The Pomp Podcast - #1413 Anthony Pompliano | Is Bitcoin Due For A Crash?

Episode Date: September 28, 2024

Anthony Pompliano records a solo episode to answer the questions, are stocks overvalued? Is bitcoin due for a crash? Topics include federal reserve, interest rates, Mag 7 vs. 2000s tech bubble, historical stock performances, and more.  ======================= Xapo Bank, the world’s first fully licensed Bitcoin-enabled bank, offers military-grade security with an unmatched blend of physical and digital security, as well as pioneering regulatory oversight, so your funds are always protected. Beyond secure storage, they enable you to grow and use your Bitcoin. Earn daily interest in Bitcoin, spend with zero FX fees using a global card, and make instant payments via the Lightning Network for unrivalled access and convenience. Visit ⁠⁠⁠⁠⁠https://www.xapobank.com/pomp⁠⁠⁠⁠⁠ to join. ======================= 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. 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 personal opinion. This podcast is for informational purposes only. Today's episode is brought to you by Zappo Bank. Let this sink in for a moment. Over half a trillion dollars in Bitcoin has been lost or stolen. Whether that is misplaced hardware wallets or an exchange that went bust, the risks are very real. That's why I think where and how you store your Bitcoin is absolutely critical. Now meet Zappo Bank, the world's first fully licensed and regulated Bitcoin-enabled bank. They're known as the Fort Knox of Bitcoin. With over a decade of expertise in Bitcoin custody,

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Go check out Zappobank today. What's up, guys? Everyone keeps asking me, are stocks overvalued? Is Bitcoin overvalued? What's going to happen with the market? This is a great debate that's raging on in financial markets right now. Now, of course, we have the Federal Reserve, which is cutting interest rates. We know the M2 money supply is expanding.

We know that China is now cutting rates and cheap money is flooding into the system. But we can also look at stock prices at Bitcoin. All of these assets are at all-time high or near all-time high prices. That is concerning to all the bears in the market. Now, what's always cracked me up about the bears is that every single bear will tell you that there is a market crash right around the corner. They've been predicting a recession every year for the last 15 years. And yes, we had one, but none of them knew it was going to come because of a pandemic. And so you always have to be careful listening to the pessimist. But I've got charts

and data to show you that maybe you shouldn't have as much fear as they want you to believe. Remember, optimists have data and history on their side. First, let's go take a look at the big tech stocks. What we can see is this chart from Michael Anatoly. He shows that their forward PE for the 24 months in front of us for the MAG7 is actually half of what it was for the 2000 tech bubble leaders. Back in 2000, we saw that that forward PE for 24 months was 52. Today, it's only 23.9. Then if we go and we take a look at the net profit margin, this far right column, you can see that the 2000 tech bubble leaders only had a 16% net profit margin,

but today the MAG7 has 28%. That means that a 24-month forward PE for the MAG7 is half of what it was in 2000, and then the net profit margin is double what it was for those 2000 tech bubble leaders. This means that the companies in the MAG7 aren't nearly as overvalued as they were back in that dot-com bust.

But it doesn't just stop there. Nick Maggiuli, he came out with this great chart where he shows the U.S. stock performance during the 20th century and the 21st century. And he showed that there's a mean reversion. If you see here that red line, that is the 20th century and the green line, that is the 21st century. What's interesting about this is although we just had

a 15-year bull market in this chart, we know that there has actually been stocks going sideways from 2000 to 2010. And so even with that recent bull market, we just now are getting back to the same exact trend that we saw in the 20th century. This means that stocks are doing what they did last century, this century.

So that should give you confidence that again, stocks are not necessarily outside of the norm. What's up guys? I hope you're enjoying this episode, but I got a quick message for you. I just released my very first book. It's called How to Live an Extraordinary Life. In this book, there are 65 life lessons

that I've picked up over the years. These lessons will teach you about money, investing, relationships, work, health, happiness, and much more. In this book, I wrote letters to each one of my children and I tried to share those life lessons with them. If you pick up this book, there's three things that I can promise you.

The first is that it is very concise. The audio book is only three hours. You can listen to it on a long drive or on a rainy afternoon. The second thing is that you're gonna learn something. It's worth the price of admission just for the lessons themselves. And then the third thing is,

it will make you think more deeply about your life and how you try to live it. So go pick up How to Live an Extraordinary Life today. It's a quick read. It's very impactful. It's very concise. And it would mean the world to me for the support. Go check it out today on Amazon, Barnes & Noble,

or wherever you buy your books. Hardcover, audio book, it all works. Thank you so much for the support. And I'd love to hear what you think about the new book. Let's get back to the episode. But people always want to know, why do stocks go up? Why is it that if I go ahead and I allocate to one of these indexes,

Over the long run, we continue to see price appreciation. Brent Donnelly has a great tweet that he put out recently, and it's a simple yet important insight. He said that the simplest explanation for why stocks go up is not the Fed's balance sheet or passive flows or fake government economic data. It's corporate earnings. It's logical, and it explains many market mysteries, like why the MAG-7 has become such a huge part of the indice.

They earn more money than their peers, way more money. Earnings obviously don't go straight up, but this chart shows you why it's so hard to make money shorting stocks. They have so many tailwinds, and shorts face many headwinds. There's borrowing, negative carry, risking infinity percent to make 100%, the worst companies are hardest to borrow against, etc. And so this chart from Sam Rowe really points out the S&P 500 quarterly EPS seasonally adjusted.

Put in a log chart, and you can see from 1935 to 2019, the trend has been 6.5%. Earnings are the reason. why we have seen the stock prices continue to go up, and it's another reason why we shouldn't be so worried about current stock valuations. Again, Occam's razor. The simplest explanation is the most likely.

Now, before we end, there's one more data point that I find absolutely fascinating. Wall Street Journal's Gunjan Banjari points to this chart showing that after the Federal Reserve cut interest rates by 50 basis points, which was kind of this jumbo interest rate cut,

money market funds are still seeing strong inflows. even though rates are down. And so this money market fund flow continues to hit all time highs, which is a major narrative violation. If interest rates are coming down and people can earn less in these money market funds, why are they continuing to put capital in there?

My theory is that there's just more money in the system. We know M2 money supply is expanding. And so people have to put that money somewhere. They're going to put it into stocks. They're going to put it into Bitcoin and they are going to put it into money market funds. Now, also, what was interesting this past week is that Lynn Alden and Sam Callahan came out with a brand new study that showed that Bitcoin is the single most sensitive asset to global liquidity. Approximately 83% of the time, Bitcoin moves in the same direction as global liquidity.

If global liquidity is expanding, Bitcoin's going up. If global liquidity is draining, then Bitcoin is going down. The nice thing is that right now global liquidity is expanding and Bitcoin price has been going up and so I expect the expansion of global liquidity to continue which means I also expect the expansion of Bitcoin's price to continue as well. Bitcoin is a decentralized digital asset. It is apolitical. No one controls it and it continues to produce block after block of transactions. Because it has a finite supply investors around the world continue to hoard it because they believe it is a great inflation hedge.

According to whoever becomes the next president of the United States, there is the possibility that inflation will come raging back. If that is to occur, then Bitcoin obviously will do very well. But even if inflation does not rear its head again, we see that the global liquidity expanding and therefore Bitcoin's price is going to go up. But it's not just Bitcoin. I also expect stocks to do the exact same. I expect all assets denominated in dollars over the long run to continue to go higher.

The dollar will be devalued. We need to monetize our debt. We need to have a currency that is weaker than it is today. And therefore, that means that asset prices will go up. You're going to see real estate go up and to the right. Stocks will go up and to the right. Bitcoin will go up and to the right. All assets priced in dollars given a long enough time frame go up.

because it's not so much about the asset. It's about the dollar being devalued. And the Federal Reserve and our politicians, they have nowhere to go. Their back's against the wall. They're in the corner. They have to devalue the dollar. That is the only potential path out of this problem.

We have a spending problem in this country. No one is trying to fix it. There is neither major political candidate for president who's talking about balancing the budget or getting the national deficit down. Some of them are talking about trying to cut costs. But no one has the courage or the authority to go in and actually slash spending so much that we get back to a balanced budget. It's been more than 20 years since we've had that in the United States.

And unfortunately, I don't think either candidate is going to do that if they become president. And so if we have a spending problem and there is no relief in sight, then, of course, it doesn't matter how much tax revenue they take in. We simply are going to have to devalue the currency in order to prevent some sort of massive national default. That's my base case for what we're going to see over the next decade. And so if you are an investor rather than a saver, you're likely to do best. Unfortunately, the savers are the ones who are going to end up on the wrong side of this equation. They're going to leave all of their wealth in cash.

That cash is going to be devalued. And although they think that they are saving their way to financial security, they're going to find themselves falling further and further behind. The difference between an investor and a saver is an education gap. we need as many people in the world to understand in today's world with fiat currency that is devalued you have to become an investor it doesn't mean that you have to go and take immense risk you can simply buy the S&P 500 and dollar cost average and plan to hold it forever but whatever you do if you simply sit with 100% of your wealth in cash it is going to put you in

a worse position in the future all because the central bank and politicians know they got to print money. They're going to spend it. They're going to devalue the currency. And those holding the cash are the ones who are going to get hurt. And so ultimately, when I look at the current stock market, whether you think a crash is around the corner or not, what I know is that over the long run, stocks go up because the dollar gets devalued. And so depending on what your time frame is, it really makes the argument that you can go ahead and you can allocate into the market. and as long as you can hold long enough, as long as you never become a for-seller,

then stocks will continue to do what they've been doing for centuries, which is to go up and to the right, whether it's for earnings or it's for the dollar devaluation. Data is pointing in one direction and the investors are the people best positioned to actually benefit from it.

And unfortunately, unless we can get the word out and we can educate people, it's the savers that are gonna get hurt most. Hope you enjoyed this video. Please leave a comment and let me know what you thought. I really, really hope that we can help spread the word on more education and you sharing this video with other people is one of the first steps to doing that.

I'll see you guys next time.