The Pomp Podcast - #853 The Insiders Are Yelling Warning Signs

Starting point is 00:00:00 What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Today's episode covers commodity prices, the Russia-Ukraine conflict, the Federal Reserve policy decisions, and a letter that recently came out from Credit Suisse that I think is worth paying attention to. Hope that you enjoyed today's episode. But before we get into it, I want to first talk about our sponsors. This episode is brought to you by FTX US. FTX.US is the safe, regulated way to buy and sell Bitcoin and other digital assets.

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Starting point is 00:03:42 continues to evolve at an incredible rate. Over the last 24 hours, reports are surfacing that the United States is looking to ban imports of Russian oil, and various options are being evaluated in an attempt to freeze Russia's gold reserves. These punishments are being pursued as Russia continues their military offensive in Ukraine. The implications of the current events are unknown, but we are beginning to see commodity prices spike aggressively. First, wheat has hit an all-time high. Those wheat futures hit an all-time high, surpassing the prior high from 2008. Prices have now increased 75% since the start of the year. Russia is the world's largest exporter of wheat, and Ukraine is the fifth largest exporter. Nickel has also been increasing by

Starting point is 00:04:21 hundreds of percent as well. The London Metal Exchange halted trading in nickel after an unprecedented 250% price spike, which left brokers struggling to pay margin calls. And of course, oil prices are going parabolic as well. Oil prices are extending their gains as the United States is reportedly going to ban that Russian oil. It shouldn't be shocking that commodities, especially ones where Russia and Ukraine are major producers, are being driven higher during this conflict. The surprising part is how quickly it is happening and how large the moves in price have become. The joke on Twitter is that commodities are trading like shit coins, which has a hint of truth to it. But while all of this is going on, I continue to ask myself what it means for the future macro economy. No one has a crystal ball, but can we use history as a guide? Social capitalist Chamath Palapatiya recently explained on the All In podcast that every time energy prices have spiked by 50% or more in the last 30 to 40 years, it was followed by a recession. Sven Henrik highlighted this morning that the last time wheat prices reached these levels, a recession followed.

Starting point is 00:05:24 History doesn't repeat perfectly, but the warning signs of a potential recession are growing louder and louder. Now the biggest curveball in the situation is that the Federal Reserve is still sitting with interest rates at 0%. Given that inflation is likely to come in at 8% or more during the next report, the normal reaction would be for the Fed to raise rates to bring that inflation more in line with their goals and expectations. Chamath had a tweet that stated, history repeats itself. In 2018, the Fed was concerned about inflation. They were wrong, and within a quarter or so, the risk shifted to recession. The chart that he included in the tweet shows how the equity markets reacted, and it looks eerily similar. We've now entered into a dicey situation where hiking of interest rates could actually accelerate

Starting point is 00:06:07 us into a recession. This means that the Federal Reserve has a nearly impossible job. allow inflation to continue to ravage the financial well-being of hundreds of millions of people or risk pushing the global financial system into a downward spiral across financial assets this is a lose-lose scenario with no clear off-ramp so how does this play out for the united states our allies our adversaries and the various fiat currencies that they control zoltan pulsar of credit suisse published a note yesterday that will blow your mind Before I highlight what he said, it is important to understand who Pulsar is. Zoltan Pulsar is a managing director and is the global head of short-term interest rate strategy based in New York.

Starting point is 00:06:49 Prior to joining Credit Suisse in February 2015, Zoltan had a distinguished career in the public sector. During the Great Financial Crisis, Zoltan served at the Federal Reserve Bank of New York in charge of market intelligence for securitized credit markets and was the point person on market developments for senior Federal Reserve Board, U.S. Treasury, and White House officials throughout the crisis. From 2011 to 2012, Zoltan was a visiting scholar at the IMF, where he authored a number of papers, framed the fund's official position on shadow banking, and consulted G20 working groups on global macrofinancial developments. From 2012 until his arrival at Credit Suisse,

Starting point is 00:07:26 he served as a senior advisor to the U.S. Department of the Treasury. Essentially, Zoltan Puzar is the epitome of the insider or establishment, especially when it comes to his views on currencies, financial assets, and markets. In the note that he published, which is titled Bretton Woods 3, Puzar starts off with the following excerpt, quote, we are witnessing the birth of Bretton Woods 3, a new world monetary order centered around commodity-based currencies in the East that will likely weaken the euro-dollar system and also contribute to inflationary forces in the West. A crisis is unfolding, a crisis of commodities. Commodities are collateral, and collateral is money. And this crisis is about the rising allure

Starting point is 00:08:07 of outside money over inside money. Bretton Woods, too, was built on inside money, and its foundations crumbled a week ago when the G7 seized Russia's FX reserves, end quote. Pozar then went on to explain why people should be concerned about recent commodity price moves. He said, quote, the aggressor in the geopolitical arena is being punished by sanctions and sanctions driven commodity price moves threaten financial stability in the west is there enough collateral for margin is there enough credit for margin what happens to commodities futures exchanges if players fail are ccps bulletproof i haven't seen these topics in the wide offering of financial stability reports have you is the otc commodity derivatives market the gorilla in the room the commodities market

Starting point is 00:08:52 is much more financialized and leveraged today than it was during the 1973 OPEC supply crisis. And today's Russian supply crisis is much bigger, much more broad-based, and much more correlated. It's scarier, end quote. And finally, Pozar finished this piece with the following conclusion, quote, in this instance, price instability, surging and collapsing commodity prices, feeds financial instability. Margin calls may trigger the failure of some smaller commodity traders, and maybe even some commodity exchanges. Again, commodity correlations are at one, which is never a good thing. The Fed and other central banks will be able to provide liquidity backstops, but those will be band-aid solutions. The true problem here is not liquidity per se.

Starting point is 00:09:37 Liquidity is just a manifestation of a larger problem, which is the Russian, non-Russian commodity basis, which only China will be able to close. Do you see what I see? do you see inflation in the west written all over this like i do this crisis is not like anything we have seen since president nixon took the u.s dollar off gold in 1971 the end of the era of commodity-based money when this crisis and war is over the u.s dollar should be much weaker and on the flip side the renminbi much stronger backed by a basket of commodities from the bretton woods era backed by gold bullion to bretton woods 2 backed by inside money treasuries with unhedgable confiscation risks. To Bretton Woods 3, backed by outside money, gold bullion, and other commodities.

Starting point is 00:10:23 After this war is over, money will never be the same again. And Bitcoin, if it still exists then, will probably benefit from all of this. End quote. Reading this type of thought process from someone who understands the intricacies of the financial system, while also having a grasp of how policymakers are thinking right now, has to make you start thinking about how much bigger this situation could become. I don't know how the future plays out, but my guess is that most people will start looking for a safe place to store their wealth, regardless of what happens. Somehow, all roads lead back to Bitcoin. I hope you have a great day, and I'll talk to everyone tomorrow. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one.

Starting point is 00:11:02 Make sure you're subscribed on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to palmscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to palmscryptocourse.com to learn more and I'll meet you guys for the next episode.

The Pomp Podcast - #853 The Insiders Are Yelling Warning Signs

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