The Pomp Podcast - #990 The State of the 2022 Economy

Episode Date: June 6, 2022

Today's episode is a little bit different. Last night I did a 1 hour livestream on Youtube discussing the state of the 2022 economy. I gave an overview of the past 2 years with monetary and fiscal policy, where we stand today, current risks, where I think the economy is headed in the next few months, and what you can do right now. I also take questions from the audience at the end. To see the video of this livestream, go to my Anthony Pompliano YouTube Channel ======================= Choice is a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/pomp ======================= Imagine coinmarketcap - decentralized. 3X in valuation is 15 billion dollars from the current price. Cryptotoday.com starts at zero, at fair launch on 7th of March. No VC. No pre-sale. Team tokens locked.  For the people, by the people. For decentralized crypto. Visit http://cryptotoday.com and read the whitepaper for the details.

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 is a little bit different last night i sat down and i recorded for an hour on youtube live stream i gave a state of the 2022 economy went all the way back and i looked starting before the pandemic at where we were what happened when the pandemic first started What were the actions of the Federal Reserve and all the fiscal policy? And then how did we get to where we are? Then I take a look at where we're going, what the potential risks are, what the bull arguments are,

and what you at home can do to prepare, survive, and eventually thrive regardless of what occurs. I hope that you enjoy this episode. I had a lot of fun recording it, and there's some great questions from the audience towards the end. But before we get into this episode, I first want to talk about our sponsors. This episode is brought to you by BlockFi. BlockFi provides financial products for crypto investors. Those products include the BlockFi wallet, a U.S. dollar loan collateralized by your crypto, and a no-fee trading product. BlockFi also released the world's first crypto rewards credit card.

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is for informational purposes only. Hello, everyone. How are you? Super excited about this. We're going to jump right in. What we are going to do is I'm going to give an overview of the current state of the economic situation in the United States. And the way that I'm going to do that is I'm going to start first looking backwards.

I'm going to go ahead and say to myself, all right, well, what happened going all the way back to the beginning of 2020. And then we'll work our way all the way through to the point in time now. I think that should help people understand not only one, where we've been, but also where we're going from here as well. And so if you start out and look, going into 2020, the economy actually was pretty strong. The economy had a bunch of things going for it. So we had a very low unemployment rate, about 3.5%. It was at a historic low. And inflation was under control. Everything looked pretty good. There were some warning signs in 2019. There were things like inverted yield curves. There was some high degree of CEOs leaving their jobs. But those were all

things that made you pay attention, but didn't necessarily signal that there was something bad on the horizon. And so once we got into 2020, obviously, I don't think very many people saw, or if nobody saw, a global pandemic that was going to hit. And so when you think about this pandemic, it was very unique in that it forced governments to order everyone to sit at home. Now, you can debate the merits of whether they should have done that, they shouldn't have done that. Was it effective? Was it not? But that is what happened. And so when you look at that March 2020 timeframe, governments all around the world went and forced everyone to sit at home. Well, if you force people to sit at home, what occurs is that you essentially slow the velocity of

running. And so if people can't come into your store or your store shut down, then obviously the economic output of that economy is going to drastically drop. And so the second that those governments ordered people to sit at home, the second that velocity of money started to slow, of course, every single investor in the market says, well, I don't know what's going to happen. There's uncertainty, there's fear, there's chaos. And so what am I going to do? I'm going to hold onto my assets. On top of holding onto my assets, I also am going to turn around and try to raise dollars. And so what people basically did is they looked at their portfolio and they said, anything with a liquid market, whether it's stocks, whether it was bonds, currencies,

commodities, crypto, anything that had a liquid market, sell it. I want dollars. In time of uncertainty, I want dollars. And so what we saw in that moment was that there was a liquidity crisis. Everyone wanted dollars in March of 2020. And so naturally what you got was a strengthening dollar as more people wanted the dollar. And you had asset prices all selling off because people were literally dumping assets to get those dollars. And so when that occurs, all correlations of assets goes towards one. So you can have all of the non-correlated assets in the world, but during a liquidity crisis, all asset correlations go towards one. That's what we saw happen in March of 2020. Now, there's two schools of thought when that occurred,

is that the Federal Reserve, Central Bank of the United States, they could have sat there and said, hey, let's let the free market go ahead and handle this. We see that there are asset prices falling. Gold went down about 15 percent. Stocks were down about 25 percent. Bitcoin was down 50 percent in a single day. Or we can step in. We can intervene. So as we know, the Federal Reserve decided they were going to step in.

They were going to intervene. And when they decided to intervene in that situation, they have basically two tools at their disposal. Every central bank, regardless of the financial situation, they can either manipulate interest rates up or down, the cost of capital, make it more expensive or cheaper, and they can conduct quantitative easing. They can basically create money and put it into the financial system. And so they chose to do both. And it was the Federal Reserve and the central bank, but it was also fiscal policy as well. And so if you kind of think of the totality of what occurred is that we got two emergency interest rate cuts down to a 0% interest rate environment that made the cost of capital basically as cheap as it's been in a very long time, as much as negative rates in other parts of the world. And then we created trillions of dollars and we stuffed it into every exotic corner of the financial system.

And so when you look at that, you basically say to yourself, why are they doing that? Why did they do that in 2020? And the reason why they did this is because they were trying to stimulate the economy. That's why it's called monetary stimulus. You're trying to stimulate the economy. And so naturally, you drive the cost of capital down to zero, meaning you're trying to incentivize people to borrow money and then go spend it in the economy. And then you also give money all across the entire financial system. And so what you do is you stuff it in every corner you possibly can. And so naturally, when they were doing this, there was a small group of folks, usually the Bitcoin community, who said, wait a minute, you're not going to be able to do this without massive, massive repercussions. But the thought process was among central bankers and also politicians that we don't get paid for solving long-term problems. We get paid for addressing short-term problems. And so what they basically did was they made a tradeoff. They said, we are going to optimize to mitigate short term pain. And no matter what happens over the long term, we'll deal with that later. And so what we ended up seeing was exactly that. They went ahead and they mitigated that short term pain through a monetary stimulus and fiscal stimulus. And they said, whatever happens in the future, we'll deal with it later. And naturally, if you go ahead and you incentivize people to borrow money, they borrow money and they borrow a lot of money.

And if it's at 0% interest rate, they borrow as much money as they possibly can. And then if you go ahead and you actually hand out money, either through asset purchases, stuffing it into the financial system, or you say we're literally going to send checks directly to people sitting at home, naturally what's going to happen is that you're going to stimulate the economy. And that's exactly what happened. is all those asset prices that sold off, again, gold down 15%, stocks down 25%, Bitcoin down 50%, they exploded upwards. And from pretty much April, May of 2020, all the way through the end of 2021, what we got was a historic asset stimulus, asset appreciation. And so what you end up seeing is last year in 2021, the stock market was up 30%. Real estate prices in America for homes was up about 20%. Bitcoin was up 65%. These are all massive numbers, all lots and lots of

appreciation. And the reason is because the market was being manipulated. They basically were pumping air into a balloon. And as they were pumping that air into the balloon, the balloon got bigger and bigger and bigger and bigger. And so asset prices continue to rise. Now, as that occurred, naturally, if asset prices are going up, so does the price of consumer goods. And this is something that gets lost in the conversation a lot. But if you think of assets, assets are financial assets, things that you can purchase from an investment standpoint. There's stocks, there's bonds, there's currencies, commodities, real estate, crypto, et cetera. But if you are going to increase the price of these assets, you simultaneously also increase the price of

other things you can buy. And so the other bucket is basically consumer goods. And so this is everything from gasoline to food, to cars, etc. And so even though food or gasoline aren't thought of as an investment to the average American family, they're still assets. And so naturally, as you got the market manipulated, what you saw was that there was a massive increase in investment asset prices and a massive increase in consumer goods. And so that's where the inflation comes from, is that you got this inflation number that started to creep up. And going into the end of 2020, the inflation was still pretty much under control. At the start of 2021, inflation was still kind of 2%, 3%. And we didn't get a 5% inflation number, 5% year-over-year growth until about

June of 2021, the summertime of 2021. And we pretty much haven't gone under. We haven't gone under 5% since then. We have stayed at over 5% inflation in the United States, which is more than two and a half times the Federal Reserve's inflation target for now going on one full year. for a year, we have been at over 5% inflation. Right now we sit at over 8% inflation. And that is based on a CPI metric, the consumer price index, which is absolutely incorrect. It's a manipulated number. So even if we give them credit and say that the number's right, it's still showing over 8%, showing over 5% for 12 months. But that number is definitely incorrect. And I'll give you a couple of examples. For example, if you look at something like shelter, shelter still

shows anywhere between two to 5% year over year increase over the last 12 months. That's the numbers they've been telling us. But real estate prices are up 20% and rent national average is about 20% as well across the country. So to buy a home and live in it is up 20% or to rent is up 20%. How is shelter up only two to 5%? Well, you then can go and take a look at how do they calculate that number? And when you think about this, what I'm about to tell you is absolutely insane. They literally call people on the phone and they say, hey, what's your rent? How much were you paying last year? How much are you paying now? And the way that they determine that is I think it's the 1980 census data. They identified about 60,000 locations from that census

data, and they call a certain number of them every single month. Now, the reason why that's interesting is because ultimately that is not a very good kind of holistic view of rent, as an example, in the United States. If you go and look at something like apartment.com, if you go and look at something like Zillow, they have millions of data points in real time on their websites, and they show anything between 7%, 8% rental increases or real estate increases all the way up to as high as 15%. And so if the official CPI number is showing 2% to 5%, but some of these websites are telling us 7% to 15%, you can then infer that it's much more likely that the private companies who have access to more data and in real time holistically across the country,

their data is more accurate, and therefore they're closer to reality than the official numbers. And so my estimation is that inflation has reached double digit percentage at this point, low double-digit percentage. And that's why you're seeing so much pain over the last two years for the bottom 45% of Americans. Remember, the bottom 45% of Americans have no investable assets. So one of the key understandings around inflation is that as inflation occurs, it inflates the price of investments and it inflates the price of consumer goods. Now, if you're a wealthy person, you have a lot of investments. The percentage of your net worth that is spent on a month-to-month basis on consumer goods is low. You don't worry about

the pain from the inflation on the consumer goods because you're making so much money in your portfolio. And if you are in the bottom 45% of Americans, you have the exact opposite problem. You have no investments and 100% of the money you spend is on consumer goods. So when those prices go up, you end up being hurt. And so naturally what occurs is that rich people love inflation. They get rich. Look at how much money was made from March of 2020 until the end of 2021. The people who don't like inflation are the people who have no investment. So investors win in high inflation environments and consumers lose in high inflation environments. And so when you think about that, I always like to joke and say that inflation would end tomorrow if rich

people weren't making money. Now, how do you end inflation? And that's exactly what the Federal Reserve has been trying to figure out. They thought that inflation was transitory. They continue to talk about inflation is transitory. Inflation is transitory. Obviously, it turned out not to be transitory. And now it is persistent. They've given up on using that nomenclature. They now admit that they were wrong. They didn't foresee the problem, et cetera. And so the question becomes, how can they solve the inflation problem? Well, the only way that they really can do it, again, go back to the tools that they have, or they can either one, manipulate interest rates or to asset purchases, quantitative easing or quantitative tightening.

And so exactly those two tools are now being used. In November, they started to quote unquote talk tough. They started to say, hey, inflation is kind of out of hand. We're going to have to address this. It's not necessarily transitory. We're going to have to do something here. And so at first, they just started to talk tough. They try to give people a warning and say, hey, we're going to have to address this.

We're going to have to address this. What they have done since then is they have started to increase interest rates, meaning they are making capital more expensive in the market, and also at the same time, they are now not making asset purchases. They actually are conducting quantitative tightening. They are trying to shrink the Federal Reserve's balance sheet. If you go back to 2008, 2009, the Federal Reserve's balance sheet at that time was about $900 billion, today $9 trillion, so a 10x since the global financial crisis. So they are going to try to conduct quantitative tightening and drastically increase interest rates, all while having over 8% inflation. We have never seen them really try to do this before, especially in our lifetime.

And so when you start to think about this, why are asset prices going down? Well, if they are conducting quantitative easing, meaning that they are actually making loose monetary policy, they're making cheap capital available, and they're stuffing liquidity the end of the market, asset prices go up. Well, if all of a sudden they do the opposite, quantitative tightening, they make capital expensive by increasing interest rates, and they are selling or contracting the assets on their balance sheet, then you obviously are going to get an inverse reaction. So asset prices come down. A lot of people will talk about this as they basically were putting that air in the balloon. Now they're letting the air out of the

balloon. So you get this kind of contraction of the asset prices. And that's what we've watched happened pretty much since November of last year is stocks, commodities, bonds, real estate, crypto, all of it's going down. And it's going down specifically because the Fed is the single most important player in the market. And when they say it's going to be good times, we're going to have a loose monetary policy, asset prices explode. When they say, hey, we're in control, we're going to conduct quantitative tightening, asset prices go down. So literally the Federal Reserve is creating this situation. The reason why they are willing to create this situation is because they are trying to get inflation under control. Now, one of the issues that they have to

deal with, which makes this even more complex, is not only is inflation still above 8%, but in Q1, they were expecting an annualized economic growth number of GDP in the United States to be plus over 1%, plus 1%. So take Q1 growth, annualize it, it'd be over 1%. Instead, what they got was a negative 1.4% number, meaning that the US economy in Q1 contracted on an annualized rate at negative 1.4%. So if you have high inflation, you have a contracting economy, you have increasing interest rates, you have quantitative tightening, and you have falling asset prices, this is not good. This is not a good situation. And so naturally, an economy of the size of the United States or any economy around the world, it's hard. It's very difficult

to understand how your actions as a central bank are going to impact all of the nuances. Now, it's not hard to understand, hey, if we create trillions of dollars and stuff it into the economy and we drop interest rates to zero, we may create consumer price inflation because you're also trying to pump asset prices higher, which is exactly what they did. And there was scandals at the Federal Reserve where Federal Reserve presidents were literally day trading the exact assets that the Federal Reserve was buying. They were in the market trading their personal accounts at the same time. But when you think about this, now the Federal Reserve is faced with the following situation. We've committed to raise interest rates. We've

done two interest rate increases so far. And we have committed and are now conducting quantitative tightening. We are contracting our balance sheet. As we are doing that, asset prices are falling. As asset prices are falling, we also in Q1 saw a contraction in the US economy. If they continue through the end of this year, the market at one point was pricing in 10 interest rate rises and an interest rate of 300 basis points, a 3% interest rate by the end of the year. If they were to continue to do that, the Federal Reserve will push us into a absolute, very dangerous recession. They will force us into a recession. And they may be successful in getting inflation to come down, but they would push us into a recession. And so naturally, what ends up occurring is that

people talk about this idea of a soft landing. How does the Federal Reserve guide the US economy to a soft landing. That would be inflation coming down, no recession, and they would end up being able to stabilize asset prices. So even though the asset prices had come down, they would find some equilibrium or market bottom, and they then would go sideways. Now, the problem with that is that would require some minute control over the economy. And that's not how the economy works. If you look at a data point that they always talk about, they talk about 3.5%, 3.6% unemployment right now, which is, again, very close to that historic low that we were in February of 2020, right before the pandemic. But the only problem is now, as they are raising interest rates, as they're conducting quantitative tightening, as the economy is contracting and asset prices are falling, you can see all these companies now starting to announce hiring freezes. They're announcing layoffs. We've seen in the crypto ecosystem, Coinbase, Gemini, et cetera, many companies hiring freezes or they're actually laying off 10 to 25 percent of their staff.

And so naturally, what my expectation here would be is that you're going to see that unemployment numbers start to tick up because they're causing a recessionary like event. whether we actually get to a recession or not, it remains to be seen, but they are pushing us in that way. And if they are successful in convincing the market that they are going to continue to raise interest rates and conduct quantitative tightening, people are going to stop trying to grow their businesses. They are going to say, I need to just weather the storm. I need to shore up my balance sheet, have a strong balance sheet, and then I need to make sure I get to the other side of this. And that's exactly what we're seeing people do, hiring increases and also layoffs. And so naturally what we should see here is we should continue to see

them try to raise interest rates. I do not believe they'll get to 10 interest rate raises. I do not believe they'll get to the 300 basis points interest rate. My base case is that at some point they are going to pause interest rate increases before the end of the year. And I think that there is a higher chance than most people are assigning that they will actually do an interest rate cut before the end of the year. Now, why do I think that? Well, some of it is because the economy is contracting. Some of that is because we already see layoffs starting to occur. And it's likely that that's going to accelerate over the next two to six weeks. But also, don't forget, we are in a midterm election. And in November, the worst thing that

you can do, yes, you could go into an election with high inflation. But the worst thing would be to go into the election in a recession. And so nationally, what are we watching play out here? we are watching the soft landing. If you're just looking at economics, that's already incredibly difficult. Some would argue impossible. But if you have the midterm election also coming up, as you saw last week, Joe Biden calling in Jerome Powell and saying, hey, I need you to come to the principal's office. I need you to come explain to me what's going on here. We're going into a midterm election. I need you to figure out how the hell to get down inflation, get down gas prices. I need you to get down all these problems. Now, not only are we also headed towards

the midterm elections, but remember, the pandemic caused all sorts of supply chain issues as well. So if you lock down all these people in their homes, we saw ships off the coast of America. We saw all sorts of supply chain disruptions in China and other places where we had outsourced our manufacturing. The US realized that they had been exposed. They had basically chased all this efficiency around the world, low cost, high efficiency. And what they'd given up was resiliency. Most manufacturing is not done in the United States. And so as we figured that out, we realized we were dependent on these other countries and there's a chain reaction. If they shut down their country, then it takes longer for these goods to get to us. And so you had monetary

policy, fiscal policy, economic environment, and then supply chain issues, all contributing to higher and higher inflation. Now, those supply chain issues in many cases have not been resolved. The monetary policy situation is not acting fast enough to necessarily get inflation back to the 2% Federal Reserve inflation target. And then add in a third variable, which is the Russia-Ukraine conflict. Why? Well, the Russian Ukraine region happens to be one of the largest exporters of oil and natural gas. And it also happens to be one of the largest wheat producers. And it also happens to be one of the largest producers of fertilizer. So if all of a sudden there's a shock to the fertilizer ecosystem and supply chain, that means that more and more people will not be able to use

that fertilizer to then have global food production come in at the same level that you would have expected in past years. If all of a sudden wheat ends up being disrupted, then that ends up having a huge impact on global food as well. Then you look at oil and natural gas. We've seen all sorts of sanctions and issues. One of the complaints though, that I think people around the world have is countries in Europe, specifically like Germany and others, they over the last few years have bought into the ESG narrative, which basically is a school of thought that says, hey, we should do quote unquote, right by the environment, which sounds amazing. And we should give up our own energy independence. Think about that. They gave up energy independence to pursue a feel good

story. Now they are dependent because they don't have their own independence. They are dependent on countries like Russia for oil and natural gas. And so naturally they are forced to buy oil and natural gas from Russia, which also, because of the supply chain, because of conflicts, because of monetary policy, has drastically increased in price. And so what you get is a complete mess. That's what we're watching right now. The global economy is a complete mess. We get monetary policy that created high inflation, fiscal policy that created high inflation. We then got asset prices that exploded upwards. As asset prices went up, there was tons of easy money to be made. As tons of easy money was made, then we got people who became undisciplined

investors. They started YOLOing into all sorts of assets across the economy. As all of that occurred, we then got a Federal Reserve and now a chain reaction of other central banks saying, wait a second, we have to get this under control. We're acting too late. We have high inflation. We need to address it. Let's start to raise interest rates. Let's conduct quantitative tightening. We then have high inflation. We have quantitative tightening. We have a contracting US economy. We have supply chain disruptions. We have the Russia-Ukraine conflict. And on top of all that, we have no known understanding of what is happening in the future. And so going into a midterm election, this is an absolute nightmare. If you look at gas prices in their correlation to

the president or to politicians, it is spelling a complete wipeout of the Democratic Party in the midterm election because gasoline, the national average is now $4.50. People in California are paying as much as $8 for a gallon of gasoline. This is insane. And so naturally, if you start to look and you say to yourself, okay, well, let's look at stocks, value stocks that have cashflow and their earnings are providing value, there's equity value assigned to those earnings today, they're going to do okay. And that's where you saw Berkshire Hathaway hit an all-time high, et cetera. Those value stocks or kind of non-growth stocks will continue to perform decently well. All growth, all tech stocks, et cetera, they're down significantly. In some cases,

they're down 30, 40, 50, some as much as 80 or 90%. And so those are heavily correlated risk on assets when there's loose monetary policy. So those have come down. If you then look at things like real estate, again, real estate prices are a function of supply and demand, and demand is heavily influenced by the interest rate. If interest rates are going up, there's less demand. If there's less demand, then that means that over time, you should see prices come down on real estate. If you look at something like Bitcoin and cryptocurrencies, what's unique there is going into 2020, Bitcoin specifically was held by retail investors. There was very few institutions that were actually going ahead and participating. There was no public companies holding it that

were non-crypto companies. There was very few Wall Street institutions, et cetera. But going into August, September of 2020, we saw two specific developments. One was Michael Saylor and MicroStrategy. They started to buy Bitcoin and talk about it publicly. That led to Square and Tesla also buying Bitcoin and putting it on their public balance sheets. We also saw Paul Tudor Jones and eventually Stanley Druckenmiller and many others start talking about using Bitcoin as an inflation hedge that they're going to put in their portfolio. And so what that did is that basically removed the career risk for people on Wall Street to go ahead and start to allocate their funds to Bitcoin. And now there's two things that occurred with Bitcoin's price. Bitcoin was trading between $8,000 and $10,000 at the time, is that we saw a ton of people who previously weren't holding it start to buy it. the price should go up as that occurs. But also at the same time, there was a highly illiquid

market. One of the reasons is because there was a bunch of people on Wall Street that started trying to orb the GBTC premium. They would go in the private market, they would give grayscale money. They would then, because there's no redemption functionality, that Bitcoin would just sit inside of GBTC. And so what occurred between November of 2020 and March of 2021 is Bitcoin went from about $10,000 up to $64,000, 600 plus increase in the price of Bitcoin, mostly driven because new players came in the market and the players who had already been around, they weren't willing to sell their Bitcoin. And so when you have high illiquidity in the market and new buyers show up, they say, I'll buy your Bitcoin for 10K. Everyone says,

I'm not selling it to you. I'll buy it for 11K. Nobody sells it. 15K. Nobody sells. 20K. Nobody wants to sell. 25, 30, 35, 50, $60,000. Then people start selling it to them. And so you've got this kind of equilibrium in price. Now, one of the questions I always get is, hey, I thought Bitcoin was non-correlated asset. Well, Bitcoin is a non-correlated asset over a long period of time. And so naturally what you get is in March of 2020, Bitcoin was highly correlated. There was a liquidity crisis. All asset prices are correlated during a liquidity crisis. They trend towards one. Right now what's occurred is because so many of those Wall Street investors and those kind of sophisticated institutional investors started to buy Bitcoin, Bitcoin is

the riskiest thing in their portfolio. So when they go risk off, they sell their tech stocks, they sell their growth stocks, they sell Bitcoin, et cetera. And they got a lot of money. And so what we've seen since November is that the institutions, the whales, they've been selling a lot of their Bitcoin. And we've seen continued increasing in the dollar cost averaging of the plebs, the retail investors in Bitcoin. We just crossed over 10 million wallet Bitcoin addresses with at least, I think it's 0.01 Bitcoin in their wallet. And those are just people who have a couple of hundred dollars worth of Bitcoin, we continue to hit all time high after all time high after all time high there. And so naturally what has occurred is that we've gotten a flush out of

a lot of the institution. Most of the institutions that we're going to sell, they've sold. And that's where you see Bitcoin really kind of going sideways now in trading between $25,000, $35,000 price point, which sounds super volatile, but in Bitcoin terms, isn't nearly as volatile as let's say if that was in the stock market or somewhere else. And so this idea of non-correlation, over a long period of time, Bitcoin is a non-correlated asset. But in times where correlations of assets goes towards one, liquidity crisis, or in a quantitative tightening environment, you get very high correlation. That's where you see Bitcoin's correlation to the NASDAQ, as an example, hitting an all-time high, is because they are being treated the exact same

from institution and professional investors. Now, the other question I get a lot around Bitcoin specifically is I thought Bitcoin was supposed to be an inflation hedge. Inflation's at 8%. What the hell? One of the things you have to understand is that inflation hedges go up in value before the inflation shows up. Think about it. If I think inflation is coming, like Paul Tudor Jones thought inflation was coming, sitting there in Q3 of 2020, I don't wait for the inflation to show up before I move my money. I move my money in anticipation of the inflation. And so what we saw was before we ever got a 5% inflation reading, Bitcoin went from $10,000 to $64,000. That was people moving their money to be prepared and positioned in a high inflation environment.

And so naturally, now that we have high inflation, guess what? Those people did really well. Even though Bitcoin's prices come down is now around $30,000, that's still a 300% increase from where it was in Q3 of 2020. And if you go all the way back to before the pandemic, and you look at asset prices or asset classes and their performance, Bitcoin has outperformed stocks, it's outperformed bonds, it's outperformed commodities, it's outperformed real estate, it's outperformed currencies, et cetera. Bitcoin has been the best place to go over the last two years. Now, that doesn't mean that this is going to be the best place over the next two years. It doesn't mean that this is financial advice and you should go out and buy Bitcoin.

It just simply says, looking back over the last two years, if you had to go back to February of 2020 and do it all over again, you would have put your money in Bitcoin over stocks, bonds, currencies, commodities, real estate, et cetera. And so Bitcoin was the best inflation hedge asset. It also serves as a non-correlated asset over a long period of time. And so naturally what we end up seeing here is people are very miseducated when it comes to these nuances of the financial system. And so what we see at the bottoms of markets all the time is people start yelling about things going to zero. Things are over. It's all over. It's all over. It's all over.

And I think that there is a understanding that fear drives these markets. We can look at the fear and greed index as one example. It's at like 10 to 15. Super, super fearful. Everyone's fearful all over the entire market. But I think that this is a time where you have to step back for a second and say, okay, if I am going to look at allocating assets, what do I think is going to be around five or 10 years from now? If you are actually a long-term investor, what is the most kind of attractive thing from here? Now, I personally, this is me speaking, so not financial advice. My view is that Bitcoin at $30,000, where it was back in January of 2021, 18 months ago, and it has higher hash rate. It has higher active wallets. It has an all-time high number of people, dollar cost averaging with Bitcoin addresses on chain, et cetera.

All those metrics are up. Lightning Network, all of it's up. But I get the same price, pretty attractive. Some may argue that that would be a value investor's analysis of an asset like Bitcoin. Now, the big problem that people are going to have to face here is, are we going to actually go into a recession? How bad will it be? And how long will it last if we get there?

I don't know. I don't know if we're going to actually go into a recession. Odds are we will see more economic contraction this year. But let's see what the Q2 GDP number ends up being. What I do think is that the Federal Reserve is committed in the short term to continue to raise interest rates and also quantitative tightening. I do not think that we get to the end of the year and they still are aggressively pursuing both of those strategies. I could be wrong, but we'll see. And I think that there is an outsized chance that they end up actually trying to stimulate the economy before the end of the year with either kind of a half-hearted interest rate cut or some sort of

stopping of the quantitative tightening so that they can go ahead and tell people, hey, it's going to be okay. Asset prices stop falling, midterm elections, let's keep going. So what can you do ends up being the next question. And I think the biggest thing that people need to understand is there's not a lot you can do. You got to focus on what you can control. You can't control monetary policy, no matter how much you tweet, how much you complain, how much you write articles, how much you talk to your friend, your barber, the taxi driver, your wife, your husband, your neighbor. You can't control monetary policy. You also can't control fiscal policy. You also can't control the stock market. What you can control though, is you can control the

strength of your balance sheet. So if you've got a business, you got to make sure that you strengthen that balance sheet as fast as possible. Go raise equity, get revenue in, get capital on your balance sheet so you can ensure that you're going to be here two years from now. If you don't survive, you can't thrive later. You've got to survive the bad times so you can thrive in the good times. Now, the other thing that ends up happening is in your personal life, you also need to have a strong balance sheet. So you need to make sure that you do everything you possibly can so that you've got liquidity or capital, whether you want to simply make sure that you're still around, you can pay your bills, you can do the things you want to do in your life and you're

not drastically affected by a recession, or you actually want to deploy capital into the market so that you can drive some sort of financial return. Either one of those things is fine, but you've got to make sure that you take a look at, is my business balance sheet strong and is my personal balance sheet strong? Those are the two biggest things that you can actually go ahead and control. Now, another thing you can control is that you can get aggressive. You can go to work. What do I mean by that? There are over 11 million open jobs in America. If you work at a job right now that hasn't given you a raise in the last two years, you should go find another job. If you work in a place where you're not getting paid a ton of money, but it's not super hard,

you should go get a second job. You should do everything you possibly can to drive revenue or income for yourself so that you can shore up that balance sheet and then go on offense when you feel of time. That's right. And so naturally what I think, if you are in a position, strong balance sheet, go to work. Whether that is building a company from scratch, whether that is getting a second job, whether that is switching jobs, whatever, go to work. Get a strong balance sheet, start working hard. The third thing you can do for many of you, pull out a notebook and start learning. Write down what's happening. Keep track of the various events. What does the Federal Reserve saying? What happens next? Three months ago, what did they say? Did that happen? Did it

not? Pay attention and learn, especially if you're a young person. There will be more good times and bad times throughout your life. And so if you use this as a learning opportunity, you are getting experience right now that people who entered the market after 2010, for the most part, haven't experienced this. And so naturally, I talked to an investor yesterday and he said to me, he said, I have an advantage right now. I lived through two of these. I lived through the 2001.com bust and I, or a 2000.com bust. And I also lived through the 2008, 2009 global financial crisis as an investor. He says he went out to Silicon Valley in the nineties. And so this is a third time. He knows exactly what to do. What's the playbook. And I think that ends up being a really

important part too. You are in control of your learning right now. So get a strong balance sheet, go to work and start learning, start paying attention. And then the last thing that I'll say is that one of the things I always see occur in good or bad times is people end up going to the extremes from an emotional standpoint. You get too excited or you get too down on yourself. It's just money. It does not matter over the long period of time in a sense of your happiness is somewhat affected, but you ultimately can be happy even in the bad times from a financial standpoint. If your stock portfolio is down a lot and you're not going to sell, stop worrying about it. You're not going to do anything different anyways. So move on with your life. If you've

got a bunch of crypto and it's down, and no matter how low it goes, you're not going to sell it, move on with your life and just let time do its thing. And so I think these are the things that end up occurring is that you need to be able to look at yourself and say, do I have a strong balance sheet? Am I willing to do the work right now to end up driving more revenue for my business or income personally? Am I willing to learn? And am I aware of my emotional state? And can I get myself into a position where I am happier, where I'm a clearer thinker, I'm calmer, etc. Those are the things that you can end up doing. Those are the things that you're in control for. Now I'm going to spend, uh, 40 minutes. That's pretty impressive. Actually 40 minutes straight. I'm

going to spend about 10 minutes answering questions. So if you have questions, drop them in the chat right now, I'll do my best to answer as many as possible. Uh, in the meantime, I have two things that I would love for, uh, for you all to do. The first is please make sure you're subscribed to the YouTube channel. We're going to be doing more of these videos as this continues playing out. The second thing is that if you can make sure that you like the video, that'll go ahead and make sure more people on YouTube see this. So hit the thumbs up on YouTube video. Go ahead and like that. And also make sure you're subscribed to the channel. And the last thing is the guys over at FTX, we've been working with them now for a little bit. They've given us this

link. If you want to go check out Bitcoin cryptocurrencies, you can go there and they've got a bunch of different things that you can do in terms of getting various rewards for opening an account, I think for beginning to trade or buy assets, et cetera. So you can go check it out there. All right, let's get into the questions here. First is a good book. So I always give three recommendations on books. The best books that I think people can read, especially when you're younger. This is pretty much targeting younger people, but it benefits everyone. Rich Dad, Poor Dad by Robert Kiyosaki, I think is great. Thinking Grow Rich is another great one. And The Richest Man in Babylon is a great book as well. Books that I've been reading recently,

I just got this yesterday. This is actually a really great one, Billed from Tony Fadell, about a third of the way through it. It's pretty good. There's a couple other ones here. uh this is uh one that makes you just think more critically it's called fossil future by alex epstein uh why global human flourishing requires more oil coal and natural gas not less uh what else is here uh we got this one uh amazon unbound jeff bezos and the invention of a global empire you see this here um so lots and lots of books i try my best to read as much as possible it ends up being pretty valuable for obvious reasons. Ray Dalio's recent book on the changing world order is also a great one. And then I also do a lot of podcasts as well that ends up being

pretty effective. All right. What other questions do we have here? How long do you think a recession could last six to 12 months, Darren Cooper? Look, most recessions end up, if they're kind of a shallow recession, could be 12 months. The official definition of a recession is two consecutive quarters of GDP, uh, contraction. Um, but you know, 12 months or so is usually when people are affected could go 18, a really bad recession would be like 24 months. Uh, so kind of 12 to 24 months would be the historical, uh, norm. Um, but, uh, I don't know. I actually don't know, uh, what, uh, uh, what, what is going to happen here. I think that for most people, if you can get in a position where you say, Hey, I'm going to be good for like 18 months,

then you'll be in good shape. How do I feel about investing in energy or oil? Look, I know people who are fantastic investors in kind of the energy sector. I'm not one of them. I don't have any advantage. They don't spend a lot of time thinking about it. But I do think, Chris, that there's obviously a lot of people who made money over the last couple of months, specifically with all the geopolitical uncertainty. And the world runs on energy. So it's not going to go to zero. It's not going to go away. I think just trying to figure out what's your advantage, how do you actually get some sort of exposure, and what does that look like? What are your risk parameters? I'm not that guy, but there's plenty of people out there that probably you can find that'll do it. So Sim asked, what's your investing advice over the next one to two years out? What are you investing in?

Crypto, real estate, commodities, stocks, et cetera. So definitely not advice. I can tell you what I'm doing, but this is definitely not financial advice. I've pretty much, outside of having to sell assets to pay taxes, I pretty much just buy as many assets as I possibly can. And my goal is to hold them forever, right? That's my overarching strategy. And so my current portfolio, I've got some real estate. I obviously have Bitcoin. I've got a lot

of exposure to private market investing via venture capital funds, either as an LP or funds where I've managed a fund or as an angel investor. And then I pretty much have no public market exposure other than GBTC in a retirement account. So I don't think I have an advantage in the public markets. And it ends up not being the risk reward that I'm looking for. So I don't really play there. I don't have any oil or any sort of commodity exposure like that either. So I'm pretty much real estate, crypto, and then private market investing. And then also, I own either majority or 100% of businesses that have cash flow as well. And so from a sense, there's investments there, uh, also. And so when you think about that over the next one to two years, my situation,

like I'm going to keep doing what I was doing already. Uh, I don't have to make short-term decisions. I'm, I'm relatively young. I'm in my early thirties. Uh, and, uh, maybe I'm creeping into mid thirties. I don't know when you have to change saying early to mid thirties. Uh, but as you look over the next two years, nothing in my life is going to change. I'm not near retirement age in the sense of all of a sudden now I should start selling my portfolio to live on or anything like that. And I have the ability to, assets I buy now, if they go down further, I can just hold them until they recover. I'm not a forced seller. I don't have any major issues. So a lot of it will be, I'll continue to obviously invest in Bitcoin. I'll continue to invest in private

market companies, and I'll continue to invest in real estate. And as I continue to do those three things from a pure investment portfolio standpoint, also continue to build companies as well. But that's why the strategy is don't do that much different. And it tends to work out. Because again, think, if this is a 12-month situation, if you're making decisions today and you're panicking, but you could have lasted for 12 months anyways, then you should be okay. And so I don't think that you want to panic right now. I don't think you want to get in a bad situation. I see EDH420 says, do you share Elon's nervousness about the economy? I don't know if you should say I'm nervous. I think there's a lot of uncertainty. There's a

lot of questions. There's more questions than answers. So I just went over kind of how we got to the situation that we're in. And the big question is if we have high inflation of over 8% right now, and the Fed is increasing interest rates and conducting quantitative tightening, How quickly does that inflation come down? I don't think at this point, given what the actions they're doing, it would be hard for me to see inflation continuing in the official CPI metrics into the double digits. I do think that we've likely seen the peak of the inflation. Again, I resorted the right to change my mind, and maybe I'm 70% confident in that. But it seems like, given that the last inflation reading came down a little bit, they're also hiking rates,

they're conducting quantitative tightening, we should see inflation start to come down. You also have the base effect going in June, where now it's compounding growth. It's not just off of kind of flat numbers. So that'll help bring the number down as well, I think. And so the big question is just like, even though the inflation official number comes down, there's still inflation in the economy. And if they're raising rates, they're conducting quantitative tightening, there's geopolitical uncertainty, there's a midterm election looming, like what happens? I don't know. And so that uncertainty ends up, I think, driving what this person asked about, like nervousness. And when there's uncertainty, people just don't want

to make a mistake. And so what they end up doing is they say, let's pause hiring. Let's slow down a little bit. Let's all chill out here. Let's not act real crazy. And so I think that can be a good way to look at it. Ranger the dog, which hopefully I don't know if that's my brother Joe, or if that's somebody else asks, what are the biggest risks Bitcoin faces? You know, I think that Bitcoin is in a very unique position in that the biggest risk is actually a internal risk, meaning that I don't worry about geopolitical risk, I don't worry about an external hack of Bitcoin or anything like that, I think probably the biggest risk, and I'll caveat this with saying it is essentially a 0% risk, nothing 0% risk, but it's a very, very, very low probability,

is some sort of self-induced wound. Bitcoin is software. That software still has people maintaining it. It still gets updated. And the development process is very much methodical. It's intentional. It's somewhat slow in order to ensure that there's nothing that ends up getting broken. There's $800 billion or so of economic value at stake here. And we're trying to build a system that's going to last for centuries. And so there's no rush. But just making sure that there's no bug or anything like that introduced, I think is important, obviously, as do the developers. So to me, it's more of the balls in our court. And we're likely to make the biggest mistakes. Another, I don't want to say it's a risk, but it's something to pay attention to,

is definitely this ESG narrative. You see these politicians running around, you score political points for talking about it, but when these academic theories meet reality, reality wins. And so take New York. New York recently discussed this idea of a moratorium on new miners that aren't 100% renewable. And the politician who put it forward said, oh, everyone's taking this out of context. It's not going to have a bad impact. Don't worry. Everyone's freaking out, blah, blah, blah, whatever. And I believe it's a woman who said, we're not going to lose economic value because of this. It's not going to hurt our economy. But at the same time she's saying all this, 50% of the miners in New York have left over the last

year. So it's an academic theory. Oh, this doesn't have a big issue. We shouldn't worry about it. It's not a problem. Don't worry. It's not going to hurt our economy. At the same time, 50% of the miners left. So reality meets academic theory. Reality wins. And I think that's an important piece of it. It's like this ESG narrative, it's just a pain in the ass because we've got to deal with it. We've got to answer it. We've got to talk about it. But what ends up happening is that ESG is a complete scam. The whole thing is just full of nonsense. And so naturally, I think reality will win out. But the academic theory is something that has to be addressed. And then the other thing is, I still think that taxation in the United States, if you really think about, especially in the United States, if I go to dinner tonight and I buy dinner with dollars, I pay for the price of the meal. I tip the waiter or waitress and I pay sales tax and I walk out of the restaurant. If I buy it in

Bitcoin, I end up paying for the price of the meal. I tip the waiter or waitress, I pay sales tax, and then I pay capital gains in Bitcoin. And so naturally there's a fairly abrasive tax treatment that's treated as property. And so I think that that's going to have to get solved over time. It's not a risk. It's just something that needs to kind of be addressed, if you will. All right. So I'm going to take two more questions and I got things I got to go do. Before that, make sure you like the video. Make sure you subscribe to the channel. Let's see. Will asked a question. Are past long-term bear markets comparable to current markets? Now that investing has been democratized and we now have millions of DGens wanting to play

the tickers with their monthly paychecks. It's a great question, right? There's been more gamification of markets. There's been looser monetary policy the last couple of years, etc. I do, though, probably more so than most people in the Bitcoin or crypto industry, put weight on history. I think that history is a great guide. And it boils down to one simple thing, and this isn't my idea. Plenty of other investors have talked about it. Human nature doesn't change. And so naturally, if you can understand past market cycles, whether it's stocks, commodities, real estate, currencies, or crypto, human nature doesn't change.

And sure, there's nuanced differences. There can be macroeconomic differences, all that. But the same things end up occurring. When prices go down, people panic and they sell. People who have strong balance sheets and liquidity and the courage to believe in the long-term value of the assets and they select well, they end up doing really well. Right. There's this whole thought process of kind of fortunes are made in the bear markets and they're reaped in the bull markets. And I think that that ends up being a pretty good way to to be the world. So, you know, I pay attention to history a lot. I like to read a lot, but I don't necessarily know if everyone's doing that. So that would be one big thing. And then let's see, Ease Inbox. What do you think about Arthur Hayes' theory the boomers will force the Fed to help risk on? I don't know exactly what Arthur said. I know he recently published a piece. I haven't had the chance to read it yet. So maybe I'll go tonight and I'll take a look at it and have different thoughts. But yeah, I do think

that there is a relationship. I'm assuming what he's talking about, and I got to be careful with assumptions, but I'm assuming what he's talking about is a lot of fixed income assets, a lot of older folks, whether it's pensions, their retirement accounts, et cetera, they're getting decimated right now. And so if all of a sudden you have the baby boomers who are all moving to retirement age, their portfolios are getting decimated, they're going to start applying pressure. And the first place that they're going to apply pressure is at the ballot box in November. They're going to show up. And look, people who vote are very unique characters because what usually happens is there's tons of talk about politicians and politics and this

cause or this cause, this cause, this cause. At the end of the day, the majority of people, my personal belief is majority of people care about one thing, their pocketbook. And if you end up being in an environment where they're making lots of money, then likely what happens is that they're going to be sympathetic to you and your political party. If you end up hurting their pocketbook, they come and they try to vote you out. And so with gasoline at $4.50 on a national average, with asset prices falling off a cliff this year in a midterm election year, I don't think it looks very good for the Democrats right now. Now, again, there'll be some that are outliers and they're fine. And there'll be some that are running unopposed. There'll be some that

are running against incompetent candidates, whatever. But I think overall, there's kind of a wake-up call that's coming because at the end of the day, voters care about one thing, which is their pocketbook. And so I do think that boomers or baby boomers end up being very, very, very concerned right now. Because again, if you go back to 2020, this last thing I'll leave you guys with. In March of 2020, when the stock market went down 25%, 30%, gold's down 15%, Bitcoin down 50%, all of a sudden, prices went down, prices go down because people are selling, and they rocketed back after the central bank intervened. And there was a study done that said, well, who was selling during that point? And one of the biggest portions of people that were selling at the bottom of the March 2020 market were people who were either in retirement or close to retirement age. And the reason was because if they had lived through the global financial crisis in 2007, 2008, they had to wait in some cases five years before their asset prices got back.

And a bunch of them said, look, I'll just take the 20% haircut now. Just give me the cash. I want the cash. I want security. I can't – what if this goes down 40%, 50%? I can't stomach that. And so naturally what occurred is you end up getting people who sold the bottom who actually need the money. And so same thing is happening now. There's a bunch of people near retirement or in retirement that are older. They're freaking out. And so I do think that there's some kind of credibility to the theory that they're going to end up pressuring the Fed and saying, hey, you can't intentionally crash the stock market and push us into a recession because you guys were so incompetent that you got us to the high inflation. what are you doing? And I think that's going to be a big, big problem for folks. So that's, uh, that, that, that's kind of my thoughts right now. Um, if, uh, for those of you, um, before I let you guys go, uh, let me, I'll leave you guys with a couple of, uh, a couple of things that are probably, uh, important. So if this stuff is, uh, uh, is valuable and, and, uh, you enjoy

this stuff, I just put into the chat right now, a link. Uh, I write a daily letter to, um, about 220,000 investors. It's every morning. It goes out. I talk about business, finance, economics, Bitcoin, kind of what the Fed's doing, how to think about markets, asset prices, et cetera. So you can click on that link and you can subscribe there. Or you can also leave it as the pinned comment on the video after we shut it off. So make sure you subscribe there to that. A lot of folks probably benefit from that and enjoy that. I hope that you guys enjoyed this. I had an hour sitting here, so I figured I'd just jump on and go ahead and record. Make sure you like the video.

If we can get, I don't know, maybe 2,500 likes or so on the video, usually they do pretty well. And then also make sure that you're subscribed to the channel. I'll start trying to do these a little bit more often. Just keep everyone updated on kind of what's going on, how we got to where we are, where I think we're going, and then answer some questions. But other than that, love you all. I appreciate all of you hanging out on YouTube, Twitter.

reading the email every day. And if I can do anything to help you guys, I will do my best I can. But until next time, see you guys later. 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 pompscryptocourse.com to learn more and i'll meet you guys for the next episode