#621 The Macro Economy, Stocks, and Bitcoin with Amanda Agati

Amanda Agati is the Chief Investment Officer for the PNC Financial Services Group. In this role, she is responsible for the firm’s overall investment strategy, portfolio and risk management, investment solutions and the development and execution of investment policies. In this conversation, we discuss the COVID recession, Fed policies, interest rates, monetary stimulus, inflation, public market valuations, bitcoin, crypto, and where we go from here. ======================= Remote makes it easy for companies of all sizes to employ global teams. We take care of international payroll, benefits, taxes, and local compliance, so you can focus on growing your business. Sign up for Remote today and receive 50% off your first employee for the first three months. Check out remote.com/pomp and enter promo code POMP to get started. ======================= 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 =======================

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. Amanda Agati is the Chief Investment Officer for the PNC Financial Services Group. In this role, she is responsible for the firm's overall investment strategy, portfolio and risk management, investment solutions, and the development and execution of investment policies. In this conversation, we discuss the COVID recession, Fed policies, interest rates, monetary stimulus, inflation, public market valuations, Bitcoin, crypto, and where we go from here. I really enjoyed this conversation with Amanda, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. First up

• 0:46Anthony Pompliano?

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• 1:30Anthony Pompliano?

  hiring folks around the world, you have to be using Remote. Next up is BlockFi. I'm a happy user and an investor in the business. BlockFi provides financial products for crypto investors. Those products include a high-yield interest-bearing account, a US dollar loan product against your crypto collateral, and a no-fee cryptocurrency trading product. BlockFi also recently came out with a Bitcoin Rewards credit card. It's a normal credit card. When you swipe, you get Bitcoin back rather than cash back or airline miles. I love my Bitcoin Rewards credit card, and I think you will too. To start earning today, visit blockfi.com/pomp. Again, blockfi.com/pomp. Go check it out and let me know what you think.

• 2:10Anthony Pompliano?

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• 2:55Anthony Pompliano?

  Choice has tools for them, too. Take back control today and visit retirewithchoice.com/pomp. All right, let's get this episode with Amanda. I hope you guys enjoy this one.

• 3:05Speaker 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.

• 3:33Anthony Pompliano?

  All right, guys. Bang, bang. I've got Amanda here. Thank you so much for doing this.

• 3:37Speaker 02

  Thank you so much for having me. It's great to chat with you again.

• 3:40Anthony Pompliano?

  Absolutely. Let's maybe just start with kind of your position at PNC. And a quick reminder to everyone just how large PNC is to kind of refresh everyone from the perspective you have on the markets.

• 3:53Speaker 02

  Sure. So I am the newly named Chief Investment Officer for PNC, which means I am responsible for the entire investment offering for our asset management business. PNC is now the fifth largest bank in the country, and believe it or not, our asset management business has about 183 billion in assets under management. Little known fact, perhaps, there, best kept secret. And so In this new role of mine as Chief Investment Officer, I'm really responsible for a number of important aspects of our investment offering. So, under my purview is investment strategy, responsible investing,

• 4:34Speaker 02

  portfolio construction and management, our manager due diligence team that does all the research for developing our third-party manager platform. We have a portfolio analytics group that does all things attribution, performance, reporting-related. And of course, we have strong partnerships with all of the underpinnings of our investment offering as it relates to operations, MIS, tech, legal, compliance, et cetera. So, a much broader role today than when we talked last. Keeps me on my toes, for sure.

• 5:07Anthony Pompliano?

  I think that you're doing a fantastic job, and it goes without saying that PNC is absolutely massive compared to most organizations. So, awesome to see you guys kind of continue. Since we last talked, there has been all kinds of chaos, uncertainty, and developments in the market, some good, some bad. Maybe let's just start with some of the more higher-frequency data points. In terms of coming out of the COVID economic recession, we now have pretty strong data that suggests it was kind of short-lived, but there's still this long-tail recovery. So, what are the data points that you all are looking at, and kind of how would you assess where we are in that recovery process?

• 5:46Speaker 02

  Well, so what's sort of interesting and unique about this cycle, this recovery relative to past cycles, that is that we've really had to get more creative about the economic indicators that we track in terms of gauging the progress or success or failure around reopening the global economy. It was seemingly easy, easy in quotes, air quotes, to shut the lights off on the global economy, but much more difficult in flipping the light switch back on. And so while we've made tremendous progress since the depths of the lockdowns and the pandemic last year, we're still, what I would characterize as hashtag, not quite out of the woods yet. And so, the way we're gauging this is

• 6:30Speaker 02

  Looking at higher frequency data because the usual suspects GDP growth, industrial production, retail sales tend to be a bit too longer in terms of cycle, too lag to really give us that moment by moment progress and update around reopening. So we're looking at things like open table, restaurant reservations, weekly retail sales data. We're looking at public transit data for major cities, even weekly airline passenger volumes. In quote unquote "normal times," weekly data or even shorter cycle data than that, there's just so much noise in it. It's really hard to decipher signal from noise. But in this environment, it's been really important to help gauge the path forward.

• 7:14Speaker 02

  And so what we're trying to figure out here and what we're looking at by this collection of higher frequency data is really what is the consumer doing? With more than 70% of GDP in this country tied to consumption in some way, shape or form, we've absolutely got to figure this out and get this right. Are consumers just automatically going back to their old ways, pre-pandemic ways? Or are there some lasting scars that are going to fundamentally change or structurally shift consumer behavior going forward? That's going to be really important in gauging the trajectory of this economic recovery and what this next cycle looks like. And so if you look at this collection of indicators,

• 7:56Speaker 02

  no question, they've all made tremendous leaps and bounds from the depths of the recession. But if you look at them relative to 2019, when we couldn't even really fathom a global pandemic taking hold and shutting down the global economy, with the exception of retail sales, they're all still down 10 to 20% or so, depending on what you're looking at. And so I think that's really important to say, are consumers back to their old ways? Not quite, right? That's where the hashtag "not quite out of the woods yet" is coming from. It's a little bit slower in terms of returning to their old ways than perhaps the markets and really the economy we're expecting. And I think that's really important, given how far and how

• 8:40Speaker 02

  Fast the markets have rallied. The market has assumed that we will have fully eradicated the virus by now. That obviously is not playing out, right? And so valuations fueled by all of the stimulus that's come into the system have rallied to such great heights. But we haven't seen the fundamentals really rally to the same extent to justify current valuations. And so there is still a little bit of a disconnect, a little bit of decoupling between the where the market is pricing the recovery and where the recovery actually is. It's not intended to be a bearish message at all. I think we just need to be really realistic about where we sit relative to the underlying fundamentals.

• 9:20Anthony Pompliano?

  Yeah, it's a fascinating perspective because I think there's two components to what you just said. One is some of the data points that you're looking at, I would put in the new data category, right? 30 years ago, we didn't have open table data. We didn't have some of these data points. And so how do you think about just the information you seek out to actually evaluate? It sounds like it's a mix between what we would consider more traditional metrics and then some of these new technology-enabled type data points. Is there a framework that you use or even maybe a mental model that you have in terms of where you go and look for data? Or is it just literally, let's get as much data as we possibly can and then we'll sift through it once we have it?

• 9:58Speaker 02

  Well, I don't know that there is a precise model necessarily or process that we employ to figure out what all kinds of crazy data points we want to look at. But I do think what I take very seriously in my role and even in my former role as investment strategist is this idea of innovation. We have to really be thinking strategically. And so we know markets are highly complex adaptive system that frankly have the ability to learn. And I think what we've seen that in a very recent example, as it relates to the pandemic, we can talk about kind of the aspects of that. But the market is always incorporating new information. It doesn't always

• 10:41Speaker 02

  get it right. We're not necessarily saying that it's perfect in terms of the efficient market hypothesis, but the market and the herd really Really does have this adaptive learning mentality. And so if all we do is use what we've historically used in terms of gauging the path forward, I think you really miss potentially significant opportunities. And so we take very seriously this objective of innovation and thinking about the future and actually really thinking about things from a creative mosaic kind of multifaceted way. And so the more data we can get our hands on, the better. And I think what's very characteristic and very unique about this cycle, dare I say, it's different this time, right? Those dangerous

• 11:25Speaker 02

  words is that the consumer has been just extraordinarily impacted by this particular cycle, this boom and bust cycle here. And so thinking about how do we get our hands on data that really characterizes consumer behavior is really important and a hallmark here. But I think what's been really interesting is that it's probably going to have some lasting effects. That is that once we get past the pandemic, whenever that ultimately is, I don't think that we will, you know, throw to the side the higher frequency data. I think we found that has been really beneficial in giving us additional information than waiting for a GDP growth rate, you know,

• 12:06Speaker 02

  once a quarter that gets revised three or four times. I think it's really interesting to see in real time how the economy is operating. So it's that innovation component that I think is really critical in gauging the market's path forward.

• 12:19Anthony Pompliano?

  Yeah, you just used the phrase real time. That's exactly what I was thinking in terms of it's not quite real time, but you know, on a weekly basis compared to quarterly basis numbers, it's about as real time as you're going to get with economic data. So it's pretty cool to see you guys embracing that. One of the other things is you mentioned kind of being 10, 20% off in various metrics off the 2019 numbers pre pandemic. And I remember last year, I'd gone and I looked at the data in China and China seemed to, at least from the data that we were told, recover faster, kind of get out of the pandemic situation. And most of the data had settled about 20% off the pre pandemic levels. And so do you have any kind of theory or understanding as to why it seems like

• 13:02Anthony Pompliano?

  that is kind of a settling point? And do you expect us to kind of be there for a while? Or is it something where we've recovered to those levels and then we'll kind of get back to the pre pandemic level, you know, maybe later this year or in the more shorter term?

• 13:15Speaker 02

  Well, I think for, again, I'm not sure that I have a perfect answer for you, but I think at the end of the day, the globalization, the interconnectedness of all of the major economies of the world, you know, it's very hard to extract, you know, and talk about one country without talking about what's happening elsewhere. And so from a China, and I would just broaden it to say from an emerging markets perspective, it's really clear, at least early on, that they were able to manage through the pandemic in a more efficient way. Again, if you can believe all the data points as the caveat, but it's been pretty clear, I think now, that they've been able to manage through

• 13:57Speaker 02

  the first few innings of the pandemic better than most of the rest of the world. And so that really enabled them to get their economies reopened faster. And so they did not fall quite as far as what much of the rest of the world had experienced. And so what today, what we're seeing is really significant potential growth on top of that higher base, whereas everybody is still kind of playing catch up. So I do think that there is going to be a little bit of settling in. I'll throw another hashtag out there, like hashtag slow your roll. That's kind of the environment that we're finding ourselves in. We're seeing a little bit of settling here as it relates to the markets in the U.S. too, after a really strong rally at the beginning of the year.

• 14:40Speaker 02

  And I think it's just this, we're very much interconnected. Not everybody is at the same place in terms of reopening, in terms of managing through the next set of pace curves as it relates to variants, right? The pandemic is still here, right? Even though we've moved so far and so fast from the depths of it. And so I think there's that piece of it that's really kind of driving things at the moment. Again, not a bearish scenario here. It's just hard to get this entire global economy moving in the same direction at the same rate. And so I think we've seen a meaningful recovery, certainly in China so far. They've been the earliest ones to do it. But now to keep that pace up, we need to see the rest of the world reengage and accelerate as well.

• 15:25Anthony Pompliano?

  Absolutely. Speaking of acceleration, probably the most complex situation currently in the market and also the probably the most important is around inflation. And I was joking yesterday saying that the word transitory was a word that I think was in everyone's kind of vocabulary, but never had the importance that it now has when you look at financial markets. And obviously, earlier this week, the chairman of the Federal Reserve was asked to kind of define like, what is transitory, right? You know, it's not such a quantifiable type word, which may actually be a benefit to them. And so let's just talk about inflation in general. How do you evaluate what we've seen so far with the high CPI or core inflation

• 16:08Anthony Pompliano?

  numbers? And then what is the evaluation of, is it transitory, is it not? And kind of what people should know when we think about inflation in the current environment?

• 16:16Speaker 02

  There is so much to unpack as it relates to inflation. I swear, we could spend our entire time together talking about it. So I'll try and give you the Cliff Notes version here, but there's a lot of aspects to this. We're definitely in the transitory inflation camp. And so I'm sort of grinning because I know that, you know, everyone's like, oh, she's going to come after her, right? For this, for this opinion here. But there, let me, let me share some thoughts around why we think it's transitory. So the obvious one is just the optics, right? Let's just start by getting, clearing the decks on that one. The reason it feels like prices are rapidly rising is because they're literally bouncing

• 16:58Speaker 02

  off of record no activity. It's not just record low activity, it's literally no activity at all. And so the optics are absolutely making year-over-year comparisons extraordinary. And inventories are still being rebuilt to pre-pandemic levels, right? So there was a lot of fear and loathing and concern as a function of the pandemic coming on last year. And I think companies really did let inventories run off. And so there's this mad scramble all at once, right? The challenge of flipping the lights back on the global economy all at once. There's just this mad scramble to rebuild inventories. And clearly, as a function of at least Q2 earnings season,

• 17:40Speaker 02

  we're still not back to having inventories rebuilt to where companies would like them. That's been a key kind of pain point and theme that we've seen play out here over the course of Q2 earnings season. We've also seen pretty dramatic supply chain issues in semiconductors and lumber markets. We've seen security breaches at pipelines. We've had commodity prices rallying in a very significant way. Again, this is kind of unique and a hallmark of this recovery and this cycle and that we're trying to flip the lights back on all at once and things inevitably break. And so I think that, you know, these are very acute,

• 18:20Speaker 02

  very specific, short-term oriented issues that will start to work themselves out. Doesn't mean there isn't an awful lot of pain. There certainly has been. We've heard it from companies, both large and small. But we do think that things will start to settle down in that regard. And that will help from an inflation or headline inflation perspective going forward. The other thing that I think is underappreciated is this concept of pent-up demand. So I think market participants in general are thinking that there's going to be this massive unleashing of pent-up demand on the part of the consumer that is just going to continue to drive prices up because demand is really unabated.

• 19:03Speaker 02

  And that we will get to a place where inflation runs so red hot that it ultimately breaks the cycle. We're not in the camp that pent-up demand is going to be that extreme. And why do I say that? It's not that there isn't some. There clearly has been some unleashing of pent-up demand, but not to the degree I think that everybody's worried about. And it's really, you know, this idea that everybody's pointing to record-high savings rates as saying, well, surely that single indicator is going to drive this unleashing of massive amounts of cash. Capital into the global economy and I would say not so fast. Because the lion's share of savings actually is clustered in the older demographic

• 19:46Speaker 02

  or older age cohorts when you think about savings rates. And so, not to make a wild generalization, but I'm going to do it anyway. Because I don't think anybody can stop me at the moment. But typically, these older age cohorts, you know, boomer generation and older, aren't in highly discretionary spending mode. Again, it isn't that they aren't going to spend, they are. But they're just at a different stage of life. And so I think it's important to frame out savings rates with regard to that. Because I think it will hold back some of the capital that perhaps others may think is going to flood into the system and change the dynamics meaningfully around inflation.

• 20:27Speaker 02

  The other thing I want to call out too, again, I could go on and on about this, is this idea of the fiscal cliff coming in September, right? Extended unemployment benefits expiring in September. Doesn't appear as if there's a lot of appetite from policymakers in Washington to re-up a lot of that. We do think ultimately that will be yet another headwind as it relates to inflation going forward. That stimulus effect is going to start to fade here pretty meaningfully. And so that will change again the dynamic as it relates to inflation going forward. I also have to throw out this globalization concept again, right? If you think about China, inflation in the 1% range. Japan's still a negative territory.

• 21:12Speaker 02

  I think the most recent reading from the Eurozone was maybe 2%. But when you look at that, that's certainly a function of Germany and the auto industry, which of course, the auto industry has been on fire lately. So very narrow in terms of drivers there. And so I think, for better or worse, I think the inflation story in the US is very much amplified relative to the rest of the globe. And so this interconnectedness, I think, is going to continue to weigh on inflation longer term. Again, it isn't that we aren't going to continue to see higher inflation readings. Over the next few months and even quarters. But to me, that's transitory. That's not structural. That's not sustained beyond kind of this cyclical snapback

• 21:56Speaker 02

  that we're seeing in the economy. Now, when you look out much longer term, demographics, technological innovation, even the supply and demand dynamics in the energy sector are all inherently deflationary or disinflationary. And so what we're seeing right now in our view is much more cyclically driven, not systemic or structural or even secular in nature.

• 22:21Anthony Pompliano?

  Yeah, one of the things that I think is often lost in the conversation is the definitions of some of this stuff. And so I know you nor I want to get into the technicals of how inflation is defined or calculated. But I do think that at a high level, the difference between price increases that are occurring today not being rolled back in the future versus the rate of change, right? And so just like you mentioned, kind of this base effect, if you will, where basically in 2020, it wasn't just low. It was basically no activity at all. Obviously, when you come out of that, there's going to be kind of a high rate of change because the base effect also that plays into when you have a high number, right? It's going to be harder to get a higher number moving forward just based on kind of where you are.

• 23:06Anthony Pompliano?

  So I think rate of change is what everyone is actually pointing to and talking about with CPI or core inflation. I think what they want to talk about, and maybe they don't know how to articulate it or identify it, is just, hey, when lumber goes up or the price of food at a grocery store or at a restaurant, when that is increased, that's not going to come back down. And so do you all do any work or have thoughts around kind of separating out what is traditionally categorized as inflation and that rate of change versus more so just sustained price increases and what those sustained price increases could have from an impact on the economy?

• 23:41Speaker 02

  Well, I think I would just say we are not of the mindset that prices are going to come down. Companies are going to take every opportunity they can to drive through pricing power. And a global economic lockdown and a global pandemic, right, are very good reasons to drive price increases. So we definitely think that price increases are here to stay and that we'll see more of them, but we absolutely are in this transitory camp that this rate of change, this rate of acceleration, is going to slow down pretty meaningfully. Not that this makes the story any better, but there's been almost no inflation over the last cycle, right?

• 24:23Speaker 02

  The last cycle was a record-breaking in terms of length of cycle, but also how subpar growth actually was and how low or slow inflation was. And so it's very difficult to get meaningful pricing power as a broad, you know, market perspective. There were pockets of it, certainly, but it was very, very difficult to drive and justify meaningful pricing power over the last cycle. So I think there's a confluence of factors here. I don't expect prices to go in reverse anytime soon here, but I do think things are going to start to settle down a little bit going forward. And so we're not in the camp that inflation and price increases are going to be enough

• 25:07Speaker 02

  to kind of break the cycle or derail the recovery.

• 25:10Anthony Pompliano?

  Yeah. Last question around inflation is, you know, the Federal Reserve's mandate is basically to get price stability and get full employment. I think that they probably aren't achieving it to the degree that they wish that they were. And so they've been using the tools in their toolbox. Also, politicians are using the tools in their toolbox across fiscal and monetary policy for both groups to try to achieve some of those things. At the same time, there's almost this like trade-off or expected impact when it comes to things like GDP growth. And so we had this big expectation number out there around 8.5% for Q2. It came in more around 6.5. And so do you have thoughts in terms of, when you look at this as a complex economic

• 25:52Anthony Pompliano?

  machine, right, which is sometimes hard for people to remember, any thoughts in terms of not getting to the full employment or the price stability, but also not seeing the GDP growth that kind of expectations were suggesting? Is there anything to read into that?

• 26:06Speaker 02

  Well, I think maybe this will be a controversial take, but we've been saying right along that even though there have been massive amounts of stimulus, I get my air quotes out again, stimulus coming into the system, that it wasn't necessarily true stimulus, that it was much more filling a gap or bridging a gap to reopening. And so that has also been part of our thesis, that while it was absolutely necessary and critical to do, because we were in completely unprecedented territory, and the pain was just extraordinary for, you know, Americans across this country, but really just citizens around this globe, in addition to companies being under tremendous pressure and not being

• 26:51Speaker 02

  battle-tested or war-chest-ready for this kind of black swan event, absolutely critical to do what we did. But I think there was also this real concern that since we are in such uncharted territory with stimulus and policy accommodation, that it was going to lead to this running inflation really red hot and ultimately breaking things. But I think what we're finding out here is that perhaps it was less stimulative than what people thought, in terms of the length or the longstanding nature of it. It was stimulative in the moment, in terms of creating underlying fundamental support, but it hasn't kicked off this firestorm that I think everybody expected in terms of economic growth and inflation.

• 27:35Speaker 02

  And so it'll be really interesting to see, I think, when the fiscal cliff starts to occur, when the Fed starts to slowly ease its way back from this extreme policy accommodation, to see how the economy truly can stand on its own two legs. I don't think we really have a great sense of that. I'm not suggesting that the bottom's going to fall out of the economy here, but we are still in somewhat artificially-supported territory. Again, not so much stimulus, but more like underlying fundamental support. And I think seeing this, you know, slower-than-expected GDP growth number certainly could be a function of that. I also think, again, going back to what I said in the beginning... We're hashtag not quite out of the woods yet, right?

• 28:19Speaker 02

  There's this expectation of going right back to pre-pandemic levels and it's going to take some time. So we need to, we need to find a little bit of patience, I think, relative to expectations here. Six and a half is, is not a bad number, all things considered.

• 28:33Anthony Pompliano?

  One of the things that has had zero patience is multiple stock indexes. They continue to hit all time highs. It feels like almost every single week and it just feels like we're in this like high volatility regime. And, you know, you have to remember people, volatility works both directions, both up and down. Talk a little bit about that regime, if you think that it is kind of here to stay for a while and maybe the pros and cons of being in a high volatility situation.

• 29:02Speaker 02

  Yeah, so we, we spent a lot of time in our 2021 outlook, writing about this concept of a high volatility regime that we thought was likely to dominate the market and the economic backdrop in 2021. Frankly, based on kind of where we are here at, at mid-year, I think it's likely to continue into 2022. And so the idea here, if you just look at a few simple metrics, so CBOE volatility index, affectionately referred to as the VIX, the price of volatility, at least as it relates to the equity market in the very short run, has started to settle in, but it has been elevated, you know, all year. And I'm not suggesting that we expect to see record-breaking volatility like we saw

• 29:46Speaker 02

  in 2020, but we do think that this will continue to dominate the backdrop. So while the near-term or spot price of volatility has started to settle in a little bit, if you look at the futures curve for the VIX out the six to nine months or so, each of those data points is still higher than pre-pandemic levels. And so again, one small gauge, right? But an important one in terms of thinking about market expectations and pricing for volatility going forward. I think it's just very reflective of a lot of the cross currents still in the market and the economic landscape as in it's not a perfectly clear or straight line path forward. I think what's also interesting is that it is not

• 30:27Speaker 02

  Not just an equity story. In fact, it's even more so in fixed income markets, which is like the exact opposite of what we would expect from fixed income positioning and portfolios and fixed income behavior. The comparable metric to the VIX is the MOVE Index, M-O-V-E, and it is still sitting at the highs of last spring, like in 2020, not not just this past spring. And I think, again, it's very much reflective of this rally that we've seen in market-driven interest rates, right? The policy stance hasn't changed, but boy, the market has really driven rates, especially on the 10-year, up pretty dramatically. And it's bounced around a lot, too, especially in the in the last few weeks, we've seen it give back a lot of those

• 31:12Speaker 02

  basis points. And so we do think that this high volatility regime is going to continue to dominate the market and the economic landscape. It doesn't mean that we expect to see negative market returns necessarily. It really just means that we expect to see larger than normal price swings being the norm rather than the exception. And I, you know, I think we've seen that play out pretty significantly here in the first half of the year for both equities and fixed income markets. So try as we might to get a calm, peaceful summer. I'm not convinced that we're going to get it because I think there's still a number of key drivers there that are going to create this more volatile backdrop in the half of the year, second half of the year.

• 31:55Anthony Pompliano?

  Yeah, one of the things that I think contributes to some of this is obviously earning season, and we're kind of right in the heart of it as we're recording this. We've seen Facebook, Google, Amazon come out. And, you know, one thing that it just reminded me is like how big these businesses are, right? I mean, we're looking at Amazon with 100 billion a quarter. You start to look at things like, you know, just YouTube alone at a business like Google, or you break out the individual products at Apple, and they could be, you know, in the top 150 of the Fortune list. And so it's just, these are massive businesses. And it seems like they're all doing pretty well, you know, given everything else. How do you all look at the earnings season for Q2? And what do you think the impact is kind of through the rest of the year?

• 32:36Speaker 02

  Well, so again, I go back to this idea of extraordinarily easy comparisons, right? Q2 of last year was the epicenter of the lockdowns and literally no activity or basically no activity. And so we set a very low bar for ourselves coming into Q2 earnings season. I think the initial expectation was somewhere in the neighborhood of 60% year-over-year earnings growth for the S&P 500. I think at last check, as we're tracking through our earnings season results now, we're up to like 66%. So it could even exceed 70 by the time we're done with earnings season here. And so what I think is notable about this, not so much the headline number, I mean, it's

• 33:19Speaker 02

  pretty incredible, but I think it's largely a function of those easier comparisons. It's not really giving us a good gauge on organic growth and the trajectory for growth. But I think what's notable is that the market has been fairly broad-based in terms of its rallying to such great heights. And yet, earnings growth has been driven by a very narrow subset of companies, to your point, and also sectors. And so in Q1, the lion's share of earnings growth came from information technology, not shocking, and financials. In Q2 here, the expectation is the lion's share of growth is going to come from financials and energy. And so if you think about what was going on at this time last year, WTI was handily

• 34:04Speaker 02

  a negative territory phenomenon that I don't think anybody thought they would witness in their lifetimes. So we've seen 140-plus percent rallying since then, of course, that's going to contribute to an acceleration in earnings for the energy sector. And for financials, I think it's a function of rates being up a lot, not policy-driven rates, but the market driving rates, the shape of the yield curve, net interest margins, and just better or less loan loss provisions than what was originally expected. So that's important in terms of those two sectors, but it's not reflective of the entire market. And so the market has rallied, again...

• 34:46Speaker 02

  In this concept, this anticipation of going back to the old way of things, pre-pandemic levels. And yet fundamentals are still being narrowly driven by a subset here. And so again, I think that there is a little bit of a disconnect, again, not a bearish message here, but a little bit of a disconnect in terms of how stretched and how elevated valuations are. And whether the underlying fundamentals can truly justify valuations at these levels. I think Q2 earning season is not going to be a very good gauge of that. It's really going to be Q3, Q4 to see that that fundamental acceleration. If it doesn't show up in a broader based way,

• 35:26Speaker 02

  I do think that that could create some additional volatility in the back half of the year, especially for some of the smaller cap names, the value oriented names, the more cyclicals, and even dare I say the meme stocks. Those are the ones that feel like we really need to see the fundamental story materialize. That it's it's really disconnected from reality at this moment. So we'd be a little bit cautious if not buyer beware as it relates to those exposures. But if you zoom out and say, all right, well, what does the balance of the year look like in general? It's still a really strong number, considering that we finished last year on the S and P 500 down 14%. I think the expectation for this year is somewhere in the neighborhood of 38% year over year growth. So

• 36:11Speaker 02

  a really strong number. I think the key question is going to be what happens to 2022. A lot of these expectations for the market, we think are already kind of baked in. And so 2022 growth is looking at maybe 11, 12% on top of this really strong 2021. I think the the question is, can we see positive revisions and earnings acceleration into 2022? We've seen 22, 2022 numbers come down. And so in a quote unquote, normal year, right, an 11 or 12% earnings growth number would be fabulous. But I think again, where evaluations are and where expectations are,

• 36:55Speaker 02

  we're really going to need to see that number accelerate, not just kind of stay choppy, range bound or fall a bit to keep this market rally fueled. So that's really what we have our eye on going into the second half of the year.

• 37:08Anthony Pompliano?

  Yeah, maybe two weeks ago or so now, Jeremy Grantham came out and, you know, he's through the years kind of made these calls in terms of, hey, we're overvalued and there's going to be market corrections. Whether he's right or not, I think is besides the point as much as the picture that he painted was one of high valuations. Eventually, you kind of return back to what he would consider kind of normal valuation levels. The different situation now seems to be, we joke all the time that it is almost like market corrections have been banned and bear markets are outlawed, given monetary and fiscal policy as a response. Do you all get the sense that if we did start to see some of those corrections, and not

• 37:51Anthony Pompliano?

  kind of in the overall stock market, maybe even just specific sectors, that there would be kind of this intervention that would occur? And I think probably the most recent data point is, we were like 2% or 3% off the all-time highs and people were like freaking out and it was kind of like, you know, zoom out a little bit here. So just, how do you all think about the interaction between, you know, equity valuations, potential kind of corrections or returning to more normal levels, but also then this like macro kind of tailwind of monetary and fiscal policy and almost this desire to constantly intervene to keep the market going?

• 38:25Speaker 02

  Yeah, a lot to unpack here. I would say the last time we saw a meaningful market correction was in September of last year. And even then, it didn't last very long. And so we are definitely in, I would say artificially supported territory from all of the policy accommodation. You may be like, well, why are you talking about a high volatility regime if we haven't had a correction since fall of last year? And I think they can coexist, actually, that we see a lot of movement, a lot of choppiness, but we're not seeing, you know, meaningful, natural market corrections of the 5%, 7%, 10% or even more magnitude. And so I do think that this translates into a lot of choppiness, if not a range-bound

• 39:10Speaker 02

  market environment, but those price swings are more rapid or more frequent within kind of that range. I think- The end of the day, we really do, just as the, I said earlier, the economy needs to stand on its own two legs at some point. We need to see the same thing play out in, in the market. And so we're very comfortable, it's a weird way of saying it. Uh, with market corrections, anytime we don't see corrections. Or, you know, we go way, way long, you know, breaking records for how little market corrections. We do start to get a little nervous. It's kind of a counterintuitive thing, but we, we do think corrections are natural. And healthy parts of market functioning and market behavior. And so.

• 39:54Speaker 02

  We're always looking for those corrections to be opportunistic about making adjustments to portfolios. And so I think. While I don't want to say that we would welcome a full on market collapse, that would be too extreme of a statement, certainly. I think we would welcome. Some more meaningful, natural market corrections. As really that sign that the markets are able to function independent of all this policy accommodation. There's no question that the policy accommodation that flooded the system, both fiscal and monetary. Um, last year at the onset of the pandemic was the single biggest driver. To getting the market to kind of bottom over the course of three days and rally. And so it's time to start to see that recede a bit.

• 40:36Speaker 02

  And I think what will come with that is certainly some additional market volatility.

• 40:41Anthony Pompliano?

  I've got a, a 25 year old brother who, uh, over the last 18 months or so, started to, uh, uh, make money and invest. And I constantly have to remind him that, uh, you know, it's not necessarily normal that the, uh, monetary fiscal policy.

• 40:54Speaker 02

  Don't always go up.

• 40:55Anthony Pompliano?

  Yeah, it's not, they don't just always pump up, uh, your stock prices. So, uh, it's, it's been fascinating to kind of watch somebody with no prior, you know, kind of knowledge, learn. Uh, but, but I think that, uh, you know, there's a whole generation of people who are doing it. Uh, before we talk about Bitcoin and crypto, I want to talk about, uh, interest rates and kind of fixed income as well. What are you seeing there? Uh, why do rates continue to go down? And, and kind of how do you see that playing out over the coming six to 12 months?

• 41:18Speaker 02

  Well, I think the market narrative around the inflation scare, inflation running red hot, really showed up in how far and how fast interest rates moved over the first few months of the year. Now that we're starting to see some suspicious data points around the sustainability of inflation, around economic growth, et cetera, you're starting to see rates settle in a little bit. And I think that's right. We definitely have been of the mindset, again, because we've been this transitory camp, that rates moved way too far, way too fast. And so seeing things start to settle in again, I think, is the bond market's recognition

• 41:58Speaker 02

  or the reflection that perhaps that inflation scare story from significant stimulus or overstimulating the economy, or however you want to describe it, is coming to an end, that it's a bit more fleeting than secular or systemic. It's rates settling back in is not a signal of the end of the cycle again, or even the end of this phase of the cycle. It's really this hashtag slow your roll, kind of going back into effect, right? I'm trying to get these themes kind of back in because it shows up in a lot of different aspects in this multifaceted look at the markets and the economy. And so there's still this disconnect there. And I think seeing rates kind of settle back in is kind of that earliest indicator

• 42:42Speaker 02

  or reflection of that. We'll see what happens in terms of the path forward, but I think the lion's share of the move in rates that we have seen so far are now behind us. I think we're going to sit in kind of this choppy, range-bound territory as it relates to rates until we see the data move as it relates to inflation or even the Fed change its policy stance in a more meaningful way. I think this is about where we're going to sit for a while. And so on the one hand, it's good to get a little bit of stability in terms of rates. On the other hand, it's really tough for fixed income investors out there because we're still at such compressed levels in terms of yields and also frankly, in terms of credit spreads too.

• 43:24Speaker 02

  And so supportive certainly at these levels for the economy. We don't think we're in overly restrictive territory where interest rates are sitting. We don't think that it's a headwind for equity markets, but still a tough slog out there for fixed income.

• 43:38Anthony Pompliano?

  Absolutely. What everyone wants to know is Bitcoin and crypto. You all have been actually very kind of forward thinking about this. I think you spent a lot of time learning and doing some work on it. Maybe let's just start with, you know, beginning of this year, we were sitting around $30,000. It basically doubled, talking about the Bitcoin price, and then it drew down about 50% back down to 30. And today we sit around $40,000. And it feels like there's multiple narratives, you know, kind of around why that happened, what's driving the various price action there. But is there a framework or a model that you use, just maybe not even just Bitcoin, but just the crypto industry in general, given that you really look at a macro

• 44:22Anthony Pompliano?

  outlay and an entire portfolio construction, first for people to understand, you know, that perspective as to like, where does this fit in a portfolio today, in your also opinion? Or kind of how do you think about it as part of your business?

• 44:37Speaker 02

  Well, so there's a lot to unpack, certainly, in terms of that. Man, I'll just start with thoughts around the fact that these are the most volatile assets on the planet by far. And so to be engaged in cryptos in some way, shape or form, you gotta buckle up, right? It's it's high volatility regime on steroids. And so it comes with the territory. And so we're not at all surprised to see these massive fluctuations. I think a lot of the reasons for the fluctuations are pretty well known. We've seen a lot of jawboning on Twitter. We've seen a lot of noise around regulatory headwinds, potentially here in the US and China and other places. But there's

• 45:22Speaker 02

  also been a lot of positive catalysts and innovation too. And so I think this is, at the end of the day, what happens when you're in the early innings of a newfound industry or newfound innovation cycle. And so we're not at all put off by it, even though, you know, it certainly has been a wild ride, just in a very short period of time. We're not necessarily recommending it as a Formal part of a portfolio. We're still not entirely clear on how it shows up in a multi-asset class portfolio. That being said, we are really interested

• 46:01Speaker 02

  in the potential use cases of blockchain technology and frankly, from an organizational perspective, how we can leverage blockchain technology across the ecosystem. So that's really kind of where we're interested in spending our time and thinking about kind of building out our capabilities. We certainly want to enable and work with our clients in terms of trading coins, custoding coins, like that, that goes with the territory in wanting to enable them to bring that into their multi-asset portfolio holdings. But I think it goes way beyond that. It's, it's, we're thinking about,

• 46:40Speaker 02

  you know, what, what are, what does tokenizing securities look like? What, what does treasury management need? And how can we leverage blockchain technology to kind of revamp or be more innovative around our solution set there? How do we think about payments, right? I think it's well, well understood, the traditional approach to payments in this country and through the financial system, but is there a way to revolutionize or innovate around payments? To be more nimble and more, more innovative in that area. And so we're really thinking about it from an ecosystem, from a competitive landscape perspective. It's not just one and done in terms of a solution. It's not just putting one,

• 47:24Speaker 02

  you know, type of coin or one third-party strategy on the platform and then we're going to call it a day. I think we really need to think about the innovation cycle that's being born out of it. So that's what we're really excited about. That being said, you know, there's a long runway for growth and innovation. And so we've been watching this very, very closely for a number of years now, but we're starting to get a lot more active in terms of thinking about the product and solution set that we really need going forward.

• 47:54Anthony Pompliano?

  Yeah. One of the things that's fascinating to me is as you look at it holistically, it's almost now at the point where you're like, of course, we have clients that are going to want to buy this stuff, hold it, custody it, trade it. It doesn't feel like that was probably the thought process among many of your clients two, three years ago. And so any insights that you can provide in terms of just what's driven that? Is it literally, you know, Paul Tudor Jones, Stanley Druckenmiller, Fidelity, you all, and a whole bunch of others that they consider to be the smart money, kind of saying, hey, look, this is real and we're going to participate? Or is there something else in the macro environment? Like what changes their mind in terms of now it almost being like a foregone conclusion that of course they're going to want to do this?

• 48:38Speaker 02

  I think there, I keep, I guess the theme of our conversation today is innovation because I keep going back to this concept of innovation. If you think about the last cycle, pre-pandemic, right? There really, there were pockets of innovation, but that really wasn't the theme, right? Just because I had a, you know, clear screen on my iPhone or a more powerful camera or something like that, didn't really drive meaningful innovation and frankly, productivity enhancing gains. That's why we think that growth in general over the course of that cycle was pretty slow and pretty sluggish. It wasn't that there weren't pockets of innovation. There absolutely were, especially in healthcare, a lot of advancements in there. But the innovation

• 49:22Speaker 02

  wasn't broad-based enough to really truly redefine growth over the last cycle. And so I think we're starved for innovation. And so I think investors in general are clamoring for what is that next big thing? And how do I get in on the ground? And so the blockchain technology story, and frankly, even just cryptocurrency in general, is enabling investors to get in on the ground floor. Whereas I think there's a lot of, you know, challenges for the average investor, getting access to innovation through venture capital or private investments, things like that, where you really have to have a significant amount of capital.

• 50:03Speaker 02

  To get involved. And so I think this has been an easier way for investors to start accessing what they would consider to be kind of the next big thing. And so this this innovation cycle, this this series of potential blockchain technology related use cases that are to come, you know, things that we can't even think about necessarily today, I think is what's driving a lot of the interest on the part of investors. There's no question that having big institutional money, let's take a very close look at this, the quote unquote, smart money, is also helping. But I think at the root of it, it's more like, how do I gain access to the next big thing? Because all of the really cool big tech companies, you know, that that

• 50:47Speaker 02

  that story hasn't played itself out fully. But that's already there and it's already really well known. And so I I think there's this real interest for what is the new thing? What is the next thing? And what may come from it? If you think about, you know, web 2.0 and 4G, in terms of data infrastructure and wireless technology, those innovations really gave birth to things that we couldn't even fathom at the time, right? Uber, Lyft, and a whole host of other industries. And so as we're migrating to web three and 5G and 6G and and certainly blockchain technology

• 51:27Speaker 02

  is in that same kind of spirit, I think it has the potential to support things in a more real way, like the Internet of Things, AI, etc. And so, so I think the excitement is, what are the creation of these new business models? What's going to be born out of this? And how do I get the earliest possible access? I I think at the heart of it, that's, that's really what's driving the interest. It's certainly what's getting us excited about it.

• 51:52Anthony Pompliano?

  Yeah, I could talk to you all day about the economy and and the various assets. My last question for you is, what is the thing over the next 12 to 18 months that you're most looking forward to? That has you the most excited? Or, you know, when you wake up, it's grabbing your kind of mental energy? Is there an asset class? Is there a specific data point or anything that you kind of say, look, you know, this is the thing that really has me me excited right now?

• 52:19Speaker 02

  Oh gosh, that is a tough question. I mean, I think this sounds like I'm catering to your audience, but I actually think it is seeing this crypto story play out and seeing the blockchain technology use cases build from it. I mean, that's really where the innovation lies and it's very hard with my crystal ball to say, oh, in 12 to 18 months, this is what things are going to look like, right? But even just since we talked last fall, there's just been such tremendous innovation and evolution as it relates to this industry. And so I think it's just going to continue to move at a really accelerated pace. And I think that's the thing that's most exciting, most fascinating to watch unfold right now.

• 53:04Anthony Pompliano?

  Yeah, I tend to agree. Obviously, the audience will agree as well. So you will score some points there for sure. Where can we send people to follow you on Twitter? Or I know you all put out some incredible research. Is there somewhere that we can maybe send them to be able to get that as well?

• 53:20Speaker 02

  You can follow me at Amanda Agati PNC on Twitter for sure. And then we do put our research out on our PNCinsights.com page. So you can definitely check things out there, too.

• 53:33Anthony Pompliano?

  Awesome. Well, Amanda, thank you so much for doing this. I think people really enjoy hearing from you and we'll have to do it again in the future.

• 53:39Speaker 02

  That sounds great. Thanks so much for having me. Always enjoy it.