Volatility Is Good! It's Why Stocks And Bitcoin Will Go Higher

0:00The stock market is flying. We keep hitting all-time highs and investors are getting nervous. If you go on Twitter or anywhere else, you see lots of people complaining that maybe we are overvalued. Maybe we should actually be worried that there's a lost decade of stock market returns ahead. I completely disagree. And there's one big reason why. But before we get to that big reason, I first want to understand where are we with the market today? We know that we hit seven different all-time high prices just in the month of April. It's only happened seven times before in history. the median return a year out was 26%.

0:30On top of that, the market was up 10 % in April. It's only happened 12 other times. And there was a double-digit return in the stock market in that year every single time it's happened before. So I sat down with my friend, Jordy Visser, and I asked him, what is going on? Why is the stock market so high? And will it go higher? Which is a very important part. Here's what Jordy had to tell me. Six months ago, Bubble was front page news every single week. go to Google Trends. Just before Opus 4.5 came out, it was a bubble. Well, now we're seeing the revenues come in. And when you have a stock like Caterpillar, for example, so Caterpillar was up 10 % yesterday.

1:09Their PE is now approaching 40. Those types of things don't happen for cyclical companies unless you're kind of coming out of a recession and you've had things down. Their PE is almost double in videos now. I mean, think about where we are. Semiconductor names, every single one, most of them are in one of my thematic baskets, my portfolio. They don't stop. So this is AI. And to show you how like breadth still allows people to be bearish, let's forget software, which is still near the lows. Let's forget the private equity companies, which have not budged very much. we make all-time highs in the S &P and the median stock is 13 % below its all-time highs about half of the S &P 500 companies are up for the year and about half are down so unfortunately and I literally because I spent so many time with institutional clients and because the subscriber wall went up and I'm like focused a lot I had to come up with a term for this because if you're invested in the S &P 500, which is what most individuals are through their financial advisors, there's a benchmark arbitrage that's happening.

2:22When you have something that we've both stolen from Elon Musk and said supersonic tsunami, it means something's moving fast and it's structural and it's just overpowering everything. So if you're invested in things that were around business cycles and the consumer, you're not doing very well. If you're in software, you're not doing very well. Even with the hyperscalers, you're not doing nearly as well as you are with all of the things related to power, all the things related to semiconductors, all the things related to servers. Are those things extended? Yes. If you look at all these charts, it's a straight line up.

2:54And that's why when you look at the S &P, it doesn't look as crazy because it actually was down for a while and then it went up. But the semiconductors, the memory names, they've just gone through the roof. So I think what people have to in their mind have. This is the early innings of this. And if you're invested in the S &P 500, you're only up 5 % year to date, five and change year to date. If you're invested in semiconductors and you're investing these other things, you're up between 30 and 50%. And unfortunately for everyone that's sitting there waiting for the index to reweight, I would look into some other ways to get involved in this, at least from a minimum of a small amount, because this is not the end of this.

3:31This is still going to happen, even though we'll have correction at some point here. I love talking to Jordy because he's just a no-nonsense person. He just simply says what he believes. And he thinks that stock market is definitely going higher. It's because there's way more demand than there is supply for many different sectors. The AI trade is the trade, and it will push stocks much, much higher. But also, I think that a key component of all of this is volatility. Remember, we went down almost 10%, and then we rocketed right back to all-time highs. All that happened this year. People forget how much despair there was in the market just a couple of weeks ago.

4:04And now how much euphoria there is because stocks keep hitting new all-time highs every couple of days. Well, this volatility is actually a good thing, but you wouldn't know it if you talk to traditional financial advisors or you went and you talk to the mainstream media or academic economists. They are all deathly afraid of volatility. When they see volatility, they see risk. But I look at it very differently. Thankfully, I was recently on the New York Times podcast. Yes, I went into the belly of the beast on interesting times. And in this podcast, I was specifically asked about Bitcoin's volatility and why it may be a good thing.

4:38Here was my answer. I mentioned earlier the fact that you can go in a very brief span of time from one Bitcoin being worth$120 ,000 to one Bitcoin being worth$70 ,000. That, you know, doesn't sound like a great deal as an alternative to the slow depreciation of the dollar. It sounds like something that you invest in if you are interested in sort of playing around with volatility and hoping to get returns. So if Bitcoin is supposed to play the stabilizing role, why is it instead leaping and dancing and swinging wildly and most recently collapsing? Because Bitcoin's alive and the other assets are dead.

5:18Stability is the single biggest lie in financial markets. And even if you don't like Bitcoin, want to learn about Bitcoin, I do think that there's an entire generation. I call it the volatility generation. They understand that you need volatility in your portfolio in order to protect yourself. And so I'll give you a couple of examples. If you go talk to a financial advisor in the United States of America and you ask them, I want to have a very safe portfolio, they will take your money and they will pretty much put it in cash and treasuries. Those are the only two assets in financial markets that are designed to lose money.

5:55So by definition, they are not safe. And so now what you're starting to see is, well, forget for a second individuals. Let's go and look at maybe pension funds in America. Most pension funds in America are underfunded. They do not have the money to pay. Social Security does not have the money to pay. And so why is that? Well, they all pursued what we were told was a safe, stable approach. And they put the money in treasuries. They put the money in bonds or fixed income and these different instruments. And now what we're learning decades later is actually that was a horrible decision. We did not keep up with the pace of inflation.

6:30We do not have the money to pay these promises. What do we do? And so the reason why I say that Bitcoin is alive or volatile assets are alive and the other ones are dead is because if you as an investor go and put majority of your money in those assets and you wait, you are going to end up like 50 % of the country, which is you fall further and further behind and you end up on the wrong side of this K-shaped economy. So this is pretty clear how I think about this. In my personal investing experience, there are two things that I constantly look for. I want to find mispriced assets and I want to find assets that have immense amount of asymmetry to them in the future.

7:05I'm fine losing 100 % of my capital I put into a trade or into an investment. That 1x downside is exactly what I want. I want capped downside. But I want hundreds or thousands of percent of upside if I go into these opportunities. And the reason is because most assets, they simply are dying of irrelevance. What do I mean by that? Well, these assets, they kind of just go sideways to slightly up. But getting a 3%, 4%, 5 % return year over year, that barely keeps up with inflation. If you look at the government metrics, sure, you've got a little bit of a real return. But if you look at the unofficial metrics, you actually may have a negative real return on those assets.

7:42And so instead, I believe that you need to be compounding at 20%, 25%, 30 % to have an actual return that you can be proud of, something that you think is worth your capital. And that's where looking for volatility comes in. Look over the last decade or so. What were the big trades that everyone should have been in? All those big tech companies that coming out of the global financial crisis people have questions about, they were excellent investments. Just buying the stock market during the global financial crisis with all the volatility, that was a good investment. On top of that, we saw crypto explode.

8:14If you bought Bitcoin and you held it till today, you pretty much made a lot of money, especially if you bought in the 2010 era. Now, on top of that, if you look at the AI trade, same thing. Lots of volatility, but great returns over a long period of time. GPU makers like NVIDIA, those things have dominated. And so when you look through the economy, if you look where there was questions, where there was debate, Palantir, Tesla, and many companies like that, usually that volatility was a sign that the asset is alive. The asset is likely to drive returns over time. And the people who could buy it and hold it through all of the volatility, they've been rewarded.

8:52And so I ask that you flip your mindset. Volatility does not equal risk. Instead, volatility equals an asset being alive. And you want life in your portfolio. The worst thing you can put in your portfolio are assets that are guaranteed to die in economic value. Dollars and treasuries are two of those assets. There are many other zombie companies out there or other types of assets that you could put your money in, and it's pretty much dead money for multiple years. But the assets that are volatile, if you can stomach them, they tend to go up, they go down. But over time, there's only one trend.

9:28The volatility leads to higher and higher prices. More people who are seeking volatility and asymmetry put their capital in. And because capital flows to those assets that are alive, then that is where the returns ultimately are captured. That's it for today's show. Thank you guys so much for watching. Please remember to subscribe on YouTube. And I'll see all of you live from the desk of Anthony Pompliano tomorrow.