#864 Investing During Macro Uncertainty w/ Anastasia Amoroso

Anastasia Amoroso is the Chief Investment Strategist at iCapital Network. In this conversation, we talk about the market bottom, the price of oil, inflation, and future fed interest rates. ======================= LMAX Digital - the market-leading solution for institutional crypto trading & custodial services - offers clients a regulated, transparent and secure trading environment, together with the deepest pool of crypto liquidity. LMAX Digital is also a primary price discovery venue, streaming real-time market data to the industry’s leading analytics platforms. LMAX Digital - secure, liquid, trusted. Learn more at LMAXdigital.com/pomp ======================= The Pod Pro Cover by Eight Sleep is the most advanced solution on the market for thermoregulation. It pairs dynamic cooling and heating with biometric tracking. Go to https://www.eightsleep.com/Pomp to check out the Pod Pro Cover and save $150 at checkout. Eight Sleep currently ships within the USA, Canada, and the UK. ======================= The world's 2nd largest crypto exchange, OKEx, has dropped the "E" to become OKX, reflecting its evolution from a traditional crypto exchange to a comprehensive, cross-platform crypto services provider. With OKX's decentralized platform and Web3 wallet, MetaX, you have full custody over your crypto. Explore DeFi, NFTs and play-to-earning gaming with the world's most powerful crypto exchange. Visit OKX.com to learn more. =======================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  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. Anastasia Amaroso is the Chief Investment Strategist at iCapital Network. In this conversation, we talk about calling the bottom of markets, what the price of oil is likely to do from here, the Federal Reserve, interest rates, and how that impacts inflation, along with much, much more. I really enjoyed this conversation with Anastasia, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. First up is LMAX Digital, the number one institutional crypto exchange. They offer clients the deepest pool of crypto liquidity on the planet, underscored by 100% uptime

• 0:44Anthony Pompliano?

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• 1:26Anthony Pompliano?

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• 2:10Anthony Pompliano?

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• 2:53Anthony Pompliano?

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• 3:17Speaker 01

  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.

• 3:40Anthony Pompliano?

  We got a lot of questions about the macro environment. It's probably the number one thing that people keep writing to us, tweeting at us, asking us questions. So we have a very special guest, Anastasia Amoroso, is joining us from iCapital. Anastasia, how are you?

• 3:56Speaker 02

  Good. How are you guys doing?

• 3:57Anthony Pompliano?

  We're doing fantastic. I have a lot of questions for you, so I figure I'm just going to start throwing them out there and you do your best to help us figure out what the hell is going on in the market. Let's start first with inflation. We saw last week 7.9% inflation. How accurate is that number in your opinion?

• 4:16Speaker 02

  Well, like, I think it's as accurate as we're going to get, But the challenge with it is this number was supposed to be going down now for months. It was actually supposed to peak last month, but as we continue to see the inflation pressures are just continuing to build. And so as a result, anywhere you look across the streets, more and more economists are penciling it in, more and more inflation for this year. Now, at the end of this year, the forecast was supposed to subside for inflation to three, maybe three and a half percent. I looked at it just yesterday, and now the forecast for inflation is still calling for it to be at 5% by the end of the year. So that's a challenge. And, you know, when I look, Anthony, at inflation number from last week, it's just everywhere.

• 5:00Speaker 02

  You got 7.9% headline inflation. You got 7.9% food inflation. You've still got used car prices that are running at 41% higher than they were the year before that. There's energy, there's shelter, and so on and so forth. So it's a real problem is that it's just we can't point to one factor that's driving this. It's a multitude of things. So a lot to unpack there, and that's why it's such a challenge for the Fed. And frankly, it has to be a challenge for the governments as well. The Fed can't just tackle this alone.

• 5:32Anthony Pompliano?

  Yeah, I think it's a great point. One of the themes that we've talked about a lot over the last, you know, six, eight months is just if you don't have good data, you can't make good decisions, right? Just inherently, if you're looking at bad data or flawed data, you're going to lead to bad decision making. And you mentioned shelter, and I think that's probably one of like the biggest questions that people have had as we've looked at the data, which is shelter is showing, you know, four or 5% increase in price over the last 12 months, but rent prices in America are up, you know, 18, 20%. Home prices are up 18, 20%. And so when we start to think of that as just one of many, many examples across kind of the makeup of the CPI, it makes up 33% of the basket, give or take. And so like, how do you think about the methodology that goes into calculating the

• 6:16Anthony Pompliano?

  number? And are people misplaced in their concerns around how that is being calculated? Or do you think actually maybe we should be looking at that, you know, especially in an environment where there's such high inflation and everyone's trying to figure out what the actual numbers?

• 6:30Speaker 02

  Well, I think you bring up a really good point, and that is that your CPI basket, my CPI basket, and somebody else's CPI basket are probably not apples to apples. They're in fact quite different. And so the challenge right now, you brought up shelter, and you know, I brought up food, and you've got energy, transportation costs, and you've got electricity costs. When I look at those four things right there, they account for 94% of spending of the low-income consumer. And so that's a real challenge. So if you're having to pay that much more for shelter and food and everything else, that crowds out some of the other spending. So while, for example, somebody in the top, you know, one, two, or whatever percent of their spending bracket, they're not feeling the pinch from shelter inflation, many, many consumers are.

• 7:14Speaker 02

  And so, you know, I take your point that the Fed looks at this one CPI indicator and tries to make a decision based on that, but I do think they also look at a variety of different measures. I think there's 19 different inflation indicators that they look at, and they must be looking at the segments because inflation certainly does not hit everybody to the same degree, the same proportion. The concern is increasingly hitting more and more consumers. Take a look, for example, at the Consumer Confidence Index, and that is at the lowest it's been in 10 years, which is kind of surprising, right? Because here we are venturing out of COVID and things are supposed to be getting better, but consumer confidence is at that 10% 10-year low. The reason is inflation is 7.9%, wages are not.

• 7:59Speaker 02

  Wages are growing at maybe 5% or 6%. So in real terms, more and more consumers unfortunately are seeing their earnings power go down.

• 8:07Anthony Pompliano?

  Yeah, we obviously know that whether you look at official or unofficial inflation numbers, look at wage growth, like all these things, like there's a lot, right? Again, maybe 50% of Americans that are being pushed into worse and worse financial situation. And so that then begs the question of like, what can the Federal Reserve actually do, right? Historically, they've basically had these two tools, which is the manipulation of interest rates and then the expansion or contraction of the money supply. How do you think about what they can do in these situations? And then also like, what do you think they're going to do? Do as we look forward.

• 8:40Speaker 02

  Yeah, well, the first thing they can do and they should do is they should get away from being behind the curve to actually being proactive about this. And I'll tell you, you know, in their defense, right, I think the Fed probably would have thought about hiking rates back in the summer of last year, and maybe then again, you know, in the fall of last year, but the challenge is you had the Delta variant and, you know, that wreaked havoc with the supply chains. Then you have the Omicron variant and they had to pause for that as well. So finally, it seems like they have an opening for them to finally to catch up. If you think about what's happened is you still have rates that are pegged at zero, inflation at seven point nine percent. But the economy had essentially two months recession.

• 9:23Speaker 02

  It was a very deep recession back in twenty twenty, but we're well past that. So this is why I say that's why the Fed needs to get back from being behind the curve. Because if you look at a thirty, forty year chart of monetary policy where we are today and inflation, there's never been such a big divergence. So they know this, and this is why in the face of tighter uh financial conditions globally and the war, the tragic war in Russia and Ukraine, they're still saying they're going to hike rates uh this week, at the meeting this week. I think they're probably going to pencil in six rate hikes for the rest of the year as well. The reason why they probably have the latitude to do that is because that's what the markets expect. That's what's currently priced into the market, so that wouldn't be too shocking.

• 10:07Speaker 02

  And then we get them, I think, um a good step forward in order to not be behind the curve. So if they do that, we're going to be looking at the Fed funds rate of one point eight percent, give or take by the end of the year and will likely get to two and a quarter uh next year. So that's what they're gonna do. Um, does it fight inflation? Does it stop inflation in its tracks? Uh, I don't think that does by itself, what I, by what I suspect happens over the course of the next few months to a year is monetary policy is going to get more restrictive. And at the same time, commodity prices are still likely to stay elevated. And that negative, um, you know, wage pressure is going to start to build, so

• 10:48Speaker 02

  I do think we're going to see some demand destruction, unfortunately, uh come in sectors of housing, for example, and some of the other cyclical parts of the economy. So the Fed is going to tighten, demand is going to slow down a little bit, and that's why more and more people now are worried about if a growth slowdown and or recession is on the horizon.

• 11:08Anthony Pompliano?

  So one of the big things that people keep asking is, do we have to pick our poison? Is this a have inflation or raise rates to address inflation and get a recession? Like, is that the framework or the trade-off decision? Or do you evaluate it some other way? Could we have a recession and inflation at the same time? Could we actually not have a recession and no inflation? Like, how do you evaluate what the impact of a hiking of rates actually ends up being?

• 11:35Speaker 02

  Yeah, I think the unfortunate part is, in the next few months, we're going to be in this challenging time period where the Fed is going to be hiking interest rates into a slowdown. And I'm not saying that the recession is imminent and, you know, we're going to plunge right into it. But if you look at historically, what the Fed, when the Fed typically raised interest rates, is when the economy was strong and potentially getting stronger. But because they haven't done it this time around, they're now going to be hiking into a global growth slowdown. So we look at a variety of different growth indicators. But for example, you look at the manufacturing indices. And the manufacturing activity has already peaked late last year and is slowing down. And that's a phenomenon globally. You've got the housing market that's already slowing down as well. And that's what the Fed is hiking into.

• 12:19Speaker 02

  So, you know, again, it's not that we go from, you know, low unemployment rate to 5% or 6% overnight. And it's not that we have negative sequential GDP growth, but it's just that growth sequentially is going to be slower as the Fed hikes rates. And hopefully, eventually, they get inflation under control, perhaps, by the end of the year. So what that means, however, is for the markets, this is not a positive picture. Because if the economy slows and the cost of capital goes up, then equity markets have to adjust for that, two ways. First of all, if you look at the earnings for the S and P 500, right now consensus is penciling in 230 bucks for S and P 500 earnings for the next 12 months.

• 13:01Speaker 02

  Well, does that 230 hold if the economy starts to slow down? So my suspicion is that it doesn't and we're going to start to see some of those downgrades. So just over the weekend, we had Goldman and several others, it actually did downgrade their earnings estimates. And so when I look at the time series of earnings estimates over time, we have now out of a period where there are more positive upgrades versus downgrades, we're now getting into that negative territory. So that historically does not bode well for markets, or at least in terms of generating significant positive performance. And then you've got the Fed that is hiking rates, meaning the cost of capital is rising and the multiple therefore on the S and P 500 may also need to adjust.

• 13:44Speaker 02

  So it's about 18 and a half times today. Does it go back to 17, like 17 and a half, like it was before the pandemic? That's possible. So unless you have a significant resolution, let's say in Russia and Ukraine, unless you have a significant growth catalyst from somewhere else, I just think the returns for the markets are going to be subdued, if not negative.

• 14:07Anthony Pompliano?

  So when we look at something like, let's take the NASDAQ, right, which is down, I don't know, 15 to 30% right now, depending on the day, from the high back in November of 2021, how much further can it fall? Like, are we potentially able to see something that would be seen as like the risk assets? Could they fall another 30, 50%? Like, what is the thought process around risk assets specifically, given that we've got kind of a slowdown underway, we've got inflation out of hand, the Fed has to raise interest rates in order to address some of this stuff. It's usually much later in the kind of problem that they would like to raise those interest rates. And so the risk assets already kind of took a beating at just them talking about raising the rates. Once they start to do

• 14:51Anthony Pompliano?

  it, could it get cut in half again? Or like, how do you think about this?

• 14:54Speaker 02

  Yeah, that's the question. And after, I think, making a pretty bearish case for risk assets here, I want to maybe talk a little bit in a positive light about this. So we have priced in a lot of those things. I would say at least the first degree of them. I think we've priced in higher commodity prices. We have not priced in the second round effects. But you're right, the NASDAQ is down about 15%. The S and P is down twelve or so. And so I would say we're about forty percent of the way to pricing in a recession event. So the average correction, the average bear market in stocks in the S and P at least is about twenty four percent. That that's the median, I should say, that's the median drawdown. So we're down about twelve percent. So again, you know, almost fifty percent of the way there.

• 15:39Speaker 02

  Um, that's frankly, what I would like to see happen. I would like to see a little bit more of a correction here. Perhaps not to price in the full recession probability, not to be down, you know, twenty five or thirty percent. But I want just a little bit more fear to be priced into the markets. Because everybody's talking about this recession outcome and the red flags that are there. But people are kind of not penciling that in. They're not really materially raising those probabilities. But once they do, and once we can say that a great deal of recession risk is in the price. That's when I think the market becomes a screaming buying opportunity because we've priced in the worst. Um, and we just haven't yet. So, you know, from here, I could see potentially another pullback of of ten percent.

• 16:24Speaker 02

  If some of these recessionary dynamics truly do develop. Um, and it's not to say that you wait on the sidelines and you just wait for this pullback. I would just say it's not an all in or nothing approach. I think there's things that you can do in the meantime. There are things that you can buy on a pullback. Um, but again, for a broad market to be screaming buy, I I think higher recession probabilities and perhaps another uh seven to ten percent would be warranted.

• 16:52Anthony Pompliano?

  How do you decide, uh, okay, now's the screaming buy? Like, is there a uh a metric that you look at? Is there a data point? Do you just go on Twitter and everyone thinks the world's ending? So like that's feels like a good time to buy? Like, how do you evaluate, uh, kind of, you know, as close to you can as the market bottom or or kind of, okay, now's the time to get aggressive?

• 17:11Speaker 02

  Well, that's funny you mention that because it is one of the, you know, pretty good data points is what is the sentiment out there? And you know, how bearish exactly is it? Is everyone a bear yet? Not only is it that, but is everybody positioned like a bear? So over the years, I've kind of developed this. You know, easy formula, and I say easy, of course, nothing is, nothing is easy. But you know, my formula is valuation plus positioning plus a catalyst. And it works both ways, on the bullish side and the bearish side. And so if we get to a point where valuations are back to, you know, pre-COVID levels, as I mentioned, they aren't there yet, they're at eighteen and a half, they could get to perhaps seventeen. If we get to the valuations that are increasingly pricing in recession, that, that's one thing. Uh, the second thing is positioning.

• 17:57Speaker 02

  As I mentioned, the sentiment actually feels pretty bearish out there. The percentage of, uh, bears, I think recently was about fifty, fifty-five percent, and that was back to twenty thirteen levels. So we've, uh, you know, people have been talking pretty bearish. But when we look at the fund flows, you actually still see a lot of money going into the equity market, and especially prior to this, going into the global equity market. So I would love to see that turn, and I would love to see that for the capitulation, to see the positioning has been clear. Now, there's many indicators of positioning to watch. There's the retail investors, there's the fund flows, there's institutional investors, and then there's also the hedge funds. So that's a little bit the silver lining here, and some good news is that we have seen

• 18:41Speaker 02

  a major de-risking, de-grossing from the hedge fund community. So their leverage ratios are now back down to November of twenty twenty levels. So I think a lot of the selling pressure that has been sweeping through the markets has been because of that. So that's why I might tell you, if we have a positive resolution in Russia and Ukraine, I could see the stock markets bounce just because of how deleveraged the hedge funds have gotten. But to see full capitulation and to say, this is it, this is the moment, I would need to see more investors that have been still allocating to equities. I would need to see those pull back. And the last thing is the catalyst. You know, this is a tough part right now. I, I will say, in April, in March of twenty twenty,

• 19:24Speaker 02

  It was kind of easy in a way to call for a market turnaround because you've priced in the worst-case scenario and you've got the Fed and the federal government that was adding an extreme and unprecedented amount of accommodation. So that was a major catalyst for a turnaround at that point. Right now, that is what we're waiting for. We need to see a positive catalyst before we can declare an all-clear. Now, that positive catalyst could be progress in Russia and Ukraine. It could be, this would probably be the most important one, could be the peaking of supply chain bottlenecks and the peak of inflation, which we have not yet seen, or it could be some other growth catalyst. Let's say China did away with a zero-COVID policy.

• 20:09Speaker 02

  Again, that's not on the horizon currently, but I would need to see that positive catalyst to say with conviction that we've priced the worst-case scenario in, but now we have room to the upside. So for now, I would say selectivity and patience is what investors should be doing.

• 20:26Anthony Pompliano?

  You mentioned earlier commodity prices, and I think that one of the surprising things in real time, but in hindsight makes sense, is the explosion in oil, wheat, nickel, etc. We've been joking that they're essentially trading kind of like shitcoins, right? Where they just are kind of going at normal growth levels and then all of a sudden you just see a material move upwards and you kind of scratch your head like, why did that happen? Now, there was the Russian invasion of Ukraine, and obviously, natural gas, oil, wheat, a number of these commodities, these countries or that region are heavy producers of them. But oil has been fairly volatile even before that. I mean, it was a negative futures contract price back in May, I think, of 2020.

• 21:09Speaker 02

  That was a screaming buy.

• 21:11Anthony Pompliano?

  Yeah, I mean, that was a pretty simple one, it seemed like. But then you start to unpack why, and the whole idea of custody and storage, and you begin to understand it. But now we turn around and oil's hitting, you know, $120, $130, $140 price points. And so to see that level of volatility in a 24-month period, I think, is surprising to people. How do you think about commodities moving forward? And how much of it is being in tune with geopolitics or some of these kind of more event-driven stuff versus there's a relationship to monetary and fiscal policy that people should be paying attention to?

• 21:44Speaker 02

  Yeah, so here's the good and the bad news about commodities right now is the good news is I do think that we've priced in a lot of worst-case scenarios from the Russia-Ukraine situation. And so here's how we look at it. We looked at the current spot of some of these commodities that you mentioned nickel and wheat and and copper and so forth and oil. And we looked at what the street is saying the price target would be if we had a worst-case scenario. For example, if we didn't buy all of 5 million barrels of oil from Russia, or if all of the wheat production from Russia and Ukraine got completely disrupted, what would happen to the prices of those commodities? And obviously, they would spike. But the way that the spot prices already spiked

• 22:25Speaker 02

  accounted for a large degree of that worst-case scenario. Last week, I think wheat was trading at 1350 per bushel. The worst-case scenario was about 1,000 or 1,100. So we've priced that in and then some. Nickel, even if we had a complete disruption, $800,000 is what the price should have been. And we've essentially priced in that before it halted trading. So that's the good news, that we've priced in a lot of that worst-case scenario. And if we do see some sort of resolution Russia and Ukraine, you could see a pretty significant give back in those commodity prices. You can see inflation expectations potentially come down. Maybe that bodes well for the Fed and so on and so forth. So that's the good news.

• 23:06Speaker 02

  The challenging news is that the world is actually short of commodities. And I'm going to comment specifically on oil. If you look at oil inventories that are well below their five-year averages. And if you look at the oil balances, we're going to get back to consuming 100 million barrels a day in the next few months as the economy rebounds. And yet, we're not pumping in the full 100 million barrels a day. We're pumping less than that. And if you take Russia out of the equation, then it's going to be even less than that as well. So Russia or not, the oil markets are incredibly tight as they are. And so we would still expect

• 23:45Speaker 02

  $90 to $100 barrel of crude oil to persist. And again, that herein lies the challenge is it may not be a problem for some of the consumers, but it is a problem for a good many of them. So, yes, we might see some give back in commodity prices, but Bloomberg Commodity Index is still up 26%. And again, I just don't see commodity prices derating meaningfully from here.

• 24:12Anthony Pompliano?

  I've got my two brothers here with me. What questions you guys have? Anastasia, I'll go first. My question would be around what's happening in Ukraine. Obviously, this is somewhat of a loaded question with kind of the uncertainty that's involved in it. But Russia has been sanctioned. They've essentially been cut off from the financial world. As for individual investors and retail investors, like, how should they be thinking about this? How should they be thinking about trades? How should they be thinking about kind of the duration of what we'll see?

• 24:39Speaker 02

  Yeah. Thank you for the question. And, you know, it's interesting. I was doing this presentation in Uruguay, of all places, a couple of weeks ago. And I, you know, I was on stage and I was talking about how this is going to be a series of incremental escalations by Putin and a series of incremental escalations in return from sanctions in the US. Clearly, I was terribly wrong about that. And this is not incremental, but this is an all-out invasion and all-out set of sanctions. So again, there's a good and bad about everything. So the good news is that, you know, Russia is going to be financially cut off from the West for the foreseeable future.

• 25:18Speaker 02

  However, that shouldn't in itself change the trajectory of the US economy or European economy. We looked at, for example, at the financial linkages between Russia and the US, and they're really written minimal as percentage of GDP. And we did the same for all the European economies as well. It's for most of them, it's less than 1% of GDP that is tied to Russia. So even if every single corporate in Russia and every single bank and the sovereign government, let's say worst case scenario, defaulted on their debt obligations due to the West, I would venture a guess the economies would still be fine, even with some pain in the banking sector. So that's, you know, that's kind of the first impact to consider.

• 26:03Speaker 02

  The second one, of course, is the commodity prices. But I think we've talked through that. The third thing I will say is what's happening today in Russia and Ukraine versus US and the West, I think fundamentally changes. Certain policies that we're going to pursue. For example, I don't think ever, never ever again will the West want to rely on Russia, or maybe even any other economy, on their commodity flows. So Germany, you know, and others may not reduce their current commodity purchases from Russia, but you bet they're going to pivot and pivot pretty significantly in terms of their future supply.

• 26:45Speaker 02

  And so speaking of an investment angle here, I think US is going to be a pretty significant beneficiary of that. Instead of buying natural gas from Russia, Europe is likely to pivot to buy natural gas, liquefy natural gas LNG from the United States. And if you look at some of the terminal LNG terminals that are being built, you know, down in Texas, we will see significant expansion of their capacity in the next few years to come. And so I think that's going to be a really, really key trade relationship change that whether Russia pulls away from Ukraine or not, that's going to happen as it is. The other one I would give you, well, maybe a couple of others, obviously, energy independence.

• 27:30Speaker 02

  And yes, we need to, you know, accomplish the ESG, well, we need to ensure energy independence. So we might prioritize our domestic energy production, but also in the US, I think there's going to be a more significant push towards clean energy as well. So you've seen clean energy, for example, do really, I mean, hold up really well and rally significantly on certain days because clearly a part of the energy independence mix has to be a secure and clean energy capacity as well. And then the last one I'll say is kind of a take, you know, takeaway from this is coming back to your space, which is crypto and Bitcoin.

• 28:13Speaker 02

  And, you know, last year was a breakout year for crypto in terms of performance, you know, before some of the pullback and consolidation. But I might argue that this year might be a breakout year for crypto in terms of validating some of the use cases. And what's happening in Russia today is similar, if not worse than what happened in 1997, when you had a default, a devaluation, a ruble collapse. Today, the ruble is devalued, it's down 50%. You couldn't get money out of the ATMs, those are the reports, you couldn't get your hands on the foreign currency. There's potential capital controls that are, you know,

• 28:53Speaker 02

  could be widespread as well. So what do you do when you can't reliably transfer your wealth, your assets, and when you can't access them in the centralized financial system? So obviously, crypto Bitcoin and cryptocurrency solutions is part of the answer to that. And I think this Ukrainian-Russia conflict is going to remind a lot of people that when you can't rely on a central government, a central authority, or central financial institution to give you access to your money and be able to move that money, it is very important to have an alternative. And, you know, in a way, in the US, you know, we worry about Fed printing too much money, we worry about QE, but most people in the US have never actually experienced that, not being

• 29:37Speaker 02

  able to take money out of the bank and, you know, transfer money elsewhere. But a lot of the people in emerging market economies have experienced that and have lived through it. And so that's why I think the world, especially the emerging market world, will probably, as a result of this, embracing Bitcoin and cryptocurrencies a lot more than before. That was a long-winded answer to your question, but there's clearly a lot of investment implications from this.

• 30:03Anthony Pompliano?

  No, that was fantastic. Thank you. John, what do you got?

• 30:06Speaker 03

  And Sis, yeah, thank you for coming on. You talked a little bit about the US's and the US economy's trajectory coming in the future months. What do you think is going on with the Fed right now and how they're talking about a rate hike versus where the economy sits currently?

• 30:21Speaker 02

  Yeah, I mean, the Fed, as I wrote in one of my recent posts, is between a rock and a hard place. There is no debate, and they have to catch up from where they have been. I think the Biden administration wants them to, the consumers want them to, but they also have to find this

• 30:42Speaker 02

  Very careful and cautious path. Obviously, they couldn't hike rates 50 basis points, given what's happening in Russia and Ukraine with the commodity index, but they still have to move forward. So they're going to have to navigate this very, very carefully. The thing that concerns me, I think concerns a lot of market participants out there, is US financial conditions have tightened. Equity markets have deteriorated, liquidity has deteriorated, credit spreads have started to widen out. That is typically not the environment the hike rates into. And that's just in the US. If I look at this global financials conditions indicator that we track, it is surged to the levels last seen in 2015 amidst

• 31:22Speaker 02

  the, you know, the global commodity meltdown at that point. So that's going to be a very challenging path for the Fed, frankly, to navigate. And I would say the markets like certainty. The market wants a clear path. If it's 25 basis points, every single meeting tell us that. Unfortunately, I don't think Fed Chair Powell is going to be able to pre-commit to any sort of frequency or cadence, given the current situation. So, you know, for all of us in the markets, it means that every Fed meeting is live and we're going to be talking about this for, you know, the better part of this year.

• 31:58Anthony Pompliano?

  Anastasia, when you think about Bitcoin and cryptocurrencies, you guys obviously have a ton of different customers and clients that you, that you work with. What are they talking about here? Are they interested in the investment case? We talked a little bit about kind of censorship or seizure resistance for these technologies, but what about the investment case? And what's the demand look like there?

• 32:17Speaker 02

  Yeah, so there's a lot of interest in the crypto space from, from a variety of clients. And I would say more and more of them are understanding some of the use cases, but more and more of them are trying to figure out where exactly to position in the crypto space. Because as you know, there's 4,000 different points out there, if not more, probably more by, by the day. And there's also a ton of money, relatively speaking, that has gone into funding various blockchain cryptocurrency related solutions. So our clients are really trying to understand Where are some of the better places to allocate? And obviously, that's part of our job. So I would say, first, there is a huge demand for education and understanding

• 33:02Speaker 02

  all the various cryptocurrencies and their use cases, what's real, what's not, what's a valid protocol, what's yet to be proven. So there's a lot of interest in understanding that. And the second one, I would say, is understanding the whole ecosystem. Clearly Bitcoin is the predominant currency in the space. But you look at the VC capital, for example, and the VC funding for blockchain-based companies, I think last year it was $26 billion of VC inflows into that. So that's a ton of money, relatively speaking, to the last five years. In fact, that's probably more money than the cumulative five years received in blockchain funding. So what's being built? What are the solutions? Is it some of the automated market makers?

• 33:48Speaker 02

  What are some of the other decentralized apps that are being built on that? What's all this Web 3.0, you know, communication? What's smart contracts are being built? So I would say our clients, first and foremost, are interested in understanding the entirety of the crypto ecosystem and identifying some of the best solutions, be it cryptocurrencies themselves or be it some of the applications. And Anthony, the last thing I'll say on this subject is that at iCapital, we also see, obviously, see a ton of merit in decentralized ledger solutions. And as you will know, it doesn't just apply to one industry vertical or one industry applications, but there's so much that you can do

• 34:32Speaker 02

  across the financial services and more. So at iCapital, for example, we're leading a consortium. We're leading several other industry participants in building out a decentralized ledger solution to improve how clients access alternative investments, how they access it, how they keep up with it, how do they service it? So again, whether it's cryptocurrencies themselves or these applications, that's where we're trying to help our clients navigate.

• 35:03Anthony Pompliano?

  Awesome. One of the questions that I think everyone has is like, you have such a wealth of knowledge across these various kind of verticals of the economy, of investment assets, and also spend a lot of time thinking tactically as to what people can do. What should people be doing right now? Like, what are the tactical things that they can do in their portfolio? Obviously, not investment advice, but like, what can they do right now to either protect themselves or to benefit, given the environment that we're in?

• 35:33Speaker 02

  Yeah, like I said, it's not an all or nothing approach, right? Even though I said the market is not a screaming buy, first to get in my view, there are things that you can do. So I am always going to like the technology sector. And yes, I get it that it's challenged, given where the Fed is headed. But I think when we merge on the other side of it, which is going to be slower cyclical growth from cyclical parts of the economy, is going to be back to what is the secular growth and the megatrends that are sweeping the world? So it's going to be back to the software, most likely, that is facilitating digital transformation, which is cloud, which is artificial intelligence, which is more. It's going to be back to cybersecurity spending, which actually has to rise, given the new cybersecurity threats that we face.

• 36:17Speaker 02

  It's probably going to be back to semiconductors, where you need more semiconductor content in an electric vehicle versus a traditional car, I think, to the two and a five times more. More semiconductor content in a smartphone, which is 5G than not. So I think it's going to be back to those types of ideas. And frankly, I've liked buying these things on a pullback, but it hasn't worked yet, because we have not seen that market bottom. However, I don't think we should not nibble. I think we can nibble on some of those ideas, but maybe do that by also writing some covered calls on it. So one of the tactical ideas that I like is if you look at the volatility, the VIX index is at 30.

• 36:58Speaker 02

  And if you look at a call option and writing a call option that's 5% or 10% out of the money, and maybe you do it for three months, the volatility on that is going to be in the 95th or 90th percentile over the last five years. Meaning, the volatility is rich relative to 90% of observations in the last five years. So that means the premium you collect for selling that option is actually really rich and nice relative to history. So maybe your stock goes down another 10%, 15%, but if you can collect a 5% or maybe even more percent premium, that helps protect some of the downside. Or if the stock goes up and you get to that strike price, you get to add that premium on top of it. So this is a very actionable way to meet a position in this environment where you

• 37:43Speaker 02

  still want to nibble a little bit, but give yourself a little bit of that downside cushion by writing that call option. Dividend paying stocks, that was not the place where people have looked. I think that's where we have to look today. And I'll broadly group this category as anything that gives you an income. You know, if you were in cash, maybe that's better than, maybe that's been better than the stock market, but inflation is 7.9%. You know, to me, cash is not an option, except for maybe risk, risk managed. So investing that in dividend paying stocks, investing that in real estate. Anthony, you mentioned a shelter inflation and, you know, apartment, you know, real estate inflation is rising. Well, why not invest in that? Why not invest in some of those

• 38:28Speaker 02

  multifamily apartments and get, you know, four or 5% income for it. Private credit, it's been a pretty tough year for fixed income markets. Anything but leveraged loans has been down, but private credit, actually, most of that is floating rate securities. So 85% of that is floating rate securities. So if the Fed hikes rates, that should be supportive for that sector as well. So those are the two broad things of ideas, I would say. Buy a little bit today, nibble a little bit, write a cover call option on top of it, and then make sure that you have a yield bucket in the portfolio so that inflation doesn't just completely erode your cash.

• 39:07Anthony Pompliano?

  Yeah, that's, that's fantastic. And it feels like as more and more people understand the nuances of the financial system, it becomes less about how much money can I make? And in these environments, how much money can I prevent myself from losing? Tends to be a pretty good strategy, just as much. Before I let you go, I ask everyone the same question. One of our sponsors is Eight Sleep, and they've got this thermo-regulated mattress that allows it to be super hot, super cold. I love it because I make it ice cold, freezing cold, and used to sleep like six hours now, sleep at least eight and feel way better. What, do you have like a sleep routine or any sort of routine either at night or in the morning in terms of preparing for the day or kind of unwinding after a day?

• 39:47Speaker 02

  I wish I slept eight hours a day. I think all of us aspire to that. That's probably not the case.

• 39:53Anthony Pompliano?

  It's essential. Come on, we gotta get you to eight hours.

• 39:56Speaker 02

  I think I sent you a message this morning at 5:45. Or something like that. So one of my routines for the day is I do like to be up early and I like to be up where most of the people are not. And that gives me prep for the day. That gives me the clarity, the peace of mind, you know, to knock out some of the things that I don't want to do. If I'm really ambitious, I might fit in a workout before six o'clock.

• 40:19Anthony Pompliano?

  When you wake up, what do you check first? That's actually like a great way to understand like what you think is important. Is there a website? Is there a specific price of an asset, a specific chart? Like, what do you look at first?

• 40:32Speaker 02

  It actually is Twitter. It didn't used to be the case, but Twitter is the first app that I check. And I usually wake up to a number of Twitter notifications and the news load that breaks overnight. So that is the best place. And that's how I start my day.

• 40:47Anthony Pompliano?

  Got it. And you're looking for news specifically there?

• 40:50Speaker 02

  Uh, yes.

• 40:52Anthony Pompliano?

  Like what's happened in the last four hours that I've slept rather than eight?

• 40:57Speaker 02

  Yeah, exactly. Four hours. Yeah, it's incredibly helpful and, you know, can give you a very quick pulse of the sentiment and the news flow that's going to be important for the day. And as you know, it's a 24/7 market. It never sleeps. And I find that that's one of the better applications to catch you up on some of the key developments.

• 41:17Anthony Pompliano?

  Yeah, I tend to do the same thing, although I read that it's not good for you to do that.

• 41:23Anthony Pompliano?

  Yeah, like the first thing you do is check, but I do the exact same thing. Where can we find or send people to find you on the internet? Or where could they find more about iCapital?

• 41:34Speaker 02

  So obviously I am on Twitter, Anastasia Amoroso underscore one, not any others, just this one, A M Ros underscore one. And I do publish a lot of the commentary, some of the topics that we discussed today, which you could find at iCapitalNetwork.com, insights and research. And you can find us covering a lot of the topics that we discussed, whether it's in public markets, privates, or some of the tactical trade ideas as well.

• 42:01Anthony Pompliano?

  Awesome. And for anyone who's watching or listening, I just dropped her Twitter account into the chat. So make sure you go and follow her there. The best way to get rid of the scam, we gotta get you verified so that then we can get rid of all the scammers who are probably asking people for Dogecoin. John gets those all the time. Right, John?

• 42:16Speaker 02

  If you get a DM from me asking some crypto question or asking, you know, to send me crypto, that is not me. Please block them. And yes, that is definitely not.

• 42:29Anthony Pompliano?

  You're not saying, send one Bitcoin, I'll send you two back. We thought that was you.

• 42:35Speaker 02

  I will not be saying that to you. That's the first tip off.

• 42:38Anthony Pompliano?

  Awesome. Well, thank you so much, Hannah Station. This was fantastic. We really enjoyed it. I learned a ton and I think a lot of people got value out of this. So we'll definitely have to bring you back and then talk about this as the economy continues to do its thing and hopefully everyone stays kind of alert and educated as to what's happening.

• 42:55Speaker 02

  Thanks so much, guys.

• 42:56Anthony Pompliano?

  All right, bye.

• 42:57Speaker 02

  Take care.

• 42:58Anthony Pompliano?

  Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribe 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 pompscryptocourse.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.