The Pomp Podcast - #1394 Anthony Pompliano | Bitcoin & Stocks Are Going Crazy!

Starting point is 00:00:00 What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. What's up, guys? Bang, bang. Today's conversation is with Phil Rosen. Phil is the co-founder and editor-in-chief of Opening Bell Daily. In this conversation, we talk about the

Starting point is 00:00:39 economy, inflation, what's going on with all the volatility in the stock market, and why certain financial assets are going up, going down, and how it's going to affect your investment portfolio. I always enjoy talking to Phil. He's doing a fantastic job. We've got some great charts for you and some great insights to unpack today. Here's my conversation with Phil Rosen. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his

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Starting point is 00:04:19 Gemini will give you $100 in Bitcoin. You head over to Gemini.com partners pump and you trade $1,000 in crypto within the first 30 days. Okay, pump. Here we go. Over the last week, we have seen very high volatility in the stock market and the VIX hit levels that we only seen in 2020 and 2008. We also saw Japan's stock market enter a bear market just weeks after, I think, hitting all-time highs. You wrote a newsletter this morning saying volatility right now is just the beginning. Tell us why. So if you think about the second half of election years, historically, we have seen much higher degrees of volatility. A lot of that is because investors are trying to position themselves to be prepared for whoever's going to become the president.

Starting point is 00:05:06 And so as you see in the polls right now, some days Donald Trump is leading, some days Harris is leading, some days during the same day, it switches back and forth. And so naturally, investors are trying to say, forward looking, where should I have my money so that I can benefit from whoever is going to be the president? And so when you get those moments in the second half of a year, that obviously leads to money moving around, that leads to volatility, etc. Now, add in the fact that you also have things like monetary policy changing pretty rapidly on a global basis. You see in Japan, obviously, the introduction of tighter financial conditions can cause a lot of kind of stress. Here in the United States, there's constant betting and wagering on when they're going to actually start to cut rates. And so we historically see in that second half of the election year, Bank of America put out this great report. It says 25% increase in volatility between July and November of an election year. And so when you saw this last spike in the VIX, it's the third highest spike since 1990, which obviously a huge, huge number. um but the question is not hey you know how high was the spike obviously it was high it's will we get more of them before november like we still have you know 100 days or so till the end of november and we only got the volatility spike in august but it's going to be smooth sailing from here i don't think so and so i think that's really what people should be paying attention to here is like we are in the volatile zone it just happens to be we saw a big spike we can't kind of let our

Starting point is 00:06:37 guard down and think, you know, it's all over now and it's going to be smooth sailing through the election. I think that makes sense. Something I've learned from you that through many conversations, you're not a day-to-day trader or anything like that. You're very long-term. And I wanted to ask you, how have your conversations changed in the last few weeks with all this volatility in the market, either talking with other investors or other founders? What have those looked like? Yeah, well, volatility works in both directions, right? So volatility can lead to higher prices or it can lead to lower prices. One of the things that I always find funny is that everyone wants a really good positive return.

Starting point is 00:07:15 And so they like volatility when it works in their direction. If you're long an asset and it goes up in price, you love it. You think you're a genius. What they don't like is the volatility that goes against them. So if you're holding an asset, you're long and it goes down, then you're like, oh, I hate volatility. And so the reason why that's an important kind of data point is that volatility pushing assets up and down creates opportunity in both directions. And so what we saw over the last week or so is that the volatility pushed asset prices down. Now, I went on national television, I think on Sunday, we saw the Japan stock market crash, we then started to spill over into the United States. And so when I went on Fox Business,

Starting point is 00:07:53 I said, look, I think that people selling these assets are fools, right? And I think people kind of looked at it like that's a pretty bombastic thing to say. But my point was that what you are watching is not a structural change to the actual market. There's no reason for these prices to be going down. What you're seeing is that people are watching this carry trade being unwound because of a monetary policy in Japan. But in the United States, the stocks are the exact same. The fundamentals are the exact same. In crypto, everything is the exact same, right? It was not actually a structural or fundamental change. It was a monetary policy change in one country that was basically surgically pinpointing a carry trade that had created leverage in the system.

Starting point is 00:08:35 So when you understand why that one monetary policy decision starts this unwind, what you realize is you just got a gift, right? Because asset prices are going to fall, but the market is going to bid them or arm them back to where they just were. And that's pretty much what we've seen, is we saw this huge drop in prices, both stocks and crypto. And now we have basically seen a full recovery back to the levels of a couple of days before that sell-off. The reason why I think that that is so important is because it does show that the market is still evaluating assets based on fundamentals. We're not living in a world where it is so untethered from reality, where these asset prices just trade up or down based on the whims of sentiment alone. Sure, sentiment

Starting point is 00:09:22 plays into it. But at the end of the day, a stock is worth something based on some sort of fundamental analysis. Same thing with crypto, right? Is that you actually can look at these valuation metrics and kind of assign, well, it should trade in some range. And we tend to see it kind of stick in those ranges over kind of a medium to long-term period. And so maybe the last thing that I would say is, you know, when you see kind of a long-term oriented investor watching short-term fluctuations, almost always what I find in these conversations is people see short-term volatility as opportunities to add to positions. So long-term oriented people are rarely net sellers. They usually are simply saying, I'm going to buy great assets and hold them for the

Starting point is 00:10:05 long-term. So the only decision that you really have, it's like if you're looking at like a virtual dashboard, you don't have a sell button because you're long-term oriented. You only have a buy button. And so what you're really looking for is at what time should I be hitting the buy button to add to these positions? And I think that over the last couple of weeks, what you've seen is as those prices drew down, long-term oriented investors said, hey, I'm going to hit that buy button now, because I do think that the fundamentals are the same. The price just is disconnected. And we'll kind of go back to where we just were. I don't know. Have you heard anything different in some of the conversations that you've been having? So one thing, of course,

Starting point is 00:10:38 we've seen Japan's carry trade. We've seen the Fed uncertainty. We see the VIX going crazy. something i've also seen and i've had a few conversations about is whether this ai trade or the ai enthusiasm with big tech stocks whether that's running out of steam and i what you're saying i think is true that the fundamentals haven't changed compared to a few weeks ago but i think the sentiment is still shifting a little bit away from this ai enthusiasm because those tech stocks are you know they're not seeing the meteoric gains that we saw earlier in the year Are you seeing or do you believe that there's a pullback in that tech enthusiasm right now? Definitely, there has been a shift in sentiment, but I think a lot of it is people trying to go intellectually short.

Starting point is 00:11:23 Everyone feels like, hey, we've gone up so fast, it can't possibly keep going up faster. The only time that that could happen is if you really do have a kind of once-in-a-generation technology breakthrough that would create so much abundance that you literally would get kind of this exponential growth. That is the promise of AI. I'm not saying that necessarily it's going to fulfill that promise, but out of all of the technologies, I think that AI and Bitcoin probably are the two technologies that seem to have kind of the most global impact in terms of productivity and kind of benefit to people. And so that should lead to value creation. What I do think is going to be interesting, though, is as we're kind of getting through earnings season here, do the numbers back it up? And, you know, if you go back to the last earnings season, everyone thought Nvidia, there's no way they could possibly keep performing. and they just blew expectations out of the water, right?

Starting point is 00:12:13 And so if that continues to happen, it doesn't matter what sentiment is, right? Sentiment changes on a dime, and you'll see stock prices continue to kind of roll. I personally don't yet see a reason why these stocks should be kind of turning over and going down. Sure, you can argue that maybe there are some revenue multiples that have gotten kind of high, but they are no higher. And in many cases, they are actually lower than they were in 2021. So we already saw this kind of multiple expansion in 2021 that was much more severe than what we're seeing right now. And these companies have improved. And they also have a line out the door from a customer base and future revenue on this AI promise. So if you look at these businesses,

Starting point is 00:12:58 these are some of the best businesses ever created, right? If you look at the capital efficiency, if you look at the revenue and the profits of companies like Amazon or Facebook or Nvidia, right? These businesses are literally incredible. And so if I'm an investor, where else am I going to put the money, right? And then, oh, by the way, all this is happening with five and a half percent interest rates. When the Fed wakes up and says, you know what? We're going to start slashing that number and we're going to flood the market with cheap capital. Where do you think that money is going to go. And so it goes back to, if you want to try to time these things in the short run, I think it's very difficult. Some people can do it. That's not my game. But over

Starting point is 00:13:40 the long run, it is hard to see a world where, you know, take the MAG7 as an example, that those stocks are not more valuable in the future than they are today. And at the entire life of Facebook as a public company, people have questioned how much further can it go? And if you just think about, you know, kind of things in motion stay in motion. Amazon, exact same story. People forget Microsoft, right? Microsoft is a company that literally was the darling of the 1990s. And still today, it's this dominant business. The founder has left, has a new CEO, products are completely different. They've now navigated multiple technology shifts, right? You look at that business, you say to yourself, well, maybe actually all the people who thought that they should, you

Starting point is 00:14:24 know, get off the train that the stock, you know, kind of growth was over. They were just too smart for their own good. And instead, the best thing would have been just buy the stock, hold it for 30 years, and you'll be Steve Ballmer, not Bill Gates. Because now Steve Ballmer actually has, I believe, more money than Bill Gates. How's that possible? Yeah, that's, I mean, that's long, long term thinking. That's... One was a holder and one was a seller. Yeah. Right. And literally, I mean, there's an argument to be made that Warren Buffett tricked Bill Gates into diversifying, which was the single greatest wealth destruction decision over the last 30 or 40 years, because it probably cost Bill Gates $800 billion to diversify.

Starting point is 00:15:14 and by diversifying bill gates became the first person who is not a trillionaire but could have been whoa and so you look at that and you say to yourself wait a second the diversification the let me sell the stock all these things that people thought were like quote-unquote smart they only look dumb when it works right in terms of microsoft ended up going up but if microsoft had peaked and fallen, then it would have been a smart decision. So you can only judge in hindsight, is it a good decision or not to diversify based on what the thing you're giving up does in the future. But I do think that people become very obsessed with this idea of diversification or kind of getting off the train when something has run up. But usually, same with the stock markets we've

Starting point is 00:16:02 talked in the past, buying the all-time high usually leads to more all-time highs. Same with these stocks is the stocks that are best performing tend to be the best performing stocks for a while. And so thinking you can kind of time the top is, you know, at best a fool's game. And I just don't see that many people who have been able to do it, you know, over and over again throughout their career. So you mentioned that you see AI and Bitcoin as the two technologies that could be, you know, generation defining as far as wealth creation. In the last month, I think Bitcoin's pretty much flat and I think ETH is down maybe 15%. What are you watching in crypto markets? We just covered equities. Is there anything that's standing out to you as far

Starting point is 00:16:44 as the price action or what other crypto investors are telling you? I pretty much watch Bitcoin and Solana are the two. And obviously, those are the two largest positions that we have from a crypto portfolio standpoint. Bitcoin, I think of as one, it is the free market signal for a whole bunch of economic data points. And so when Bitcoin makes a major move in either direction, I tend to pay attention because I look at it as a little bit of alarm system. Why is this moving like this? Gold historically has done a little bit of this as well. If you remember when Iran launched a bunch of drones and rockets at Israel. That happened on a Saturday night. The Friday, literally the day before, gold started to run and hit a new all-time high. And I remember writing

Starting point is 00:17:34 on that Friday morning saying, why is this happening? Is some sort of geopolitical event about to occur? Somebody buying gold in anticipation of a geopolitical event. 36 hours later, you get this massive attack. And so same thing with Bitcoin is I think that it is becoming an asset where we can tell something is happening in the world. So I have to do the work to go figure it out. But I watched the Bitcoin price for some of that alarm system or data points. Solana to me represents a much better signal on what is happening in terms of usage, developer activity of like kind of the crypto promise. So a lot of people look at Ethereum for that, right? Because it's a smart contract platform. I tend to think that Solana has a kind

Starting point is 00:18:19 of a cheaper, faster blockchain. I think that there's a bunch of data points that are showing Solana's eating into Ethereum's market share. And so it kind of goes back to this idea of like things in motion stay in motion. And right now what we're watching is Solana eating into market share. I think that will continue. And naturally you'll kind of see price benefit from that. And so if you look over the last year or so, Solana has drastically outperformed Ethereum's price. And so if you look at Bitcoin and Solana, I think it gives you kind of these two different pictures. One is the monetary revolution that crypto represents, and kind of all the economic inputs around inflation and interest rates and, you know, a dollar debasement, etc. The other

Starting point is 00:18:57 being Solana is the technology revolution, right? How do you make something that's cheap, that's fast, that's a decentralized blockchain that people can build on top of and kind of serve with these smart contracts. And so that's really kind of the barbell, if you will, of what I really pay attention to on a daily basis. Okay, so when you're seeing the volatility in equity markets, how much does that correlate with volatility in crypto? I haven't really looked at that, but what have you seen? So naturally, Bitcoin, you use that as kind of the proxy for crypto in general, is a much more volatile asset than equities are. There are times where you will get very high levels of correlation. If you go back, maybe the best example in recent memory is

Starting point is 00:19:37 March of 2020. What you had seen up until that point was that Bitcoin was a non-correlated asset. So the correlation between public equities and Bitcoin was about 0.15. Pretty attractive, right? If you want to put an asset that's kind of asymmetric and non-correlated into a portfolio, there's all these amazing things for that investment portfolio. What we saw in March 2020 was everything sold off. People didn't care. Gold, Bitcoin, real estate, bonds, stock, whatever was liquid, I'm a seller, I want dollars, kind of, you know, on a global basis. And so correlations spike towards one because everyone wanted dollars. And so in that moment, the critique against Bitcoin was it's still volatile,

Starting point is 00:20:19 went down 50% in a single day in March of 2020. But now it's not non-correlated. Now it's become a correlated asset. And I actually want a non-correlated asset in these times of chaos. The secret is there is no such thing as a non-correlated asset in crisis moments, right? everyone sells everything. And so if you kind of now extrapolate that out, Bitcoin has seen its correlation kind of not be as high as it was in March 2020. But it definitely is higher than it used to be. It's no longer, you know, 0.15, etc. And on a volatility basis, what you start to see now is Bitcoin will kind of lull you to sleep and then have these spikes. We saw the third highest spike in VIX, right when the Japan stock market went down since 1990. We also saw the

Starting point is 00:21:03 single greatest day of market cap gain in Bitcoin's history last week. There's $120 billion of market cap gain in a single 24-hour period. That's a massive number for Bitcoin, right? That's more than 10%. It's like a 12% move in a single day. So there had been 12% moves before, but just not for a trillion plus dollar asset that Bitcoin is today. And so the reason why that becomes important is Bitcoin from a volatility standpoint over time has actually been dampening the volatility. But what you still will see now is volatile enough movements where on a market cap basis, I think $100 billion. You can also imagine it works in the other direction. There will be days where it probably lose $100 billion. And so I think that people

Starting point is 00:21:47 need to understand as volatility comes down, that Bitcoin is actually, it's a sign that's just being adopted by kind of the mass audience. It's being adopted by the financial institutions. it will become a more muted kind of financial instrument. But it's still Bitcoin. It's still every once in a while, it's going to pop in either direction. And so people who use a lot of leverage, stuff like that can kind of get caught off sides, which only then exasperates the move. And that's where you kind of see these real kind of big double digit up or down days. So we're talking about asset prices right now. But I think something I want to ask you is about this new Fed survey that came out yesterday. I think the New York Fed surveyed,

Starting point is 00:22:34 I can't remember how big the sampling was, but consumers reported that they see inflation improving in the next three years. I think expectations hit a three year, four, three years, it hit a record low. I think dating back maybe 10, 12 years. But what was interesting to me was that earnings growth and spending growth did not go up, even though people think inflation is going to improve. So it's sort of a contrasting macro and micro narrative. What did you make of that? And how do you think, what's the explanation here as far as why people feel bad about their personal, but then better about the economy? People don't understand how markets work, right? It's kind of like the Occam's razor, just the simplest explanation is probably the most

Starting point is 00:23:19 likely. What people are doing is it's a very real and personal experience in your life. You understand, hey, everything is getting more expensive around me. My wages aren't growing faster than the price of goods and services. And so I feel like I'm falling behind. I feel like things are becoming too expensive. It's painful to live in an economy where my currency is being debased. My wages aren't growing faster than the price of goods. Now, at the same time, I can look and I can see what is this headline number that I'm being told. And all I see in the media is they're telling me it's coming down. So I just assume it's going to keep coming down. There's no high inflation warning that is being kind of echoed throughout the media. And so it's much

Starting point is 00:24:00 easier to kind of parrot or repeat the mainstream talking points because it's an impersonal thing. I'm not an economist, right? I don't understand that when I'm being asked for the survey. But if you ask me about my personal experience, I'm an expert in it. And so it's this very kind of weird dichotomy. I think that people end up being more truthful about their personal life because it's something that it's like a lived experience they understand. And then they're really just repeating what they hear in the media. Now, what is interesting, we are living in high inflation. It's just on a relative basis, everyone now is thinking high inflation is 9%.

Starting point is 00:24:33 But actually at three plus percent, it's still high. It's 50% or more higher than what the feds target. And so if you kind of look at the last four or five years, in a weird way, we've become desensitized to what previously would have been thought of as high inflation. And so the media or economists and, you know, kind of just talking heads in general can claim, oh, we have lower inflation, but we don't have low inflation. And so these kind of, you know, nuances in the conversation get lost because everyone just points back like, do you remember when inflation was 9%? That sucked.

Starting point is 00:25:11 And 3% sounds way better. And 3% is basically two compared to nine. so we're good, which is like, you and I are laughing about this, but that's literally, I think, some of the psychology that goes into this. And so it would be really interesting to hear, could they do a survey like that? And then almost take some sort of economic test and see, hey, how well do people actually understand how some of this works versus they're just simply kind of sharing opinions? Well, something that bothers me as a reporter, You know, I write about inflation all the time and people only write about annualized inflation numbers like 3 percent, 2 percent, 9 percent.

Starting point is 00:25:53 But over many years, the compounded inflation rate is well into double digits. I don't have the exact number, but that gets lost in the discussion a lot. You know, the price of milk today versus five years ago, it's up way more than two or three percent. Of course. Well, and it's also, you know, I mean, look, we've had politicians who keep yelling and screaming about price gouging, right? And what I have been surprised about in the conversation around, you know, kind of inflation and the economy is how well received those talking points are. You know, grocery in America, I think, is somewhere between a 2% to 3% margin business. I mean, razor, razor thin margins. And if you told me that the grocer went from 3% to 4% margins, okay. Like, I'm surprised they can survive on 4% margins, right?

Starting point is 00:26:48 Or 2% margins. But it is a fantastic talking point from like a populist, you know, approach to say to people, food is getting more expensive. It's not me, the politician who's voting for government spending. It's not me, the central banker who is, you know, manipulating the market. It is the faceless, big, you know, evil grocery man. He's the one who's sitting up there with all his corporate profits. You can see how that easily resonates with people, right?

Starting point is 00:27:18 And they say, yeah, you're right. I did go to name your grocery store. There probably is a guy sitting up there who's, you know, raising the prices, that asshole. instead what ends up happening right is no inflation is high and it there's a whole bunch of factors that go into it it's just do we live in a society that we want kind of headlines and and the you know uh retweet and dunking you know capability or do we want nuance and you know unfortunately i think that the former is probably the society that we live in right now nuance does not make headlines um thank you so much for having me thanks so much for doing this

Starting point is 00:27:53 We'll be right back.

The Pomp Podcast - #1394 Anthony Pompliano | Bitcoin & Stocks Are Going Crazy!

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