Why Risk and Safe Assets Are EXPLODING At The Same Time

0:00Peter Lynch, famous investor, he's one of the greatest investors to ever live. Well, at Fidelity Investments, he averaged a 29 % return and he managed the best performing mutual fund in the world. So it's noteworthy that one of his most famous quotes is, if you spend 13 minutes a year on economics, you've wasted 10 minutes. It's a pretty good one-liner, right? Well, the reason that Lynch believed macroeconomics was noise is because he managed money during a time decades ago where everyone was constantly worried. They were worried about monetary policy. They were worried about geopolitics. and they were worried about various topics outside of financial markets.

0:35His strategy, which obviously worked, was to simply buy shares in great companies and wait for the companies to increase in value. It's not rocket science. And he put up a generational run of returns. But here's the thing. The stock market has significantly changed over the last 50 years. We went from a market where ignoring macroeconomics increased your likelihood of success to the modern market, where maybe paying attention to macroeconomics is all that matters. So let me give you an example. Former PIMCO CEO Mohamed El-Aryan wrote yesterday, forgive me for sounding like a broken record, but today's market action is so illustrative of something that I've been trying to convey for a while now.

1:14He writes, the notable thing about gold isn't just that its price hit yet another record high, but how it has done so. Gold is surging on the same day that US stock indices have increased over 1%. He says that this simultaneous climb in both a classic safe haven asset and risk assets is a powerful illustration that the drivers of the current gold rally are different from historical patterns. So think about this for a second. Safe haven assets and risk assets are both pushing higher at the same time. That ain't supposed to happen. It violates everything that an investor was taught in their economics 101 class.

1:49So what exactly is going on here? Well, Holger Zajapitz explains the different sides of the debate. He writes that despite the NASDAQ 100 hitting a new all-time high, Market sentiment remains unusually split. There's a divide that is reflected in Bitcoin's wild swings as one example. Goldman Sachs sees two ways to read this big divide. On one hand, you have cynics view it as a fragile equilibrium where even a small shock could end the rally. But optimists, on the other hand, they see it as a hallmark of a healthy bull market and one that keeps climbing the proverbial wall of worry. So who exactly is right here?

2:24Should you be worried? Should I be worried? Should we be worried about the concurrent rise of risk assets and safe haven assets? Well, let's turn back to Peter Lynch. He's really good at investing. And he once said, I've studied the constitution and the bill of rights, and I don't see anywhere that we have to have a recession every four years. I don't see why you can't have a decent environment for years and years. Makes sense to me. That's spoken like a true optimist if you ask me. Now, my personal opinion on why all asset prices are going higher boils down to the macro environment. Remember, markets are forward-looking, and everyone, every investor, all the capital allocators, they have become convinced, one, that the government won't stop printing money, two, the national debt is going to continue accelerating higher, three, the Federal Reserve and central banks around the world have to cut interest rates in the coming months, and four, that artificial intelligence is making companies much more profitable, and they're doing it with less employees.

3:22They're becoming more efficient. So those four factors are causing investors to pour capital into most all asset classes. They understand that holding cash and bonds will likely be a losing trade. You can buy stocks, you can buy Bitcoin, gold, real estate, or collectibles. The micro decisions of which assets are not nearly as important as the big decision. That's the decision to convert fiat dollars into some kind of investment asset. People are not going to wait around for the currency debasement or the persistently high inflation to wreck their portfolio. They're smart. They're positioning themselves to benefit from the pain that comes on the horizon.

3:57And then remember, add in the fact that we're sitting in the middle of October. Last I checked the calendar, it's about to be fun. That means that the year-end chase is underway. Just look at this chart here. And it becomes obvious that the bull market is not ending this month. So risk assets and safe haven assets, they're all going to continue performing. In this environment, some investors want to play offense and some want to play defense. but the number of market participants has expanded so rapidly, there's so many more investors in the market, that now there's enough capital for both types of assets to appreciate because money is just sloshing around the system.

4:33Price appreciation is not going to be in a straight line to the sky. Of course, there's going to be corrections along the way. But as Peter Lynch advised us way back in the day, in the stock market, the most important organ is the stomach. It's not the brain. So keep your head on a swivel and understand that the macro environment went from something you could ignore in the past to potentially the macro environment is the only thing that matters today. Everyone knows who pays attention to financial markets. Investors want clarity. And the government shutdown, that's not clarity. It's actually muddying the waters.

5:05When is this thing gonna end? Whose fault is it? Those are the trillion dollar questions. But maybe, just maybe, we are coming to the end sooner than people think. How do I know that? Zero Hedge points out that there's been a sudden burst of optimism that government shutdown will be resolved in the next few days. Zero Hedge points to Polymarket, where the October 23rd to 26th now has a 41 % chance of being the end of the government shutdown. Now, why exactly am I paying attention to this? Remember, prediction markets economically incentivize people to share information publicly. Who's betting in the market?

5:36I have no clue. What do they know? I don't know. But what I do know is if somebody has a piece of information that they are highly confident and they're willing to go risk capital, that's a signal all by itself. If prediction markets move, that is news all by itself. And right now, it's all pointing. October 23rd to the 26th, 41 % chance that that is when the government shutdown ends. Is it gonna be right? I don't know. But what I do know is that these prediction markets have been lethally accurate, and so I wouldn't ignore them. We keep seeing all these humanoid robot videos. They're coming out fast and furious.

6:13Private companies are making immense strides in the innovation of technology and also trying to figure out how are these things gonna interact with the world? Yesterday, we got two different videos that again, just prove the future is already here. The first one came from Figure AI and CEO Brett Adcock. He showed a humanoid sitting there actually greeting a guest at a hotel and pointing them to the elevator. Take a look at this thing. Hello. Hello, Andrea. Here is your key. you'll be in room 23. The elevators are past the door on the right. Enjoy your stay. Now, my takeaway from the video is not only that the humanoid is behind the desk at a hotel and it's obvious that robots are going to replace humans in tons of jobs like this, but the fact that you can talk to the robot and the robot talks back and it's not perfect, but it definitely is better than it used to be.

7:05And it's not hard to see how this is going to continue improving. And eventually the robots will be able to carry on a conversation just as well as a human. So that is where we are headed. But then we got a second video, and this one came from One X. One X released a video of a robot actually using a real vacuum. Take a look.

7:30Now again, do I think that this robot can go all over someone's house or office and use that vacuum? Probably not. But what I do know is if the robot can stand in a one-by-one square foot space and use a vacuum, eventually it's gonna be able to do it in your entire home or your entire office. See, the thing about these videos is that we are getting a peek into where the technology is going. And whether it's Figure AI, One X, or any of the other companies, these guys are all in a race. They're in a race of innovation, but also they are in a race to win the hearts and minds of the audience. And that's why you see them releasing so many videos.

8:05They're gonna need a lot of capital to fund these companies. and the more that they can convince the market that they're gonna be the winner, the more they can convince the market that their technology is best, then capital will follow. And so ultimately you're watching marketing videos, but really what you're watching are fundraising videos. And these businesses, they're all incentivized to make their robots do more and more, do it faster and do it better. And we as consumers, we're gonna be the big beneficiaries because regardless of what company wins, all I know is we're gonna have robots in our homes, in our offices and all throughout society.

8:37And I can't wait. That's it for today's show. Thank you guys so much for watching. Please continue to follow along on X and I'll see you guys live tomorrow from the desk of Anthony Pompliano.