The Pomp Podcast - #1401 Anthony Pompliano | Invest Like A Millionaire In A Recession

Episode Date: August 31, 2024

Anthony Pompliano records a solo episode about how we got in this current economic situation, historical trends, inflation, asset prices, how to prepare for a recession, election year, and long-term macro environment outlook. ======================= Wondering where to go for financial advice? Domain Money makes financial planning simple. No hidden fees and no sales pitches - you get a personalized roadmap to your goals, from dream vacations to retirement. Flat-fee advisors create a plan tailored to you, with zero pressure to invest. Don’t be like most people who’ve never had a real conversation about their financial plan. Book a free strategy session today at ⁠https://www.domainmoney.com/pomp⁠ While I'm not a Domain Money client and they are paying me, I've seen first hand the value of their service through the free plan they did for one of my brothers. Yes, I might have an interest in promoting Domain Money, so just like any major financial decision, it's important you understand what the service is and if it's right for you so make sure to see important disclaimer at ⁠https://www.domainmoney.com/t/legal⁠ ======================= Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ ======================= View 10k+ open startup jobs: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

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. Today's episode is brought to you by Domain Money. I get asked all the time, pomp where should i go for financial advice now as you all know i can't personally give financial

advice but i now know people who can domain money makes financial planning straightforward and accessible they tailor plans to your personal priorities and goals whether you want to buy a big house whether you want to fund college or you want to take that dream vacation now i'm not a domain money client and they are paying me for this ad as you know and i've seen firsthand though the value of their service through a free plan they did for one of my brothers. Him and I got on with one of their financial advisors and they walked us through the whole process. It was awesome. Domain Money offers unbiased flat fee advice with no minimums and zero misaligned incentives. They're not managing your assets or selling you products.

It's pure practical and tactical financial guidance. Need more advice? They also pay by the hour options for plan updates or coaching sessions. Don't be like most people who have never had a real conversation about their financial plan. Trust Domain Money to help you build a clear roadmap for your future. It's hands down the smartest move you can make for your money. Book a free strategy session with Domain Money at domainmoney.com slash pomp. Again, domainmoney.com slash pomp. And yes, I might have an interest in promoting domain. So just like any major financial decision, it's important you understand what the service is and if it's right for you. So make sure to see the important disclaimer at dmnmy.co slash x. How about that?

Go check it out today. Go to domainmoney.com slash pomp. What's up, guys? I thought that I'd do a quick conversation about how did we get to the current economic situation and why studying the last 15 years may actually go ahead and give us some insight into what's about to happen. Now, if we go all the way back to the global financial crisis, there was a liquidity crisis. And for about six months, we saw assets like stocks, gold, and others all go down in price. But then the Federal Reserve, they decided they were going to step in. And when they stepped in, they did two things that forever changed the world. The first is that they suppressed interest rates by making a number of cuts. And the second was they began to conduct a bailout,

which printed money and stimulated the economy. Those two things, cutting interest rates and printing money, not only were very helpful during the global financial crisis and helped prevent an even worse financial situation, but on top of that, they also gave the central bank a playbook that they went on to use many times since. So that quantitative easing playbook as a response to some sort of market downturn or recessionary period now governs everything that happens in our financial lives. Let me

explain. Coming out of the global financial crisis, we went for a number of years with stocks and other assets all going up. We were in a stimulated economy. It felt like there was money sloshing around and things were looking great. At the same time, interest rates were kept low. They were suppressed artificially. And then towards the late 2010s, the central bank said, you know what? We actually probably need to raise interest rates. And as they began to raise interest rates, the economy got a little shaky. As the cost of capital gets more expensive, asset prices start to fall. That's exactly what happened. Thankfully, the Fed quickly realized maybe we shouldn't have such a high cost of capital. They began cutting rates again,

went back down near zero, and asset prices continued to rise. But then in 2020, we got the COVID crisis. Out of nowhere, we got a public health mania, and we were told to sit in our houses. Government lockdowns. During that government lockdown, there was another liquidity crisis. During that liquidity crisis, we saw all assets. We saw Bitcoin, gold, real estate, bonds, stocks, everything started to go down. The correlation trended towards one. And the government went back to that old steady playbook of quantitative easing. They quickly did two emergency rate cuts and they began to print trillions of dollars.

The trillions of dollars came from both monetary and fiscal policy. We needed to stimulate the economy and we needed to do it quickly and severely. And so that's exactly what happened. Both politicians and central bankers worked aggressively to get the market to turn around and to get money flowing throughout the economy.

As that occurred, asset prices ripped to all-time highs and inflation exploded. Now, what's fascinating to me is that the use of that quantitative easing, that central bank playbook, was much faster in 2020 than it had been in 2008, 2009. That's because the central bank

had perfected the playbook and now they were more sensitive to the speed of using it. So then we continued in 2021 with higher inflation and asset prices ripping. As we began to get into the euphoria and the mania. The central bank said, hey, we need to be very careful here. We need to start

to bring interest rates higher. And that's exactly what they did. In March of 2022, they began hiking up interest rates, but it was a little too late. We saw inflation at that point raging on and eventually peaked at over 9% in the official numbers. The unofficial numbers were much higher. As the Fed conducted the fastest interest rate hikes in history, we went from 0% rates to over 5%. During that time period, there was a lot of people caught off guard. Many investors were left holding assets in the market and they began to crash. We even saw banks that had all sorts of assets on their balance sheet where they were looking for that 0% interest rate environment and had pushed out further on the risk curve. But now as rates went higher, those assets were

underwater and the banks, if it wasn't for some nice accounting rules that worked in their favor, would likely have been bankrupt. And so as interest rates got raised, asset prices fell. But then something very interesting happened. The politicians didn't get the memo. The politicians continued to print money with things like the CHIPS Act or the Inflation Reduction Act, which actually was just more inflationary. And so asset prices again took off and we arrive where we are today. Inflation has come down in the official metrics, but asset prices are at or near all time highs, and interest rates are still over 5%. Now, the reason why that's really interesting is because the market is starting to slow down. We're seeing unemployment tick higher

now sits somewhere around 4.8%. We're starting to see other cracks in the economy, bankruptcies are increasing, etc. And so the Fed is getting ready to fight another round of a market slowdown or recessionary period. Thankfully, the one thing they seem to have gotten right over the last couple of years is they reloaded their ammunition. That ammunition reload means with rates over 5%, they could cut three or 400 basis points and still not be at zero. On top of that, the Federal Reserve sold off nearly $2 trillion of assets over the last two years. And so they could put another $2 trillion onto the balance sheet and just return to where they were in 2021. want. The Federal Reserve now has ammunition. The market is slowing, but asset prices being

near all-time highs puts us in a precarious situation. If the Fed steps in, as they are perceived to do in September, and they begin to cut rates, cheap capital will come into the market. Shortly after, I expect for the money printer to get turned back on over the next six to nine months. If you have interest rates falling and the money printer turned on, asset prices likely will continue to rise. And so whether we are thinking about a recession incoming or we are thinking about the Federal Reserve's response, if you have a mindset of five to 10 years in your investment portfolio, it is highly likely the probability is on your side that being long financial assets is better than sitting in cash. Cash is the one place that is guaranteed to be

devalued in the coming years because our current national debt has reached in the 30 trillions and it's only continuing to accelerate. It was at $32, $33, $34, and then $35 trillion. The higher the debt goes, the more we must devalue the dollar in order to monetize that debt and avoid some sort of default. And so a cheaper dollar,

a devalued dollar in the future means that asset prices will get higher. You'll need more dollars to buy the exact same asset that you could buy today. So what do you do when you are worried about a recession? Well, if you have a long time horizon, then you probably should just stay invested. And as asset prices fall, if that recession comes,

then you can just dollar cost average in lower. Take net new cash that you have from your job and your savings and go ahead and continue to dollar cost average down. You get to keep the same exposure to the upside in case the recession doesn't happen. But if asset prices do fall, then you benefit because you're buying cheaper assets also.

Now, of course, some people don't have that luxury and others will try to time the market. That's not how I invest, but that's plenty of other people. So if we go ahead and we take a look at where we are, looking at the last 15 years is really important because my prediction is that if we do get to some sort of market slowdown, the Federal Reserve will have

a very, very quick trigger finger. They will use that quantitative easing playbook that they perfected in the global financial crisis and during 2020, and they will fire as many bullets as needed in order to get the market moving up into the right again. Now, we also are talking about this in the second half of an election year.

We have Vice President Harris running against former President Trump. The two of them have very different economic plans. Donald Trump is being seen as a candidate who's gonna cut taxes, gonna spur economic growth, and will go after lots of different tax policies that should help people in terms of no taxing on tips and look to create more jobs in America.

On the other hand, Vice President Harris, her economic plan is being defined by things like taxing unrealized gains and also borrowing policies from Trump, such as no tax on tips. Whether you agree with Vice President Harris or you agree with former President Trump, the good news is that they are beginning

to reach some consensus. Both candidates agree that there should be a Southern wall built along the border. Both candidates agree that there should be no tax on tips. And so as long as whoever wins the White House in November actually carries through

with these campaign promises, there are good things on the way for the United States and its citizens. But one other component is that if something like the southern border wall gets built, it's going to cost money, which means we'll have to print more, which again contributes to that quantitative easing playbook that the central bank is likely to employ. And so monetary and fiscal policy is both suggesting that we are going to see higher asset prices over time.

And then structurally with a devaluing dollar, you also will get higher asset prices. And that is why the defining question of our time is, were you an investor or were you a saver? People who invest tend to come out on the right side of the wealth inequality gap. People who save and have no investable assets, which is about 50% of Americans, they end up being on the wrong side of that wealth inequality gap. Nobody likes the wealth inequality gap.

Everyone wishes that it would close, but structurally, it is hard to see a world where that happens. Instead, we must spend the time, money, and energy to go educate the bottom 50% of that wealth inequality gap and teach them the importance of investing. Show them that investable assets actually benefit from inflation rather than suffer from it. If they do not do that and they simply hold 100% of their wealth in dollars, they will continue to be in a bad situation.

They will continue to feel like they can't get ahead and they will continue to watch their economic power eroded by a government and a central bank that has no choice but to devalue the currency. So it's been a long road to get here. Understanding modern history is important because it gives us insight into what's likely to happen in the future. And then also realizing that who the president of the United States is, is important. Leadership does matter. But also for you as an individual, for many of you, who your HOA president is maybe more important than who the president of the United States is. When November comes, your job is going to be to evaluate both candidates, look at their economic policies, look at their social policies, look at

their campaign promises, go into the ballot box and vote based on who you think will do the best job leaving our country. But financial markets, although they do oscillate depending on the different odds of who's likely to be the president, ultimately the structural setup is going to overpower whoever the president is. We have seen every single president since the 80s oversee a positive stock market performance during their administration, except for one president. That's George W. Bush. And Bush got hit with two whammies. There was 9-11 on his way in, and then there was the global financial crisis on his way out. If the global financial crisis had not happened, George W. Bush also would have had a positive stock market performance

during his tenure. And so both Republicans and Democrats see the stock market continue to move upwards in a positive light. The reason being so that dollar is going to get devalued. The United States will continue to produce GDP growth and investors will continue to do dollar cost average into assets and hold them for a long time. It is easy to get caught up in all of the tribalism of an election year, and people will agree or disagree with candidates on certain topics. But your job as an investor is to simply look at the data, understand that the long-term trend is in your favor, and figure out where you want to put your money,

get long, and chill. Sit on your hands, don't try to trade, don't try to time the market. Timing the market with a long-time perspective and allowing the central bank to continue to devalue the currency is going to be your best bet to create wealth over the long run.

Hopefully this conversation has helped you better understand where we were, what got us here what different entities like politicians and the central maker thinking about right now and then also how that should impact your portfolio moving forward if you enjoyed this little talk then go ahead and make sure that you leave a review on itunes spotify or whatever audio platform you listen on or make sure that you're subscribed on youtube i appreciate all of you tuning into the podcast and these videos and i hope to talk to you next week We'll be right back.