#1003 Charlie Bilello On Why Fed Is Crashing Stocks

Charlie Bilello is the founder & CEO of Compound Capital Advisors In this conversation, we break down the macro economy, the Federal Reserve policy, how bad the economy may get, and if we can grow our way out of debt. ======================= 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. ======================= DeFi Technologies represents what’s next in the digital economy -- providing simplified, trusted access to crypto, decentralized finance and Web 3.0 investment opportunities. Institutions and investors can gain diversified, secure, compliant, and easily tradable access to a diversified set of industry-leading equity products and protocols, through a single stock purchase on a regulated exchange. Currently listed on U. S. (OTC: DEFTF) and Canadian (NEO:DEFI) exchanges. For more information or to subscribe to receive company updates and financial information, visit our website at http://defi.tech =======================

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. Charlie Belilo is the founder and CEO of Compound Capital Advisors. In this conversation, we break down the macro economy, the Federal Reserve policy, inflation, interest rates, bear markets, and asset prices. I really enjoyed this conversation with Charlie, and I hope that you enjoy it as well. Before we get into this episode though, I first want to 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 track record through volatility spikes. They leverage LMAX Group's liquidity relationships

• 0:45Anthony Pompliano?

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• 1:26Anthony Pompliano?

  pay attention. The Pod Pro cover, which goes over your mattress by Eight Sleep, is the most advanced solution on the market for thermal regulation. It pairs dynamic cooling and heating with biometric tracking. You can go to eightsleep.com/pomp to check out the Pod Pro cover, and you save $150 at checkout. They currently ship within the United States, Canada, and the UK. And I told you, it changed my life. It helps me sleep deeper, helps me sleep longer, I feel much more refreshed, and I have better energy. You want to know how I have relentless energy every single day? Because I sleep on an Eight Sleep. Seriously, go check it out, eightsleep.com/pomp today. This episode is brought to you by DeFi Technologies. DeFi Technologies represents what's next in the digital economy. They're providing simplified, trusted

• 2:10Anthony Pompliano?

  Access to crypto, decentralized finance and web three investment opportunities. Institutions and investors can gain diversified, secure, compliant and easily tradable access to a diversified set of industry-leading equity products and protocols through a single stock purchase on a regulated exchange. DeFi Technologies is currently listed on the US exchange at DEF TF Stock ticker and the Canadian NEO exchange at DEFI. For more information or to subscribe to receive company updates and financial information, visit their website at defi.tech. I'm really excited about what these guys are doing. I've become an advisor to the business and I highly suggest you go check them out. Go to their website at defi.tech today.

• 2:53Speaker 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.

• 3:17Anthony Pompliano?

  Charlie, how are you, my friend?

• 3:19Speaker 02

  Good. How are you?

• 3:20Anthony Pompliano?

  Dude, I'm so excited for this. Like all weekend I was like, all right. I think that I have probably analyzed your tweets more than anyone else on finance Twitter over the last two years. Let's just jump into how the hell do you come up with the content and how do you create so many of the visuals and graphics, etc. on a consistent basis?

• 3:42Speaker 02

  Yeah, that's the question I get a lot. It's, I live it, right? It's, I love markets. I love investing. This is kind of built up over years and years. It's a process of looking at data, trying to make it simpler and trying to educate people and give people context, right? There's a lot of noise, as you know, in financial markets, a lot of sentiment shifts back and forth and people making bold claims in a lot of different directions. And I just try to give people context and most of the time let people interpret the charts and data the way they want to, right? And just giving people that context could be helpful, especially during times like today where we Have a little bit of volatility in markets.

• 4:24Anthony Pompliano?

  So let's jump into bear markets, which I know that you've spent a lot of time analyzing.

• 4:30Speaker 02

  Yeah.

• 4:30Anthony Pompliano?

  What is different about the bear market that we're heading into now, maybe even a recession compared to past ones?

• 4:38Speaker 02

  Yeah, it's it's a big change. I think anyone who's been investing the last 40 years has kind of seen one kind of Federal Reserve, right? And that response is almost immediate. When S and P is down 10, 15%, you start typically start hearing the chatter. They should do something, either send a message that they're going to expand the balance sheet or cut interest rates, some combination thereof. So the last eight bear markets in the U.S., we've seen that exact response. We saw it in 2020, of course, with the immediate move down to zero in terms of interest rates. And then the biggest expansion of the balance sheet that we've ever seen.

• 5:18Speaker 02

  But even before that, in 2018, we saw them immediately stop hiking rates and then start cutting rates and launch another round of QE. So pretty much every bear market, even the 1987 crash, that's really where it started under Alan Greenspan. You've seen the Fed ease into that. Today, very much different situation. The Fed has already hiked rates a few times and they're expected to continue to hike rates to above 3% by the end of the year. So kind of ignoring that decline in the market. And the reason is because we haven't seen inflation be the threat it is today since the early 1980s.

• 5:55Speaker 02

  So the last time we had a bear market where the Fed took a hawkish position in the midst of that was under Paul Volcker in the early 1980s. And we're faced with kind of a similar market today, except that the Fed today is so far behind that curve.

• 6:11Anthony Pompliano?

  So when you say that they're behind the curve, one of the things it feels like is they were still doing asset purchases earlier this year, even though they were talking tough at the exact time, like, how do you analyze what they're saying versus what they're doing? And is there any kind of frameworks that you've kind of distilled over time that really helps you? Separate words from actions?

• 6:34Speaker 02

  Yeah, it was just an incredible disconnect, right? We saw last year, even if you thought, you know, heading into 2021, let's say you had the position that inflation wasn't going to be a problem. By the middle of the year, it was clear, pretty clear to everyone that inflation was rising. And particularly in the housing market, we saw month after month of record highs and demand really fueling that. So there was, in my opinion, and I think any reasonable person's opinion, there was no rational reason to continue to buy mortgage bonds last year and into this year with the housing market doing what it did. And 0% rates just made zero sense last

• 7:15Speaker 02

  year, given the risk reward of the situation. So their number one job, you know, as a Fed under their mandate is to control, you know, to have price stability. And, you know, they had the low unemployment rate, so that really wasn't a factor. And they just kind of ignored it. And, uh, and we find ourselves in the, in the position today where they're behind the curve. And so they have to be, uh, you know, rapidly catching up. So, uh, you know, really the pain that could have been avoided was just that additional excess and upside in terms of the meme stocks and everything else in terms of people jumping into risk, forcing into risky assets. Uh, and now we're seeing the other side of that, unfortunately.

• 7:56Anthony Pompliano?

  Why do you think that they continued? Was it, uh, they just didn't want to rock the boat? Was it something like politically motivated? Was it just ignorance? What was it?

• 8:05Speaker 02

  Yeah, I think it's a combination thereof. Uh, the, the politics, the Fed unfortunately has gotten more and more political. I think we've seen that in recent years, and especially with the huge increase in national debt, right? We added $6 trillion. That didn't happen in a vacuum. That couldn't have happened without the Fed monetizing that and, and buying a good chunk of that debt and adding it to their balance sheet. So to me, that was, that was really the politicalization of the Fed. And, uh, the Fed has kind of had this idea that, uh, the base case scenario should be easing. And, and that started under Greenspan. But it really accelerated under Bernanke and the idea was that easing should always be preferable

• 8:49Speaker 02

  because we're not really worried about inflation. And if you're not worrying about inflation, why not ease? Why not, you know, just make that your base case scenario? Of course, anyone in emerging markets, countries can tell you why, right? They've experienced it and anybody living in the 1970s could tell you why as well. But it was just too far removed from us for that to be a real concern. And so, you know, pass it on to the next Fed and same thing with what the government does, pass it on to the next, you know, so we'll continue doing what we're doing until we're really forced to to move. And now they're in the position where really they they've lost most of the credibility, I believe, that they had. But if they want to retain any credibility here, they have to start moving higher.

• 9:34Speaker 02

  And it's only only because of that they're really being forced to that they're doing so. And so at a certain point here, we'll likely see them flip and go back in the opposite direction. But the optics today are too are too much for them to just simply ignore, right? We have the lowest consumer confidence in history. We have gas prices above $5 a gallon for the first time in history. You have any number of factors, but inflation is the main reason people are feeling angst. And for good reason, their wages are not keeping up with with inflation now for 14 consecutive months. And that's a lot. And and so the Fed really has to try to at least do something about it.

• 10:14Anthony Pompliano?

  So when you start to look at the data that they are using, obviously CPI is the thing that everyone's been paying attention to for the last year or so. I appreciate the fact that we probably see eye to eye on it's bullshit. Like, there's just no way that the CPI prints appear to be accurate. And can you walk us through like why you don't think the CPI measurement is is maybe Reflecting what they think it's reflecting?

• 10:42Speaker 02

  Yeah, the big factor today, you know, I'm not one of these people who think that historically, you know, inflation was 10% and it was really 2%, you know? Certainly, it's probably a bit higher than the reported figures if you're going back, let's say, 20, 30 years, but I think the big disconnect has been in the past year or so, and looking at the housing numbers and housing, you know, as you know, is the biggest component of CPI. It's what people spend most of their budget on. Over 33% of that index is just in housing. And they just have an antiquated measure, in my view, and they have some justifications for it of measuring the cost of housing, cost of shelter, where really, instead of looking at market prices,

• 11:25Speaker 02

  whether it's rents, which are up 15% over the last year, or housing prices nationally, which are up over 20%, which is the highest increase we've seen year over year on record. They're going around and polling people and asking them what they would rent their homes out for, something called owner's equivalent rent. And when they do that, apparently the answers to those polls are much lower than the actual statistics. So because of that, you know, that 8.6% figure, if we're using, you know, the actual housing inflation that we've seen over the past year, you know, would obviously be well above 10%. So it's just a function, you know, that's the big driver in terms of the index. And maybe, you know, over the long run, that smooths itself out.

• 12:09Speaker 02

  But, you know, over the past year, that's been just, you know, really under reporting the actual rate of inflation, you know, in the economy.

• 12:17Anthony Pompliano?

  How do you think about the demand for real estate? Once rates start to increase, we have seen the mortgage rate explode upwards. Is this just a simple supply, demand, hey, demand cools, the rates go up? We should expect real estate prices to fall and like, don't make this too complicated and keep it simple?

• 12:35Speaker 02

  Yeah, I mean, it's not, it's not as simple as that, as the stock market where it replayed prices very quickly. But it has to impact demand and we're seeing that already. So the mortgage rate bottomed at 2.65% early 2021 and

• 12:50Speaker 02

  It's doubled since then. And so if you're looking at the the payment, right, the average payment, if you put 20% down, it's pretty much doubled over that period of time. And you have home prices up, you know, 20, 30% since then. So if that doesn't impact demand, then then nothing will. And it is already. If we looked at new home sales last month, they've really collapsed. And I think we'll see that continue. And, you know, the housing market, you know, this is really a second bubble we've seen in the housing market. And it could have, to some extent, been avoided. I don't think it should be a national policy

• 13:30Speaker 02

  that we've kind of made it in terms of of the the Fed saying that we want want to create these housing bubbles that and the theory was that under the wealth effect, if people's homes went up in price, then they would spend more money. And and that is true to a certain extent in the short run. But you don't want to create a situation where housing is unaffordable based on incomes. We saw that in the mid 2000s. And now we're seeing again today, it's at the lowest affordability. You got to go back to 07, you know, to see that. And that's not good for an economy long run. You want housing to be affordable, because it's not a productive good. So, you know, driving prices up, you know, ahead of fundamentals

• 14:13Speaker 02

  for the housing market is bad for everyone, right? It increases your taxes, increases insurance, you know, we've seen all these things go up. So I'm not sure what the thinking is beyond, again, that theoretical concept, which is, we just want asset prices to go up. So people spend more. I think hopefully, people will learn after the housing market comes in here. And we don't have to see a collapse like we did the last time, but you have to see a normalization. You just can't have long term housing prices stretched in relations to income. It's, you know, it has to give one way or another. Either you loosen lending lending standards, which we don't want to see, right? We don't want to see go back to having subprime and and people only putting a few percent down or credit

• 14:56Speaker 02

  people lying about their incomes. That's one way to avoid the collapse. Or two is we just Have to take the medicine and say at seven times, you know, home prices are seven times now the above incomes and that's the highest we've ever seen and perhaps that's too much and perhaps we shouldn't pursue that as a goal, you know, as a policy, right? So just letting the market instead of the Fed determine, you know, where housing prices should be. I think, I think that makes sense. Why do we entrust really is a big question, not just for housing, but for the stock market, for the economy in general. Why do we trust that 10 people sitting in a room can determine the most important interest rate in the economy? I'm not sure why we do that, right?

• 15:37Speaker 02

  We wouldn't do that with food, you know, where we somehow we seem to go to the grocery store and have food each week and there's not some central planner figuring out, you know, what quantities to put in different amounts and how much to produce, right? The market's driving that. So why should it be different with interest rates? We're really entrusting these people, you know, giving them a lot of responsibility, giving them perhaps the respect that they don't deserve because based on history, they've gotten it wrong how many times, right? And I'm not saying I would do any better, right? But, you know, leaving them to determine what the interest rate should be or when they should buy bonds or not buy bonds, you know, it just seems misguided because it's

• 16:18Speaker 02

  going to lead to a misallocation of capital, right? You're driving people into asset classes based on that interest rate, that manipulated interest rate rather than the underlying fundamentals, right, of that sector.

• 16:31Anthony Pompliano?

  So why exactly are stocks crashing right now? Is it because of interest rates and the Fed basically is pushing stock prices down and they don't care how far they fall?

• 16:40Speaker 02

  That's, that's, that's part of it. I think the interest rate story is more complicated. If you look historically, go back 100 years and you say, you know, what happens to the stock market when the 10-year yield goes up versus go down? You actually find stocks tend to actually do better during a period of rising rates than falling rates. And there's a number of reasons for that. And, you know, mainly because when you have rates rising, growth is typically improving and earnings are typically improving and that's typically good for stocks. Situation we're in today is a bit different, of course. Because interest rates are rising, not because of of growth expectations, but because of inflation expectations, and that tends to be a difficult pill for stocks to swallow.

• 17:21Speaker 02

  You know, when people are worried about, you know, that pushing the economy into recession. I think the the that's the fear today. That's what's driving this. You know, I did a poll on Twitter last week asking, you know, do you think the US economy is in a recession or not in a recession? And fifty nine percent said it said we're in a recession already. So whether we are or not, that's only going to be determined in hindsight. And, you know, it's not really helpful at that point, right? The stock market is a leading indicator of that. And so people are feeling that this is a recessionary environment because their wages are not keeping pace with inflation. And at some point, that the expectation then is that they're going to pull back on discretionary spending.

• 18:03Speaker 02

  That will lead to a slowdown in earnings. You're already seeing margin compression with Walmart and Target and a number of other retailers. And you could usually likely see that continue as they can't push the higher cost on to the consumer. So, you know, why are stocks falling? Take your pick, right? We have inflation, interest rate, tightening Fed policy, the war in Ukraine, of course, is a big factor. And some of that is self inflicted in terms of our our foreign policy response to that is only exacerbated the inflationary picture in my in my view foolishly. So we have any number of reasons, but of course, that's what's done is done. The question is what's going to happen going forward? And if we look at the history of bear markets, you kind of have this delineation between recessionary bear markets

• 18:48Speaker 02

  and non recessionary bear markets and tend to see bigger declines, of course, during recessionary bear markets. And they tend to last longer. So if this is a full fledged recession, not like we saw in 2020, where it was, you know, really a two month drop, and then, you know, we threw everything at it, but a more typical recession like we saw, you know, in in 2008, 2009, or or before that in 2001, you would expect, you know, greater than the current declines today. That doesn't necessarily have to happen, but that would be the kind of. Base case expectation. We've seen recessions in the past in 1990 where you had stocks decline only 20%. So anything is possible, but you know, why are stocks going down? Again, take your pick.

• 19:32Speaker 02

  But really, you know, all those factors and combinations with valuations, of course, were stretched coming into this year. We had the highest valuations on the S and P. You have to go back to the dot com bubble. And if we looked at the NASDAQ 100, we had, you know, just the highest valuations again going back there. So some of it's just mean reversion, right? When you have, you need an impetus for people to sell. And you had these extreme valuations, particularly in high, high growth area of the market. And a lot of that has mean reverted very quickly so far this year. So, you know, it's, it's, it's not going to be easy from there this year. From here, even on the short side, because even in bear markets, that's when you tend to see the biggest rallies of all. And so people have to be careful, you know, kind of positioning here from, from, from here forward.

• 20:18Anthony Pompliano?

  When you look at the Federal Reserve, at one point, the market was pricing in 300 basis point interest rate by the end of the year, 10 interest rate hikes. There's calls for it to get aggressive. When inflation appeared to have peaked back in March, people said, oh, maybe they won't actually be as aggressive if inflation comes down. What is your expectation given, you know, June of 2022 right now for the Fed through the end of the year? Do they just stay committed to what they're saying they're going to do? Do you see some divergence from that?

• 20:43Speaker 02

  Yeah, look, it's, it's such a, it's such an expectations game, right? And we've seen, if you, even if you're looking at Fed funds futures, right? They don't predict the future very well. So take all of that with a grain of salt. The Fed's going to react to what goes on in inflation, employment and the stock market, right? And, you know, as we talked about, this is the, this is the first time in a long time they've, you know, been tightening into, into a bear market. But, and, but thus far, it's, you know, we're down, I think a little over 20, you know, 21%, you know, I think 22, I think as, as of this morning's lows.

• 21:23Speaker 02

  Is that enough for them to kind of pause or be dovish? Probably not enough, but if we get to 30. Forty percent, you know, in a few months or later this year.

• 21:35Speaker 02

  The expect, my expectation would be there would be some kind of shift in language. Again, just assuming the Fed is not going to do what Paul Volcker did and they're not going to kind of push, you know, deliberately push us into a recession in order to bring down inflation. Assuming that's not going to happen, then, you know, if, if those declines continue, it will likely mean we're in a recession at that point. And then inflation should be, you know, at least moderating on its own, you know, going into that. And likely my expectation would be the Fed would at least pause at that point, you know, if not do an about face. So, you know, the Fed likes to use data dependent, you know, and they've proven that it's not so much data dependent, but more so market dependent.

• 22:20Speaker 02

  But this is a deviation from that. So the Fed will hike 50 basis points this week. So that, you know, I think that's a done deal, probably July as well. But I think looking out any, any further than that, it's going to be all of these factors kind of driving it. And the first chance that they see that they can stop, pause, or move in the opposite direction, I think that they'll likely take it because it's just going to be too painful. And I'm not, I'm not sure they have the stomach or the willpower to do what Paul Volcker did in the early 1980s. Ronald Reagan gave him the leeway and, you know, to push us into not just one recession in 1980, but another one from 80 to 82.

• 23:00Speaker 02

  And so I'm not sure as a country, we, we're willing to, we might need to take it, but I'm not sure that, you know, the powers that be are going to willingly, willingly do that. So we'll, we'll see, it'll be interesting. Hopefully they'll do the right thing, right? For the long term and not be short term thinking. And, and there's no magic number, right? In terms of the Fed funds rate, but you know, it, it, it cut it immediately to zero. I think the reasonable question is today, it's why not, why are you not treating this as, as a similar type of crisis on the upside, right? And they could very quickly quell demand. It's probably already coming down, but if, you know, why not just, you know, rip the Band-Aid off and, and go 100 basis points for the next few meetings and then see what happens.

• 23:46Anthony Pompliano?

  Do midterm elections play into this? Like, is there going to be pressure politically? Do not push us into a recession before the election. And also do not have high inflation and so like wave a magic wand and figure out how to get this off landing?

• 24:02Speaker 02

  Yeah, there'll be a choice. I'm not, yeah, I'm not, I'm not sure that, that I think the Fed will worry about their own, you know, how their own optics before saving, you know, you know, the, the powers in charge today, I think. So I, you know, if they were going to stop, they would have telegraphed that, I think, ahead of that. I think the midterms at this point are pretty much a done deal unless we see some, you know, unforeseen event. You're just going to see a landslide in the opposite direction. Because of the, the consumer sentiment numbers, because of the stock market, because of what's coming in the housing market. And, and, you know, right or wrong, people are, people will blame the administration in power. That's been the American way. And that's kind of the balance and checks and balances.

• 24:44Speaker 02

  And, and sometimes you reap the benefit of that, benefits of that. And you get credit for things that aren't your, necessarily you're doing. And sometimes you get blamed and, you know, not to say that there, there isn't blame to go around in the current administration for, for some of what we're seeing. But, uh, you know, they're going to, they're going to see in the polls that people are not very happy with the direction. And I think that's regardless of what the Fed does from here.

• 25:09Anthony Pompliano?

  Talk to me about, uh, wage growth. One of the things that, uh, we saw at some point when there was high inflation was, hey, chill out. It's, it, inflation's good for you. Like you're, you're going to get paid more money. I think we're, I think we're now at, uh, inflation adjusted average hourly wage, uh, is negative for 14 straight months.

• 25:28Speaker 02

  Yeah.

• 25:28Anthony Pompliano?

  Explain what's going on with wage growth and inflation and like, especially people are just getting screwed.

• 25:34Speaker 02

  It's, it's an incredible thing and what an about face, right? And I'm not sure Powell this week will own up to it. But, uh, for, for months in late 2020, early 2021, he was, uh, you know, kind of saying, even if we have inflation, that's a good thing and it's going to be good for, uh, the lower income, uh, segment of the population especially. And, you know, I pushed back and I think others pushed back at that time. The data doesn't support that that theory that inflation is good for people with lower incomes. Because of course, it's going to be a higher percentage of their income when gas prices go up and food prices go up and necessities go up. It's going to hit them the hardest. They also don't have assets, right, which have benefited from the asset price inflation that we've seen.

• 26:16Speaker 02

  And so, you know, that's that's kind of a ridiculous concept that they came up with. But, you know, they don't seem to be saying it anymore, thankfully. But what's interesting is that we've seen a really 180 degree shift in terms of the way the American people have felt about inflation. So in in 2020, early 2021, it was kind of this idea that even if we're out of inflation, it's only a good thing, right? People are seeing their stock portfolios go go up, their housing prices go up. Wages were going up for the first time in a long time in a meaningful way, which is of course a great thing and you and you want to see that happen. The problem is it was a mirage, right?

• 26:58Speaker 02

  It's a function of of a 40% increase in the money supply and giving out three rounds of stimulus and paying people more on unemployment than when they were working. So, you know, all of those wage gains and we've had, you know, pretty significant wage gains, you know, since early 2020. If we adjust for inflation now, it's actually negative. So, you know, it's I call it a mirage because, you know, you're feeling like you're making more money and you are in nominal terms. But the things that you're buying now have increased by more. So it's a tough, it's a tough pill to swallow, but really we saw a reversal last year and happened much quicker than I thought it would.

• 27:39Speaker 02

  You know, in terms of of a change in the American psyche, I called it, where we went from believing that, you know, free money was free to essentially saying, no, it's not free, there are costs to it. And that's really what stopped the, you know, build back better plan. Joe Manchin really drew a line in the sand, speaking for, you know, the American people saying, I just can't do it anymore. And that, you know, that is typically unpopular. Saying we're not going to throw more money at something. You know, if six months earlier, everyone was happy to do the third stimulus, even though the economy had recovered and earnings recovered. So it was an about face. So really it's the reality of the situation is kind of showing, revealing itself here.

• 28:22Speaker 02

  And it's happened much quicker than I thought it would. And unfortunately, it's because inflation has been much higher than I think, and happened much quicker due to the increase in the velocity of money than people thought. And so it's a change in the psyche and perhaps that'll stay with us for a while as it did after the 1970s, early 1980s experience and we'll have a healthy respect for it going forward. That you can't print your way to prosperity, right? You have to have innovation, real economic growth over the long term to improve people's well being. And we've done that over the last hundred years, but increasing the money supply by 40%

• 29:02Speaker 02

  and borrowing $6 trillion and sending it out, you know, is not going to, in the short term, it's going to feel like a great thing and you're going to feel wealthier, you know, but it's, it's really mirage, of course, because, you know, eventually that inflation is going to seep into the system.

• 29:18Anthony Pompliano?

  So what's so fascinating about this is everyone talks about the debt. Everyone talks about it. And if you look at, I think global debt to GDP is like 350%. I think US is like 130% off the top of my head. And there's two ways out. One is like, hey, stop taking on debt and just allow growth at its normal rate. Or the second is get our ass in gear, generate the GDP growth and like basically build our way out. Unfortunately, or fortunately, you, I and everyone watching this, we have no control over debt, right? Like, like they're like, and guess what? They have no incentive to stop. So like, they're going to continue.

• 29:58Speaker 02

  Neither party, right?

• 29:59Anthony Pompliano?

  Yeah, it's just.

• 30:00Speaker 02

  Been going on for 40 years.

• 30:01Anthony Pompliano?

  Yeah. So like, we just can't, we can complain about it, but we can't do anything about it. But the building side to me is the single most important thing that we can control. And nobody can wave a magic wand and create, you know, quote unquote, economic growth for an entire economy. But everyone can do their part to try to drive growth on a small. Scale if you add that all up, it leads to it.

• 30:23Speaker 02

  Yeah.

• 30:24Anthony Pompliano?

  Let's say everyone tomorrow woke up and was like, all right, let's get to work. Can we grow our way out of it? Or is it just we're so overwhelmed by their incentive to take on debt that it is impossible to grow our way out of it?

• 30:35Speaker 02

  No, I, yeah, I'm a long-term optimist. I guess we've been talking about a lot of negative things here, but no, I don't, I'm not going to bet against the American people and innovation and their grit and, and, you know, no, absolutely not. Absolutely. It's just look at Japan's debt to GDP. We're not, we're not over the edge yet. It's not too late. We have, we have a chance to turn this thing around. We have to make some tough decisions and again, focus on making those hard choices so that our children and grandchildren won't be saddled with this debt. And, and the reason, it's not intuitive, right? I think for people to say, well, what's wrong with it, right? It generates increasing growth, right? In the short run, what's the problem along with higher debt?

• 31:18Speaker 02

  And, and any nation that has had above a certain point, you know, debt to GDP ratio above a certain point. What it does, it starts crowding out, you know, other savings and investing, right? That's, that's the bigger problem with it. And so, you know, we, are we at that point today? And if interest rates rise, is that, you know, going to be a bigger part of the budget and cause problems? Sure it will, but, but we can, we can turn this thing around. We've done it before, we can do it again, but it's, it's, it's not going to come without some pain. So unfortunately you do need to have corrections and recessions sometimes to clean out the excesses. And we'll come out of this stronger, you know, for sure.

• 32:01Speaker 02

  I think the American people are going to continue to innovate. If you give them the freedoms to innovate and give them the incentives to work hard and create real, real improvements and products that people want, that's, that's going to be a good thing long-term. So, you know, the upside of all of this volatility and corrections is if you're a net saver, if you have 20 years or more, you know, any downside in the market should be viewed as an opportunity, right? You're getting Opportunity buy in at a lower price and that should lead to better long term returns. And you know, in terms of, you know, the macro and the debt levels, as you said, you can't do anything about.

• 32:42Speaker 02

  So focus on your, your business, focus on, you know, doing the best you can. And you kind of have to ignore that noise, but you know, in some respects, it's going to change come November. Right. In terms of, you know, the debt, the deficit's already coming down. The money supply last month declined for the first time in 12 years, 12 years. We had 144 consecutive monthly increases in the money supply. And, and then we finally had a dip and I expect that should continue with the Fed starting to unwind their balance sheet. So we're already shifting, we're already moving in the right direction. We just have to keep it going and a choice will have to be made when, you know, the pain is really being felt.

• 33:25Speaker 02

  Either we, you know, do make the hard choices or we say, this is too tough. Let's just go back to, you know, printing more money or let's go back to borrowing. And I hope that we don't, you know, choose that route. But, you know, I think there's incentive structures are, are still there to, you know, to, to see what happens. But everyone's got a voice and, and I think the Fed is hearing loud and clear that people are, are not happy with the situation. They're not just gonna, you know, for the first time in a long time, people are even know what the Fed is and doing. And they care about it because it's affecting, you know, their, their everyday lives. Right?

• 34:04Speaker 02

  And so same thing we can be said, I think that people are drawing those lines much more than they have in a long time.

• 34:11Anthony Pompliano?

  Yeah, man, I could talk to you literally forever. I, I, I agree with so much of what you're saying. And, and I think that what's unique about your insights is that there are things that are intuition. There are things that you can kind of feel in the market, but you're so data driven and you continue to just explain, look, like it is math. It is numbers and separating out the kind of data driven analysis from the emotional components of this is much easier said than done. I don't think anyone, you know, it's a weird. Where psychologically, like even if you don't hold the asset, like I don't hold public stocks. When I see the stock market down, I'm like, damn, right? And like, I'm not getting hurt by it, but it still sucks.

• 34:52Anthony Pompliano?

  And I think that there is this ability of the best investors in the world to separate themselves out from that psychological impact. And in some ways, almost have the reverse psychology of, hey, prices are down. If I think these are good assets, I get excited, right? And I actually want to buy them.

• 35:08Speaker 02

  Yeah, I think Naval once said, and it's Greek quote, "The difference between an investor and a speculator is what your reaction is to when your favorite asset class goes down in price." Right? If you're a speculator, you're worried, you're concerned. If you're an investor, you're excited, right? So Bitcoin's down two thirds. You know, if you're a speculator, that's terrible. If you're an investor and you have a long-term view that Bitcoin is going to be higher 10, 20 years from now. Okay, then you're excited and we could substitute Bitcoin for any asset class. High-yield bonds are getting killed today or, you know, any treasury bonds, anything, right? But that means that yields are going up, the reward is going up.

• 35:53Speaker 02

  So the forward returns are better in all of these things than they were. So we can debate if they're going to go further all day long, right? No one knows the answer to that, but we can say that the risk reward is better today, certainly than it was a few months ago, right? And so that's something good for at least investors to start, you know, being a little bit more optimistic about and thinking about, okay, well, how am I going to navigate if it goes down another 10, 20, 30? That's the way you should be thinking with a long-term outlook and not trying to trade these moves, these short-term moves, which nobody can do.

• 36:28Anthony Pompliano?

  Completely agree. Where can we send people to find you on the internet or find out more about Compound?

• 36:32Speaker 02

  Yeah, just check out best place to Twitter, check out at Charlie Belolo. I just started a YouTube channel as well. I'm doing a few videos with a lot of charts and a lot of data and trying to be as objective as possible. So yeah, that's the best place, definitely. And I have a newsletter. As well, where I sent out once a week, just, you know, highlighting the most important charts and themes and markets and investing. And again, the big, big thing for me is just educating and trying to be helpful to people in terms of, you know, this is hard. This is a hard, investing is the hardest business there is, as you know, so, you know, you're not alone.

• 37:12Speaker 02

  It's, and these are difficult times and, and just try to keep your, keep your sensibilities and have some context that this too shall pass. We'll get through this. It's, it's going, there'll be better days ahead for sure. And then sometimes it's hard when you're living in that, it's hard to, it's hard to believe that it will, but we'll get there. And so that's, that's the big message for sure.

• 37:35Anthony Pompliano?

  I could not agree more, my friend. I really enjoyed this. We're definitely gonna have to do this again in the future. So keep up the great work. Anyone who doesn't follow Charlie on Twitter, highly suggest you do that. I've learned a ton. I think you will as well. So thanks so much for your time, Charlie, and we'll do it again.

• 37:48Speaker 02

  Thank you. Thanks for having me. Have a good one.

• 37:51Anthony 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.