The Pomp Podcast - #942 There Is No Return To Normal

Episode Date: May 2, 2022

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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. Good morning, everyone. Bang, bang. There's a significant amount of fear in the market right now, and people have been watching as risk assets have sold off aggressively since the November 2021 highs, which can be partially attributed to the Federal Reserve's focus on

talking tough about quantitative tightening. Although it took the Fed months to act, we are now seeing the central bank raise interest rates and taper many of the monetary stimulus programs that they were previously pursuing. Even though growth and risk assets have already fallen, the Federal Reserve is talking about becoming more aggressive with their quantitative tightening over the next few months and potentially through the rest of this year. But I don't know if I believe them. Regardless of how much tough talk the Fed has engaged in, there's only been an interest rate increase of 25 basis points so far. That was enough to usher in an annualized economic contraction of negative 1.4% in the United States and a negative 22% growth for the Nasdaq index.

How much more can the Fed really raise interest rates if we are already likely in a recession trend. Well, that is the problem. Most investors and market participants are refusing to acknowledge the slowing growth and probable recession. In my opinion, they will wait until Q3 when it is smacking them in their head before they start to admit it. This leads me to a fairly obvious prediction, but one that seems to be contrarian at the moment. The Federal Reserve will be cutting interest rates before the end of 2022. The idea here is that further interest rate increases will only accelerate the United States economy into a recession. As things get worse, it will become harder for the Federal Reserve to remain committed to their quantitative tightening plan. Add in the

fact that midterm elections are coming up, and it seems like a foregone conclusion that the Fed will be pressured to address any recessionary period on a shortened timeline. So how do you prevent the negative impact of recessionary forces? You cut interest rates in return to a quantitative easing strategy. What is worse than inflation for politicians? Recessions. If I am correct, the Federal Reserve won't just cut rates by the end of the year, but they will have to admit defeat in their tightening efforts and re-engage their full QE toolbox. That is definitely not priced into the market at the moment. As I polled Twitter over the last few days, only 34% of people that answered my Twitter poll this weekend agreed that the Federal Reserve will cut interest rates

before the end of 2022. This may then lead you to ask, well, what is priced into the market at the moment? According to Charlie Belillo, he said the market is currently pricing in a year-end Fed funds rate of 2.75 to 3%, up from only 2.5 to 5% today. Expectations from the Fed funds futures,

50 basis point hike in May, all the way until 25 basis point hike in December. The idea of the Federal Reserve increasing rates 2.5% or more after the economy is already growing at minus 1.4% is insane. If the Fed showcased complete incompetence on the way up via inflation, this would be a showcase of the most ridiculous level of incompetence we have ever seen by Fed leadership team on the way down in the market. Hiking interest rates to 3% after an economy is already in a recession would be a financial Armageddon that we haven't seen in decades. I'm not arguing that the Fed shouldn't hike interest rates right now, nor am I arguing that they won't continue to raise interest rates

more this year. But I am arguing that they won't be able to raise rates as aggressively nor for as long as people are anticipating. There are quite a few investors who have been taking to Twitter, newsletters, podcasts, or the media to claim that we will see a 2000 style clear out of bad companies and bubbles popping. The problem with that theory is that the market is no longer a free market. The Federal Reserve and increasingly elected officials won't allow investors and citizens to suffer. Once they began to manipulate the market with quantitative easing, they can never stop for long periods of time. There is no returning to normal. We are living in the new normal. Manipulated Fed-run markets are the default now. You think people were pissed when

they had to pay more for everyday goods at the same time that their investment portfolios were increasing in value? Wait till you see people's reaction when their investment portfolios are losing material percentages and the price of goods are still high. That situation is coming faster than you think. So what is the solution here? To be honest, I don't think the Fed has a winning hand to play. They should have never intervened in the market in the first place, but because they did, the market volatility was only going to increase as the Fed became responsible for steering the ship. It is impossible for any group of humans to navigate an economy between high inflation and recession with the periodic use of interest rates and expanding and contracting a

money supply. This is a losing game, and the Fed is losing handily right now. Free markets eventually solve the problem, but we don't have free markets anymore. We have markets that are so manipulated by the Federal Reserve that all you have to do is adhere to the old adage, don't fight the Fed. That is the winning investment strategy these days. Just listen to the Federal Reserve and do what they tell you to do. You would look like a genius over the last decade if that's all you had done. The louder I hear people screaming in fear of increasing rates and falling asset prices, the more bullish I get. As a friend recently told me, the only way you can be long-term bearish in this scenario is if you're willing to bet on the United States economy failing. That isn't a bet

I'm willing to take, and I doubt it's a bet any of you would take either. The Federal Reserve is going to keep playing their fake confidence game. They'll raise rates and try to talk tough. But ultimately, the Fed will succumb to the macro forces at play. The recession is already here. You can't ignore it forever. My guess is that we'll get at least one interest rate hike. I'm sorry, that we'll get at least one interest rate cut by the end of the year. My confidence level is probably around 70%. Nothing is changing in my portfolio or investment strategy. I'm a long-term bull. I'm bullish on technology. I'm bullish on the United States, and I'm bullish on Bitcoin. Those themes are wrong over the next few years, and I'm not sure I want to be right.

Hope each of you has 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. 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. Thank you.