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,

Napoleon Hill wrote one of the best personal finance books in history called Think and Grow Rich. In it, he said “There are no limitations to the mind except those we acknowledge. Both poverty and riches are the offspring of thought.” These thoughts are driven by an underlying mindset held by each individual.

This mindset ultimately determines the actions you take. It is the guiding force. As the baseball pitcher Roger Clemens once said, “I think anything is possible if you have the mindset and the will and desire to do it and put the time in.” This is not rocket science. Any athlete or competitive person intuitively knows this.

I say all of this because I have noticed a significant difference in mindset between Silicon Valley and Wall Street. These are obvious over-generalizations, but they are worth mentioning since they are more true than not.

Silicon Valley has a builder’s mindset. They come up with ideas, work to implement them, and attempt to create value from scratch. The game is not zero sum. You can win and your neighbor does not have to lose. There are enough big problems in the world for everyone to solve one using technical solutions. This community is built on the idea that the men and women in the arena can solve their own problems by building and those that are successful will be rewarded economically. I like to say that Silicon Valley has a software engineering mindset.

Wall Street has a wealth redistribution mindset. They are playing a zero sum game. If you win, your neighbor loses. The market is made by having at least two participants that each believe something different is going to happen in the future. One is right and one is wrong. This wealth redistribution mindset is based on getting access to better information, being able to better analyze information, or having a larger balance sheet. There is lots of capital movement, but it is merely the same capital changing hands over and over again. I like to say that Wall Street has a financial engineering mindset.

Again, these are over-generalizations of each industry, but I think there is merit in discussing how these two mindsets play out in times of crisis. Over the past three months, the coronavirus has created an economic crisis at a scale that we haven’t seen since the Great Depression. It has affected everyone. No company, whether big or small, has been safe. The virus is a silent, unseen enemy that does not discriminate, which makes this a good time to evaluate how software engineering and financial engineering plays out.

The first area where we saw a major difference between the two mindsets was around the government bailouts. The Wall Street response was generally one of encouragement and acceptance. Large corporations that spend a lot of mental energy on financial engineering ran to the government begging for the bailouts. In some cases, they were even demanding them as if they had a god-given right to government relief. Now obviously this was not every company or investors’ position, but it was definitely the overall sentiment.

The pro-bailout perspective was in direct contrast to the Silicon Valley response. Multiple venture capital investors immediately spoke out against the bailouts. These equity investors understood that being anti-bailout could mean that they would actually be financially hurt themselves, but they felt the risk-reward mechanism of capitalism was much bigger than any one person, company, or fund.

In an April 15th article, Charles Levinson highlighted direct quotes from two of Silicon Valley’s best known investors:

* Social Capital CEO and Golden State Warriors owner Chamath Palihapitiya went viral after he told a CNBC interviewer that the billionaires and hedge funds backing poorly performing companies "deserve to get wiped out" by the pandemic.

* Bill Gurley, Benchmark general partner and early Uber backer, joined the fray as well: "I invest in equity as a living, and I beg you — wipe the equity," Gurley tweeted. He argued, "If you believe in business & capitalism, then there are zero circumstances where the government should bail out equity holders."

There will be many people who point to the fact that not every single Wall Street investor wanted the bailout, so I think it is important to cite a few of the headlines from recent weeks. Matt Taibbi wrote a Rolling Stone article titled “How the COVID-19 Bailout Gave Wall Street A No-Lose Casino.” Jesse Eisinger wrote a ProPublica article titled “The Bailout Is Working — For The Rich.” And Steven Pearlstein wrote a great piece in the Wall Street Journal titled “Wall Street’s next big ask: A bailout for ‘junk’ credit.”

A big difference between Silicon Valley and Wall Street is that Silicon Valley actually encourages failure. The idea is that if no one is failing, then the pace of innovation is not being pushed fast enough. This is a mindset throughout the technology industry. It is also built into the business models of the financial backers. Venture capital funds are predicated on the idea that majority of the companies they invest in will likely lose their money, but the select few that end up working out will create enormous economic value that makes up for the losses.

This normalization and acceptance of failure is important in a capitalist society. Wall Street has taken a different approach which is more akin to “heads I win, tails you lose.” This perspective of “we can never lose” has become pervasive across the finance industry, which quite literally changed the way that market participants looked at risk.

Next, we can look at what each industry is looking to do moving forward. The Silicon Valley response can be best highlighted by Marc Andreessen’s industry-wide call-to-arms titled “IT’S TIME TO BUILD.” He ends his piece with the following:

“Our nation and our civilization were built on production, on building. Our forefathers and foremothers built roads and trains, farms and factories, then the computer, the microchip, the smartphone, and uncounted thousands of other things that we now take for granted, that are all around us, that define our lives and provide for our well-being. There is only one way to honor their legacy and to create the future we want for our own children and grandchildren, and that’s to build.”

This mindset of building is very different than Jamie Dimon’s most recent memo. In Dimon’s May 19th message, he said the following to end the piece:

“An inclusive economy – in which there is widespread access to opportunity – is a stronger, more resilient economy. This crisis must serve as a wake-up call and a call to action for business and government to think, act and invest for the common good and confront the structural obstacles that have inhibited inclusive economic growth for years. From the re-opening of small businesses to the rehiring of workers, let’s leverage this moment to think creatively about how we can mobilize to address so many issues that inhibit the creation of an inclusive economy and fray our social fabric. We look forward to sharing more ideas soon for how to do this. By doing the right thing during times of crisis, we can emerge stronger and more cohesive in its wake.”

I, more than most, would love to see an inclusive economy where every citizen has equal opportunity. That is not what Dimon is talking about here though. He is talking about a wealth redistribution plan that is masked as social good. Ultimately, the call to business and government “to think, act and invest for the common good” is corporate speak for increased financial engineering from the top down.

Which brings us to the most polarizing aspect of this comparison between Silicon Valley and Wall Street. Silicon Valley takes a bottoms up approach, while Wall Street takes a top down approach. One believes that wealth is an indicator of intelligence and the other believes that the ability to build is the great equalizer. History suggests that Silicon Valley has done more to create an equitable society than Wall Street, whether it is in the companies that they produce, the wealth that they create for thousands of employees, or the perspective that government resources are not needed nearly as much as people believe.

But should we really be talking about whether Silicon Valley’s mindset is superior to Wall Street’s mindset?

The short answer is no, but not for the reasons you are thinking. The United States is busy conducting an intellectual civil war in response to the coronavirus. This is a complete waste of time. We have much, much bigger problems looming on the horizon. In fact, we are currently engaged in the early days of an incoming multi-decade economic war with China.

Yes, you read that right. The introspective focus is currently distracting us from the greatest threat that the United States has faced in more than 50 years. Don’t take my word for it. Bridgewater’s Ray Dalio recently wrote the following:

“In brief, after the creation of a new set of rules establishes the new world order, there is typically a peaceful and prosperous period. As people get used to this they increasingly bet on the prosperity continuing, and they increasingly borrow money to do that, which eventually leads to a bubble.

As the prosperity increases the wealth gap grows. Eventually the debt bubble bursts, which leads to the printing of money and credit and increased internal conflict, which leads to some sort of wealth redistribution revolution that can be peaceful or violent. Typically at that time late in the cycle the leading empire that won the last economic and geopolitical war is less powerful relative to rival powers that prospered during the prosperous period, and with the bad economic conditions and the disagreements between powers there is typically some kind of war. Out of these debt, economic, domestic, and world-order breakdowns that take the forms of revolutions and wars come new winners and losers. Then the winners get together to create the new domestic and world orders.”

The United States is not ready to relinquish its position in the world order. We have the most to lose out of anyone. At the same time, we are ill-equipped to properly handle the coming conflict. This will not be a battle that is won by bombs and bullets, nor is it a battle that will be won by economic sanctions. Instead, the impending war is one that will be won by the country that can create technological superiority.

We must stop the intellectual civil war. We must realize that the only way to give ourselves a chance to win in the future is to make the necessary investments in technology, education, and science today. We need less financial engineering and more software engineering. There is no room for wealth redistribution or the complete evaporation of risk. Rather, we should be doubling and tripling down on what made the United States the global superpower in the first place — innovation and the entrepreneurial spirit.

Marc Andreessen has it right when he says we must build. But not to build for mere wealth creation, but instead for the continued success of our country. Every man, woman, and child will be needed. They should be armed with information and resources. The government and Wall Street have to get out of the way. This is not a time for sloshing money around from person to person hoping to take a few percentage points for yourself.

We need monumental leaps forward across every sector. There needs to be material breakthroughs in robotics, manufacturing, self-driving cars, biotech, software, automation, machine learning, artificial intelligence, infrastructure, defense, and space. Take the money that we are throwing at failing companies from the bailouts and invest it in the future. Stop trying to short circuit economic downturns. Realize that we are being presented with an opportunity to re-allocate our resources, both mentally and financially, to the most important things.

Our country doesn’t need another hedge fund, lawyer, accountant, or financial analyst. The ones we have are very good and will continue to be the best in the world. We need builders. The type of people that are willing to work on the hard problems even if the prospects of success are near zero. These builders will solve our problems, improve our country, and ultimately ensure our continued dominance in the global world order.

If we don’t get more builders, we will succumb to history. We will be passed over by the countries that make the necessary technology investments and correctly incentivize people to take massive risks in order to reap massive rewards.

Capitalism works. The people saying it doesn’t are either ignorant, stupid, or selling you some future world where they benefit. Don’t fall victim to intellectual laziness. Think for yourself. Figure out what you can build. And ask yourself why not you and why not right now?

I started this piece talking about mindset, so I’ll end on the same note. As Steve Maraboli previously stated, “Once your mindset changes, everything on the outside will change along with it.” It is time that America changed its mindset. We need more software engineering and less financial engineering.

-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 Art Market Is Projected to Grow Over $900 Billion by 2026: Jeff Bezos, Bill Gates, and other high-profile CEOs have been pumping approximately $65 billion each year into their collections. Why? Art has been one of the best investments of all time, outperforming the S&P by over 180% since 2000 alone—but reserved only for the ultra-wealthy. I have partnered with an exclusive platform called Masterworks that finally makes investing in multimillion-dollar masterpieces as easy as trading stock. Act fast and skip their 25,000 waitlist. Click here to sign up!

THE RUNDOWN:

JPMorgan Says Central Bank Digital FX a Danger to U.S. Power: As the idea of central bank digital currencies starts to gain traction, the U.S. in particular needs to pay attention or risk losing a major aspect of its geopolitical power, according to JPMorgan Chase & Co. “There is no country with more to lose from the disruptive potential of digital currency than the United States,” analysts including Josh Younger, head of U.S. interest-rate derivatives strategy and Michael Feroli, chief U.S. economist, wrote in a report. “This revolves primarily around U.S. dollar hegemony. Issuing the global reserve currency and the medium of exchange for international trade in commodities, goods, and services conveys immense advantages.” Read more.

Reddit Cofounder Alexis Ohanian: We Are Entering a 'Crypto Spring': Amid the economic uncertainty sparked by coronavirus, bitcoin appears to have new momentum. The price of the largest cryptocurrency is up 90% since March 16, when widespread U.S. school closures and stay-at-home orders began. The crypto community cheered the arrival of the third bitcoin halving on May 11, the event every four years in which the reward for mining bitcoin gets slashed in half as a measure to control the creation of new bitcoins. And there’s big attention on projects like the Facebook-led Libra Group, in which Coinbase and other big crypto companies, along with tech investment firms, are members. Read more.

10 Years After Laszlo Hanyecz Bought Pizza With 10K Bitcoin, He Has No Regrets: If you owned a share of an experimental technology, how much of it would you give up to help that technology grow? Startup founders do this calculus whenever they raise capital. Ten years ago today, a developer named Laszlo Hanyecz did it with bitcoin. Hanyecz is known as the first person to use bitcoin in a commercial transaction. On May 22, 2010, when bitcoin was a little over a year old, he bought two pizzas for 10,000 BTC. The day is now known as “Bitcoin Pizza Day.” With one bitcoin now worth $9,500, this is apparently a joke and Hanyecz’s $45 million pizzas are the punchline. Read more.

IBM Takes 7% Stake in Trade Finance Blockchain Network We.Trade: IBM has become a shareholder in we.trade, the trade finance platform jointly owned by 12 European banks, signaling further consolidation across the enterprise blockchain space. Ciaran McGowan, we.trade’s CEO, said the deepening relationship with Big Blue will help the platform in its next phase of global expansion. “Now we’ve got a very strong partnership with IBM for scaling globally, and we are working closely together on Asia, Africa and Latin America,” McGowan said. Read more.

US Lawmaker Proposes Legislative Groundwork for National Blockchain Strategy: A U.S. lawmaker wants the federal government to begin considering a national blockchain strategy. On Tuesday, U.S. House Rep. Brett Guthrie (R-KY) introduced a bill calling on the Federal Trade Commission to survey the prevalence of blockchain technologies across industry, government and the globe. If passed, the bill, which had no cosponsors when referred to the House Energy and Commerce Committee, would give the FTC two years to conduct the survey and a further six months to advise Congress on what it learned. Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Travis Kling is the Founder and Chief Investment Officer at Ikigai Asset Management. He previously worked at some of the best hedge funds in the world and brings a very unique perspective to the crypto markets. This conversation was wide-ranging and will leave you critically thinking about various aspects of the economy and financial markets.

In this conversation, Travis and I discuss:

* The great accelerator

* Quantitative easing

* Modern monetary theory

* Inflation

* Strong dollar

* Politics

* China

* The generational divide

* Bitcoin

I really enjoyed this conversation with Travis. 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,

The current economic climate continues to get worse as millions of people are filing for unemployment each week and GDP falls further. The US government understands that the situation is dire, so they have done their best to inject liquidity into the economy. This has included various lending programs, asset purchases, and monetary stimulus packages directly aimed at helping businesses and individuals.

The last stimulus package was approximately $2 billion. It was obvious at the time that it wouldn’t be enough.

At the time of the package approval, I explained where the money was going and why this entire exercise was hard.

“Here are the high level details of the new deal:

* There will be one-time checks sent to Americans under pre-determined income levels. Adults will receive $1,200 and children will receive $500.

* There will be a significant increase in unemployment benefits, including new coverage for gig workers, freelancers, and other types of employees previously not covered. There will also be an increase of unemployment assistance of approximately $600 a week for four months as well.

* There will be approximately $350 billion for loans to small businesses, which is intended to help keep more Americans on the payroll.

* There will be around $500 billion in aid that is earmarked to be lent to corporations as part of a bailout effort.

The stimulus package has drastically increased in size (basically doubled) over the last few days, but the details that we know right now seem to be directionally positive. This is an impossible task for anyone, including politicians. They are being asked to come up with a highly complex solution for a highly complex problem, but to also do it while hundreds of millions of people are watching. Not to mention that they have to come up with the solution on a frantic timeline because people need help immediately.”

The exercise continues to remain difficult, because the current situation is so complex. There is a health crisis that is being evaluated based on inaccurate data. No one actually knows how many people have been infected. There are major questions about the death data as well. Either way, that health crisis has led to a government mandated shut down of majority of the economy. This reaction has now caused an economic crisis that has seen 30+ million Americans file for unemployment and thousands of businesses shut down for good.

The Democratic party believes that the situation is so dire that we need another $3 trillion of monetary stimulus to continue mitigating the economic impact. Yes, you read that correctly. If their most recent proposal was approved, there would be more than $5 trillion in stimulus in last than 90 days.

This doesn’t come as a surprise as you can see from this tweet in late March. The government was always underestimating how bad the economic carnage was. They were looking at various data points, but they weren’t talking to business owners on the ground. The data points are lagging indicators of the truth. The business owners were and are living it every day.

Before we get into the ramifications of the newest proposal, here is an overview of what is actually in the relief package:

* Nearly $1 trillion in relief for state and local governments 

* A second round of direct payments of $1,200 per person, and up to $6,000 for a household

* About $200 billion for hazard pay for essential workers who face heightened health risks during the crisis

* $75 billion for coronavirus testing and contact tracing — a key effort to restart businesses

* An extension of the $600 per week federal unemployment insurance benefit through January (the provision approved in March is set to expire after July)

* $175 billion in rent, mortgage and utility assistance 

* Subsidies and a special Affordable Care Act enrollment period to people who lose their employer-sponsored health coverage

* More money for the Supplemental Nutrition Assistance Program, including a 15% increase in the maximum benefit

* Measures designed to buoy small businesses and help them keep employees on payroll, such as $10 billion in emergency disaster assistance grants and a strengthened employee retention tax credit

* Money for election safety during the pandemic and provisions to make voting by mail easier

* Relief for the U.S. Postal Service

Long story short, there are a lot of ways to spend $3,000,000,000,000. The Republican party is already publicly stating that there is no way that this proposal will be approved. The truth is that the package will likely grow in size, rather than shrink once the two political parties come to the table to negotiate. The latest $2 trillion stimulus package actually started out as a $1 trillion proposal before it doubled in size over a matter of days.

So how should we think about the actual uses of capital in the proposal?

I don’t actually think it matters. This is all funny money at this point. The US government is creating money out of thin air and they have no intention of paying attention to the national debt levels. We were on track to run a $1.5 trillion deficit this year, but now it looks like the deficit could be more than $5 trillion if we continue at the current pace. That would be an almost 25% increase in the national debt in a single year. Unreal.

The new stimulus proposal has approximately 1/3 of the money going to bail out state and local governments. This is out of a cartoon movie. The government is printing money to bail out the government. Why? Because state and local governments are incredibly poorly run and don’t have the financial balance sheets to withstand any sort of stress. Not only is their spending increasing to address the coronavirus and economic impact, but they are also seeing a significant decline in their revenue (taxes, fines, permits, etc).

These are unfortunate situations obviously. They may say more about the inefficient, bureaucratic nature of state and local governments pre-pandemic though. I always ask people “if you took a Fortune 500 CEO and put them in charge of your state or local government do you think they could do a better job than the current politicians?” I have never had someone tell me “no.” So the idea of printing money to hand to individuals that we know are historically horrendous allocators of capital feels like a weird way of lighting the money on fire.

Next, there is an extension of the beefed up unemployment benefits from end of July to January 2021. This additional $600 a week has created a scenario where many people are actually making more money on unemployment than they were at their previous jobs. The explanation for doing this originally was that the program would only last until July. As I stated at the time, it is really hard to give people free money and then take it away from them in the future. This is exactly what is happening right now. Politicians know that it is career suicide to take away benefits from people, especially during a time of crisis.

The extension of the additional unemployment payments through the end of the year will actually incentivize many people to not go back to work. This is a delicate balance. People are suffering in the short term. We have to figure out how to help them. They didn’t do anything wrong. They went to work every day, worked their asses off, and now find themselves unemployed because of an invisible enemy that shut down the country. On the other hand, there are serious implications to printing trillions of dollars and giving it to people. The incentive structures change. The capitalistic bent of our markets can disappear or erode.

This is why the current job of determining how much stimulus and for who is a nearly impossible job. You can’t please everyone. You will most certainly make mistakes. The goal is to make as few mistakes as possible and try not to be completely incompetent.

So where do we go from here?

The government is going to continue printing money and approving stimulus packages. They have no other choice. The people, both individually and through the media, are applying too much pressure. There will be lots of drama around the details, but ultimately the game theory points to one answer — print trillions of dollars and try to make people feel like you are helping them.

The dirty secret though is that all of these actions present the mirage of help in the short term, but they will crush the soul of a generation on the backend. It is simply impossible to print trillions of dollars and not see inflation over the long term. That inflation will drive the wealth inequality gap to the largest disparity that it has ever been. The 45% of Americans who can’t afford a $500 emergency payment will see their wealth decimated.

Welcome to the dark side of quantitative easing. It is the ultimate drug. You get high in the moment, but become addicted over time. Just as a drug ravages your body as you use it consistently, quantitative easing ravages a society as it is applied. The short term economic high feels great. Look at the stock market investors celebrating the recent rally in prices. But the long term impact destroys economies.

We have seen this happen over and over again in other parts of the world. The American mindset is that it would never happen here though. We are too smart. We are too powerful. We can’t fall from the top of the world order. But as we know, the greatest enemy in life is always yourself. And right now we are following the playbook of every great dynasty that has fallen before us.

We are devaluing our money at an accelerating pace. We are weakening ourselves economically. If we continue to do this, we will have to pay the price one day. That day may not be today or tomorrow, but it will eventually come. I’m not cheering for this to happen. I wish people would wake up and listen actually. We can reverse course. We don’t have to go down this path. I just don’t think that the people who are in charge care about the long term.

The average age of our political leaders is much higher than any other time in our history. This isn’t about ensuring that our country is strong and sustainable for hundreds of years to come. It is all about getting re-elected, going viral online, and having the egotistical satisfaction of having “won” at the negotiating table.

This isn’t a time for politics. We are currently engaged in an economic war. We don’t need stump speeches and pandering. We need strong leaders who are willing to do the unpopular thing so that our country doesn’t shoot itself in the foot.

Hopefully those leaders are out there and they’re listening.

-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 Art Market Is Projected to Grow Over $900 Billion by 2026: Jeff Bezos, Bill Gates, and other high-profile CEOs have been pumping approximately $65 billion each year into their collections. Why? Art has been one of the best investments of all time, outperforming the S&P by over 180% since 2000 alone—but reserved only for the ultra-wealthy. I have partnered with an exclusive platform called Masterworks that finally makes investing in multimillion-dollar masterpieces as easy as trading stock. Act fast and skip their 25,000 waitlist. Click here to sign up!

THE RUNDOWN:

JPMorgan Extends Banking Services to Bitcoin Exchanges: JPMorgan Chase JPM -3.27% & Co. has taken on two well-known bitcoin exchanges, Coinbase Inc. and Gemini Trust Co., as banking customers, according to people familiar with the matter, the first time the bank has accepted clients from the cryptocurrency industry. The move is the latest in a string of positive developments for bitcoin and another sign that Wall Street is becoming more comfortable with the business of cryptocurrencies. Read more.

Binance Invests in Regulated Indonesian Crypto Exchange: Binance is making a bet on the potential of the Indonesian crypto market, making an undisclosed investment into the Jakarta-based and regulated exchange, Tokocrypto. Binance, the crypto trading leviathan that doesn't like to reveal where it's based, announced Tuesday morning the funding would go toward growing Tokocrypto's business, such as building out new offerings and products, improving the tech stack, as well as expanding its customer base. Read more.

Novogratz: Now Is 'Perfect Timing' for Bitcoin: Mike Novogratz, founder and CEO of Digital Galaxy, says bitcoin "halving is really quantitative tightening." He thinks investors are considering digital currency because "the possibility that things go really poorly with classic monetary policy is rising." Read more.

House Democrats Unveil New $3 Trillion Coronavirus Relief Bill: House Democrats released their latest bill Tuesday designed to blunt the coronavirus pandemic’s devastating effects on the economy and health-care system. Party leaders expect to vote on the more-than-1,800-page package on Friday, along with a plan to allow proxy voting on legislation during the crisis. House Speaker Nancy Pelosi on Tuesday said Congress had a “momentous opportunity” to meet people’s needs, contending that “not acting is the most expensive course” as the GOP grows weary of taxpayer spending. Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

This is an episode of The Pomp Podcast with host Anthony "Pomp" Pompliano and guest, Josh Wolfe, a cofounder of Lux Capital. His goal is to support scientists and entrepreneurs who pursue counter-conventional solutions to the most vexing puzzles of our time in order to lead us into a brighter future. Josh is one of the smartest investors that I know, so highly recommend this episode!

In this conversation, Josh and I discuss:

* Finding the outcasts that build valuable companiesWhy science is not based on consensus

* Deflation vs inflation

* How censorship can stop innovation

* Elon Musk & Tesla

* Ray Dalio

* Space travel & aliens

* Bitcoin

I really enjoyed this conversation with Josh. 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 “Off The Chain,” 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 45,000 other investors today.

To investors,

The airline industry was bailed out to the tune of approximately $50 billion by the federal government. The goal of this money was to help companies retain workers and prevent even greater levels of unemployment. As you would expect, the federal relief came with specific rules that each company had to follow in order to be eligible for the funds.

We are now only a few weeks since the stimulus package was passed and we are already seeing the nefarious, unethical behavior of corporate America. Lets use United Airlines as the example here.

United received approximately $5 billion in the bailout and they are applying for even more money under the CARES Act. The $5 billion is structured as a $3.5 billion grant and a $1.5 billion loan. Yes, you read that right. United Airlines was given $3.5 billion of tax payer money in exchange for NOTHING. Zilch. They just got a handout from the government to the tune of $3.5 billion.

One of the stipulations for this money is that the company must agree to continue employing their workers, while also refraining from lowering salaries or hourly wages. Makes sense, right? Right. But of course United Airlines and their lawyers got out their magnifying glasses to find the loophole.

Nowhere in the rules does it say that United is prevented from cutting the hours of their workers, so this is exactly what they have decided to do. United Airlines is cutting 25% of the hours for 15,000 employees. They will go from working 40 hours a week to only 30 hours a week. This loophole allows the company to decrease the income of each worker by 25% without violating the rules of the federal bailout.

This was obviously not the point of the bailout. As you can see, some legislators are pissed that the companies have found a loophole in the law and are exploiting it. But who should be blamed here? Should the company be the bad guy for finding the loophole? Or should lawmakers be reprimanded for writing a law that didn’t account for this type of behavior? The blame is probably not exclusive to either group, but rather shows the complexity of the situation, along with the incentive for bad behavior during a time of economic stress.

As if this wasn’t bad enough, United also recently sent out a memo to approximately 11,500 administrative staff employees telling them that the company will likely layoff 30% of them in October. Why October? Because the federal relief timeline will have expired by then, so United will get to keep the money and then will be free to fire thousands of employees. Additionally, the company is requiring any non-union workers to take 20 days of unpaid leave as well.

This entire situation sucks. It is unpleasant for the corporate leadership. It is worse for the employees. None of them foresaw this type of issue, nor did they contribute to the rise of a virus that sent everyone home. But just because they didn’t cause the problem, doesn’t mean they get a free pass either. This is how the game of business works. You have to handle the good and bad times. Sometimes you make decisions that change your situation and other times your situation changes because of things outside your control.

At the end of the day, we are now seeing the downsides to bailing out corporations. A bailout is really the government trying to prevent a natural market correction. If they didn’t intervene, United Airlines would file for bankruptcy protection and the assets / equity would be bought by new ownership. That transition would hopefully land the company in better hands that would be better prepared in the future. This is the risk that equity holders take. By not allowing this natural market function to occur though, the government is changing the risk-reward framework for equity owners and actually incentivizing bad behavior.

We should have let the airlines fail, rather than bail them out and now force me to write this letter today about all the dumb and nefarious things that the companies are doing. The US government has a “God-complex” when it comes to the markets. They think they can do no wrong and they believe that they can solve any problem by interfering. The issue is that they are actually making the situation worse. They are preventing a free market from going through the natural cycle. The allure of a short term bandaid actually drives a much larger, long-term problem.

United Airlines should be forced to give the money back if they cut workers hours. They tricked the US government into giving them billions of dollars of taxpayer money for free. There is not an investor in the equity or debt markets that would have done this deal. No investor would depart with billions of dollars for nothing in exchange. This is a sweetheart deal that proves the government is the idiot in the room when it comes to negotiating these bailouts. No wonder the airlines ran to the federal sugar daddy at the first sign of trouble.

Now the airlines have the money and they are cutting hours. This means the government got fleeced twice. They gave up our taxpayer dollars with no upside and still didn’t get the ultimate objective accomplished of preventing loss of income for workers. And remember, this is only one company. United Airlines will likely walk away with $3.5 billion grant and approximately $6 billion in loans from the CARES Act when this is all said and done.

Nearly $10 billion in taxpayer money for a company that mismanaged their balance sheet previously and was unprepared to run the business for even 60 days with a significant loss of revenue. Why we are handing bad capital allocators more money will never make sense to me. But this is what happens when the government, a historically bad capital allocator themselves, begins to intervene in markets.

As the saying goes, “What is the fastest way to destroy money? Let the government invest it.”

Hope each of you has a great day!

-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 45,000 other investors today.

THE RUNDOWN:

Crypto Forensics Firm TokenAnalyst Shuts Down: Crypto intelligence firm TokenAnalyst has shut its doors, the company announced Tuesday. The group said in a Medium post it would stop supporting its platform and application programming interface, and a flashing note on the company's website says, "The data on this site does not refresh anymore." The blog post did not give a reason for the shutdown, though it did say some of the team's members will be joining Coinbase, the San Francisco-based crypto exchange. Read more.

Bitcoin Tops $9,000 for First Time Since March Amid Halving Hype: Excitement over Bitcoin’s upcoming halving and an overall risk-on environment are pushing up cryptocurrencies, with the largest token reaching its highest level since before the coronavirus-induced crash. Bitcoin gained as much as 1.9% to $9,099 Thursday as of 11:30 a.m. in Hong Kong after jumping 15% on Wednesday, according to composite prices on Bloomberg. Other cryptocurrencies also advanced, with Bitcoin Cash and Litecoin both up a third day. Read more.

IBM, Mastercard Join Digital Identity Project Building ‘Ecosystems of Trust:’ The highly specialized world of digital identity is opening itself to a wider audience. Announced Tuesday, the Trust over IP Foundation is backed by governments, nonprofits and private-sector firms. Key players include Mastercard, IBM and the Canadian Province of British Columbia. A vast ecosystem of public bodies and private companies, large and small, are working on establishing decentralized digital trust, using an array of technologies. The ToIP Foundation, which will live within the Linux Foundation, is a move to rein together core issues that matter to all of them, as well as creating appropriate technologies. Read more.

U.S. Hospitals Are Losing Millions of Dollars Per Day In the Midst of the Covid-19 Pandemic: When hospitals across the United States halted elective procedures back in March, they immediately started hemorrhaging revenue. That’s in large part because U.S. health systems make a sizable chunk of their revenues from high-priced, non-emergency procedures. Conservative estimates indicate that U.S. hospitals are losing more than a billion dollars per day by complying with the guidance from policymakers and the leading medical associations to preserve resources for Covid-19 patients. Read more.

Iran Issues License for Nation’s Biggest Bitcoin Mining Operation: iMiner, a Turkey-based company, has been granted a license to mine cryptocurrencies in Iran. iMiner has reportedly gotten the green light from the nation's Ministry of Industry, Mine and Trade to operate up to 6,000 mining rigs in the city of Semnan. The mining company has so far spent 311 billion rials ($7.3 million) on setting up the biggest mining operation in the country to date. Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Keith Rabois is a General Partner at Founders Fund and is one of the most respected minds in Silicon Valley. He previously was part of the PayPal mafia, served as the COO of Square, and co-founded real estate company OpenDoor. Keith also has invested in many industry defining businesses including Yelp, Linkedin, and hundreds of others. This is an absolute must watch / listen.

In this conversation, Keith and I discuss:

* The coronavirus

* The economic crisis

* The Federal Reserve's actions

* The issue with bad data

* What we should learn from all of this

* How OpenDoor is doing

* What an economic recovery may look like

* Why Sundar Pichai should lose his job at Google

* How Chinese spies may have infiltrated big tech companies

I really enjoyed this conversation with Keith. 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 “Off The Chain,” 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 45,000 other investors today.

To investors,

The United States has approximately $25 trillion in debt. The country was expected to experience a $1 trillion deficit this year, which is the difference between how much money they spend and how much money they earn.

But then coronavirus hit. And as the great Mike Tyson once said, everyone has a plan until they get punched in the mouth.

The health crisis required an unprecedented government response that led to a near complete shut down of the global economy. This put many businesses and individuals in a tough spot. They had their source of income shut down or materially hindered. More than 30 million Americans lost their jobs. And numerous industries saw their revenue vanish.

In an effort to mitigate the economic carnage, the Federal Reserve and US government began announcing monetary stimulus packages aimed at putting money in the hands of those who needed it. People will debate whether the programs were structured perfectly or not, but no one can deny that the Fed was quick to act and was much more aggressive than many predicted.

The packages saw increases in unemployment benefits, forgivable loans to small businesses, and bailouts of major industries. This all costs a lot of money for the federal government to fund. So they are obviously just funding everything with the revenue that they get from our taxes and other income sources, right?

Wrong. At the same time that spending had to drastically increase to address coronavirus issues, revenue for local, state, and federal governments was drastically decreasing as well. Remember, everyone has been sitting at home for almost two months now, so naturally each income source has drastically decreased.

Whether you’re a business, a family, or the government, it is never a good situation when you have to spend way more than you make. This violates one of the core principals of finance. And this was after the US government was already expecting to run a $1 trillion deficit for the year without coronavirus happening.

So how does the government fund so much spending if they don’t already have the money? They do what any business or individual would do — they borrow what they need. And yesterday we were told that the US Treasury is planning to borrow $2.99 TRILLION dollars in the 90 day period between April and June. To put that in perspective, the US government has $25 trillion in total debt so this would be more than a 10% increase in just 90 days.

Now obviously the Treasury is run by a bunch of smart people who spend time thinking about this every day. They aren’t perfect, but they also aren’t complete idiots. Why would they borrow so much money right now? Easy — the cost of borrowing money is so low that they are actually financially incentivized to do it.

The way this works is through Treasury bonds. They issue an IOU to investors saying “give me X dollars and I will pay you back in a certain amount of time at the Treasury bond rate.” These bonds can mature at various times from 3 months to 30 years and the interest rates are all sub 1% except for the longest timeline bond.

So when the US government needs money, they issue bonds to raise capital. Those bonds represent debt. But here is the big question — is it really debt if you never plan to pay it back?

Now I don’t mean that the US government is planning to not make people whole on the Treasury bonds. That is possible, but it is a very, very small probability in my opinion. I’m more specifically talking about the idea that the US government continues to increase the national debt and doesn’t have a plan to (a) run a budget surplus, nor (b) eventually pay off all the debt.

What they are really running is a mirage of confidence. As long as investors continue to believe that the US government will find a way to pay back their Treasury bonds, those investors will continue to lend money to the government. The funds to pay back individuals can come from revenue-generating activities (ex: taxes) or from the proceeds of issuing more debt (ex: essentially re-financing the original bonds).

If the confidence is ever lost though, there would be a massive problem. The United States would owe almost $30 trillion to investors and no one would believe they are going to be paid back. It would lead to one of the largest defaults in history. Again, I don’t think we are close to that scenario yet, but I do believe that the Treasury is playing a game that has become impossible to win.

The federal government will never be able to pay their debt. They can’t drive enough revenue to get to profitability and issuing more debt to raise capital would only make the situation worse. Investors are constantly betting billions of dollars in the markets on what they believe will be the second and third order effects of this situation, so I won’t opine on what I believe. I don’t have true skin in the game here, which makes my opinion frankly obsolete.

Now one saving grace for the government at the moment is that those Treasury bond rates are so low. This makes the debt service easier. The debt service is essentially how much money you owe to the lenders at any given time. Here is an example.

If the government borrows $100 at a 2% rate, they would owe $2. But if they borrow $100 at a 1% rate, they would only owe $1. The trick when rates are low is to borrow $200 at 1% so you owe the same $2 from the first example, but you got twice the money from investors. This is essentially what the government is doing now.

If they had issued $3 trillion of 5 year Treasury bonds at 2% interest rates, they would owe $60 billion in interest. If they issue that same $3 trillion at the current 0.36% 5 year rate, they will owe $10.8 billion. Another way to think of this is if the government only wanted to pay $10.8 billion in interest, they are now getting 5.5x more money in exchange for that interest.

Cheap money makes the world go ‘round. The US Treasury is borrowing an incredible amount of money, which is going to drive the federal deficit for 2020 to over $3.5 trillion by the new estimates. It may have a lower cost of capital, but I don’t think it is really fair to call this debt.

They may have intentions to pay back the individual investors who buy the bonds, but they have no intention (or plan!) to pay off all this debt. To make it even worse, the debt continues to get bigger and bigger. Hopefully they can continue to play this financial engineering game, because a default of the United States would be catastrophic to the global economy.

Hope this helps each of you understand what is happening right now. I know these situations can be complex, so I’m doing my best to break them down into simple language. Remember, the financial system is dependent on at least half of the population not understanding how money works unfortunately.

Have a great day and we’ll 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 45,000 other investors today.

THE RUNDOWN:

Crypto Exchanges Boost Hiring in Wake of Coronavirus Crash: A slew of crypto exchanges are embarking on hiring sprees while job losses are soaring. Kraken LLC said on Monday that it had been planning to hire 250 staffers this year, but will instead recruit 350. Binance Holdings Ltd., which has more than 1,000 employees, expanded its workforce by 25% in the first quarter and is beefing up its team supporting Binance Pool, a new mining operation launched in April. Exchange OkEx, also with a workforce of more than 1,000, said it will announce a global hiring initiative in May. Coinbase Inc. lists dozens of openings. Read more.

IBM, Mastercard Join Digital Identity Project Building ‘Ecosystems of Trust:’ The highly specialized world of digital identity is opening itself to a wider audience. Announced Tuesday, the Trust over IP Foundation is backed by governments, nonprofits and private-sector firms. Key players include Mastercard, IBM and the Canadian Province of British Columbia. A vast ecosystem of public bodies and private companies, large and small, are working on establishing decentralized digital trust, using an array of technologies. The ToIP Foundation, which will live within the Linux Foundation, is a move to rein together core issues that matter to all of them, as well as creating appropriate technologies. Read more.

Mysterious Company Files New Lawsuit Over Ripple’s $1.1B XRP Sale: A little-known Puerto Rico-based company has gone after Ripple in court, accusing the blockchain firm of running an unregistered securities sale of the XRP cryptocurrency. The company, Bitcoin Manipulation Abatement, filed a lawsuit Friday in San Francisco, alleging both Ripple and its CEO, Brad Garlinghouse, had violated federal and Californian laws on seven counts when hosting its $1.1 billion XRP sale. Read more.

US Senate Staffers Float Blockchain Voting if Chamber Goes Remote: U.S. Senate staffers on the Permanent Subcommittee on Investigations, hunting for tech to keep the chamber legislating through crises, floated blockchain voting in an April 30 "continuity of Senate" memo. Coming several days before the Senate’s planned return from its COVID-19 recess, the 29-page memo, which is not a proposal to change Senate rules or from the committee that reviews them, preceded the subcommittee’s Thursday roundtable on crisis-time continuity solutions. Read more.

Peter Thiel-Backed Digital Bank N26 Raises Another $100 Million, Bracing for Coronavirus Uncertainty: German digital bank N26 has raised an additional $100 million in funding, as it braces for economic uncertainty from the coronavirus pandemic. The investment, backed by existing investors such as Chinese tech giant Tencent and Peter Thiel’s Valar Ventures, is an extension to the company’s Series D investment round announced early last year. It brings the total raised in that round to $570 million, while the company has now raised $770 million to date. Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Nathan Latka is a serial entrepreneur with a top business podcast, an investor in B2B SaaS companies, and a bestselling author. He is incredibly thoughtful and has spend a lot of time building various products, so Nathan is able to share highly tactical advice on various topics. Hope you enjoy this one!

In this conversation, Nathan and I discuss:

* The future of media

* How he tactically grew his podcast to 10 million downloads

* Why he believes debt financing for SaaS businesses is the next frontier

* How business in a post-COVID world will evolve

I really enjoyed this conversation with Nathan. 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 “Off The Chain,” 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 45,000 other investors today.

To investors,

There were 3.8 million Americans who filed for unemployment last week. This brings the total new claims to over 30 million in the last 6 weeks. The speed and gravity of which the unemployment situation has transpired is breathtaking.

The good news is that the number of first-time jobless claims continues to fall week-over-week since mid-March. The bad news is that we are becoming desensitized to the size of these numbers. There were more than 3,800,000 people who lost their job and filed for unemployment insurance last week. That would have been more than a 50% increase in national unemployment back in February, but now we view this as an encouraging number.

The unofficial numbers for unemployment are likely to be over 20% at this point. Some of these people will hopefully find relief in the coming weeks as various cities begin to re-open. This is going to be easier said than done:

* What metrics will determine when a city opens versus when it doesn’t?

* How is success measured when re-opening? What will signal it isn’t working?

* Can a city re-open all businesses immediately or do they allow certain industries before others?

* What are the requirements on citizens during the re-opening? Masks? Social distancing? Curfews?

* What is the process for pausing the re-opening if it is not going according to plan? Can a city stop the re-opening and reinstitute the shelter at home order?

This is a highly complex situation. There is unlikely to be one right answer. Each city and population are different. People will politicize whatever decisions are made, which will only add pressure and scrutiny.

There are people much smarter than me that will focus on the re-opening of the economy. The truth is that the economic reality is much worse than what is being represented in the stock market. We are starting to get some of the economic and corporate data that is necessary to help us measure the true carnage.

Take American Airlines for example:

“American Airlines lost more than $2.2 billion in the first three months of the year — its biggest quarterly loss since 2008 —as the coronavirus pandemic drove down demand for air travel.

American’s revenue dropped nearly 20% from a year earlier to $8.52 billion, slightly below analyst estimates. Shares were down more than 3% in morning trading.

American, like other airlines is facing a sharp decline in passengers because of the coronavirus pandemic. U.S. airline travel volumes dropped by about 95% in recent weeks from a year earlier as travelers stay home because of concerns about the virus and shelter-in-place orders.”

These sound like crazy numbers, until you realize that American Airlines is losing $70,000,000 a day right now. This level of economic damage would have been unfathomable only 6 weeks ago. They aren’t the only ones though.

Bob Pisani wrote a nice summary of various companies that are sharing good and bad news at the same time during their earning reports:

“Shipping giant UPS is getting more revenues from Americans shopping online, but delivery of shipments to businesses has shrunk dramatically. 

3M is making money selling its N95 masks and noted strong growth in personal safety products but it is still laying off workers in other divisions and withdrew its full-year guidance.

Music streaming service Spotify reported a loss that was less than expected and added more users, both paying customers and those who listened to its free ad-supported category. But it lowered its revenue guidance for the year as ad sales fell.

Even food companies are having a tough time figuring out what is going on.  You’d think snack maker Mondelez would be doing better: They make Oreos.  They did beat estimates, and consumers certainly stockpiled food.  But the company withdrew its 2020 forecast due to uncertainty surrounding the impact of the virus.

You’d think the lab-testing business would be booming, but no. Even testing giant Laboratory Corp., which reported better-than-expected profits and is rolling out a new coronavirus antibody test, is withdrawing 2020 guidance due to the pandemic, and taking other actions including furloughing workers.”

What a weird, unprecedented time we are living in. To make things even more confusing, the public market is not acting how most would have predicted. The economic data is obviously bad, including a 4.8% drop in GDP.

But there are a lot of people scratching their head as to why the economic data is so bad, yet the stock market continues to rally. In fact, the stock market is ending one of the best months ever. According to CNBC:

“Wall Street came into Thursday’s session on pace for one of its best monthly performances in decades. The S&P 500 was up more than 12% for the month and on track for its biggest one-month gain since 1987. The Dow was up 11% in April, which would be its best month since 1987.”

Your guess is as good as mine as to (1) what is actually driving the rally and (2) how sustainable this stock market move is. What I do know is that there are incredible levels of uncertainty at the moment and millions of investors are trying to make sense of it all. Some will make a fortune. Some will lose a fortune. And a good portion of the middle will probably come out relatively flat from all of this.

The economic carnage is also driving something else that was previously underestimated — a feeling of frustration from corporate leaders. Most of them are not going to discuss this publicly, because they don’t want the PR nightmare. One who chose to speak out is Tesla’ Elon Musk. In yesterday’s earnings call, Musk went off about the current lockdown orders:

“I think the people are going to be very angry about this and are very angry. It’s like somebody should be, if somebody wants to stay in the house that’s great, they should be allowed to stay in the house and they should not be compelled to leave. But to say that they cannot leave their house, and they will be arrested if they do, this is fascist. This is not democratic. This is not freedom. Give people back their goddamn freedom.”

He then doubled down on the comments later in the call when he said:

“So the expansion of the shelter in place or as frankly I would call it forcibly imprisoning people in their homes, against all their constitutional rights, but that’s my opinion, and breaking people’s freedoms in ways that are horrible and wrong, and not why people came to America or built this country. What the f---. Excuse me. It’s outrage, it’s an outrage. It will cause great harm not just to Tesla, but to many companies. And while Tesla will weather the storm there are many small companies that will not.”

There are plenty of people who disagree with Elon on these sentiments, but there are also a lot of people who agree with him. The topic is controversial, which means the truth is probably somewhere in-between the extremes.

The situation looks dire on the ground. Thankfully, there appears to be a light at the end of the tunnel with cities re-opening in the next few weeks. It will be important to pay attention to how quickly consumers start to spend again, along with what percentage of companies were able to survive the government mandated lockdowns.

Entrepreneurs are the backbone of the United States. They’ll help us escape this nightmare, but it won’t be easy. We need to do everything we can to empower them with resources and then get out of their way. I’ll bet on the US economy and the entrepreneurs driving it any day of the week.

Hope everyone has a great close to their week. Stay safe and please continue being kind to each other during these crazy times 🙏🏽

-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 45,000 other investors today.

THE RUNDOWN:

Telegram Caves to US Regulators: Delays Blockchain Launch, Offers to Return $1.2B to Investors: Messaging app Telegram postponed the launch of its TON blockchain for a second time on Wednesday, pushing the new go-live date to April 2021 and triggering a costly clawback clause in its agreement with token-sale investors. According to a letter to investors obtained by CoinDesk, Telegram is offering to return up to 72% of each investor's stake. Read more.

Alibaba Patents Blockchain System That Spots Music Copycats: Alibaba has patented a blockchain-based means of vetting the originality of songs. Granted by the U.S. Patent and Trademark Office on April 21, the process as described by the Chinese e-commerce giant addresses one of the recording industry’s major issues – protecting the copyright of music tracks – by hosting and vetting that content on a blockchain. Read more.

Bitcoin Jumps 12% as Fed Keeps Money Flowing and US Economy Shrinks: Bitcoin's price jumped Wednesday by the most in six weeks, outpacing U.S. stocks, after the Federal Reserve pledged to keep pumping new money into markets and government data showed the economy sliding into recession. Bitcoin rallied 12% to $8,703  as of 19:30 UTC (3:30 p.m. Eastern time). The Standard & Poor's 500 Index rose 3.1%. Read more.

US Weekly Jobless Claims Hit 3.84 Million, Topping 30 Million Over the Last 6 Weeks: First-time filings for unemployment insurance hit 3.84 million last week as the wave of economic pain continues, though the worst appears to be in the past, according to Labor Department figures Thursday. Economists surveyed by Dow Jones had been looking for 3.5 million. Read more.

Binance, Brock Pierce Donate $1M to Puerto Rico’s COVID-19 Fight: Brock Pierce’s Puerto Rican nonprofit has teamed up with Binance to buy $1 million in personal protective equipment to help fight coronavirus in Puerto Rico. Integro Foundation – run by one-time bitcoin billionaire Brock Pierce who in 2018 tried to make Puerto Rico into a crypto utopia – donated 44.5 BTC to Binance Charity on April 23. Binance Charity announced Thursday that it was matching that donation 2:1 at a valuation of $333,333 USD. Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Adam Traidman is currently CEO and co-founder of BRD, one of the first Bitcoin wallets in the app store. He is also currently the CEO of Ripple Asia and the CEO of SBI Mining Chip Company. It was interesting to talk to Adam, especially since he has such a good understanding of what is happening in Asia and how that should affect the rest of the crypto world in the coming months.

In this conversation, Adam and I discuss:

* The founding story of BRD

* How the company has evolved over the last few years

* What the current environment for crypto in Japan is

* How the chip manufacturing business has changed due to coronavirus

* What Adam thinks of China's digital currency efforts

I really enjoyed this conversation with Adam. 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 “Off The Chain,” 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 Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 45,000 other investors today.

To investors,

The economic situation has deteriorated at an even faster pace than most expected. On March 18th, I wrote that “the unemployment numbers in the United States have the potential to quickly match the numbers from the Great Depression. I understand that the statement may seem ridiculous at first glance, but let me walk you through some math.”

The claim only a month ago that we could hit unemployment numbers equal to the Great Depression was so absurd to many that I had to explicitly acknowledge that they would disagree with what I was saying. Unfortunately, the situation has transpired even faster than I anticipated, which means that we are seeing much bigger numbers than I thought possible.

In that March 18th letter, I explained that the Great Depression unemployment numbers are usually misunderstood. The letter stated:

There was a relatively slow ramp up in unemployment in the beginning of the Depression. Here are the year by year unemployment statistics in the US:

* 1929 — 3.1%

* 1930 — 8.7%

* 1931 — 15.9%

* 1932 — 23.6%

* 1933 — 24.9%

* 1934 — 21.7%

* 1935 — 20.1%

So as you can see from the data, it took until the third year of the Depression before we hit double-digit unemployment numbers. People always focus on the peak number of 24.9%, but they forget that 3 of the 5 years of the Depression (1929-1933) had unemployment levels under 20%. This doesn’t mean that 8 - 20% unemployment levels are good. It just means that the peak number isn’t a great representation of the entire period.

Finally, I stated that it was possible that we could start to see Great Depression unemployment numbers by the end of Q3 2020. That thought was summarized by saying “the second year of the Great Depression saw 8.7% unemployment, which would 2.4x increase from our February unemployment numbers. It makes me incredibly sad to say this, but I think we could see those types of numbers by the end of Q3 2020. Year 3 of the Great Depression saw 15.9% unemployment, which would be 4.5x from our February numbers. Again, this type of increase over a long period of time would be crazy, but the early data we are seeing would suggest that many states have seen larger increases on a percentage basis just in the last few days.”

The unemployment claims that were reported today totaled more than 5.2 million Americans for the last week. This is on top of the 16+ million Americans that filed for unemployment in the three weeks before that, which means that almost 22 million people have filed for unemployment in the last month. 22,000,000 people in a month. This brings the total unemployed in the United States to nearly 28 million people when you include the 5.8 million people who were already unemployed before COVID-19 took over.

There are about 165 million people in the US labor force, so this puts the current unemployment level over 16%. That means that in less than 6 weeks, we went from historic lows in unemployment to levels greater than the second year of the Great Depression. While this is scary, the more concerning thing is the rate at which this is happening. If we continue on this trend, we could see 20-25% unemployment by the end of Q3 2020. This would be more than double what I originally thought was possible.

Now that we understand what the problem is, we have to ask ourselves how can we solve it? The easy answer is that we have to get people back to work. We have to turn the American (and global) economy back on. Obviously there is a health crisis transpiring though, so we must do it in an intelligent and safe way. There are experts who are much smarter and more experienced that I am who will determine the exact details of that economic re-start, but that is the simplest answer.

The more complex answer includes numerous aspects of government aid or relief. We have already seen the recent stimulus package that (a) beefed up the amount of money available via unemployment insurance and (b) promised to give most Americans a one-time check of up to $1,200. These stimulus efforts will definitely help, but they are unlikely to be the complete answer if this crisis lasts into May (highly likely).

The average rental payment for an apartment in the United States is about $800, so if an individual receives the full $1,200 than they would have enough money to pay their rent and buy groceries for a month basically. They would be out of luck for anything past that one month of coverage. This leads to a new proposal that has been floated by two lawmakers — the Emergency Money to the People Act.

This proposal states that every American that makes under $130,000 and is over the age of 16 years old will receive $2,000 a month until the economy fully recovers and unemployment levels drop back to pre-COVID levels. This is an interesting proposal for a number of reasons. First, it acknowledges that the one-time $1,200 check is not enough money to be helpful in a sustainable way. Second, it pushes the conversation of universal basic income (UBI) to the national stage. And third, it would focus the goal on getting the economy back to pre-COVID levels.

Sounds great, right? There is only one problem though. Once this program is started, there will be no turning back in my opinion. If this proposal is accepted and implemented (still far away from that happening), the United States would be engaging in universal basic income. We will have completed the transition from a capitalistic society to a socialistic society. The incentive structures change. The relationship that people have with money changes. And the role of government changes in a drastic way as well.

The reason that I say that we will never stop the universal basic income is for two reasons — (1) the pre-COVID unemployment of 3.5% was a historic low so it will take almost a decade to return to those levels and (2) it will be nearly impossible for politicians to give money to people for long periods of time and then try to take it away from them. That would be a suicide mission for a politician.

The situation we are currently facing is a complex one with no single answer. There is a health crisis that is causing an economic crisis. There are tens of millions of Americans out of work and there are tens of thousands of American businesses that are shut down by government mandate. The longer that people suffer financially, the higher probability there will be for social unrest. As politicians and government organizations look to solve the problem and avoid any potential unrest, they will naturally consider universal basic income.

Once we start though, we aren’t going to stop. And the cost of doing this will be unfathomable.

Imagine a world where the government ramped up spending by an additional $400 billion PER MONTH. That would be adding more than 5% to the Fed’s balance sheet on a monthly basis and with no plan to slow down. The United States has finally reached the ultimate decision — do you ensure your world dominance by continuing to lean into the capitalist and democratic ethos that built the country into what it is today or do you address the short term problems of your people by abandoning those ideals and pursuing the socialist safety net?

There will be one controversial debate after another on this topic in the coming weeks and months. The short answer is that we will never get everyone to agree. There are leaders that have been elected to lead our country and they will ultimately make the decisions. It will be imperative that people pay attention and are fully aware of the pros and cons of each decision. The United States is conducting a tight rope walk across a metaphorical Grand Canyon right now. One misstep and we have a long, long way to fall.

I remain optimistic that we can avoid those missteps and emerge stronger than ever from this crisis. It won’t be possible without a lot of hard conversations and tough decisions though. Stay safe. Stay alert. And please continue to be kind to each other during these trying times 🙏🏽

-Pomp

This installment of Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 45,000 other investors today.

THE RUNDOWN:

Grayscale Says It Raised a Record $500M in First Quarter: In a record first quarter, Grayscale reports many institutional investors took advantage of market turbulence to increase their exposure to cryptocurrencies. The crypto-focused investment firm raised a total of $503.7 million in Q1 2020, nearly double the previous quarterly high of $254.8 million reached in Q3 2019. While bitcoin-weighted trusts continue to be the company's most popular product, the report noted that ether trusts also received record inflows in the same quarter as investors added multiple Grayscale products to their portfolios. Read more.

Swiss Crypto Firm Closes $14.5M Series B to Help Secure Brokerage License: Swiss holding company Crypto Finance AG has closed a $14.5 million Series B funding round co-led by Swiss investor Rainer-Marc Frey, Beijing-based private equity firm Lingfeng Capital and joined by Hong Kong’s QBN Capital. Read more.

Weekly Jobless Claims Hit 5.245 Million: Protection measures against the coronavirus continued to tear through the employment ranks, with 5.245 million more Americans filing first-time claims for unemployment insurance last week, the Labor Department reported Thursday. That brings the crisis total to just over 22 million, nearly wiping out all the job gains since the Great Recession. Read more.

Andrew Yang Says Current Stimulus Payments to Americans Aren’t Enough: Andrew Yang isn’t satisfied with the one-time $1,200 stimulus checks going to 80 million Americans today. He wants the federal government to continue paying out $2,000 monthly checks until the crisis is well and truly over. The ex-presidential contender, basic income advocate and crypto community favorite thinks the pandemic is too bleak to be worrying overly about the national debt. “When the house is on fire, you don't worry that much about the water you're using to put it out,” he said as part of a web chat with Axios. “We have the equivalent of a $21 trillion fire on our hands, and we have to do everything we can to help people get through this.” Read more.

Verizon Will Buy Video Conferencing Company BlueJeans: Verizon is buying the video conferencing platform BlueJeans as workers increasingly rely on web tools to connect during the coronavirus pandemic, the company announced Thursday. Verizon will pay about $400 million in the deal, CNBC’s David Faber reported. BlueJeans has more than 15,000 customers, Verizon CEO Hans Vestberg said in an interview with Faber shortly after the deal was announced.Read more.

LISTEN TO THIS EPISODE OF THE OFF THE CHAIN PODCAST HERE

Cathie Wood is the Founder, CEO and CIO at ARK Invest. Prior to this, she spent twelve years at AllianceBernstein as Chief Investment Officer of Global Thematic Strategies where she managed over $5 billion. Cathie is one of my favorite investors on Wall Street thanks to her data-driven approach to investing in innovation and technology. She didn’t disappoint in this conversation and spent more than an hour dropping knowledge bomb after knowledge bomb!

In this conversation, Cathie and I discuss:

* COVID-19

* The economic implications of monetary policy decisions

* How innovation gains market share during times of crisis

* Her thoughts on Square and Tesla

* Her latest views on Bitcoin

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

LISTEN TO THIS EPISODE OF THE OFF THE CHAIN 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 “Off The Chain,” 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 Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 40,000 other investors today.

To investors,

The general public is starting to realize the greatest magic trick of our generation is actually a magic trick. What do I mean? The average citizen is starting to recognize that US dollars, like all fiat currencies, are just funny money.

Most people in finance already know this and go along with it because that is how the game is played. The wealthy and powerful benefit from the game. They are financially incentivized to keep the game going. The same can’t be said for the average citizen. They are actually hurt by fiat currencies. The average Joe doesn’t own any stock. They don’t own real estate. They own no gold or bonds either. They simply live paycheck-to-paycheck and have no inflation adjustment in their wage contracts.

This has been going on for decades and the wealth inequality gap has only widened.

So why are people starting to pay attention now, rather than some other time? They are seeing blatant examples of how the Federal Reserve, Treasury, and US government create money out of thin air. There is more transparency than ever right now and people are paying attention because they are scared.

This single image explains a lot of what is going on in the Western world. The stock market is surging, while unemployment continues to reach all-time highs.

There are over 21 million Americans in the labor force who are unemployed right now. Over 16 million of those people have lost their jobs and applied for unemployment insurance in the last three weeks. And these are just the people who have successfully filed their claim. The reality on the ground is much worse.

So now you have millions of Americans sitting at home with very little to do other than pay attention to finance and the economy. There are no sports being played. There are no birthday parties or nights out on the town to look forward to attending. There is nothing but social media, Netflix, and the daily news updates on COVID-19 and the economy.

These people continue to see the Federal Reserve create trillions of dollars out of thin air, while simultaneously claiming that they have unlimited money. This is like kicking someone when they are down. The average citizen is wondering how they can weather this horrific financial storm and the Fed is boasting on national television that they will never run out of money.

The magic trick is being revealed. It is becoming so obvious that you see people like Dave Portnoy, the founder of Barstool Sports, publicly sharing content calling out the nonsense to his 1+ million followers on Twitter.

This is the exact type of content that informs the non-finance audience about how money actually works. Remember, we don’t teach this information in schools. Not because no one ever thought to teach financial education, but rather because the economy depends on majority of people not understanding how it works. Frankly, just a sad reality of the world we live in today.

As if the current situation of people getting a crash course in money wasn’t bad enough, politicians are now trying to bribe the general public with “gifts” that will make them more likable. First we saw the stimulus checks of up to $1,200 get announced and then we saw President Trump announce no student loan payments for at least 6 months. These developments have been presented as “we want to help you!,” but in reality these are merely bribes to keep the peace.

The truth is that the government has shut down the US economy. Those 16 million Americans that lost their job can point their finger directly at the current administration as the cause of their jobless status. That would piss a lot of people off, especially since it appears there will be millions more laid off in the coming weeks. So how does the government avoid social unrest? They tell everyone to stay home for their own safety, they use the police and military to enforce that order, and they start bribe the people with stimulus checks, rent abatements, and student loan deferrals.

The problem is that these short term solutions will help our society from spiraling into social unrest, but they reveal that money is only a belief system over the long run. The unintentional consequence of these actions is that millions of Americans are receiving the financial education about money that isn’t taught in schools. As the great Henry Ford once said, “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

This is the risk that the current administration is taking. They have to keep the peace in the short term, but they also have to avoid teaching the masses that the Federal Reserve can simply print as much money as they want. Some of you will think that is a ridiculous statement, so why am I saying that? It is because I think we are about to see an intellectual revolution like the world has never seen before over the coming years.

Once the genie is out of the bottle, there will be no putting it back in. As people learn that the Federal Reserve can print as much money as they want, they will start to intellectually fight back against anything that hurts them financially and doesn’t make sense. Take taxes for example. If the US government can create money out of thin air, why do they need to worry about driving revenue? Why do they need to take 35-50% of our income if they can just create the money out of thin air?

This is a simple, yet profound, question. The wealthy and powerful know the answer — the taxes are used to control the population. It is a form of theft that masquerades as duty or responsibility. Once the masses realize that it is a game of control, they can easily leverage social media to accelerate the spread of that message to hundreds of millions around the world. This is a nightmare for governments, the Federal Reserve, and the Treasury.

Remember what Henry Ford said — you can’t give people the education or they will fight back. This is where I believe we are headed over the coming years as we weather this financial crisis and ultimately come out of it. The banks took the majority of the blame in the 2008 Global Financial Crisis, but I believe that the US government is going to end up receiving most of the blame for this financial crisis.

We are living in weird times. People are getting an education in money unintentionally. They are seeing the Federal Reserve print trillions of dollars, which is likely to lead to a loss of confidence in the US dollar over a long period of time. The magician has been exposed. I haven’t had enough time to think through all of the consequences of this development, but it feels important and it feels scary. The Federal Reserve has no choice though — they either show their hand to the citizens or they increase the odds for social unrest in the short term.

The game theory of the decision would suggest you solve for the current problem and deal with the bigger problem later. We will see if they are able to do that. Either way, keep an eye out for more public conversations around money, how it works, and the fact that fiat currency can be created out of thin air. What was once a fringe issue for libertarians and gold bugs is likely to become a national conversation the longer this crisis rages on.

You know how I’ll be protecting myself from any of this chaos, but there are broader ramifications than just the financial ones. Feel free to respond to this email if you agree, disagree, or have ideas that I should consider around this topic. Would love to hear from each of you.

Hope you have a great weekend.

-Pomp

This installment of Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 40,000 other investors today.

THE RUNDOWN:

Nancy Pelosi Says It’s Unclear When US Economy Can Reopen: House Speaker Nancy Pelosi on Thursday told CNBC’s Jim Cramer it’s not clear when America could reopen for business, despite some optimism from the White House that it could happen next month. When asked if shops could open up in May, she decided against offering a hopeful timeline. “We could have a depression because so many people are out of work, and that’s why we have to get the system really energized and working,” Pelosi said. “Let’s get out those unemployment checks. Let’s get out those direct payments. Let’s get these loans freed up.” Read.

PayPal Co-Founder: This Is ‘Greatest Time to Start a Company:’ Paypal and Affirm co-founder Max Levchin said that the stage a start-up is in is a major factor in whether the company will survive the economic downturn. “It’s really stratified. I think this is the very best time to be either a late-stage, well-funded start-up, because the competition is thinner ... [or] even better perhaps, this is the time to hunker down, go 10,000 feet below ground and build something truly amazing,” Levchin said. Read more.

Bitcoin Garners New Users as Governments Flood World With Fiat: Governments around the world are careening toward a period of dramatic spending. The U.S. Federal Reserve announced another $2.3 trillion in lending programs on Thursday to stabilize America’s coronavirus-stricken economy. The Bank of England announced it would likely extend billions of pounds to directly finance the government’s crisis response. All this inspires inflation concerns around the globe, which appear to be driving demand for bitcoin in some corners. Read more.

New York Power Plant Sold Up to 30% of Its Bitcoin Mining Hash Rate to Institutional Buyers: Greenidge Generation, an upstate New York power plant that's using proprietary facilities to mine bitcoin, has sold up to 30 percent of its computing power to institutional buyers. The firm said in an announcement on Friday that the deal, brokered by BitOoda Digital, proceeded the sale of 106,000 terahashes per second of bitcoin mining power to undisclosed buyers consisting of hedge funds and family offices. Read more.

CEO Says BlockFi Is Lending to Crypto Miners as Other Providers Pull Back: The CEO of BlockFi said the crypto lending platform is extending credit to miners at a time when competition for their business has eased because of the coronavirus crisis. “We’re starting to establish relationships with miners for the first time now,” Zac Prince said. The reason: The market has lost some of its risk appetite, he said. Read more.

LISTEN TO THIS EPISODE OF THE OFF THE CHAIN PODCAST HERE

Ali Hamed is the co-founder of Coventure, an asset management firm focused on deploying capital across venture capital and unique credit strategies. He is one of the smartest investors I know and definitely didn’t disappoint in this conversation. Highly recommend listening!

In this conversation, Ali and I discuss:

* The private credit market

* How borrowers and lenders are treating each other

* Where the areas of opportunities will be

* How founders can respond to the pandemic

* How source data in advertising and e-commerce has given Ali a better sense of the trends in those industries

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

LISTEN TO THIS EPISODE OF THE OFF THE CHAIN 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.

If you enjoy reading “Off The Chain,” 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 Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 40,000 other investors today.

To investors,

The United States economy has been shut down due to the coronavirus quarantine. As I wrote a few weeks ago, there is a high likelihood that we could reach levels of unemployment not seen since the Great Depression. The write-up included the year-by-year unemployment numbers:

“There was a relatively slow ramp up in unemployment in the beginning of the Depression. Here are the year by year unemployment statistics in the US:

* 1929 — 3.1%

* 1930 — 8.7%

* 1931 — 15.9%

* 1932 — 23.6%

* 1933 — 24.9%

* 1934 — 21.7%

* 1935 — 20.1%

So as you can see from the data, it took until the third year of the Depression before we hit double-digit unemployment numbers. People always focus on the peak number of 24.9%, but they forget that 3 of the 5 years of the Depression (1929-1933) had unemployment levels under 20%. This doesn’t mean that 8 - 20% unemployment levels are good. It just means that the peak number isn’t a great representation of the entire period.”

This morning we got the first data point on how bad the unemployment situation is looking already. The US Department of Labor reported that 3.28 million Americans filed for unemployment claims in the week ending March 21. That is more than 4x the worst previous week of unemployment claims ever (695,000 in October 1982).

(Photo by Alex Proimos)

This record number of unemployment claims is not a surprise to most people given the fact that the economy has been shut down. People were told to go home and businesses were ordered to shut down. When you go from a thriving business to $0 in revenue, people are going to lose their jobs. In fact, A LOT of people are going to lose their jobs very quickly.

The national numbers are obviously concerning, but the state numbers are even crazier. According to CNBC, “Pennsylvania increased 20-fold, from 15,439 to 378,908. New York saw its number more than quintuple, rising from 14,272 from the previous week to 80,334, while California tripled to 186,809. Louisiana, where coronavirus infections have risen at a dangerous pace, went from 2,255 a week ago to 72,620.”

Maybe the numbers sound big, but the graph will tell a different picture? Nope. The graphical representation of this jump in unemployment claims actually makes it look even worse.

It goes without saying that these millions of Americans need help immediately. The stimulus package that was approved this morning will provide some help, but it leaves a lot to be desired. The package will see a one-time payment of $1,200 to adults under a certain income threshold and $500 to every child. It includes a few hundred billion dollars for small business loans that the government will forgive if the business retains their employees. And there is an added $600 a week for those filing for unemployment benefits. These items can dull some of the pain, but it won’t solve the problem that 3.28 million Americans just filed for unemployment.

So where does this leave the United States?

Unfortunately, this puts us on the path to numbers that will be higher than the Great Depression as I predicted. We ended February with 3.5% unemployment (5.8M Americans), which is similar to the 3.1% unemployment at the start of the Great Depression in 1929. As I wrote recently, “the second year of the Great Depression saw 8.7% unemployment, which would 2.4x increase from our February unemployment numbers. It makes me incredibly sad to say this, but I think we could see those types of numbers by the end of Q3 2020.”

After today’s unemployment claims report, we are sitting around 5% unemployment and have more than 9 million Americans in the workforce but without jobs. If we see a return to net new “normal” levels of unemployment, that could include an estimated 1 million Americans filing new unemployment claims each month. We would reach 9%+ unemployment by the end of August if this was to happen, which would be more than the first full year of the Great Depression (1930). Unfortunately, I think 1 million new unemployment claims a month is going to be overly conservative.

We just had 3.28 million claims filed in the last week. Most small businesses have between 15 and 30 days of cash on hand to run operations without revenue. My guess is that a lot of them let staff go last week, but there will be more layoffs in the coming weeks. This also is not just a food service industry problem. We are seeing layoffs happen everywhere — from travel to hospitality to startups to manufacturing.

The number of unemployment claims that was just reported is higher than I expected, so now I am starting to think we could see 10% unemployment by the end of Q3. That would be 25% higher than what I was thinking just 10 days ago. Time will tell what happens, but investors need to be prepared for the worst here.

The United States has one of the strongest economies in the world. It only works when American businesses are operating and American workers are at work. The challenge is that the health crisis is real, so we must take the necessary steps to ensure the slowdown of COVID-19 infections. At the same time, the health crisis is causing an economic crisis. The world is not black and white, so the solutions here won’t be black and white either.

We just saw 3 million people file for unemployment in a single week. There will be millions more of the coming weeks and months. The faster we can address the virus, the faster we can get the economy operational again. There won’t be economic relief until that flywheel starts again. It doesn’t matter how much money the Federal Reserve prints, nor how many loans they give to people — the cure is going to be getting people back to work in a safe manner.

As I have been saying for awhile now, please be kind to those around you during these hard times. You never know what someone is going through. Millions are losing their jobs. Tens of millions are stressed out. Many folks are worried financially. Even more are dealing with health and/or family issues. It costs nothing to be kind and it could go a long way for a random person these days.

Stay safe out there. Stay alert. And remember, no one is going to look out for you, so make sure you are looking out for yourself.

-Pomp

This installment of Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 40,000 other investors today.

THE RUNDOWN:

Bitcoin Firms Report Uptick in Demand for Inheritance Services: Cryptocurrency startups are reporting increased demand for estate-planning services as the coronavirus outbreak motivates users to make sure their coins are passed onto heirs when they die. Casa Hodl and Unchained Capital said they have seen a dramatic rise in requests for proof-of-death or similar multi-signature wallet schemes that enable customers’ bitcoin to be transferred to a loved one following an untimely death. Read more.

Malta Financial Regulator Warns Against Unauthorized Crypto Firms: Malta’s financial regulator has issued warnings against two crypto websites that falsely claimed to be licensed by the nation. The Malta Financial Services Authority called out the “COINMALEX” and “Crypto Foxtrades” crypto exchanges in twin warnings Wednesday. Both entities had claimed to be licensed, registered or domiciled in Malta, all of which MFSA denied. Read more.

European Commission Defense Program Offers Grants for Blockchain Solutions: The European Commission is calling for future-oriented defense solutions including innovative blockchain concepts. A European Defense Industrial Development Programme tender, issued March 24, includes a 42-strong itemized list calling for small-to-medium enterprises to offer up solutions that drive innovation and adapt technologies for civil and defense purposes. The program will accept proposals relating to "infrastructure, based on real-time cloud and on-premise digital twin benefiting from blockchain technologies’ robustness." Read more.

Brave Partners With Binance to Develop In-Browser Crypto Trading: Privacy-focused browser Brave Software is hoping to facilitate in-browser cryptocurrency trading, though it’s not quite ready yet. Brave announced Tuesday it was partnering with Binance to develop an in-browser crypto trading tool which will ultimately let users deposit, swap, purchase and trade crypto right from Brave Browser’s launch and new tab windows. There, a natively-integrated crypto widget executes actions via Binance and Binance.US, depending on the user’s country. Read more.

Fired Employees’ Harassment Suit Against Tron Will Move to Private Arbitration: A court has moved two fired Tron Foundation employees’ claims of wrongful termination and workplace harassment to arbitration. On March 12, the San Francisco Superior Court upheld an arbitration agreement the employees signed when they were hired. The defendants — the Tron Foundation, Tron file-sharing subsidiary BitTorrent, Tron CEO Justin Sun and Tron engineering head Cong Li — filed a motion to compel arbitration on Feb. 19, citing the agreement. Read more.

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Mark Yusko is the Founder and CIO of Morgan Creek Capital Management and co-founder and Partner at Morgan Creek Digital. He previously ran the UNC Endowment, where he became known for his investments in alternative assets. We spend a lot of time together on a daily basis, so it was fun having Mark record this episode to explain a lot of what is happening in the world. If you are interested in the macro economy, this episode will be a must listen!

In this conversation, Mark and I discuss:

* What is driving the current market chaos

* How we got to QE infinity from the Fed

* Where we are in the economic cycle

* Who the winners and losers are right now

* How institutions are currently thinking about their portfolio

* What certain assets should do over the next 5-10 years

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

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This installment of Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 40,000 other investors today.

To investors,

The Lion King is an animated movie that has captured the imagination of young children for decades. There are many life lessons that can be taken from the film, but one of the core ideas presented is “the circle of life.” In the movie, this has a double meaning — (a) the young cub eventually grows up and becomes King of the Jungle after his father’s death, which is followed by him having his own cub and (b) the animal kingdom relies on energy passing through various forms (ex: animals eat the grass, other animals eat those animals, etc).

This idea of a repeating circle is very obvious in nature, but it also exists in an economy. An over-generalized version of an economy’s circle of life would look something like this:

Materials are produced and sent to suppliers. Suppliers turn those materials into products. Businesses buy the products and re-sell them to consumers. Those businesses take revenue from the consumers and use it to pay rent to the landlords that provide office and retail space. Those landlords make payments to the banks in exchange for financing the purchase of the buildings. And finally, those banks provide capital to the material producers to restart the circle of life. Obviously this is not a perfect description of how the economy works, mainly due to a lack of desire from myself to incorporate complexity into the diagram, but you get the general idea.

This economic circle of life is important to understand right now, because we are about to witness a chain reaction that will start creating problems for every participant in the circle. Everything starts with the businesses right now — they are the most vulnerable link in the circle.

We have recently seen a significant drop in consumer demand coupled with a government-mandated shut down of many businesses. Consumers became scared of COVID-19, which led them to stop spending money on travel, hospitality, and other industries. As the virus became a more serious concern, the government stepped in and began ordering the shut down of any “non-essential” businesses in many cities and states across the United States.

The lack of consumer demand combined with the government-mandated closure of businesses has created a break in the economic circle of life. This has two major impacts on the other participants:

* Upstream impact — As businesses close, they no longer need the supplies from their suppliers and vendors. They go from consistent weekly and monthly orders to zero overnight. This obviously leads to lost revenue for the suppliers, along with existing inventory that they can not sell (Read this piece to see how this works in the restaurant industry). The suppliers then need to slow their ordering from the material producers, which creates significant issues for them as well. You can think of the upstream impact as a dam in a river — once the dam is in place, everything upstream backs up and just sits there until the dam is opened or removed.

* Downstream impact — Most businesses in America are seeing revenue drop significantly, including many cases where it is going to zero. This could be from the lack of consumer demand or because the government forced the business to shut down. In either case, the company has less money coming in the door, but they still have their fixed costs to pay for. Rent is one of the largest fixed costs for most businesses, so there is immediate pressure applied to a business from the perspective of “how are we going to pay our rent?” This downstream impact is what I want to spend time talking about today.

Estimations that we could see GDP drop 25-50% in the second quarter this year. That would be an unprecedented drop, but this is not just a random number in a spreadsheet. It has a direct impact on how many businesses can continue to pay their rent without revenue coming in the door — short answer: very few.

This puts landlords in a really bad place. They can be overly understanding and give tenants deferred rent plans or some version of rent abatement. It sounds good in theory, but the landlord has loan payments to make to the bank. Unless the bank makes concessions to the landlord, the landlord is likely unable to make concessions to the tenant. So why wouldn’t the banks make concessions to the landlords? Because that may lead to questions of solvency for many bank lenders.

Don’t take my word for it.

Billionaire Tom Barrack published an article last night that outlined a lot of this in a articulate, yet urgent, manner. There are many important points from his piece that I think are worth calling out. He highlights the breaking of the economic circle of life when he says:

“Now everyone, from corporations and small and mid-sized businesses to employees and laborers from all walks of life, has been displaced from the normal chain of revenue generation, cash flow, and income necessary to meet their obligations, from payment of salaries, rent payments, mortgage payments, and all other debts and bills required in the daily life of every business and every American.”

Barrack goes on to call out a “second crisis” that is likely to occur, which is essentially the chain reactions described above:

“As a direct consequence of the necessary response measures to COVID-19, high performing mortgage loans across the entire commercial real estate sector (approximately $16 trillion in aggregate), which had previously been grounded in solid economic fundamentals, are suddenly experiencing a temporary meltdown in cash flows. We are seeing the beginning of a second crisis that will occur in the financial markets that underpin the lifeblood of these employees, workers, and businesses.”

He then explains that one of the key risks currently is that the financial system could lose the trust of the people if this crisis is not handled well:

“Our current crisis is a crisis of trust in two distinct but critical silos: health and finance. The COVID-19 pandemic has caused widespread confusion, fear and hysteria with regard to its’ effect, treatment and longevity, and the global response to effectively halt this virus has completely stopped commerce and social interaction. As a result of the government fiat, America has endured a shutdown of our GDP, and an attendant unstoppable chain of financial calamities. There is no doubt that in order to ensure safety and conservatism during our health crisis we have to prepare and perhaps overshoot for the worst; however, the unintended consequence of responding to the pandemic is a pandemic of mistrust in our financial system.”

Barrack then clearly articulates the challenge at hand in the real estate market:

“The market for commercial real estate mortgage loans in the United States stands on the brink of collapse. The profound impacts of both the COVID-19 pandemic and the public health measures taken in response to it on the American economy have caused high-performing mortgage loans, grounded in solid economic fundamentals, to suddenly and sharply decline in value. As a consequence, banks, publicly traded mortgage REITs and other non-bank lenders now find themselves at a precarious juncture. The actions that they will take in the coming days and weeks carry significant implications for the American economy as a whole. If these institutions are not permitted to maintain the flexibility and patience needed to undertake the loan restructuring efforts that will be critical to weathering the COVID-19 crisis, loan repayment demands are likely to escalate on a systemic level, triggering a domino effect of borrower defaults that will swiftly and severely impact the broad range of stakeholders in the entire real estate market, including property and home owners, landlords, developers, hotel operators and their respective tenants and employees.”

Luckily for Barrack, and many others in the commercial real estate market, it looks like the Federal Reserve is going to step in with some level of assistance. This morning, it announced that it will be increasing their bond buying program in a number of material ways.

Last Sunday, the Fed announced that it would conduct $700 billion of quantitative easing which would allow it to buy $500 billion in treasuries and $200 billion in mortgage-backed securities. This morning, it announced that they would be increasing that $700 billion number to “unlimited” and would be expanding the types of bonds they would purchase to include corporate bonds and “government-backed debt tied to commercial real estate.”

Frankly, this is an insane situation. As much as I want to complain about the actions that the Fed is taking, I’m not sure that we should be complaining right now. This is the ultimate short term - long term trade-off. The Federal Reserve has to take these actions or we risk a downward spiral that ends with something that looks much, much worse than the Great Depression. Quite literally, if they don’t act, America may not survive economically.

The problem is that the actions being taken are good short-term, but they are horrible long-term decisions. We are talking about infinite quantitive easing. Whatever it takes. That is what we need right now, but that will cause incredibly long-term damage to the US dollar and economy. Remember, when countries have previously turned on the printing machine with a lack of discipline, it has almost never ended well.

The United States is the greatest country in the world. We have some of the smartest financial minds in the world at work right now. I have no doubt that we will survive this crisis, but it won’t come without a long-term cost. The economic circle of life has been broken. This causes a systemic breakdown across the economy. Upstream and downstream. The stimulus can provide a band-aid, but nothing will solve the problem like getting American businesses back online and producing again.

Stay safe my friends. We are in for another wild week it appears.

-Pomp

This installment of Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 40,000 other investors today.

THE RUNDOWN:

Coinbase Broke Traffic Records and Saw Massive Volume During Market Collapse: Coinbase saw record site traffic and a massive surge in 24-hour trading volume during last week’s coronavirus-driven market swings, CEO Brian Armstrong said in a statement shared with CoinDesk. The San Francisco-based crypto exchange said it processed $2 billion in crypto last Thursday and Friday (for comparison, Coinbase saw $394 million in volume over the past 24 hours, according to Bitwise). Last Thursday also beat Coinbase’s previous traffic record by over 50 percent, Armstrong said. Read more.

ICE Pushes Back on Claim Ex-Bakkt CEO Dumped Stocks After Senate COVID Briefing: The new U.S. senator for Georgia, and former CEO of bitcoin derivatives exchange Bakkt, sold between $1.3 million and $3.2 million in stock following a private Senate briefing on COVID-19. Senator Kelly Loeffler (R-Ga.) and husband Jeffrey Sprecher, the founder and CEO of Intercontinental Exchange (ICE), which owns the New York Stock Exchange as well as Bakkt, made a total of 29 transactions in the weeks after the Jan. 24 briefing. In a statement, ICE said Loeffler and Sprecher "have made clear that those transactions were executed by their financial advisors without Mr. Sprecher's or Senator Loeffler's input or direction," and that the trades complied with company policies. Read more.

Tezos Foundation Offloaded Millions of Dollars Worth of Bitcoin in 2019: The non-profit that holds funds raised in Tezos' $400 million ICO sold as many as 8,000 bitcoins in 2019, it reported Thursday. The share of the Tezos Foundation's portfolio made up of bitcoin fell from 61 percent in July, to 47 percent as of the end of January, the non-profit disclosed in its biannual report. The value was reinvested into other cryptocurrencies as well as into other asset classes.

Crypto Lender Cred Is Offering Investors 10% Interest With Spencer Dinwiddie Partnership: Spencer Dinwiddie, the Brooklyn Nets guard who launched his own tokenization platform, has launched an interest-bearing stablecoin service in partnership with crypto lending firm Cred. The new service launched Friday on Dinwiddie’s personal website. Read more.

'This Will and Needs to Be Bitcoin’s Year' Says Mike Novogratz: With vast swaths of the world markets in virtual lockdown amid the coronavirus pandemic, some predict that the shocks rippling through the global economy in early 2020 may yet come to dwarf the magnitude of the 2008 financial crash. Just as Bitcoin’s creation is bound up with 2008 and the Great Recession, Galaxy Digital founder Mike Novogratz sees this year as make-or-break for the cryptocurrency. In a tweet posted on March 22, Novogratz wrote: “$BTC will continue to be volatile over the next few months but the macro backdrop is WHY it was created.  This will be and needs to be BTC’s year.” Read more.

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Meb Faber is co-founder and the Chief Investment Officer of Cambria Investment Management. He and his team takes a highly quantitative approach to asset management, which means that Meb is full of nuggets of data & analysis. I really enjoyed his calm, unemotional approach to the current chaos. This conversation is one of the most educational ones that I’ve done on the podcast so highly recommend!

In this conversation, Meb and I discuss:

* How these chaotic markets compare historically

* Why global asset allocation is important

* How passive and active strategies stack up

* What people need to know about share buybacks and bailouts

* Why Meb is so heavily invested in farmland

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

LISTEN TO THIS EPISODE OF THE OFF THE CHAIN PODCAST HERE

Podcast Sponsors

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* 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.

If you enjoy reading “Off The Chain,” 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 Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 40,000 other investors today.

To investors,

The market chaos has continued across asset classes this week. We are seeing incredible levels of volatility, which is exacerbated by the likelihood that the US will see more than 2 million unemployment claims this week alone.

Many investors are losing control of their emotional discipline. You can see confusion, fear, panic, and uncertainty in different sectors and strategies. It seems like every day a different billionaire is calling into CNBC with their hot take on how bad the economic situation is, what industries need to be bailed out, or which monetary stimulus option they are supportive of.

While this makes for entertaining television, it doesn’t do a lot to help the average investor navigate these chaotic times. Below I have tired to put together my thoughts on a few assets and how they are likely to perform over the next 18-24 months. You should know up front that making accurate predictions is nearly impossible, so that is not my intention here. Instead, my goal is to document my thought process at this point in time. It will serve me well in the future as a data point to look back on, but hopefully it can inform a few people today as well.

Obviously, I am not giving investment advice. Do your own research. Never invest more than you are willing to lose. And frankly, try not to be an idiot :)

In order to share what I think is going to happen in the coming months and years, let’s start with an understanding of where we sit at the time of this writing:

* Equities — The S&P 500 and Dow Jones Industrial Average are both down approximately 30% in the last month. The same thing goes for the Vanguard Emerging Markets Stock Index and other variations of public equities.

* Oil — The price of oil is currently down about 60%, which includes a recent 25% rally that brought a barrel of oil from around $20 to just over $25.

* Gold — The price of gold is currently down about 12% from a local high of approximately $1,700.

* Bitcoin — The price of Bitcoin is down approximately 40% from around $10,000 to approximately $6,000 currently.

I am intentionally leaving out the bond market from this analysis. I may cover that in a different letter, but unfortunately don’t have the time to research and produce valuable analysis there for today’s letter.

We have seen large drawdowns in asset prices across markets, so where do we go from here?

The answer is quite simple — almost every asset price is going to rise substantially in the next 18-24 months. It doesn’t take a rocket scientist to realize this. In fact, as long as you believe the United States will not fail and certain assets won’t go to zero, then these dips in price are actually attractive opportunities to increase your return although you are buying the same assets.

But which assets are actually going to perform the best? The worst? I’ll break each asset down to elaborate on what I am anticipating will occur over the coming 18-24 months. Before I do that though, it is important to understand that these asset prices are dropping rapidly because the US dollar is strengthening. Any liquidity crisis presents a desire for investors to gain access to dollars. They will sell any asset they own that has a liquid market so that they can get liquidity.

Over time, the dollar will have to be weakened in order for markets to stabilize and eventually recover. This is done by flooding the market with liquidity (dollars) which will devalue the global reserve currency. Let’s dig into what that means for the various assets:

Equities [8 out of 10 rating]

Most stocks are being sold off as part of the larger trend. The S&P, DJIA, and emerging markets are down about 30%. The sectors that are getting hit the hardest (hotels, airlines, hospitality, food services, etc) are seeing drawdowns that range from 50% (ex: Marriott Hotels) to 75% (ex: United Airlines). The big question on these “corona-impacted sectors” (CIS) is whether (a) they can survive multiple months of near complete loss of revenue, (b) will have to declare bankruptcy, or (c) the government will step in with assistance that bails out the industry.

I separate the US public equity market into CIS and non-CIS because the non-CIS equities are likely to make a faster recovery during the next 24 months. I don’t think we will see a full recovery back to February 2020 highs. That type of recovery would likely take 3-5 years. This means that investors are likely looking at 20-30% return over the next two years in public equities if prices don’t go lower. If they do extend lower before the recovery starts, you would be looking at 40-70% returns over 24 months in non-CIS stocks (based on a total market drawdown of 40-50%).

The “corona-impacted sector” (CIS) is a different story. The big risk here is that these companies could go bankrupt because most of their revenue has evaporated. I am not a believer that this will happen. Instead, it is more likely that we will see significant consolidation in sectors overlaid with government assistance to prevent the destruction of entire industries. If this is accurate, the best returns are likely to come from the stocks that have drawn down the farthest (side note: as long as they don’t go to zero). Due to this, most of the hotels, airlines, and food sectors look incredibly cheap right now.

It wouldn’t be surprising to see multiple airline or hotel stocks 2-3x over the next two years. Take United Airlines for example — it has fallen from an $80-85 stock price earlier this year to almost $20. The company did $6.5 billion in EBITDA during 2019, but today the stock is trading at a market cap of $5.7 billion. It is such a ridiculous drop in value that you almost can’t believe it is real. Again, as long as you believe the US airline industry is not going to zero, there are great investment opportunities available throughout the CIS stocks.

I personally don’t own any stocks (except GBTC in my retirement account), but if you can control your emotions and view the recent price drawdown as an opportunity, there is a lot to get excited about in public equities right now. If prices draw down even further, the 8 out of 10 rating would move to 9 out of 10.

Oil [5 out of 10]

This is the scariest market for me. Oil is one of the most essential commodities in the world right now, but there is an increasing amount of complexity surrounding what will happen over the next 24 months. Russia’s recent actions have not only plunged the price of oil, but also put most of the American shale industry in a position where they must operate at a loss or shut down. The United States is talking a big game, which the market responded to positively yesterday (oil up approximately 25%), but it remains to be seen how effective any of the proposed measures would be over the long term.

In addition to the geopolitical complexity, there will be continued pressure from the electric vehicle industry and others to move off our dependency on oil. I don’t believe that will have significant impact in the next two years, especially given the recent economic shock, but it remains a larger threat over the long term.

One way to think about oil’s future performance is that it is unlikely to continue trading at a price below where American shale oil companies can be profitable. This would mean that the upside here seems to be oil rising to at least $35, if not closer to $45-50. With that said, there is too much uncertainty and geopolitical risk for it to be attractive to me coming out of an economic shock where opportunities are everywhere. 5 out of 10 rating.

Gold [3 out of 10]

As I previously mentioned, the US dollar continues to strengthen, both against traditional assets, but also against other currencies. The US government will have to flood the market with dollars in order to weaken the currency, so any inflation hedge assets should do relatively well during the next 24 months. Gold is one of the top two assets in this category.

Investors are not stupid. They understand that quantitative easing is merely the devaluation of their cash. As they seek out those inflation hedge assets, gold should benefit, but my concern is that gold’s upside is not nearly as attractive as other opportunities in the market.

Gold fell from approximately $1,700 to just under $1,500 recently. This “store of value” asset has gained investors’ trust because it is relatively stable over time. That lack of volatility is great during bad times, but it is actually a negative during good times. If you want to drive outsized returns, you need high levels of volatility. I could see gold outperforming current expectations and easily eclipsing $2,000. I don’t think we see it move over $2,500 in the next 24 months though.

This means that an investor would be looking at 35% to 65% return over the next 24 months. Most investors would salivate over these types of returns in normal times, but this will likely be underperformance compared to other assets during the same time period upcoming. Gold lacks the volatility needed to be overly attractive. 3 out of 10 rating.

Bitcoin [11 out of 10]

Bitcoin’s outlook is similar to gold with a few key differences. As the dollar gets devalued, investors will seek inflation hedge assets — Bitcoin and gold are going to be the two beneficiaries of this. One key difference is that Bitcoin has much greater levels of volatility than gold though. While I believe gold has 35-65% upside, I have relatively high confidence (85%+) that Bitcoin will more than 3x at a minimum. This would bring it back to a new all-time high above $20,000.

The volatility that Bitcoin presents is normally looked at as a negative by the mainstream media and some investors. It is a feature, not a bug. Bitcoin possesses all of the same inflation hedge qualities that gold has, including a more accurate understanding of the asset’s scarcity. It also brings with it much more potential upside given how early the asset is in the lifecycle and how relatively small the current investor base is.

As we see high levels of quantitative easing (my estimation is total of $5 trillion or more), we will see an influx of investors seeking out Bitcoin for protection. In just the last 36 hours, Bitcoin is up more than 20% as monetary stimulus proposals are floated around. This type of hyper volatility will continue, while still presenting all the protections of gold’s inflation hedge.

The second key difference is that Bitcoin is less than 60 days away from a significant supply shock as well. The Bitcoin halving will programmatically cut the daily incoming supply of Bitcoin from 1,800 to 900. A good way to think of this is that when everyone ran to gold in 2009-2011, it would be similar to having 50% of the gold miners shutting down operations. The scarce asset would become even scarcer. That is what is about to happen to Bitcoin in my opinion.

Quantitative easing will push people to Bitcoin and in May 2020 the incoming supply will get drastically cut. You have a positive demand shock happening at almost the exact same time that you have a negative supply shock. This is going to be rocket fuel for the decentralized digital currency. My price targets over the next two years are $20,000 on the low end and $100,000 on the higher end. This would present a 3x - 15x type upside opportunity in a short period of time, while still protecting your wealth from the inflationary response from the government. 11 out of 10 rating.

Conclusion

The recent market turmoil has presented an incredible investment opportunity for investors that have cash available and are able to remain emotionally disciplined. The price drops in traditional assets have meant that any long term investor is likely to make money by simply buying the discounted assets and waiting for prices to recover. This isn’t rocket science. You just have to believe that the United States won’t fail and that the assets you are buying won’t go to zero.

This leads me to the most important conclusion of this work though — Bitcoin will provide the greatest outperformance of any asset class over the next 24 months as we survive and come out of this financial crisis. Other assets will do very well too, but Bitcoin is uniquely positioned for an incredible risk-reward trade-off that is rarely seen.

Bitcoin was born in the last financial crisis and it will dominate as we come out of this financial crisis. When this is all said and done, people will look back and say “Bitcoin was born in the Global Financial Crisis and it took the world stage in the Corona Financial Crisis.”

In closing, many of you have been asking about my personal portfolio right now. As I always say, “Don’t listen to what they say, watch what they do with their money.” My portfolio currently consists of cash, Bitcoin, and a small selection of illiquid investments (real estate and startup investments). I have tactically increased my portfolio allocation to Bitcoin based on the recent opportunities presented, while keeping enough cash to comfortably survive a two year recession with no income.

My level of conviction in what is about to happen is at an all-time high. I understand that there are a number of things that could change that analysis, both internally and externally to Bitcoin, but as long as those are avoided, I plan to stay the course and watch this unfold. Please don’t take anything written here as financial advice, nor as predictions for what is to come. It is merely my personal opinion as of today and you should do your own research, never invest more than you are willing to lose, and consult a financial professional if you need advice.

Stay safe out there my friends. And be kind to your fellow humans 🙏🏽

-Pomp

This installment of Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 40,000 other investors today.

THE RUNDOWN:

Israeli Bitcoiners See Surveillance as Unavoidable During Coronavirus Crisis: What if the coronavirus pandemic is to data tracking as 9/11 was to homeland security? The Israeli government approved an emergency measure this week to track civilian mobile-phone data in order to monitor the spread of COVID-19. Although Israel's parliament is still hammering out the logistics of this mandatory program, Ynet news reported the Health Ministry activated the initiative on Wednesday, texting 400 people to inform them they were exposed to the virus and must now stay in quarantine.Read more.

Crypto Lender Cred Is Offering Investors 10% Interest With Spencer Dinwiddie Partnership: Spencer Dinwiddie, the Brooklyn Nets guard who launched his own tokenization platform, has launched an interest-bearing stablecoin service in partnership with crypto lending firm Cred. The new service launched Friday on Dinwiddie’s personal website. There, visitors can “pledge” TrueUSD and UPUSD stablecoins as well as bitcoin, litecoin, and ether, earning up to 10 percent interest over the course of the term, according to Cred CEO Dan Schatt. Read more.

80% of Australians Know About Crypto but Only 1% Use It: Central Bank Study: Fewer than 1 percent of Australians paid for consumer goods with cryptocurrency in 2019, according to a study published Thursday by the Reserve Bank of Australia (RBA), Australia’s central bank. Revealed in RBA’s triennial Consumer Payments Survey (CPS), the findings from about 1,100 respondents shows that while consumers are largely embracing digital and alternative payment methods over cash, they’re just not paying in crypto. RBA conducted the survey in October and November 2019. Read more.

Bitcoin May Need Months to Recover, Fundstrat Chartist Says: Bitcoin’s technicals are in rough shape after its spectacular tumble last week and a recovery might take months, according to Fundstrat Global Advisors LLC. The largest cryptocurrency is trading about 40% below its mid-February high, with a particularly notable drop between March 12 and 13, when it lost more than $3,000 in about 16 hours. Now it has broken below its 2015-2020 uptrend, leaving its price action “badly compromised,” according to technical strategist Rob Sluymer. This has all been happening as assets from stocks to bonds and currencies struggle to factor in the huge hit to global growth coming from the coronavirus. Read more.

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Meb Faber is co-founder and the Chief Investment Officer of Cambria Investment Management. He and his team takes a highly quantitative approach to asset management, which means that Meb is full of nuggets of data & analysis. I really enjoyed his calm, unemotional approach to the current chaos. This conversation is one of the most educational ones that I’ve done on the podcast so highly recommend!

In this conversation, Meb and I discuss:

* How these chaotic markets compare historically

* Why global asset allocation is important

* How passive and active strategies stack up

* What people need to know about share buybacks and bailouts

* Why Meb is so heavily invested in farmland

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

LISTEN TO THIS EPISODE OF THE OFF THE CHAIN PODCAST HERE

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