What's up, everyone? This is Anthony pomponio know many of you know me as pomp you're listening to the pump podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn so it would mean the world to me. If you would subscribe to the show on your favorite audio platform watch episodes on YouTube and tell your friends and family about the podcast. My goal is to help Millions learn from the world's most interesting people. So let's get into today's episode. What's up guys Bang
bang There is panic and fear in financial markets and we are here to try to answer all your questions. I have Phil Rosen co founder and editor-in-chief of opening bell daily. It is probably my favorite Finance newsletter. Why is that well because I help them start it. He was a fantastic reporter over at Business Insider and now he is writing for over two hundred thousand people every single day on what's going on in finance in this conversation. We talked about how the stock market is dropping. So aggressively. Why is it happening what's going on in?
Hand why did crypto go down so much and what you can do at home to try to insulate yourself from all of these problems. Here's my conversation with Phil Rosen Anthony promptly. Ah, no runs pomp Investments all views of him and the guests on his podcast our shoulder their opinions and
do not reflect the opinions of Pop 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.
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So Global markets are selling off today. Japan. Korea us everything is in the red and a lot of this started last week when we had the manufacturing data was weak. The jobs Market data was weak and the July report specifically triggered the song Rule and that has raised recession fears all over the world. Tell us what you're looking at right now.
Everyone's scared. Everyone is scared, but I don't think they should be yet. I think there's a couple of different components.
This first of all, we have high interest rates in the United States. Yes, historically, they're not that high but they're high compared to the zero percent interest rate environment that we've had and so the FED has had multiple data points unemployment's been creeping up. The economy is obviously been slowing down a little bit to cut interest rates and they haven't done so and so if you leave interest rates high for a long time, you eventually break something in the economy, right? If you think about the United States economy, it is built for low interest rates and cheap money. That is how everyone
grows and growth is the oxygen for the economy. So that's kind of Step One is just structurally you've got higher interest rates. So that creates a lot of issue. The second thing is that people have been pouring tons of money into the stock market, right? If you have five and a half percent interest rates, but the stock market at all-time highs that's not supposed to happen. And so obviously people have been very bullish and optimistic. They're trying to front run some sort of pivot from the FED they keep pouring money into the stock market now, where are they getting that money? A lot of it is because they're getting wealthier because of
These things in the economy and there's more cash that they have to go and invest there's hundreds of millions of dollars that are actually coming in Via this carry trade because what a lot of investors figured out is that the Japanese Yen was in an environment where there's a zero percent interest rate. So rather than borrow money in the United States at five and a half percent. I'd rather go to Japan and borrow at 0% Well, if I borrow in Japan, they don't give me dollars, right they give me JPY and so what do I have to do is I have to take that and have to convert it to dollars. So I borrow and
Japan is 0% and then convert it to Dollars. Well now I have dollars and I 0 0 percent on that loan. What do I do? I go buy stocks sounds amazing. Well, all of a sudden would started to occur is as I was buying those stocks and was going up. I felt like a genius now, there's two things that occurred one the Japanese started to tighten their financial conditions. Oh, hold on a second. It may not be zero percent interest rates. Now. I'm actually owe something on this money. That's a departure from why I did it and kind of the original environment. The second thing is as stocks of kind of
Back some then I now have essentially leveraged bet in the stock market if the stock starts to trade down. I now get worried about some sort of Margin Call. And so what I have to do then is sell stocks to go pay back my loan. But if I'm selling stocks and so is a lot of other people it further pushes prices down causing more of a Cascade in the market. And so what you get here is you get a number of different dynamics that are all coming together that are leading to these lower prices now, maybe the most important part of all of this.
Is we live in an economy where the structure of monetary policy is going to constantly push asset prices up, but because we've essentially removed risk from the market people will do things that take on more and more risk, right? Imagine. If you could go to the casino and you knew you couldn't lose what would you do you just sort of wagering more money, but on the off chance that the Federal Reserve is not paying attention like when they have interest rates at a high rate for a long time, then what you start to do is you start to introduce.
More of that risk but people still are convinced. There's no risk and so stock starts trading down there caught you know kind of what their pants down because over levered and so then you get panic and fear. It's hilarious to me. The SNP is still up double digits year to date yet. People are acting like is down
20% Well something that I was watching was the vix the fear gauge on Wall Street. I think that's up maybe two hundred thirty percent for something from the last week, which is crazy and it's right now at levels that we've only seen
Seen think during the great financial crisis and in 2020. Do you think this marker reaction is maybe a well-timed correction, or is it a over reaction? Well is always funny to me that you know, our grandparents prayed for days like we have in 2024 with stock market is up double digits halfway through the year right with a stock market that compounds usually at you know, 78 percent maybe ten percent on average over the last 50 years.
That's a year-long return. We were annualizing close to 30% of the SP. It kind of half your mark. And so because of that performance people got used to everything goes up into the right. And so the first sign of oh, wait a second stocks. Don't only go up all the time every single day, right if you go and you look I think the SP didn't have a 2% draw down for a year. And so when that occurs when you get the two percent dry down everyone's forgotten what it's like when stocks go down a little bit and
if you then take not only stock performance and kind of the fear that's driven there. I do think that there's a lot of people who are looking at the presidential election in November and they're trying to understand who's going to be the president. If you overlay the chart of the S&P with the prediction odds of Donald Trump becoming president when Trump's odds go up to stock market goes up shortly after when Trump's odds go down the stock market goes down. And so what's hilarious about this is that people are almost day treating the gyrations in
Trump's prediction odds in the stock market whether they're doing it implicitly or not. They are trying to better understand our stocks going to accelerate or is there an incoming recession and the short answer is nobody knows for sure, but we do know that you're not supposed to have all time high in the stock market with interest rates this high. So what do you think?
I didn't know that about the prediction markets with Trump and the stock market correlation something that I think is.
It was a big topic. The last few weeks was Trump coming into office for a second term and how that would fuel markets. But I think that's really left the conversation. Now that people are thinking about recession and the labor market is weakening. I think the Trump trade is really sort of old news at this point, and I don't know how relevant it is or at least it's not being talked about or reported on in the financial press. I haven't been writing about it. I've been writing more about the economic indicators.
But before we go any further I have to ask you about crypto, of course Bitcoin is down 20% in the last week ethers down 25% Salon is down almost 30% What are you watching there? And what should we know for the coming weeks and months. If you don't get excited when the Assets in your portfolio go down in price. You may not actually understand what you own and when I see this go down now take something like Solana.
Solana has gone from forty fifty sixty seventy dollars when I started to buy last year and ran all the way up to 200 came back down. It actually went to like 125 and went right back up like 180, right? It's come back down whatever and so what you want to do is you want to constantly be allocated to your portfolio. And if you buy things with a very long time Horizon when the price draws down you don't worry, right so last night when everything was kicking off it was almost like you just kind of Sit Down You're like here we
Uh-oh, here comes the fun, but you're not worried. You don't have leverage not worried about getting liquidated. You're not worried about what the day-to-day price movements are even if it goes down 50 plus percent because you're saying to yourself. I'm holding this for years. And if I'm going to hold it for years, who knows what's gonna happen rich I shouldn't worry about today. And so the long-term mentality is actually this great anecdote to the like fear and panic when these moments and then I also think that when you see something like crypto drawing down because it is so volatile.
It bounces really hard. So earlier today. We saw a Bitcoin Drew down. I saw 49 thousand dollar print rather was like forty nine thousand seven hundred bucks. I looked maybe an hour later. I was back to fifty four thousand dollars. And so when you see those kind of hard drops its the reflexivity in the market, so you see something go down very very quickly and it comes flying right back that literally could not happen in the stock market because the circuit breakers and so they constantly are interrupting these kind of violent moves in either direction and so at a
free asset like Bitcoin or the crypto Market shows you much more about human psychology and how markets are supposed to work. And so I think that's actually one of the advantages that the crypto world has. Although the traditional Finance folks look at it as a negative. They say it's too volatile. They say there's no it's too much of a free market that is as an investor. That's what you want. Right you want an unencumbered kind of signal as to what's going to happen in the world. You want to be able to take a bet on that versus have to analyze not only what is the financial asset? What is the market conditions? But then hey
Are they going to intervene in some weird way that's going to change the financial performance of this
asset. Do you think that because there's no breaks or stoppage and crypto markets that it's too prone to panic selling.
I think it works in both ways. Right? So I mean there's nothing like Bitcoin on a day where people are enthusiastic at euphoria's, you know flying around because it'll go up thousands of dollars.
The reverse happens as well. We're dropped thousands of dollars, right? I mean people go back. I saw some people being like, oh, this is like March 20 20, March the 2020 Bitcoin draw from eight thousand dollars to under 4050 percent drop in a single day that is very difficult to happen in the stock market because of the circuit breakers and a bunch of this stuff. There are times where they'll even just shut down trading of something and you say I'm just go home, right? And so when you see this happening in kind of the Bitcoin and crypto world, you just have to remember that as these people get wealthier and as the
people get older they will start to diversify into kind of more traditional markets. And so we're really training an entire generation of people to be better in terms of understanding volatility being long-term oriented and kind of prepared for these
moments. So I want to do pivot to the fed and last week Jerome Powell did not adjust interest rates. So there's still a two-decade highs and you days after yeah, truly I and the markets reacting right now he
That the labor market looked still fine essentially and then two days later. We got the week July jobs report. And now you have calls I think wardens Jeremy Siegel this morning was calling for an emergency rate cut and he said he wants to see a 75 basis point cut. Where do you stand on whether the FED has made its policy error and if we're going to see an emergency
cut the FED made a policy error when the Fed was created and they let it intervene in the market right it in a market. You're supposed to allow the
free market to do it. It is an arrogant belief of human beings that we can intervene in the market better than the free market forces. And so what the FED is ultimately doing in 2020 and 2021 is they are artificially suppressing certain conditions in the interest rate and they are also along with their other colleagues artificially inflating the money supply at a rate. That is unnatural. And so what do you get you get massive inflation right there?
Show number being almost four times what the actual Target is, right or almost five times the actual Target now, we have the opposite problem, which is we are artificially inflating the interest rate and we are also at least from the feds perspective trying to deflate or decline any sort of easing in the economy. Now their colleagues didn't get the message because they still in print and tons of money right with the dead over 35 trillion dollars, but I do think that that intervention is the first policy
Here now. The second policy era is the over-rotated and they didn't step in before the inflation really hit now. They have over rotate in the other direction and they've kept Financial condition. So tight that yes, they're going to keep doing until something breaks. I think this probably counts as something breaking right is you literally have the largest decline in the Japanese stock market since 1987. If you look in the u.s. Some of these stocks I think AMD is down 40% off of its recent high right now.
Many stocks in the tech sector have to trade down until people say, you know what we probably should look at this. And so I also saw that I think thousand Point drop in the Dow happened this morning, which has never happened in history before and so, you know, some of this is financial moves, but I think another important part of a kind of whole analysis is we lived in this hyper-connected world. And so the information kind of velocity is unmatched historically on a Sunday night you would have
No clue what happened in Japan.
Maybe you worked at a big Financial firm that had a desk in Japan. And so somebody would pick up the phone and call or send an email and say hey things are looking a little shaky out here. Right and you might not even know what it was but you would at least say okay, maybe something's going on when the stock market opened in Japan yesterday all of Twitter knew exactly what was going on to the point where they were calling out percentage Point ticks of the decline which then creates fear which creates this uncertainty right which creates this Panic which then starts to spread everywhere.
Else and you can literally see if you were to plot the velocity of tweets that were talking about this stuff with the decline. My guess would be that as the Tweet velocity increased The sell-off Accelerated as well because people said, oh my God, I read on Twitter that the Japan, you know stock market is blowing up. Well tomorrow they're going to open up the American one. I'm gonna go sell something and so that velocity of information is actually a huge driver of financial performance in a way that we just never seen before and so
I do think that that's a big element that they're not going to be able to change and as an individual investors, we should prepare for that only to get worse over time.
I think a lot of the panic right now in markets is going to have some influence on what the FED does even if they claim that it doesn't but if you look Beyond markets, there are pockets of consumers strength, which I thought were really interesting. I read this over the weekend the following are not in a Slowdown restaurant bookings Hotel demand TSA air travel.
Tax withholdings Broadway show attendance. So with that in mind
those things don't point to recession but recession is all of a sudden come back in the conversation. Where do you stand on
this? Those things are what I would put in the bucket of false signals and what I mean by that is people only stop going to Broadway when they're told there's a recession people only stopped traveling when they're told there's a recession but the average person doesn't pay attention. They just live their life and what they've been told for last four or five years as you're getting richer. And so what ends up happening is they keep thinking that they're wealthy
Z they keep thinking they have more and more cash right? And so they just keep spending money and spending money and spending money and some of them are doing it on credit but many of them aren't and so when you see that if all of a sudden people start to be like we're in a recession that stuff with dry up quickly and it's just, you know, very fascinating conversation around is it the signal that we should look at the then signals that we're in the recession or is it the psychology of the behavior chains once people are told they're in a recession?
And my guess is it's more the psychology change people's consumer behaviors change once they're told something bad is either coming or here and you can see this with you know, the psalm rule everyone started freaking out and then I saw Claudia Psalm who literally invented the metric she went on CNBC was like, I think it's a false positive. Like actually here's the reasons why and everyone's like mash it know she's talking about like we're in a recession 100% you know, perfect prediction ability. And so it is this very crazy thing where you know, if
If you were to ask me, what's the biggest problem right now in finance, its that short-termism is like a mental disease. Everyone is looking at what's going to happen in the next 12 hours and that's not me being bombastic at all literally half or more of all options volume in the stock market is 40-day options people wake up in the morning and they bet what is the price of the stock? We're going to be at the end of the day, right like that is insane. And so if you look at that and then you look at things like the use of derivatives, right? You can see that exploding you can
Things like the carry trade from Japan like we are just becoming a entire Society of gamblers. And the reason is because inflation is higher than expected people feel like they can't get ahead. And so they as they slowly degrade their hope they just say themselves will screw it. I gotta do something and so zero-day options is the perfect example where we went from a world of hey, there's going to be quarterly reports, you know, 50 60 70 years ago to now literally you can bet on the price of the stock market.
At the end of the day and that kind of acceleration from long-term thinking to short-term thinking has deep deep roots in so many of the different problems that we have in the financial market and until that gets fixed which it won't but until it gets fixed. You're only going to see more chaos uncertainty volatility Etc.
Well on that note. Thank you for having me. Thanks for doing
this.
