the total addressable market is 330 million Americans. The banning of TikTok in India also means that the company just lost 200 million users overnight.

Second, the financial impact follows the loss of users and addressable market. Facebook has reported 50% or more of their advertising revenue comes from international markets for example. If it was only available in the US, you are talking about a company losing 50% or more of the money it has to innovate, hire, and generally conduct business.

Lastly, technology has been an incredible net positive for the world. We have become more connected over the last 20 years, including the ability to meet new people, learn from each other, communicate, and gain exposure to different cultures, beliefs, and ways of life. This connectivity is ultimately a positive force on the world. If we go backwards and are forced to use nation-specific apps, we lose all of that progress and growth.

No one can tell what is going to happen in the future. My guess is that TikTok eventually gets banned in the United States (the US military already has as an example). There are likely to be other Chinese mobile apps that are caught in the firestorm as well. With this said, I don’t believe that we will see nation-specific applications being built. Instead, we are going to see the rise of two worlds — one led by the United States and one led by China.

These two worlds will gather allies based on economic trade requirements, political and social alignment, and potentially the need for military protection. Each will establish their own guidelines and acceptable rules regarding technology. They will both actively work to prevent their citizens from using technology created by a company from the other world (ex: China’s great firewall). It is unclear how strict these restrictions will actually be, along with whether they will be equally applied to social media apps and communication infrastructure.

It will be a weird world for us to move towards. The weaponization of non-violent technologies has been happening for decades, but the difference today is that every private citizen is walking around with the technology in their pocket. The sci-fi movies you grew up watching normally painted a picture of the surveillance state and they appear to be more accurate with each passing day.

The question I will leave you with though is this — aren’t we just being forced to choose between whether we want to be surveilled by our governments or our government’s enemies?

-Pomp

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

THE RUNDOWN:

Palantir Has Confidentially Filed For an IPO: Secretive big data and analytics startup Palantir, co-founded by Peter Thiel, said late Monday it has confidentially filed paperwork with the U.S. Securities and Exchange Commission to go public. Its statement said little more. “The public listing is expected to take place after the SEC completes its review process, subject to market and other conditions.” Read more.

Trump Administration Releases List of Companies That Received Most Money from PPP Loans: The Trump administration on Monday disclosed the names of many small businesses which received loans under a program intended to blunt the economic damage from the coronavirus pandemic. Those loans represent nearly three-fourths of total loan dollars approved, but a far smaller proportion of the number of actual loans. About 87% of the loans were for less than $150,000, according to the SBA. Read more.

Sequoia announces $1.35 billion venture and growth funds for India and Southeast Asia: Sequoia Capital India on Monday announced it has secured $1.35 billion from LPs for two new funds as the storied venture firm looks to ramp up its investments in the world’s second-largest internet market and Southeast Asia. The two new funds — a $525 million venture fund and a $825 million growth fund — will help the VC firm, which operates in India and Southeast Asia through one arm, more comprehensively serve the startup ecosystem in the region, said Shailendra Singh, a managing director at Sequoia Capital India. Read more.

Elon Musk Reveals '$69.420' Tesla Short Shorts: Tesla has launched limited-edition short shorts costing "$69.420," CEO Elon Musk revealed in a tweet on Sunday. As of Monday morning, the red satin hot pants are already sold out. Musk, who has joked about selling short shorts before, appeared to be taking a jab at short sellers and investors who bet against Tesla. Read more.

IPOs Are ‘Really Not Worth It’ Says Tim Draper: Tim Draper, a famous American venture capitalist and serial cryptocurrency investor, believes that initial public offerings, or IPOs, are not the best source of funding for industry firms. The billionaire investor joined the Unitize conference on July 6 to talk about investing in early stage blockchain startups.Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Jon ‘DRJ’ Najarian was a linebacker for the Chicago Bears before he turned to another kind of contact sport – trading on the Chicago Board Options Exchange. He became a member of the CBOE, NYSE, CME and CBOT and worked as a floor trader for some 25 years. He built and sold a number of companies, including a $750 million exit to E*TRADE in September 2016. This episode was a ton of fun to record and I think you will learn a lot from it.

In this conversation, Jon and I discuss:

* The physicality of the old school trading pits

* How Wall Street has evolved over the years

* Robinhood

* Davey Day Trader

* Why Jon and his brother are building a company to educate investors

* How much of his portfolio is currently in Bitcoin

I really enjoyed this conversation with Jon. Hopefully you enjoy it too.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

We have started a new show exclusive to YouTube called Lunch Money. The goal is to cover current events in business, finance, and technology from the perspective of the every day citizen, rather than the talking heads on television. It is just as funny and entertaining as it is educational. Hope you enjoy it and make sure you go subscribe to the YouTube channel!

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Choice is a new self-directed IRA product that allows you to buy Bitcoin with tax-advantaged dollars, while still holding your private keys. You can go to retirewithchoice.com/pomp to sign up today.

* Helium Hotspots allow you to earn cryptocurrency by building a new wireless network for the Internet of Things and creating a more connected future in your city. Get $50 off your Helium Hotspot by going to helium.com and using my special code POMP at checkout.

* Unstoppable Domains is working to make the internet operate how it was originally intended, which means anyone can publish anything from anywhere. You can go to unstoppabledomains.com and claim your censorship resistant domain today.

* BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it by getting a loan or earning interest in their interest bearing accounts.

* Crypto.com allows you to buy, sell, store, earn, loan, and invest various cryptocurrencies in an user friendly mobile app. Join over one million users today. You can download and earn $50 USD with my code “pomp2020” when you sign up for one of their metal cards today.

* Blockset by BRD is your hosted blockchain infrastructure. Blockset enables enterprises and developers around the globe to deliver high-quality blockchain-based applications in a fraction of the time, at a fraction of the cost.

If you enjoy reading “The Pomp Letter,” click here to tweet to tell others about it.

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

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

To investors,

The lifecycle of technology companies has historically looked something like this: start the company, raise venture capital, launch a product, find product-market fit, raise more venture capital, scale the business, raise more venture capital, and eventually take the company public in the equity markets.

This process has historically created immense value, including many of the world’s most valuable companies today. There are two trends that are accelerating that highlight the process can be significantly improved though. The first relates to the length of time companies stay in the private markets and the second has to do with how the traditional IPO pricing mechanism works.

Private Market Returns Dominate

According to CNBC, “On average, the age of companies going public over the past quarter century has stayed roughly the same at eight years -- except when it comes to technology companies. The average tech company age in a public debut rose from three years in 2001 to 13 years in 2018.” One way to think about this is that the longer a company stays private, the less potential return available to public market investors.

It doesn’t mean that no return is available, but it does mean an increasing amount of the returns are going to venture capitalist and accredited investors. Take Amazon as an extreme example. The company was founded July 5, 1994 and went public on May 15, 1997. Amazon’s time in the private markets aligns almost perfectly to the previous three year average. The stock was priced at $18 per share when they entered the public market and today it trades for $2,890 a share. There were also three stock splits before the year 2000, so a public market investor who held since IPO day would have returned over 200,000% in the last two decades.

But what happened in the private markets before Amazon went public?

Jeff Bezos raised just under $1 million of angel investment from 20 - 23 individuals at approximately a $5 million valuation to get the company started. A year or so later, Bezos raised $8 million in 1996 at a $60 million valuation from Kleiner Perkins. Amazon had a market cap of $438 million when it went public in 1997.

Without dilution, the angel investors would have made about 87 times their money and Kleiner Perkins would be up a little more than 7x. These numbers aren’t exact, but it gives you a general idea of the private market return for investors. Compared to the 3,287x increase in the company’s market cap since it has been public, it is easy to see that majority of the value creation has been captured by public market investors.

This trend has changed drastically over the years. A plethora of capital has flooded the private markets, so founders have the ability to stay private longer. The longer they stay private, the more value creation can be captured by private market investors. Use the following companies as examples:

* SpaceX has been private for 18 years

* Palantir has been private for 17 years

* AirBnB has been private for 12 years

* Slack was private for 11 years

* Uber was private for 10 years

The increased access to capital and lack of scrutiny/reporting required in the private markets makes it attractive to stay private longer for many founders. These same companies lose many advantages as well though, including accurate price discovery, liquidity for employee equity, and tradable shares that can be used as a currency for acquisitions and future hires.

My guess is that we are going to see a reversal of this trend in the coming years. Founders will start thinking that it is cool again to get into the public markets sooner rather than later. The average time in the private markets won’t drop back down to 3 years, but I could see it retreating to around 8 years.

This brings us to the second trend that highlights an area for improvement.

IPO Pricing Is Broken

The traditional process for pricing an IPO has increasingly swung financially in favor of investment bankers and their clients. The overgeneralized version of the process is that companies declare that they plan to go public, they select an investment banking team to work with, the bankers set up a road show full of presentations from management, an IPO price is set, and the company eventually enters the public equity markets at the pre-determined price per share.

The problem with this process is that companies are incentivized to sell shares to investment bankers, their clients, and public market investors at the highest price possible, yet non-company investors are incentivized to buy the shares at the lowest price possible. This difference of incentives theoretically should help to find market equilibrium. In practice, it doesn’t.

Remember, the investment bankers have much more experience than founders in this process. It is literally the job of investment bankers to price IPOs and raise capital as companies enter the public markets. They do this numerous times a month or year. Founders are likely to bring a company public only once in their life, while also having to divert majority of their attention to running their business. It would be an understatement to say that founders and their companies are at a disadvantage in the IPO pricing process.

This lack of balance in power leads to IPOs being priced artificially low, so investors can capture incredible upside return on their investments in a short period of time. This “IPO pop” has somehow become a barometer for how successful an IPO is. Unfortunately, the company is the loser in this trade. Let’s use two recent IPOs as examples — Lemonade and Agora.

Ari Levy of CNBC nailed it when he wrote:

“For a second straight week, a tech company has more than doubled in value upon its stock market debut. Last week, it was Chinese cloud software developer Agora, which surged 150% in its first day of trading on the Nasdaq. And on Thursday, insurance-tech company Lemonade jumped 139%.

Tech IPOs have long been criticized for a process that lets investment bankers hand over underpriced stock to large public money managers, who often enjoy immediate and massive pops before ordinary investors are able to participate. Meanwhile, the issuing company ends up raising far less money than it could.

Over the past four months, with face-to-face meetings off the table, IPO roadshows have gone virtual. Management teams, with the help of bankers, are selling their story over Zoom rather than spending two weeks traveling to the money hubs of New York, Boston, Baltimore and San Francisco.

While they may be saving money on travel, they’re still leaving piles of cash on the table. Lemonade sold 11 million shares at $29 a piece, bringing in just over $300 million and giving new investors the $444 million difference, based on the closing price of $69.41. That’s a big deal for a company that had cash and cash equivalents of about $567 million before the IPO.”

In each of these scenarios, investment bankers and their clients more than doubled their money in a matter of minutes, yet the companies left hundreds of millions of dollars on the table. Seems like a one-sided trade, right? That is because it is. The success of an IPO should not be determined by how much the stock price appreciates once it is liquid, but rather by how much capital a business can raise without seeing a substantial drop in share price once the stock is trading.

Bill Gurley of Benchmark has been arguing this concept for awhile now.

So what exactly is the answer to the IPO pricing problem?

The simple answer is to conduct direct listings, which both Spotify and Slack have done. These direct listings circumvent the IPO process and allow existing shareholders to sell their shares directly to the public at market clearing prices. The goal is to have better price discovery. It should also allow the company to raise more capital for future business endeavors.

The longer answer is that many companies can actually mitigate the pricing issues by going public sooner or by leveraging reverse takeovers. The earlier a company goes public, the less aggregate dollars they miss out on if there is a pricing issue. Mis-pricing the IPO by 25% for a $400 million company is $100 million vs mis-pricing the IPO by 25% for a $1 billion company is a loss of $250 million for the company.

The reverse takeovers allow a shell company or blank check company to acquire an existing attractive business. The final result is that the private market company is now publicly traded post-merger with the publicly traded smaller organization. We recently saw Chamath Palihapitiya do this with Virgin Galactic and it was quite successful.

In each scenario, we are likely to see a convergence of the reversal of both trends. Companies will start going public sooner and they will avoid the traditional IPO process. Founders will pursue direct listings if they are larger and small-to-medium sized businesses will pursue reverse takeovers.

The public markets have long been avoided by tech company founders. Those days are numbered though. There are definitely challenges with operating a publicly traded company, but the benefits drastically outweigh the downside.

-Pomp

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

Disrupt Everything. For hundreds of years, 276 to be exact, if you wanted to invest in art you had to attend an insiders-only art auction (paddle in hand). But just like the steam engine or printing press, the advent of modern investing platforms like Masterworks are likely to disrupt the industry forever. You do the math: over $2 trillion of wealth is held in art and only one company can get you in on the ground floor. Don’t want to wait? I’ve partnered with Masterworks so you can skip the 25,000 waitlist here.*

*See Disclaimer

THE RUNDOWN:

Bitcoin Miners Saw 23% Revenue Drop in June: Bitcoin miners suffered a 23% drop in revenue during June, resulting from lower network fees and a reduced block subsidy after the halving in May. Down from $366 million in May, bitcoin miners generated an estimated $281 million in revenue in June, a three-month low according to Coin Metrics data analyzed by CoinDesk. Estimates assume miners sell bitcoins immediately. Read more.

Bitcoin Startup Zap Is Working With Visa: Lightning developer and Zap, Inc. founder Jack Mallers announced Thursday his startup’s Strike product, which allows people to receive bitcoin as dollars via direct bank deposits, is finally entering public beta. A Visa card is also in the works. Read more.

New York-Based Asset Manager Closes $190M Round for Bitcoin Institutional Fund: The New York Digital Investment Group has raised $190 million for one of its bitcoin funds, according to a Form D document submitted to the U.S. Securities and Exchange Commission on Wednesday. Read more.

Intel to Invest in Jio Platforms, After Facebook’s $5.7B Bet on the Indian Telco: Intel is investing over $250 million in Indian telco Jio Platforms, just three months after Facebook announced a $5.7 billion bet on the company. Owned by billionaire Mukesh Ambani’s Reliance Industries, Jio Platforms announced the Intel investment in a media release on Friday via Twitter. Intel will inject $253.5 million into the company, which is valued at $65 billion, in exchange for 0.39% stake. Read more.

TuSimple Plans Autonomous Truck Network Backed by UPS: Ahead of the commercial rollout of its driverless trucks by 2024, TuSimple today outlined the launch of what it’s calling the world’s first autonomous freight network. In partnership with UPS, Penske, U.S. Xpress, and McLane Company, TuSimple plans to establish an “ecosystem” of autonomous trucks, complemented by digitally mapped routes, strategically placed terminals, and a monitoring system dubbed TuSimple Connect. Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Today’s episode was a special “thank you” to every listener. I asked for questions on Twitter and received a few hundred of them. Last night I sat down with Polina and tried to answer as many of them as possible. The topics range from finance to startups to technology to my personal life.

I really enjoyed recording this episode. Hopefully you enjoy it too.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

We have started a new show exclusive to YouTube called Lunch Money. The goal is to cover current events in business, finance, and technology from the perspective of the every day citizen, rather than the talking heads on television. It is just as funny and entertaining as it is educational. Hope you enjoy it and make sure you go subscribe to the YouTube channel!

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

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* Crypto.com allows you to buy, sell, store, earn, loan, and invest various cryptocurrencies in an user friendly mobile app. Join over one million users today. You can download and earn $50 USD with my code “pomp2020” when you sign up for one of their metal cards today.

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If you enjoy reading “The Pomp Letter,” click here to tweet to tell others about it.

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

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

To investors,

Investing is a game of risk and reward. If you take intelligent risks, you can profit handsomely. If you take the wrong risk, the market can humble you quickly. This framework is important to remember as we enter a world where interest rates are hovering around 0% and the Federal Reserve has made it clear they won’t be increasing them any time soon.

This low interest rate environment creates a big problem for public pension funds. They are already heavily underfunded. According to The Pew Charitable Trusts data from fiscal year 2017 (the most recent data available), there is “a combined $1.28 trillion in state pension plan funding deficits. While massive, this was actually a decrease from Fiscal Year 2016’s $1.35 trillion gap.”

So how exactly did we get to this point and why are public pension funds so underfunded?

The issues are quite complex, so I am going to focus on only one of the major issues — investment returns. The National Association of Retirement Administrators (NASRA) describes the importance of investment returns best:

As of December 31, 2019, state and local government retirement systems held assets of approximately $4.8 trillion. These assets are held in trust and invested to pre-fund the cost of pension benefits. The investment return on these assets matters, as investment earnings account for a majority of public pension financing. A shortfall in long-term expected investment earnings must be made up by higher contributions or reduced benefits.

Each public pension fund has an actuary assumed rate of return. This is the percentage return that the plan is targeting on an annual basis in order to have enough capital in the future to fulfill the plan’s obligations.

The assumed rate of return is calculated using a complex formula, and it is different for each pension fund, but the average assumed rate of return for public funds is 7.3%, according to a survey by the NASRA. This means that the Chief Investment Officer and their staff need to attain a 7.3% annual return to keep the average pension fund on track to have the adequate amount of capital in the future.

The last few years have been incredibly kind to these public pension funds. The average investment return for 2018 was 13.4% for all plans reporting that year, which was much higher than the 7.8% average return that occurred in 2017. Most of these increases in returns have been driven by (1) higher interest rates and (2) the longest bull market in stocks in history.

The world has changed now though. COVID-19 ushered in a lot of uncertainty, while also forcing the Federal Reserve and other organizations to take drastic measures in an attempt to deal with the ensuing economic shock. One of those drastic measures was to drop interest rates to 0% through two emergency rate cuts. This floods the market with cheap capital, but it also significantly decreases the return expectations of fixed income portfolios.

Who is one of the largest holders of fixed income portfolios? Public pension plans! So now we have a low yield environment that will create a drag on performance for a group of investors that are already under immense pressure to beat their 7.3% targets. In order to highlight what is happening, I am going to use the California Public Employees' Retirement System (CALPERS) as an example.

CALPERS is the largest public pension plan in the United States. They have almost $350 billion in assets under management, are responsible for the benefits for nearly 2 million beneficiaries, and employ almost 3,000 employees. This is not a simple operation by any stretch of the imagination and it is incredibly important that they come as close as possible to hitting their actuary rate of return every year.

CALPERS currently has 28% of their portfolio allocated to fixed income. This includes 15% in long-spread fixed income, 10% in long Treasury bonds, and 3% in high yield fixed income. The low yield environment means that more than 1/4th of their portfolio is likely to come under significant pressure now. So what are they going to do?

Rather than reallocate their funds to other asset classes or strategies, CALPERS is considering a move that would add incredible amounts of leverage to their fund and allow them to allocate this “new money” to illiquid assets. The Financial Times summarized it by saying:

“Calpers is to move deeper into private equity and private debt by adopting a bold leverage strategy that the $395bn Californian public sector pension fund believes will help it achieve its ambitious 7 per cent rate of return.

In a presentation to the Calpers board, Ben Meng, chief investment officer, said the giant fund would take on additional leverage via borrowings and financial instruments such as equity futures. Leverage could be as high as 20 per cent of the value of the fund, or nearly $80bn based on current assets. The aim is to juice up returns to help the scheme, the largest public pension in the US, achieve its growth target.

The move comes after a 2019 investment strategy review that found Calpers needed greater focus on the excess returns potentially available from illiquid assets compared with public equity and debt. Under Calpers’ previous asset allocation strategy it was estimated to have a less than 40 per cent probability of achieving its 7 per cent return target over the next decade.”

Why are they doing this? Well, they feel they really have no choice. The largest pension fund in the United States returned only 6.7% in 2019 and they currently sit around 70% funded (which means that they are behind where they need to be by 30%). Desperate times leads to desperate measures as the saying goes.

But CALPERS, and other public pension funds, don’t need to seek immense leverage to drive their target returns. The solution can be much simpler than that. Each of these pension funds should add a 1-5% allocation to Bitcoin. Yes, I’m dead serious.

Bitwise recently published a white paper that “explores the case for including a small but meaningful allocation to cryptoassets in a diversified portfolio. Specifically, it examines the impact that a 1%, 5%, and 10% allocation to Bitcoin would have had on a traditional 60% equity/40% bond portfolio since Jan. 1, 2014.” The study found that “allocating to Bitcoin would have significantly increased the portfolio’s risk-adjusted returns, assuming the portfolio was systematically rebalanced over time. This result was consistent across all three allocations using multiple rebalancing strategies.”

Sounds pretty good, right? The white paper goes on to state that “the potential impact was large: With a 5% allocation, for instance, the Sharpe ratio of the portfolio nearly doubled, total returns more than doubled, and the maximum drawdown was substantially reduced. The paper finds that Bitcoin’s unique combination of high potential returns and low correlations with traditional asset classes make it uniquely attractive as a diversifying asset for long-term investors.”

This is just math. There is no emotion in an analysis like this. I’ve actually been saying this since December 2018 (Bitcoin is up almost 3x since then). The qualitative argument is thrown out the window. It is as clear as possible — adding an allocation to Bitcoin would increase the risk-adjusted returns for a public pension fund.

The best part? CALPERS would not have to be the first to add the allocation. As many of you know, two of the public pension plans in Fairfax County, Virginia already invested in our funds at Morgan Creek. So why is this idea so controversial or at least not getting more air time in the public pension world?

In my opinion, it is way too simple. There is an incredible amount of intellectual olympics that goes on in the institutional investment world. Everyone thinks they are a genius. The goal is to seek alpha and find those who can create outperformance. But as you would expect, humans generally stink at beating markets.

Meb Faber, someone I find incredibly intelligent and who has come on the podcast previously, has a great post about public pension investing. In the piece, he states “CalPERS would have been just as well off just firing their whole staff and buying some ETFs.  It would certainly make the record keeping a lot easier!  And they would save a whopping $500 million a year on operating costs (2,700 employees) and another few hundred million on external fund fees.  And you get to avoid all that nasty press on how much you are paying those evil hedge fund managers and their performance fees (disclosure, written by someone with two private funds).”

This has always fascinated me. There is an entire circus of suits and ties running around seeking a return profile that could be captured by simply buying ETFs over a significant period of time. Now I will be the first to say that investments in innovation, particularly venture capital, are probably the area of outperformance that still makes sense.

The best performing institutions have large allocations to venture capital as an example (GMO, Dietrich Foundation, etc). This requires courage though. It isn’t considered “safe” in the halls of large, conservative institutions. But ultimately, it is the main driver of returns. As my partners and I continue to say, returns come from investments in innovation. Even Jeremy Grantham, who recently was on the Invest Like The Best podcast, suggested that young people seek job opportunities in venture capital.

After the interview, host Patrick O’Shaughnessy wrote:

“The big idea that stuck with me was a surprising one coming from an investor known as a contrarian value investor focused on public markets: namely that young people interested in investing should go into venture capital instead of public markets or private equity. He says, "Private equity and regular investing is shuffling shares between one player and another. It doesn't change anything. I sell a share, you buy it, who cares?" His personal portfolio is 70% venture capital, which I did not expect at all!”

And you want to know where the greatest innovation is occurring at the moment? Bitcoin. There is a group of individuals who have built a $150+ billion asset with the goal of assuming the position of the next global reserve currency. If that happens, it will be the best performing asset for the next 20+ years. But even if that doesn’t happen, things will be okay.

About 8 months ago, we ran the numbers for a 1% allocation in Bitcoin on a 60/40 global portfolio. If you had invested 5 years prior and just held it, your portfolio return would have gone from 7.2% to 9.2%. This was a 200 basis point upside. If you had made the Bitcoin investment and it had gone to $0 in value (you lost all your money), your return would have dropped from 7.2% to 7%. This 200 basis point upside and 20 basis point downside type investment is the exact asymmetry that public pension funds need today.

They don’t need to panic and do ridiculous things like adding $80 billion of leverage to their portfolios. At some point we have to ask the question, “when does it become a violation of fiduciary duty if investment managers are levering up with enormous amounts of debt, yet they don’t have exposure to the best performing asset in the last 10 years?”

-Pomp

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

THE RUNDOWN:

JPMorgan Says Bitcoin Crash Survival Shows It Has Staying Power: In March, Bitcoin -- like many other areas of the market -- underwent a stretch of severe disruption as world economies started to shut down and investors fled riskier assets due to the coronavirus outbreak. But Bitcoin emerged relatively unscathed, according to a report from the bank titled “Cryptocurrency takes its first stress test: Digital gold, pyrite, or something in between?” Read more.

Quadriga Downfall Stemmed From Founder’s Fraud, Regulators Find: The collapse of crypto-exchange QuadrigaCX was the result of fraud by its founder Gerry Cotten, the Ontario Securities Commission concluded in an investigation. The Canadian securities regulator has taken the rare step of publishing its findings on its 10-month investigation into QuadrigaCX, whose collapse in 2019 caused at least C$169 million ($125 million) in losses for 76,000 investors in Canada and abroad. QuadrigaCX shut down in January 2019, weeks after Cotten died unexpected while on his honeymoon in India, leaving behind a mystery of what happened to the Bitcoin and other cryptocurrencies on the platform. Read more.

How an Art Collective Is Using Blockchain to Protest Police Brutality: A blockchain-centric art project is pushing the boundaries of modern art with a controversial digital display. The DADA Art Collective, a loosely affiliated group of roughly a dozen visual artists across the globe, teamed up with the non-fungible token marketplaces OpenSea and Mintbase plus the file-storage blockchain Arweave to publish the names and faces of American police officers accused of killing unarmed black people. Read more.

Hedge Fund Elliott Management Shifts to Elephant Hunting as Fund Size Balloons: In the past few years, a gradual but noticeable transformation has taken place at Elliott: The technology targets have gotten bigger. In 2019, Elliott bought stakes in eBay ($34 billion market capitalization), SAP ($159 billion) and AT&T ($217 billion market cap). This year, Elliott has already targeted Twitter ($26 billion market cap) and SoftBank ($93 billion). Read more.

Drug Dealer Just Sentenced to 25 Years Hoped to Build a Better Bitcoin Miner: Paul Calder Le Roux, an admitted drug dealer with a background in encryption, planned to build a bitcoin miner had he beaten the rap. In a last-ditch attempt to avoid incarceration, Le Roux wrote a letter to District Judge Ronnie Abrams, of the Southern District of New York (SDNY), this week detailing his personal history and addressing his alleged crimes. He was indicted on drug charges in 2012, pleaded guilty two years later and has been sitting in detention since. On Friday, he was reportedly sentenced to 25 years in prison, though he can appeal this decision. Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Dustin Wilson is a Master Sommelier and a co-founder of Verve Wine. He was previously the Wine Director at Eleven Madison Park, a 3 Michelin-starred restaurant in New York City. Dustin was also featured in Somm, a popular documentary about the challenging Master Sommelier exam. We had a lot of fun recording this one, so hope you enjoy it!

In this conversation, Dustin and I discuss:

* The Master Sommelier process

* How he built Verve Wine

* The COVID-19 impact on the hospitality industry

* The recent cheating scandal in the wine world

* An overview of wine as an investment asset

* His favorite wines

* The most underrated wine region

* Biodynamic wines

I really enjoyed this conversation with Dustin. Hopefully you enjoy it too.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

We have started a new show exclusive to YouTube called Lunch Money. The goal is to cover current events in business, finance, and technology from the perspective of the every day citizen, rather than the talking heads on television. It is just as funny and entertaining as it is educational. Hope you enjoy it and make sure you go subscribe to the YouTube channel!

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Choice is a new self-directed IRA product that allows you to buy Bitcoin with tax-advantaged dollars, while still holding your private keys. You can go to retirewithchoice.com/pomp to sign up today.

* Unstoppable Domains is working to make the internet operate how it was originally intended, which means anyone can publish anything from anywhere. You can go to unstoppabledomains.com and claim your censorship resistant domain today.

* BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it by getting a loan or earning interest in their interest bearing accounts.

* Crypto.com allows you to buy, sell, store, earn, loan, and invest various cryptocurrencies in an user friendly mobile app. Join over one million users today. You can download and earn $50 USD with my code “pomp2020” when you sign up for one of their metal cards today.

* Blockset by BRD is your hosted blockchain infrastructure. Blockset enables enterprises and developers around the globe to deliver high-quality blockchain-based applications in a fraction of the time, at a fraction of the cost.

If you enjoy reading “The Pomp Letter,” click here to tweet to tell others about it.

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

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

To investors,

There has been a lot of talk recently about the issues across the United States. We have seen incompetent leadership at the local, state, and federal level. This weakness was exposed first by the virus, then the economic shock, and finally by the handling of police brutality. But is the United States really spiraling into demise? Or are we simply seeing a repeat of history that is less concerning when you understand our past?

To answer this question, we must first ask ourselves “what does the demise of a country actually look like?”

There are many opinions on how nation states spiral into obscurity or ruin, but one of the best explanations I have heard comes from Yuri Bezmenov, a former Russian KGB official who defected to the United States. In this television interview from 1985, Bezmenov explains that there are four main steps to ideological subversion (h/t Marty Bent & his newsletter for finding this)

This subversion is defined as “actions designed to undermine the military, economic, psychological, or political strength or morale of a governing authority” or “the undermining or detachment of the loyalties of significant political and social groups within the victimized state, and their transference, under ideal conditions, to the symbols and institutions of the aggressor.”

The four main steps to ideological subversion are:

* Demoralization - This process can take 15 - 20 years (approximately a generation) and involves the intellectual reprogramming of young people to become sympathetic to ideas that gravitate closer to socialism and communism. The idea is to cement ethos, ideals, and frameworks into the minds of people who will one day become the leaders of a nation’s government, corporations, and military. As this new generation begins to take leadership roles, the older generation begins to cede control to a subset of the population that has different ideas. 

* Destabilization - This stage of the process is intended to change a country's economy, foreign relations, and defense systems. The driving force is a larger and larger government, which continues to promise a variety of social welfare benefits. It ultimately doesn’t matter if they successfully deliver on their promises, because the mere promise of a stronger social safety net becomes too much for the demoralized generation to resist.

* Crisis - This stage is the shortest in terms of timeline, meaning it could be merely weeks long. There is a catastrophic event that takes place and leads to social unrest dividing the nation. The division of the population presents an opportunity for a significant shift in power and control at the government level. Past examples would include the overthrowing of the government in Egypt and Libya in the last decade.

* Normalization - This is the final stage of the cycle. It is the process of citizens accepting communism/socialism as the selected way of life. They no longer fight the new model, but rather believe that it is the standard of governance for everyone around the world. 

There are people much smarter than me who will spend their time debating which stage of demise the United States is currently in. That holds little to none of my interest. Instead, I am intrigued by two questions — (1) has there been an ideological shift in American’s mindset over the last few decades and (2) what can we do to prevent the downfall of our country?

The first question is actually the easier of the two. We can look to the last 4 - 5 months as an example of how our mindset has shifted. The United States, along with the rest of the world, was hit with the coronavirus. Our reaction was to attempt to prevent every single death in the population. This reaction was driven from the top down and saw citizens succumbing to a government that violated the constitution on multiple occasions (example of state supreme court rulings here and here).

On the economic front, most of the capitalist on Wall Street turned out to be socialists. They immediately ran to the government and began demanding bailouts within days of the government mandated shut down being put in place. These people included investors, corporate executives, television talking heads, and politicians. It seemed like everyone saw the government as a free money tree and they wanted a piece. There was no outcry when the government interfered in the markets, nor was there an uproar when circuit breakers were tripping multiple times a day. The era of a capitalist, free market in America are long gone.

Lastly, the recent violation of civil liberties has occurred with relatively little pushback. We have seen everything from curfews implemented to quell the freedom of assembly to armed men & women of the government beating unarmed citizens in the streets. There has been a complete breakdown in the adherence to the United States constitution, including employees of the state applauding their colleagues as they get criminally charged with felony assault.

In my opinion, it would be safe to argue that there has been an ideological shift in the American population. It is unclear when this shift started, but the response to the recent health, economic, and civil liberties crisis proves that the United States is less democratic, free, and capitalist, than it once was.

Which brings us to the most important question — what can we do about it?

The simple answer is education. In Yuri Bezmenov’s interview from 1985, he states that the two solutions lie in educating our nation on the importance and advantage of a free, capitalist society, while also cutting off all economic relationships with communist or socialist nations. He talks about suffocating these countries with ideological variance by cutting them off from the global economy and forcing them into a world of self-sufficiency.

I don’t think it is possible to cut economic ties with these economic giants in the day and age of the internet. There is too much complexity. We are also highly dependent on our trading partners, which was revealed during the coronavirus outbreak. Instead of focusing on the second solution, we should double and triple down on the first - education.

The information diet of our young people is essential to ensuring the continuation of ideals and ethos of the American way of life. We must teach them what it means to be free. We must show them what happens to a country when it transitions to communism and/or socialism. There has to be education around the suffering of citizens in other countries after these transitions take place. Young people must be taught that standing up for freedom, democracy, capitalism, and civil liberties is not only important work, but it is their duty as American citizens.

This sounds like an ideological education, right? It is. The internet has presented the ultimate gift and curse. It has ushered in an era where ideas compete in a free market. There is very little censorship on the internet and if you want to learn something, it is usually at your fingertips. That means that the ideologies that we want our children to possess must be taught with as much enthusiasm and excitement as the ideas being taught by those who want to see a different world.

Yuri Bezmenov highlighted the importance of the idealogical battle between democracy and communism, the battle between capitalism and socialism — he said that there is no where else to defect to. America is the last democratic, capitalist society. We should make sure we don’t ruin the great thing that we have.

-Pomp

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See important disclosures here

THE RUNDOWN:

A ‘Misclassification Error’ Made the May Unemployment Rate Look Better Than It Is: When the U.S. government’s official jobs report for May came out on Friday, it included a note at the bottom saying there had been a major “error” indicating that the unemployment rate likely should be higher than the widely reported 13.3% rate. The special note said that if this “misclassification error” had not occurred, the “overall unemployment rate would have been about 3 percentage points higher than reported,” meaning the unemployment rate would be about 16.3 percent for May. Read more.

Latest Satoshi Nakamoto Candidate Buying Bitcoin No Matter What: Adam Back’s name has surfaced again in the crypto community’s favorite guessing game: Who is the anonymous creator of Bitcoin who went by the pseudonym Satoshi Nakamoto. In mid-May, YouTube channel Barely Sociable, with nearly 400,000 subscribers, released a 40-minute video claiming that 49-year-old Back is Satoshi. The video has since raked up nearly 300,000 views. Read more.

SEC Moves to Freeze Assets of Alleged $12M Crypto Investment Scam: The U.S. Securities and Exchange Commission moved Friday to freeze the assets of a cryptocurrency mining and multilevel marketing scheme that it claimed bilked investors of $12 million. Unsealing its complaint against Utah resident Daniel F. Putnam, his businesses MMT Distributions and R & D Global and associates Angel A. Rodriguez of Utah and Jean Paul Ramirez Rico of Colombia, the SEC claimed the three had lied to investors and misappropriated their funds. Read more.

Elon Musk Tells SpaceX Employees That Its Starship Rocket Is the Top Priority Now: SpaceX launched astronauts for the first time barely a week ago but CEO Elon Musk does not want the company resting on its laurels. Instead, Musk urged SpaceX employees to accelerate progress on its next-generation Starship rocket “dramatically and immediately,” writing Saturday in a company-wide email seen by CNBC. Read more.

Airlines Got $25 Billion in Stimulus; Industry Still Expected to Shrink: Federal stimulus money for airlines is keeping them afloat through the coronavirus pandemic, but it’s not proving to be enough to sustain the industry at its pre-pandemic size. Carriers say they will have to shrink, with fewer planes flying, fewer flights and fewer employees come Oct. 1, after restrictions related to their stimulus money expire. Airlines will likely need to park 20% of their planes and cut their pilot workforces in equal measure, Cowen analyst Helane Becker estimated in a recent research note. Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Daryl Morey is the General Manager of the Houston Rockets of the NBA. He is a strong proponent of analytical methods, having created the true shooting percentage statistic, and co-founded the annual MIT Sloan Sports Analytics Conference. This episode was a lot of fun and Daryl is one of the most analytical people I know. Promise you’ll learn something.

In this conversation, Daryl and I discuss:

* The latest NBA update

* How the Rockets use advanced analytics to make decisions

* Why Daryl spends so much time supporting civil liberties

* What he thinks of SpaceX

* Why he has been a proponent of Bitcoin since 2011

I really enjoyed this conversation with Daryl. Hopefully you enjoy it too.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

We have started a new show exclusive to YouTube called Lunch Money. The goal is to cover current events in business, finance, and technology from the perspective of the every day citizen, rather than the talking heads on television. It is just as funny and entertaining as it is educational. Hope you enjoy it and make sure you go subscribe to the YouTube channel!

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* TaxBit automates your cryptocurrency taxes, enabling you to effortlessly track, calculate, and report your transactions. Get 10% off your tax plan today with a free trial by going to www.taxbit.com/invite/Pomp

* Unstoppable Domains is working to make the internet operate how it was originally intended, which means anyone can publish anything from anywhere. You can go to unstoppabledomains.com and claim your censorship resistant domain today.

* BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it by getting a loan or earning interest in their interest bearing accounts.

* Crypto.com allows you to buy, sell, store, earn, loan, and invest various cryptocurrencies in an user friendly mobile app. Join over one million users today. You can download and earn $50 USD with my code “pomp2020” when you sign up for one of their metal cards today.

* Blockset by BRD is your hosted blockchain infrastructure. Blockset enables enterprises and developers around the globe to deliver high-quality blockchain-based applications in a fraction of the time, at a fraction of the cost.

If you enjoy reading “The Pomp Letter,” click here to tweet to tell others about it.

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

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

To investors,

Everyone is well aware of the current social unrest in the United States. We spent the weekend watching video after video of protestors taking to various cities to voice their concerns. Some of those protests remained peaceful, while others became violent. The display of defiance may have been different in each city, but the root cause of this unrest is the same. The driving forces are not simply explained. The rest of this letter will be aimed at explaining as much of the complexity as possible. It will then end with a few potential options to pursue moving forward to create systematic change.

Before we get into the problem though, many of you are going to ask, “What do you know about these issues?” I think it would be helpful to address this question directly upfront. First off, I don’t have all the answers. I can’t pretend to know or imagine what it is like to be black in America. These issues are complex and no one person fully understands them. But to give you context, I do however have a unique combination of experiences and education that likely creates a different perspective than what many of you are reading in the legacy media outlets.

I studied Economics and Sociology at Bucknell University, a predominantly white university in the Patriot League. While in school, I played football on their Division 1-AA team. Additionally, I served in the US Army and National Guard for 6+ years, including a deployment to Iraq in 2008 - 2009. I finished my military career as a Sergeant in the Infantry.

So why does this experience and education matter?

A good portion of my life has been spent balancing the academic theories of economics and sociology with the real-life experiences of racism and war. The education experience was fairly traditional. It consisted of everything from Economics 101 to macro and micro economic courses. The sociology course load was heavy on criminal justice, psychology, and legal studies. The real-life experience is the part that would be hard for most to replicate.

Let’s start with the football team. Most of my teammates were minorities from urban areas around the country. Many of them became my closest friends and still are today. These teammates were drastically outnumbered on the predominately white campus, and I was personally there for many racist encounters. Some of these situations were diffused when a teammate would collect themselves and walk away, but some of them would end in fist-fights between football players and racist students. 

It was always shocking to me to see the blatant racism. The “n” word would be thrown around liberally. Entry to a party would be denied. Or my black teammates would be specifically targeted by police and campus security. Many of these incidents would happen with white teammates standing nearby, and there was a clear difference in the way that each of us was treated in the situation. It would be an understatement to say that I not only had my eyes opened to racism in our country, but also to the arrogance that racists had when acting on their ideas.

Next, there are very few people who have stood in a foreign combat zone with a rifle in their hand. The power and responsibility that comes with that is hard for most to understand. I’ve seen the fear in citizens’ eyes when a gun is pointed at them. I’ve seen the anger in a family when they lost a loved one to violence. And I’ve spent time with men and women who have done some incredibly heroic things during heavy combat. 

These experiences, overlaid with the academic education, have led to the formation of a worldview that recognizes incredible nuance in the situation that the United States is facing today. This chaos is not one-dimensional. It is multi-faceted. But ultimately, it is backlash over privilege.

There are three types of privilege at play right now — racial privilege, economic privilege, and power privilege. I will explain each in detail below. They are different, yet interrelated. 

Racial Privilege

There are very few people who would argue that racism does not exist in American society today. Racial privilege is more nuanced than that though. It refers to the way that minorities, especially African-Americans, are treated differently by law enforcement and the government. There are mountains of academic research that back up these claims, but one of the best reads is a book by Jeffrey Reiman titled “The Rich Get Richer and The Poor Get Prison: Ideology, Class, and Criminal Justice.” 

The best selling book is summarized as follows:

“The criminal justice system is biased against the poor from start to finish. The authors argue that even before the process of arrest, trial, and sentencing, the system is biased against the poor in what it chooses to treat as crime….the dangerous acts of the well-off are almost never treated as crimes, and when they are, they are almost never treated as severely as the crimes of the poor. Not only does the criminal justice system fail to protect against the harmful acts of well-off people, it also fails to remedy the causes of crime, such as poverty. This results in a large population of poor criminals in our prisons and in our media. The authors contend that the idea of crime as a work of the poor serves the interests of the rich and powerful while conveying a misleading notion that the real threat to Americans comes from the bottom of society rather than the top.”

Reiman uses the Pyrrhic Defeat Theory to “suggest that the criminal justice system's intentions are the very opposite of common expectations; it functions the way it does in order to create a specific image of crime: one in which it is actually a threat from the poor. However, to justify the truth of the idea there must be some substance to back it up. The system needs to fight crime, to some extent at least, but to an amount only to control it and ensure it stays in a prominent position in the public eye, not enough to eliminate it.” 

He also uses the “carnival mirror” metaphor to highlight “a distorted image of the dangers that threaten us.” The entire idea is based on the fact that the media and society has created a narrative that suggests young black males commit the majority of crimes, when in reality, the most serious or largest-scale crimes are conducted by white corporate executives and do not come to mind when speaking of crime. (Example: See Jeffrey Epstein documentary on Netflix)

Simply, police officers target black communities more aggressively because the legal system, from the laws on the books to the sentencing process, incentivizes them to “get tough on crime.” But just as a company can only move the metrics that it measures, law enforcement will only arrest people in the communities that they police. This racial disparity gives white people a significantly lower probability for being arrested, while it drastically increases the likelihood that a young black man will end up in prison.

This is not only academic theory either. The data strongly supports the thesis. Between 2013 and 2019, police in the US 𝗸𝗶𝗹𝗹𝗲𝗱 7,666 𝗽𝗲𝗼𝗽𝗹𝗲. Black Americans are 2.5 𝘁𝗶𝗺𝗲𝘀 as likely as white Americans to be shot and killed by police.  According to a 2016 report from The Sentencing Project, “African Americans are incarcerated in state prisons at a rate that is 5.1 times the imprisonment of whites. In five states (Iowa, Minnesota, New Jersey, Vermont, and Wisconsin), the disparity is more than 10 to 1. In twelve states, more than half of the prison population is black: Alabama, Delaware, Georgia, Illinois, Louisiana, Maryland, Michigan, Mississippi, New Jersey, North Carolina, South Carolina, and Virginia. Maryland, whose prison population is 72% African American, tops the nation.”

Lastly, counter-intuitively, this racial privilege exists regardless who is running the local, state, or federal government. Professor Cornel West was recently on CNN and he laid out an incredible 5-minute argument about why “the system can not reform itself.” Pay particular attention from 0:40 - 2:15 minute marks.

Racial privilege is real and it is one of the three main drivers of privilege that leaves a significant portion of the US population suffering.

Economic Privilege

The United States economy is built on the idea that the majority of the population doesn’t understand how money works. There is a concerted effort to avoid teaching personal finance and related topics in our public schools. This lack of education, combined with the systemic theft of the poor, has led to an ever-widening inequality gap. Quite literally, the rich are getting richer and the poor are getting poorer.

We live in a country where the Federal Reserve’s 2018 Survey of Household Economics and Decision Making concluded that 40% of Americans could not come up with $400 for an emergency payment without selling some of their possessions or going into debt. Additionally, almost 50% of Americans don’t own a single stock. Allison Schrager from Quartz wrote in September 2019: “Mostly, it is low-income Americans who lack access to a retirement account or can’t afford to contribute. Ninety-two percent of working, non-stock owning Americans don’t participate in a 401(k)-type plan, while 72% of stock owners contribute to a retirement account. The stock owners also earn much more: Their median income is $90,000, compared to just $45,000 among Americans who don’t own stock.”

This understanding of asset allocation for individual’s wealth is essential to understand because it is what ultimately determines economic privilege. Our capitalist society changed the rules in 1971 when we went off the gold standard, which allowed the Federal Reserve and US government to create money out of thin air.

This transition to a system that relies on the decision-making of approximately 12 people led to an economy that devalues US dollar cash and inflates the price of assets (stocks, real estate, gold, etc). Those that have the financial education benefit from economic privilege and subsequently capitalize on it. Those that do not understand the rules of the game, nor have the capital to participate in the game, have their wealth systemically stolen from them over time. 

And this was before the government-mandated shut down of the economy occurred. This shut down has disproportionately affected those in lower socioeconomic classes. There have been 40+ million Americans who have lost their jobs. These people have watched over the last 2.5 months as the stock market continues to rapidly recover and they are still sitting at home without employment. At some point, the economically disadvantaged get angry enough, and have nothing left to lose, so they take to the streets to protest.

Power Privilege

This is the most misunderstood and least explained aspect of privilege. It is also the single most important one, because it supports every other aspect of privilege in society. In the simplest form, the government enjoys a monopoly on violence. This monopoly allows the government and its agents to do a plethora of things that are not widely available to private citizens. They can forcibly take your personal freedom. They can silence you. And as we have seen time and again, they can take your life.

Most people in the United States operate under the mirage of freedom. The wealthy and non-minority population will espouse the American ideals of free speech, democracy, and individual rights. They will claim moral superiority over foreign nations that do not embody the ethos of the US Constitution. But in practice, there are two realities in America — one where people know that we do not have freedom from the government and another that falsely believes that freedom still exists. Minority communities, especially black ones, fall under the first reality and everyone else is in the second.

Black families have seen the militarization of the police throughout their communities. There are constant patrols. Constant racial profiling. At any time, a police officer can stop you, question you, search you, punch and kick you, or arrest you.

To those in the second reality, this sounds absurd. They just don’t see it on a daily basis, so they find it hard to believe. Police officers have been granted more powers over time and they haven’t failed to apply that power privilege to do bad things.

According to the New York Times, “Police officers don’t face justice more often for a variety of reasons — from powerful police unions to the blue wall of silence to cowardly prosecutors to reluctant juries. But it is the Supreme Court that has enabled a culture of violence and abuse by eviscerating a vital civil rights law to provide police officers what, in practice, is nearly limitless immunity from prosecution for actions taken while on the job. The badge has become a get-out-of-jail-free card in far too many instances.” 

Those in black and lower socioeconomic communities already knew this without The New York Times having to tell them. They see it on a daily basis. But the second reality, the world where those in other communities falsely believe that freedom still exists, are just now starting to see the power privilege at play. There have been hundreds of videos on social media of the police brutalizing people during the protests against police brutality. The irony would be funny if it wasn’t so screwed up.

Here is a video that someone put together with just a few of the most popular clips. I highly suggest watching this:

The media has been quick to cover the protests from a single perspective — protestors are the ones who are out of line. But is that really true? Or are we seeing a small selection of police officers arrogantly display their power privilege?

The editors at Slate were directionally correct when they titled an article on Sunday “Police Erupt In Violence Nationwide.” There are definitely some civilians that have been violent, and there are plenty of police officers that are good, well-intentioned people, but it is increasingly clear that we have militarized our police and given them way too much power.

On top of the legal powers they have received, the United States has also handed local and state police departments immense amounts of surplus military gear and weaponry that was originally intended for soldiers fighting the wars in Iraq and Afghanistan. Think about that. We have police officers walking around the streets of our communities with the tools our soldiers used to fight combat wars abroad against terrorists. 

One of my favorite quotes is “People sleep peaceably in their beds at night only because rough men stand ready to do violence on their behalf.” This sounds great when those rough men are ready to meet and destroy the enemies of our nation, but it sounds frightening when those rough men are unleashed to do violence against us.

And whether people realize it or not, that is exactly what is happening. While there are many police officers who create a net positive on society, there are plenty who are leveraging their power privilege to disproportionately target and harm African-Americans and those in lower socioeconomic classes.

This is why we are seeing tens of thousands of people in the street. They have finally had enough.

What’s Next?

The great Martin Luther King Jr. once said, “A riot is the language of the unheard.” That could not be more true today. We are watching as a big percentage of Americans are lashing out against the system of privilege. They may not be able to articulate the ideas of racial, economic, and power privilege, but they feel the impact of them on a daily basis. They fear for their lives when they walk outside. They constantly feel like they can’t get ahead. And they go to sleep every night knowing that the current system doesn’t serve their needs.

These are not new ideas. Malcom X was preaching this decades ago when he said, “I do believe that the black man in the United States, and any human being, anywhere, is well within his right to do whatever is necessary, by any means necessary, to protect his life and property, especially in a country where the federal government itself has proven that it is either unable or unwilling to protect the lives and property of those human beings.”

Something has to change. Every citizen must feel safe and protected. They must know that they have an opportunity to build a life of wealth and happiness. The path to that future world is not filled with philanthropy, viral tweets, or “thoughts and prayers.” The path to that future world is littered with the hard work of changing the system.

We must do the following:

* Change the laws — There should be equal application of the law, regardless of race and socioeconomic status. This will require hard conversations and a complete divergence from decades of ideas that have been ingrained in our heads. The changes in the legal system should be throughout the entire system, from what is legal and what is not, to how we sentence convicted criminals. 

* Demilitarize the police — Kanye West once said, “No one man should have all that power.” We need to adopt a national policy that “no one policeman should have all that power.” There is no need for military vehicles and combat gear on the streets of our communities. We can give police officers the tools they need to “protect and serve,” while training them on how to treat people with respect, de-escalate tense situations, and persistently do the right thing by the citizens they are tasked with serving — regardless of their skin color.

* Optimize for unity, rather than division — Times of crisis call for leadership. We need as many leaders as possible to get out on the streets, spend time with all socioeconomic classes, and bring unity among Americans. This is not the time for divisive politics or posturing for the next election. Our country is mourning right now, so let’s bring people together, rather than stoke more dissent and disagreement. As the saying goes, “United we stand, divided we fall.”

There is a light at the end of this tunnel. It may be hard to see today, but it is there. Our fellow Americans are in the streets because they can no longer continue with the status quo. They are standing up for themselves. They are calling for help. They are shining a bright light on the darkness of a system that has stacked the deck against them.

The world will be a much better place if the rest of us started listening.

-Pomp

Special thank you to Tyrone Ross, Polina Marinova, and a few others who asked not to be named for reviewing early drafts of today’s letter.

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Shervin Pishevar is one of the most successful venture capitalists in Silicon Valley. He has previously invested heavily into companies like Uber, Airbnb, and many others. Shervin was also the former founder and executive chairman of Hyperloop One, an ambitious plan to change the way that humans and cargo are transported. This was a great conversation, so highly recommend it.

In this conversation, Shervin and I discuss:

* Elon Musk

* Travis Kalanick

* The various industry-defining companies that Shervin has backed

* Why creators control the new media paradigm

* Why Shervin believes Bitcoin is a long-term systemic bet on humanity

I really enjoyed this conversation with Shervin. Hopefully you enjoy it too.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

We have started a new show exclusive to YouTube called Lunch Money. The goal is to cover current events in business, finance, and technology from the perspective of the every day citizen, rather than the talking heads on television. It is just as funny and entertaining as it is educational. Hope you enjoy it and make sure you go subscribe to the YouTube channel!

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* TaxBit automates your cryptocurrency taxes, enabling you to effortlessly track, calculate, and report your transactions. Get 10% off your tax plan today with a free trial by going to www.taxbit.com/invite/Pomp

* Unstoppable Domains is working to make the internet operate how it was originally intended, which means anyone can publish anything from anywhere. You can go to unstoppabledomains.com and claim your censorship resistant domain today.

* BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it by getting a loan or earning interest in their interest bearing accounts.

* Crypto.com allows you to buy, sell, store, earn, loan, and invest various cryptocurrencies in an user friendly mobile app. Join over one million users today. You can download and earn $50 USD with my code “pomp2020” when you sign up for one of their metal cards today.

* Blockset by BRD is your hosted blockchain infrastructure. Blockset enables enterprises and developers around the globe to deliver high-quality blockchain-based applications in a fraction of the time, at a fraction of the cost.

If you enjoy reading “The Pomp Letter,” click here to tweet to tell others about it.

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

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

The following is a guest post by Ryan Selkis, the founder and CEO of Messari. They build research tools for crypto enterprises and professionals.

One of the most fascinating second-order effects of the coronavirus is its impact on higher education. It’s no longer a given that colleges will be able to physically welcome their students back to campus this fall. Even assuming they can, the college experience will likely feel much different than it did in 2019, and universities may not fully return to normal until a vaccine becomes widely available and distributed.

For the first time, many college students may soon grapple with an unfamiliar choice: stay enrolled in an entirely virtual semester of school (or a deprecated live experience) and rack up tens of thousands of dollars worth of tuition bills; or opt out of the inferior product, and try to take advantage of a “gap year” to pursue other options.

What would a student do in a gap year during a time like today?

World travel, a common gap year experience, is off the table. Landing an internship or a full-time job? Good luck amidst record unemployment, even including major employers across Big Tech. Finally, "self-study" sounds good in theory, but would probably prove ineffective for all but the most disciplined students, and lead to a lost and listless year for the remainder. 

I’d offer an alternative: encourage young people to take a "gap year" and dive into crypto and start building. And this comes from experience!

In early 2013, I started my first company, a charitable gift payments processor. Since it was my first startup, and there was a ton of execution risk, I gave myself six months to get the idea off the ground, and applied to business schools and a summer accelerator program. Lo and behold, I got accepted into both grad school and the summer accelerator.

Great!

I chose the accelerator, and deferred my grad school offer for a year. But it didn’t take long after that to realize that the startup would flame out, and it would be wise to wind things down and move on to other projects. I found myself with an unexpected "gap year” right after I happened to make my first bitcoin purchase and right before bitcoin’s first mega-rally to $1,000.

The things that made crypto an interesting gap year dive for me then are the same things that make crypto even more exciting today given the unique macro economic backdrop. 

Here’s what a crypto gap year might mean for young people today:

* The world’s economic response to the coronavirus makes this an excellent time to learn about money and how the financial markets and economy actually work. Once you get invested in bitcoin and other crypto currencies and start experimenting with their applications, it sucks you further down the proverbial rabbit hole of central banking, monetary policy and credit cycles. When the entire finance intelligentsia is talking about things like MMT and ZIRP; and hedge fund titans like Paul Tudor Jones, Howard Marks, and Ray Dalio are weighing in on the long-term debt cycle, inflation, and hard money alternatives. You could do worse than to scrap your college textbook to keep tabs on current policy prescriptions given our move into increasingly uncharted territory.    

* There are actual jobs in crypto today, and the industry standard for work is remote and meritocratic. In 2013, there weren’t many jobs to be had, but there was a strong global community that lived on reddit, twitter, and other online forums that you could learn from and collaborate with remotely. Today, there may be hundreds of startups employing thousands of people worldwide, and many may operate out of the typical hubs of SF and NYC, but the industry’s top employers (Binance, Coinbase, and Kraken) are still remote-first organizations, as are some of the largest grant making foundations associated with the biggest crypto asset foundations). Many of these companies would hire well-credentialed college drop-outs, and those opportunities could even lead to full time jobs. 

* Open protocols and open standards mean that absolutely anyone can begin contributing to bitcoin and other nascent crypto projects without seeking permission. We’re hosting nearly 75 community leaders from these various projects at our flagship virtual event, Mainnet, next week, who will be tasked with presenting 20 minute updates and answering questions about their protocols from investors and builders. For anyone interested in assets beyond bitcoin, this may be the most comprehensive set of major projects presenting on any agenda you'll see. 

The risk-reward pendulum for college students has swung, and crypto offers a compelling gap year deep dive alternative for anyone who would rather not spend $20-30k this fall on a glorified YouTube channel. 

There is very little to lose and an enormous amount to gain from taking a step back from higher ed and learning to be more financially savvy, investing in bitcoin, and pursuing ways to contribute to the foundation of a new financial system.

-Ryan

PS From Pomp: Messari is offering Pomp Letter subscribers a 30% discount on tickets to their upcoming Mainnet event, this Monday June 1-3. The event will features 200+ speakers, 100+ sessions, and 2,000+ participants discussing the future of bitcoin, its emerging financial infrastructure, and decentralized finance. I’ll be kicking off the conference moderating a panel with three of bitcoin’s most important builders, Cathie Wood, founder of ARK Invest. Meltem Demirors, Chief Strategy Officer at CoinShares, and Tom Jessop, President at Fidelity Digital Assets. 

Sign up here for 30% off

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.

THE RUNDOWN:

Cisco Acquires ThousandEyes for Around $1 Billion: Cisco continued its software acquisition spree, announcing on Thursday the purchase of ThousandEyes, whose technology helps companies monitor their network for outages. Terms of the deal weren’t disclosed, but a person familiar with the matter confirmed a Bloomberg report that the purchase price was about $1 billion. Read more.

Twetch Gets Suspended From Twitter in Wake of Trump ‘Fact-Check’ Storm: Twetch is off Twitter. The Twitter account of social media platform Twetch – run on the Bitcoin SV blockchain – was suspended Thursday without warning, according to Twetch co-founder Josh Petty. (As of press time, it was restored but stripped of its follower count.) Twetch positions itself as an alternative to the platform it was deplatformed from, actively marketing itself against the San Francisco firm run by Bitcoin enthusiast Jack Dorsey. Petty said the application maintains censorship resistance by archiving conversations on the BSV blockchain. Read more.

BitClave Search Engine Agrees to Pay Back $25M ICO in Settlement With SEC: BitClave, a California startup whose Ethereum-based search engine raised $25.5 million in a 2017 token sale, will pay back its 9,500 investors in a settlement with the U.S. Securities and Exchange Commission. The settlement ended BitClave’s court saga almost as soon as it began. Prosecutors with the SEC announced their charges Thursday in tandem with an order that called BitClave’s Consumer Activity Token sale an unregistered initial coin offering. Read more.

Telegram CEO Donates 10 BTC to Pandemic Relief Effort: Telegram messenger founder and CEO Pavel Durov reportedly donated about $90,000 worth of bitcoin to help alleviate the financial burden of the COVID-19 pandemic in Russia. Egor Zhukov, a student political activist who organized a crowdfunding campaign to help people cope with the pandemic-related crisis, announced Durov donated 10 BTC to the effort. Read more.

Tesla Sent 20 Staffers to SpaceX, Elon Musk’s Other Company: Tesla said on Thursday that it temporarily assigned 20 of its employees to SpaceX, another Elon Musk-led venture, to work on unspecified technical projects. The disclosure, part of a regulatory filing to announce the date and agenda of Tesla’s shareholders meeting in July, landed just ahead of SpaceX’s planned second attempt to launch two NASA astronauts into orbit from the Kennedy Space Center in Florida. Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Jo Bhakdi is the Founder and CEO of Quantgene, a company deploying the world’s leading Deep Genomics solution. Their mission is to save lives through early detection, better prevention and more effective cures for all disease, starting with cancer. This episode was fascinating because I got to learn about a field of science that is intellectually interesting to me, but one that I knew very little about.

In this conversation, Jo and I discuss:

* Machine learning

* Sequencing technology

* DNA extraction procedures

* Genomic diagnostics

* Early disease detection

* Precision medicine

I really enjoyed this conversation with Jo. Hopefully you enjoy it too.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

We have started a new show exclusive to YouTube called Lunch Money. The goal is to cover current events in business, finance, and technology from the perspective of the every day citizen, rather than the talking heads on television. It is just as funny and entertaining as it is educational. Hope you enjoy it and make sure you go subscribe to the YouTube channel!

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* TaxBit automates your cryptocurrency taxes, enabling you to effortlessly track, calculate, and report your transactions. Get 10% off your tax plan today with a free trial by going to www.taxbit.com/invite/Pomp

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