Fed CUTS Rates While Stocks EXPLODE — Markets Will Keep Soaring

0:00Hello, everyone. Today, we're going to unpack why stocks keep going so much higher. Jordy Visser is going to explain to us why there's so much negativity in the market, despite the constant good news. And Wall Street Journal reporter Gunjan Banerjee, she's going to join us to break down what's happening in the retail investor movement. We're live today from the desk of Anthony Pompliano.

0:28Before we get into today's episode, I need your help. My goal is to get to 1 million subscribers on YouTube, but we only have 25 ,112. We're far away, but we're making progress. So hit that subscribe button and let's get into today's show. All right, ladies and gentlemen, there's something very different about financial markets today in comparison to decades ago. You can probably feel it on a daily basis. The government took us off the gold standard in 1971. You guys already know that. But that was only the first step in what seems to be transpiring in financial markets. The accelerated currency debasement over the last five or six years that has completely changed the market.

1:02That's what you're feeling. Tyler Novell writes that this chart is an excellent way to symbolize that we are in fact living through Weimerica. That's Weimer, Germany, coming to America for those of you keeping score at home. Markets are now a political utility that are managed in order to finance government deficits, Tyler says. Normally central banks cut when the market makes lows. You can see that in the chart here from Callum Thomas. But in this new world where we're headed, a global fiscal super cycle fuels nominal growth and it's used to pay for global boomer debts. So central banks now ease when markets are at new all-time highs.

1:35It's a brave new world out there. Now, of course, it may scare you that we are cutting interest rates while stocks are at all-time highs, but there's gonna be many other areas where this monetary policy decision is gonna show an impact. This interest rate cut comes as cash piles have been building in money market funds. Creative Planning's Charlie Blello says that total assets in money market funds have hit a record$7.7 trillion. That's a triple over the last eight years. Now, the academic theory would tell us that money market funds will see a drawdown. People will take their money out as interest rates get cut.

2:06There's no guarantee it's going to happen, but economists will promise you that it should. I don't know if it's going to happen, but let's see. This brings us to the impact of interest rates and currency debasement on the stock market. Stripe co-founder Patrick Collison recently asked, These companies, Apple, Microsoft, and Google, are all in totally different businesses and yet seem to exhibit the same growth dynamics. What's the explanation, he asks. Well, what we can see in this picture is them going from$200 billion to$3 trillion in market cap. But the answer is probably much simpler than anyone wants to believe.

2:35John Cole writes that it's the money supply. The best evidence for this hypothesis is that all four contract at the same period, or more likely, these three companies followed M2 contracting. So is monetary expansion and contraction part of the equation of stocks going up and down? For sure. Is it the full story? eh, it's a little bit harder to believe. We would see all stocks going up and down in unison if the only driver was currency to basement. But if we dig deeper here, there's something fundamentally different about these large cap tech companies than the broader stock market. Balaji Srinivasan says the explanation is that the legacy economy is being sunset in favor of the internet economy.

3:14Just look at that chart, it's breathtaking. So just how big now is the Magnificent Seven? Global Markets Investor writes that the top 10 stocks now make up 41 % of the S &P 500. It's an all-time high. The magnificent seven share has also hit a new record of 35%. So out of 500 stocks in the index, just 10 are driving the actual index. That is ridiculous outperformance and it's being noticed globally too. Global Markets Investor highlights foreigners own more US stocks than ever now. Overseas investor now own a record 18 % of the US equity market. Foreign investors collectively own about$20 trillion of U.S.

3:53stocks and about$14 trillion in U.S. debt. That includes treasuries, mortgage, and corporate bonds, according to Bloomberg. So as I said in the beginning, there is major, major, major change underway in the stock market. The currency is obviously being debased at an accelerated rate. You can see it every single day. Interest rates are being cut with stocks at all-time highs. They just announced that last week. And large cap tech, well, it's pulling away from the rest of the market. Plenty of people are betting on the end of the party. They think it's similar to the dot-com bust of 2000, but I wouldn't be so confident.

4:26Things in motion tend to stay in motion, and these large-cap companies, they're driving record profits and revenue growth year over year. So maybe, just maybe, these businesses are actually becoming more valuable, just happening at a rate we've never seen before. Time's going to tell, but my guess is that investors are going to continue to do really well. This weekend, I sat down with Jordy Visser and he brought up a great point. There's so much negativity in headlines and conversation online. But yet when you look at the actual economic data, everything seems positive. It makes no sense. Why is everybody so bearish from a sentiment perspective?

5:01Well, the data is telling us to be bullish. Well, here's Jordy's explanation. So I think it's a combination of a lot of factors that are happening at the same time. I will tell you the number one thing for me as someone who spends his life talking with very, very smart investors about artificial intelligence. I don't think people understand artificial intelligence at a macro level. I think it's a very challenging thing to commit the time, both from a user basis, because I think you have to use it to see the productivity gains at a level that makes you realize, oh my God, this is amazing. And then from the other side, you really have to spend the time going deep into rabbit holes of what this whole thing means.

5:37It is the number one and the only thing driving the economy. But the problem is, I think it is the major driver of this K-shaped economy. And this is something that Darius talks about a lot when he's with you. This gets put in the papers all the time, but I don't think people put into context what a K-shaped economy is. That means you always have something negative to talk about. You always have something positive to talk about. There's winners and there's losers. The problem is with AI, you're starting to get into the point where the labor is really bad. At the same time, profit margins are really good and corporate profits are good.

6:11So you can focus on whatever part you want. And if you don't believe in artificial intelligence and you do believe in things like tariffs, the only data points we have for the impact on tariffs and the way that people are forecasting is back before the light bulb. So if you want to use that in historical terms, great. And I think that's the mistake people are making is they're using history as a gauge for what should go on. For the people screaming policy mistake, it's just, I mean, it's a wasteless thing to sit there and go. I think this is a social media thing for people. I think they get caught in these traps of being negative and then they have to continue with it.

6:47We've talked about it with Bitcoin. We've talked about it with Tesla. Once an educated crowd gets into a negative stance, they're not going to give up on it if stocks are going higher, particularly if it's led by the lowly retail crowd, the way that they think of them. And I think the fact that retail has been making money on both crypto and AI bothers the same crowd that is going to focus on the K-shaped economy. And I think that's one of the reasons. It's just a very complex situation. Now, once Jordy puts it this way, it starts to make sense. There's a K-shaped economy. There's always something good to talk about.

7:18There's always something bad to talk about. And people with loud voices online, they're going to focus on the bad things. They sound smart when they predict a big market crash right around the corner. They sound smart when they say that retail investors are stupid. But actually, what ends up happening is that the data is overwhelming that the market is only going to continue to go up over the long run. The questions are all in the short term. And so that brings us to Jordy's point that paying attention to something called the fourth turning is really important here. This is a concept that used to be something that the conspiracy theorists talk about.

7:49It used to be something that was just on the internet and nobody really wanted to give it any credence. But now, pretty much every smart investor that I know, they believe at least a part of it, if not the entire theory. Here's Jordy talking about the fourth turning. I think everyone, particularly macro people, should really do their homework on the fourth turning. So one thing I, when I would spend my time traveling to China from 2007 to 2013, I started to really study the generational differences between the people I was meeting and their parents. And so this reminded me of the difference between my grandmother, who told me never to take debt, and my mother, who's a baby boomer, and the difference.

8:36So this generational shift, I think everyone that has kids realizes their kids, in a lot of ways, fight back eventually against the parents, and they start doing things that their parents told them not to do, they do that anyway. And so this fourth turning has a generational component to it, which I believe in. And I believe in this. And in China's case, it was the cultural revolution, the cultural revolution babies, very different mindsets. And again, at a different time. The reason I haven't spoken about it by itself is because when I've talked to you, I've talked about Jeff Booth and Joseph Schumpeter.

9:06Now, in those cases, that is how innovation is destroying everything in its path and that eventually capitalism will cannibalize itself. And that's where Bitcoin comes out. I think what the University of Michigan, I think the violence we're seeing across the country, the war that has happened with Ukraine, Russia, and when you read through it, especially with the technology, and you take the fourth turning and say, okay, basically you come out of a massive situation like World War II and the depression. And then this leads to kind of 80 to 100 years, getting to a point in the fourth turning where we're getting close to a rebirth.

9:46And the rebirth comes from another kind of revolution or something going on. I believe that's what's happening. And I believe we're entering what will be the worst period. And I say the worst period not from a stock market perspective, but from this belief that AI is accelerating so fast. And when I say to people, flying cars, humanoids, living forever, stuff like that, I don't think they realize how disruptive that is to things. It's only when I say, okay, all fiat assets will be worth zero. And so there you have it. Disruption. That is ultimately the heart of what we're watching play out here.

10:25Yes, fiat assets are going to suffer in this new world, and innovation is going to drive that disruption. So investors who understand what technology is happening, where it's actually having an impact, and which companies are going to benefit, those are the investors that are going to continue to do well. And my guess is that the retail investors may understand that stuff better than the institutions right now. Now, I've got a very special treat for you guys today. I originally sat down with Wall Street Journal reporter Gunjan Banerjee. She, in my opinion, is the single best person, the mainstream media, that understands the retail investor movement.

10:59Now, how does she understand it? Well, she has talked to thousands of retail investors. She's gone and she's met them. She's talked to them on the phone. She has done the work to actually understand. What are they doing? Why are they doing it? Are they winning or are they losing? What vehicles are they using? What instruments on Wall Street? All of that stuff is something that Gunjin really understands. So I sat down with her and I just asked her, explain to me what's happening in this retail movement. Explain to me the good and the bad. And the answers are going to shock you. So here's my conversation with Gunjin Banerjee.

11:30When people say meme stock, I think there's two different definitions of a meme stock. Okay. You, and I've told you this, have a very good understanding of this market. You've done, I don't know how many articles at this point. You've talked to thousands of these people. You intimately understand the retail movement and what we can call the meme market and meme stocks. You saying being a meme stock is not a bad thing, I think shows your understanding of how this plays out. I do think that a lot of your peers use the term meme stock as like a politically acceptable slur to essentially brush off a company.

12:08They will essentially discount performance of a stock by saying, oh, that's a meme stock. Like it's a flash in the pan. It's going to go away. I agree with you that meme stock is not necessarily a bad thing. but does that mean that Berkshire Hathaway is a meme stock? Because it has such an avid fan base? Correct. If you think about Palantir, the ingredients are very engaged shareholder base that buys into the mission that Karp is his disciples, right? They do it. If they did a annual event like Berkshire does, there would be thousands of people who would show up. They do show up digitally every single day, whatever.

12:55Again, it's a sensitive subject because I think the crowd that holds Berkshire, they very much shun the slur-based definition of meme stock. But there is this element. I've said before, Berkshire, people may not like it, but it's kind of like the boomer meme coin. They buy into value investing and the Buffett principles and I call it the capitalist trip to Mecca in Omaha every year and there's a whole carnival that, you know what I mean? Like the words you use matter. But I think to your point, like, isn't every stock kind of a meme stock at the end of the day? And like building that fan base or that shareholder engagement is like a very important part for many of the most successful companies in the world.

13:36Like Apple, they have fanboys and fangirls and that engagement is like a huge reason why they just print money year after year. I think it's a really important ingredient. I don't think every stock is a meme stock. Not every stock has that fan base and that really engaged shareholder base, but the ones that do have really benefited. And I think it can exist at the institutional level and at the individual investor level. I was talking to a really smart investor who was talking about cult dynamics in markets, and he thinks that these dynamics are more prominent than ever before. And I've written about the groups that have formed around stocks like Strategy and Palantir.

14:18But he was saying, I think Costco is a cult stock. At least he thought it was a few months ago, right? It's like kind of the top name in that sector that every institutional investor has decided to pile into. Of course. So it happens at all levels. It's kind of like what does your cult prioritize or value, right? And in a way, you know, I have tweeted that Berkshire is the boomer meme coin. I can tell you the people who hold Berkshire stock do not like it. They're very adamant about like, you're an idiot. Well, so are the people who, well, yeah, go ahead. Well, I know exactly what you're going to say.

14:57And I agree. Like the people who hold Palantir stock think the people who are calling Palantir meme stock, like they're like, well, you're an idiot. Right. So like, it's always this thing of when you're attacked, I think people are very much like you don't understand. But I think Mark Cuban, I tweeted this the other day. I think Mark Cuban put it really well, where he pointed to how memes have really proliferated the entire market. And I think that's true across cryptocurrencies. It's true across the stock market. It comes back to this idea of when we call it memes, it's very sensitive, right?

15:29People don't want to be associated with memes sometimes. They think it's beneath them. They want to distance themselves. It's not serious. It's, I'm a value investor. I would never invest in a meme stock, right? While they have a picture of Buffett on the wall, they praise him every morning, basically, right? All this stuff. So if you called it a marketing message, or you called it a mission statement, or you called it a value set, they would be like, of course, I subscribe to the Buffett philosophy. Of course, I subscribe to the Berkshire values or the investing framework or whatever the terminology is.

16:05I think that the interchangeability of these terms is like blending to the point where maybe it's actually just like the people who are online call it memes and the people who are offline, you know, they kind of associate that with something else and they stick to more of the more traditional language. But who is offline? Oh, I know that the Berkshire shareholders, I like to give them a hard time because I actually think that, um, I have this like grand theory that Berkshire 95 % amazing company, 5 % Buffett premium or call it a Buffett meme. He stepped down and went down about 5%, right? So him being associated with the company and the way that he was as a CEO, not going to step down, et cetera.

16:48They had some premium, again, small 5%, but still 5%. Tesla, 50 % good company, 50 % meme, round numbers, but generally not correct. DJT, like 5 % good company, 95 % meme. and then the Trump coin was just like, well, screw it, we don't even need a company. Just do the whole 100 % meme. That evolution, in my mind, is part of the story of financial markets over the last 20 or 30 years, is that you essentially have started to put these premiums on brands and these followings. And some of it is actually, what does an investor look at? Do they look at what do we have today or what are we looking at going forward?

17:30How much do I believe versus how much do I evaluate, right? And we've got a guy who we work with, Jeff Park, who he has this whole thing of the intelligent investor, you know, Ben Graham and the Buffett philosophy versus the ideological investor. I'm buying something because I believe in the ethos. I believe in Palantir. I believe that AI is going to be important. I believe in Robin Hood's mission to bring this to the market, whatever. And it does feel like both things are, they both exist, but there's been massive growth this like ideological investor base, which is kind of the group I think that you've been spending a lot of time with?

18:04Well, I think whichever way you slice or dice it, it goes back to people are more interested in stocks and investing than I think, than in a really, really long time, whether you're looking at the Berkshire shareholder meeting or the Robin Hood summit in Las Vegas last week or any other number of events. What about these highly levered ETFs? We mentioned zero-day options. We talked a lot about those. But these ETFs, eye-popping numbers in terms of both what they're promising, but also the inflows. I mean, it's like crazy how much capital is going into it. I mean, I think there were recently like$117 billion in leveraged equity ETFs.

18:44That number was like$40,$50 billion in 2020. It has just exploded. Something hit my inbox yesterday. they're introducing 3X, 5X levered ETFs in Europe, tied to stocks like HIMSS and Robinhood. Like 5X levered on a stock that is already highly volatile. Sorry, the first ever 3X ETPs on single names like Robinhood, HIMSS, UnitedHealth, and Broadcom. Yeah. I mean, 3X is a lot of leverage for an ETF. For a single stock. Yeah. And I think people's, you know, my colleague Jason Zweig wrote an incredible piece about how people's positions have grown more concentrated. And a lot of the ETF launches we've seen this year are tied to individual stocks or are leveraged.

19:30So that seems to be all the rage right now in ETF land. And I wonder how much of it is, I think if you go talk to the issuers, they will 100 % say these are trading tools. And there's a lot of people who know how they work, why you use them, when they're appropriate, when there's risk. And if you're sophisticated, it's a sophisticated tool. Got it. But also, there's a lot of people who are just like, 3X sounds great. I don't think of it as a trading tool. I just think of it like, I get the exposure plus more. Or these high income funds, single name or indexes, those also seem to be very popular in the like fire community and these things where people are seeing kind of eye popping numbers of, I'll get 70 % annual distribution rates.

20:15And so they're like, well, I just buy the stock, but they may not understand things like nav erosion and some of the more sophisticated analysis. Yeah. I've spoken with a lot of investors who do buy and hold leveraged ETPs, unfortunately. And that can be a way to just totally incinerate your cash. I think what we've seen the past few years is everyone's thinking about yields are going to drop. So there's been like all these new products offering the safety of higher yields. And I think investors really need to think twice before they buy there. Do you think that there's issues that the Fed continues to cut rates if we're already at all-time highs?

20:52Like how do you think that plays into all this psychology? Is it just like 2021 all over again and people lose their minds and gamble even more? Well, I think one of the most fascinating things about markets the past few years is that everyone thought that higher interest rates would quash the speculative activity that we've seen. And it hasn't, right? People thought that individual trading and options trading and leverage ETPs were kind of low interest rate phenomenons, and they haven't been. They've stuck around. So I think it's tough to predict gambling type behavior right now. But one thing I do keep hearing as a bull case is that the Fed is cutting rates.

21:30Maybe that means that this rally has more room to run. um of course like i think there are a lot of concerns about things like fed independence and inflation out there as well so we'll find out more later yeah i mean it's it's interesting because um i can't go back to this idea of like social media you see people talking i mean again i'm guilty hand up um i don't think they're independent i don't think it's possible right if you have a group of individuals like there's bias now again it doesn't mean they're nefarious or malicious, but just naturally you are biased. And so, by the way, same thing here.

22:04I'm not independent. I have biases, right? And so I do wonder how much of the Fed should be independent, whatever. It's almost like a soap opera for investors to pay attention to versus they're kind of missing the bigger picture, which is just, we're never going to stop printing money. We're addicted to cheap capital, whether it happens today, tomorrow, or in a year. If you have a long-term time horizon, stocks are going to go up forever. And everything else is like this entertainment factor that you were talking about, which keeps people, just holds their attention on a day-to-day basis. Well, I was talking to a really, really smart investor that I admire quite a bit yesterday.

22:44And he pointed out that every single president wants lower rates. They do. However, this time is a little bit different in terms of in the Fed's history. We've never had someone attempt to fire a Fed governor the way we've seen with Lisa Cook. So it does seem a little bit different this time. Yeah. I agree. I also think that they would have fired Powell if their, I call it a market probe, had not shook the market so much. So if you remember, I think Besant or Trump, I can't remember. One of them came out, or no, I'm sorry, there was a leak. That's what it was. There was this leak from the White House that said they're preparing to fire Powell.

23:29And the market started to tank. And within an hour, both Trump and Besant were on TV talking about, we're not going to fire him. And it just felt like, let's test the market here, see if we were to do this, what their reaction would be. And I fully believe that if the market had responded positively to the leak, they would have done it. And so it's kind of like, okay, well, if you can't fire the president or the chairman, what's the next concentric circle we can move to? Like a board governor, right? They just figured, how far can we go where they're still close to target and start to affect change?

24:03Again, is it good or bad? That's a whole other conversation. But it does feel like they started with, let's go after Powell. Okay, we can't do that because the market's going to freak out. What can we do that the market can stomach? And Lisa Cook ended up being the target. Well, I think investors I'm chatting with are concerned that the end game of any loss or diminished independence is more volatility in the stock and bond markets, right? We could see people demand higher yields to hold US treasury. So it'll be interesting to see how that shakes out. But don't you – I just think we're in the volatility generation.