Getting Out Of Cash Is Key To Wealth And Inflation Protection, Pompliano Says (#GotBitcoin?)
Describing the current economic state, including pending inflation, Anthony Pompliano noted exiting cash into other assets as the key to wealth. Getting Out Of Cash Is Key To Wealth And Inflation Protection, Pompliano Says (#GotBitcoin?)
During a recent YouTube livestream, Morgan Creek Digital co-founder and crypto expert Anthony Pompliano detailed the current post-COIVD-19 economy, noting the U.S. government’s money printing and spending efforts.
“There is a devaluation of currency,” Pomliano said in his July 18 livestream. “The whole secret to building wealth is to get out of cash and get into assets that are denominated in dollars that will continue to go up in value over long periods of time — stocks, real estate, gold, Bitcoin, all this stuff.”
Assets Up While The Economy Struggles
COVID-19 prevention measures have caused economic stalling and job losses. As part of corrective measures, the U.S. government has pumped money into the country, printing and giving away money, as detailed by Pomliano. U.S. corporations and billionaires have reaped the benefits, receiving mass bailouts, he explained.
“You have to get out of cash,” Pompliano said, urging people to flee into other assets. “Don’t fight the Fed,” he noted, referring to the U.S. Federal Reserve.
“Don’t believe that the Fed cares about the little guy. The Fed cares about managing an economy and pushing asset prices.”
Inflation Has Ravaged The U.S.
The past half a century reveals large-scale inflation in the U.S. as seen when compared to gold. A chart of the stock market showing the past several decades of price action reveals a 45-degree angle upward, meaning markets have essentially risen significantly over time when valued in dollars, Pompliano explained.
“Structurally, stock prices are going up over long periods of time with nothing to do with the underlying companies,” he said. “It has everything to do with the fact that the dollar, the denominator, the thing that the asset is denominated in, is being devalued.”
When valued in gold instead of dollars, however, the same stock market chart shows a declining trend over the last 49 years or so, revealing a devalued dollar instead of higher valued stocks, said Pomp.
Among the assets Pompliano mentioned, Bitcoin in particular, by nature, holds inflation protection against itself. Only 21 million Bitcoin (BTC) will ever exist, based on the asset’s original code.
As world governments print increasing amounts of paper money, Bitcoin’s supply remains constant, making it a type of hedge.
Pompliano has also argued Bitcoin as a non-correlated asset on many occasions, positing the digital asset journeys a price path independent of traditional markets.
Pomp Says Unemployment Has Risen Faster Than In The Great Depression
Anthony Pompliano said recent unemployment has surged faster than the U.S. saw during the Great Depression, but what does that mean for crypto?
Morgan Creek Digital co-founder Anthony Pompliano, also known as Pomp, jumped on a YouTube livestream on July 18, talking about the current economic state and its future.
“In 1929, which was the start of the Great Depression, there was 3.1% unemployment — record low — and that unemployment jumped from 3.1% to over 8.5%, to then over 15% in the next two years,” Pomp said. “What you end up seeing is we have accelerated faster on the unemployment track than even in the Great Depression.”
April 2020 saw 14.7% unemployment in the U.S., up from 3.6% in January, according to data from Tradingeconomics.
COVID-19 Caused A National Upheaval
Governmental COVID-19 prevention measures took flight in March 2020, temporarily closing businesses while urging citizens to stay home. Prior to such measures and concerns, the U.S. hosted a booming economy, Pomp said.
Countless businesses temporarily closed, seeing money flow halt, while workers headed home. In the days and months following, U.S. government forces put various capital injections into play in an attempt to prop up the halted economy.
“They have inflated asset prices by pumping liquidity into the market,” Pomp said. Although the stock market has yielded a dramatic comeback since its COVID-19-related drop, the economy still remains in a state of struggle, shown by the 11.1% unemployment numbers posted in June.
Crypto Is Not Off The Hook
As much as people in the industry would like to say crypto lives outside the mainstream system, digital assets feel effects from the economy. Crypto logically might see less people investing if those people receive smaller wages — the result of unemployment.
Contrary to logic, however, crypto has performed well, rising ahead of mainstream markets.
Historically, the asset has followed traditional markets at times, while travelling its own path on other occasions. Given a rising stock market, and a crypto market elevated from its 2020 low, unemployment numbers seemingly yield less impact than logic might hold, at least for now.
Pomp Launches New Venture Fund, Says ‘You’ll Never Regret Betting On Yourself’
He’s chosen a rolling fund structure for reasons of flexibility.
Anthony Pompliano, co-founder of Morgan Creek Digital, announced the launch of a new fund based around his own person and brand.
“Today I am announcing a new rolling fund that will be backed by a group of successful investors across Silicon Valley and Wall Street,” Pompliano said in a Sept. 11 blog post announcement. “This rolling fund structure gives me ultimate flexibility, which I believe will lead to a significant advantage when investing in early stage technology companies.”
Pompliano plans to open a solo general partner, or GP, fund as a solo capitalist. Essentially, Pomp is turning himself and his brand into a fund for investing in startups, while also capable of receiving outside investments.
“One of my guiding principles has always been: ‘You will never regret betting on yourself,'” Pompliano explained.
The innovator described “frictionless solo GP fund structures” as a newer opportunity for individuals with brands and notoriety based around themselves. Big-time YouTubers and influencers hold as a good example.
They often have large followings, sponsorships and content, based around themselves as people, amid the sector in which they provide content. This business structure turns such individuals investable entities, who can then turn around and put that money toward other funding opportunities, Pompliano explained.
This business move makes sense for Pompliano, whose personal brand has reached significant size. Among his endeavors, Pompliano has a well-known podcast, as well as a Twitter presence holding an audience of almost 370,000.
Pompliano mentioned a changing atmosphere ahead, spurring the growth of individuals as businesses entities — solo-capitalists as he formally called them, which will bring a bevy of changes to the overall business world landscape, including emphasis on individual identity.
“The best part is that these fund structures significantly increase access for the average person to the venture capital asset class. Any accredited investor can now invest with me, rather than the opportunity only being accessible to large institutions. We may not be able to decentralize the world yet, but rolling funds brings us one step closer to the ultimate goal.”
An expert in the crypto space, Pompliano is also a massive Bitcoin advocate, famous for his classification of Bitcoin as a non-correlated asset, separate from traditional finance.
Bridgewater Co-CIO Sees Inflation Spiral Forcing Fed Into Action
The world is on the verge of a new inflationary wave that could force the Federal Reserve to raise rates earlier than planned, according to the co-chief investment officer of the world’s largest hedge fund.
The U.S.’s “extreme” approach to fiscal stimulus looks set to turbocharge consumer prices while threatening the post-crisis bond and stock rally, Greg Jensen at Bridgewater Associates said in an interview.
“The pricing-in of inflation in markets is actually the beginning of a major secular change, not an overreaction to what’s going on,” Jensen said. “Economic conditions and inflation will adjust faster than either markets or the Fed are expecting.”
While market-derived inflation expectations have surged near a 12-year high, the Fed has signaled patience with a heating economy and projected no rate hike for the coming two years. It’s a stance policy makers are expected to reiterate at the end of their meeting Wednesday.
Between the upcoming $1.9 trillion stimulus program and the ending of lockdowns, traders are betting the economic revival will force the Fed’s hand sooner. Eurodollar contracts suggest a roughly 75% chance of tighter policy by December 2022.
Bridgewater has long sounded the alarm over holding bonds amid rising inflation risk, something emphasized in recent days by top guns including founder Ray Dalio to co-chief investment officer Bob Prince. The $150 billion macro hedge fund last year shifted part of its All Weather portfolio from nominal government debt to inflation-linked notes and gold.
Labor-friendly policies and slowing globalization mean technological progress is the only disinflationary force around, according to Jensen. Meanwhile, fiscal and monetary policy makers are likely to offer yet-more support until breaking point.
Bridgewater aims to win big from this macro turnaround, using alternative data to map the rollout of the fiscal stimulus, which Jensen says is by nature harder to track than monetary tools. The Pure Alpha fund’s record loss last year was in part down to the fact the firm was caught off-guard by the speed of both the global lockdowns and subsequent policy support.
“If the risk to equities is higher rates, rates don’t help,” Jensen said. “The ability to use bonds to diversify has got significantly worse and obviously the ability to use bonds to get returns has got significantly worse.”
With No Inflation In Sight, Why The Inflation Debate?
It’s a question that divides the financial world: Is inflation returning? One camp contends that governments’ no-expense-spared response to Covid-19 has put developed economies on course for rising prices on a scale unseen in decades. The other says the pandemic hasn’t altered the dynamics of the past dozen years or so when deflation, rather than overheating, has been the big threat.
There’s been little sign of a surge in price gains, and most economists aren’t expecting one, yet global markets have priced in inflation accelerating to multiyear highs. Those expectations have been spurred by the U.S. Federal Reserve’s new determination to allow inflation to run higher during recoveries and the prospect of more stimulus spending under U.S. President Joe Biden. Here are some of the arguments for and against a return of inflation:
Case for Inflation: Money Supply
Inflation is always and everywhere a monetary phenomenon, the free-market economist Milton Friedman famously argued. In other words, there’s too much money available for chasing the goods and services on offer. Those who support this widely held belief say the multitrilliondollar wave of money created by governments and central banks to fight the economic fallout of the virus will, sooner or later, wash through the whole economy and push prices up.
There was great fear that massive stimulus would trigger a surge in demand after the 2008 global financial crisis, but it never happened; much of the Fed’s new money stayed on banks’ balance sheets. This time, the cash is making its way into the pockets of consumers and companies.
Case Against: Money Velocity
Prices are affected by how often money is used, not just how much of it exists. That’s one explanation for subdued inflation since the financial crisis, even as central banks cranked up the printing presses. In the U.S. the “velocity” of money — the frequency with which it changes hands, as people use it to buy goods and services — fell off in 2008 and never recovered.
In 2020, it collapsed to unprecedented lows, about half the level seen in the prior decade. Money hoarding because of the uncertain outlook partly explains the phenomenon. Some economists say money velocity is likely to speed up as a healthier banking system and a growing population aged 20-54 will combine to ensure that the new money moves around much faster this time.
Case For Inflation: Households Are Flush
Spending may bounce back faster than it did after 2008 and drive prices higher because a more aggressive policy response has cushioned the blow for households. Governments provided substantial support to workers who got furloughed or fired. More than 150 million Americans received checks worth up to $1,200.
Most are set to get another check for $1,400 under Biden’s $1.9 trillion relief plan — a package that’s big enough to push the economy past its sustainable speed limit, according to some economists. Fiscal stimulus, unlike the monetary kind, can go directly into people’s hands — where it’s likely to get spent. What’s more, rising stock and housing markets helped add more than $5 trillion to the net worth of U.S. households in 2020.
Case Against: Households are Cautious
Incomes may have held up in the months following the coronavirus outbreak thanks to government intervention, but savings rates were higher. That’s partly a function of lockdowns that left restaurants and bars shuttered and air travel widely shunned. But even as economies reopen and consumers have more options, worries about health and employment prospects could mean they stay cautious about spending.
Some 10 million Americans remained without work at the start of February because of the fallout from the pandemic. Almost 40% of the unemployed were jobless for 27 weeks or more, and uncertainty about the virus and rollout of vaccines may restrain hiring and activity.
Case For Inflation: Loose Central Banks
The longtime guardians of price stability are more willing than ever to loosen the reins, a trend emphasized by the Fed’s unveiling in August 2020 of a new approach that lets inflation overshoot and stay there — so it averages 2% over time — before borrowing costs must be raised to cool things off. Loose monetary policy has been tried before in the campaign to gin up some inflation, and fallen short. Now, though, central banks are committing to make up for some of the inflation lost during downturns.
Case Against: Loose Labor Markets
One rule of thumb for policy makers is that there is a trade-off between inflation and unemployment, which, plotted on paper, produces what’s called the Phillips curve. The idea is that prices will only face sustained upward pressure when the economy is using all its resources — including labor. Yet even optimistic forecasters say it will be years before the U.S. is employing as many people as it was in 2019, when the jobless rate was the lowest in half a century.
Factoring in lower labor force participation during the pandemic, Bloomberg Economics estimates U.S. unemployment to be 9.1%, rather than the 6.3% rate announced in the January jobs report. An economy that isn’t using all its available resources such as labor typically has room to grow without triggering inflation. And a key lesson from the long expansion of the 2010s was that those resources were deeper than previously thought.
Case For Inflation: Supply Shocks
There’s already evidence that disruptions to supply chains are pushing prices of certain goods up, as shortages arise in key sectors including semiconductors, shipping costs spike and energy prices rise. Governments have also pressured businesses to bring home manufacturing of strategic goods (masks, medicine, computer chips) even when that makes them more expensive.
Disinflationary trends in recent decades have been driven by “trade, tech and titans” — cheap imports, technological advances and corporate giants with the power to suppress wages. But the same trio also gets blamed for a widening gap between rich and poor and faces political scrutiny that could drastically change inflation dynamics.
Case Against: Spare Capacity
The fight against Covid-19 has often been compared with an actual war, the kind of disaster that historically has triggered inflation. But there’s an important difference. Military conflicts wreck the supply side of the economy, like factories and railway lines, leading to bottlenecks and shortages that push prices up. The coronavirus has left those facilities intact — even if they’re not all being used right now.
In a pandemic, it’s demand that takes the main hit, says Alicia Garcia Herrero, chief Asia Pacific economist with Natixis SA. “Capital is not destroyed or depleted, so it is much easier to end up with excess capacity,” she said.
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