May 11

If you are not a subscriber of The Pomp Letter, join 220,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

To investors,

The President of the United States gave a speech on inflation yesterday. He described the abnormally high inflation environment as his top domestic concern. While that would seem like a worthy focus of government officials, this acknowledgement of the problem was quickly followed with ridiculous gaslighting.

According to the President, the two main causes of high inflation are the once-in-a-century pandemic” and Russia’s invasion of Ukraine. There is no doubt that these two events are partially to blame, but it was quite shocking to see no mention of the undisciplined monetary and fiscal policy from central bankers and politicians over the last two years. Identifying the problem, while simultaneously refusing to accept any responsibility, is what adults expect from their pre-puberty children, not the President and his administration.

This wasn’t even the worse part though.

President Biden went on to share that his plan is to ask corporations to refrain from price gouging, along with increasing taxes on corporations and the wealthiest Americans. I honestly had to double-check to make sure I heard this correctly. If the plan to curb inflation is essentially chasing a boogey man of price gouging, while also increasing the costs for businesses through taxation, then we are all screwed.

Now here is the interesting thing though — I don’t think this is a Republican or Democrat thing. I don’t even necessarily believe that it matters who the President of the United States is. The incentive system in our country is for politicians to constantly mitigate short-term pain at the expense of any potential long-term consequences.

Understanding this small detail will help make the current situation easier to comprehend. Here I am on May 13, 2020 talking about this exact phenomenon:

Pomp 🌪 @APompliano

May 13, 2020. You can't intervene in markets, manipulate interest rates to 0%, and print trillions of dollars without long-term issues.

So how are we doing with the long term impact of those short-term decisions?

The CPI data released this morning has pinned inflation at 8.3% and there are numerous reasons to believe that this metric is significantly underestimating the problem. First, the breakdown of various goods is crazy to see:

Charlie Bilello @charliebilello

Price increases over last year (CPI report) Gasoline: +43.6% Used Cars: +22.7% Gas Utilities: +22.7% Meats/Fish/Eggs: +14.3% New Cars: +13.2% Electricity: +11.0% Food at home: +10.8% Transportation: +8.5% Overall CPI: +8.3% Food away from home: +7.2% Apparel: +5.4% Shelter: +5.1%

Gasoline is up 43% year-over-year and food at home is up nearly 11%. This is completely unsustainable for the average American family. But did you see that shelter is up 5% according to the CPI? That seems odd given that report after report is showing that both rent prices and real estate prices have increased closer to 20% year-over-year across the country. Hard to imagine that rent and real estate is up 20% and shelter is only up 5%.

But that isn’t the only issue with these numbers. There is a significant reason to believe that the metrics and calculations are actively being manipulated to show lower CPI numbers in real-time.

Pomp 🌪 @APompliano

The government is manipulating economic calculations during the highest inflationary period in 40 years. This is why no one believes the CPI number.

zerohedge @zerohedge

Tomorrow's CPI report will include a methodology change to new vehicle prices, switching to an alternative series based on JDPower data.

Not exactly an ideal situation, especially because the people who are hurt the most end up being the most financially vulnerable in our society.

This isn’t the end of the story though — the Wall Street Journal recently published an article on the 477 employees at the Bureau of Labor Statistics who are tasked with walking into physical stores to write down the price of various goods. It is WILD to think that we are using humans and manual data entry to track inflation in the 21st century.

This paragraph in the article stuck out to me:

“The job of a price-checker is exacting. To price an item, workers go through an up to 11-page list of data points to make sure they are pricing the same item they did the prior month. A can of soup has 12 different specifications, including flavor, size, brand, organic labeling, material of the packaging and dietary features, such as sodium content.”

So here we find ourselves with 8.3% inflation, an annualized GDP contraction of -1.4% in Q1, and a market that expects 10 total interest rate hikes before year end - culminating in a 3.0% interest rate. Hello, Mr Recession.

The last thing I want to cover today is a potential solution — unfortunately I don’t think the Federal Reserve or other central banks have many options. If they don’t act, inflation continues to worsen. If they aggressively act, inflation will come down but the recession will be nasty. Maybe the only potential solution is to do the minimum potential action to steer the market back towards a normal environment, while trying to avoid the recession.

Unfortunately, it seems nearly impossible for even the most skilled central banker to navigate this complexity. We are likely going to endure high-ish inflation and a recession at the same time. This won’t be fun. All investors can really do is either (a) sit on their hands and wait, or (b) hope they have cash on the sidelines ready to deploy as we seem more blood in the streets.

Stay safe out there my friends. I’ll talk to you tomorrow.

-Pomp

If you are not a subscriber of The Pomp Letter, join 220,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

SPONSORED: Over $9 trillion has been erased from U.S. equities and the Nasdaq is down 25% in 2022. But listen up: smart investors know how to allocate to sell-offs carefully, using rules-based (aka "quant") strategies to buy the dip. But quant investing historically required a degree in Python and Excel. Until now.

Composer gives you the power to invest like a quant, no PhD required.

Think tech has bottomed? Jump into Big Tech Growth Momentum. Think Inflation is heating up? Dive into Hot Inflation Summer Hedge. Want to stay in stocks with more security? Try Paired Switching: S&P 500 and Gold.

Composer is the next generation of active investing. No code, no spreadsheets, no Robos and no YOLOs. Just smart investing for smart investors.

Pomp Letter subscribers get premier access to Composer with this private link.*

THE RUNDOWN:

Katie Haun’s VC Firm Leads $11M Round for Web 3 Community Platform Highlight: Highlight, a no-code toolkit that lets anyone create a Web 3 community with non-fungible tokens, is marking its official launch with $11 million seed funding round led by Haun Ventures, the new crypto native firm from Andreessen Horowitz (a16z) alum Katie Haun. Valuation was not disclosed. Read more.

Coinbase revenue drops 27% from a year ago, stock slides: Coinbase reported first-quarter results that missed analysts’ revenue estimates after the bell on Tuesday. Shares fell more than 15% in after-hours trading, building on a drop of 12.6% during regular trading hours before the results dropped. Read more.

EU Ban on Tax-Haven Crypto Firms Could Breach Trade Law, Commission Warns: A proposed European Union ban on crypto providers offering services from tax and money laundering havens raises “serious doubts” and could breach global trade rules, according to a European Commission document seen by CoinDesk. Lawmakers from the European Parliament have said that crypto-asset providers shouldn't be authorized to offer services in the bloc if they’re from shady jurisdictions like Panama, but Commission officials, mediating late-stage talks on the law known as the Markets in Crypto Assets Regulation (MiCA), don’t agree. Read more.

Paradigm Enters Africa With $30M Round for ‘Super App’ Jambo: Jambo, a Congo-based startup building a Web 3 user acquisition platform, has closed a $30 million Series A funding round led by Paradigm, marking the crypto native investing giant’s first investment in Africa. Read more.

Travis Kling is the Founder & CIO of Ikigai Asset Management

In this conversation, we discuss the market crash & the macro environment, where Bitcoin's price may fall to, what he expects the Fed will do in the coming months. the large pool of capital that is pouring into the Crypto industry, and how you can make money during a recession.

Listen on iTunes: Click here

Listen on Spotify: Click here

“Trillions are coming into crypto” - Travis Kling

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment.
Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.
Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.
BetOnline allows you to use Bitcoin and other altcoins to bet on sports, casino games, horse racing, poker and more. Click here and use PROMO CODE: POMP100 to receive a 100% matching bonus on your first crypto deposit.
Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.
FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.
Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!
Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp
BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc
LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp
Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp
Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visit http://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

*See important disclaimer