The K-Shaped Recovery Is Now Undeniable

  
0:00
-2:50

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 75,000 other investors today.


To investors,

One of the recurring themes in this letter over the last few weeks has been a “K-shaped" recovery. The idea is that coming out of the economic shock earlier this year, the wealthiest Americans were recovering quickly, while those without significant assets or income were continuing to struggle.

Putting the debate over a specific letter in the alphabet aside, this idea of two Americas and their polar opposite responses to the economic shock made sense. We just didn’t have material data to unpack around the thesis.

Thankfully, Harvard economist Raj Chetty has been working diligently to solve that problem. He and his team released a new tool in the last few months that highlights the economic situation on a county, city, and neighborhood level across the United States. Bloomberg wrote a great article about Chetty and the work he has been doing, which you can read here.

I played around with the tool for awhile this morning and was impressed with the insights that it provided. First, it is obvious that high-wage worker employment has basically recovered to pre-COVID levels, but low-wage workers are still suffering significantly.

As of September 2020, total consumer spending in the United States is only down 3.8% compared to January of this year.

But when you break consumer spending down by socioeconomic class, you realize that low income citizens are spending more today than they were in January and high income citizens are spending almost 10% less.

So what industries are winning and losing during this volatility of consumer spending? Across all socioeconomic classes, grocery spending is up 10% year-to-date, and restaurant/hotels (-24%) and transportation (-46%) are down significantly.

Chetty’s team also tracks small business revenue. As you would imagine, the national small business revenue across industries is down more than 20% since January.

Leisure and hospitality are down almost 50% nationally, while other industries are hovering around 10% decreases year-to-date.

Some of the drop in revenue may be attributed to the percentage of small businesses that are open. Unsurprisingly, more than 20% of small businesses remain closed compared to January of this year.

And Leisure and Hospitality businesses are more than twice as likely to be closed at the moment compared to other industries.

If so many businesses are still closed, you would expect open job roles to be down as well. While this is true, the 6% decrease in job postings compared to January 2020 was a much lower drawdown than I would have anticipated.

What is interesting is that the job postings that require the highest amount of education are down more than job postings that require minimal education.

Lastly, the student progress in math is actually up nationally since January 2020.

But when broken out by socioeconomic class, we see a very different story.

Raj Chetty and his team are finally presenting data that supports the idea of a “K-shaped” recovery. If you’re wealthy or have high income, the recession is essentially over for you. If you are less fortunate, you are still struggling to navigate the economic carnage.

Hope each of you has a great day.

-Pomp


This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 75,000 other investors today.


THE RUNDOWN:

Coinbase Hires Executives From Venmo, Adobe and Google: Cryptocurrency exchange and wallet platform Coinbase announced it has hired Shilpa Dhar, Ravi Byakod and Frank Yoo for VP roles on its product, engineering, and design & research teams. In an announcement published on its website, Coinbase said it was also creating a new “Platforms” team across its product and engineering organisations and that Dhar and Byakod would head the new team. Read more.

Startup Behind Siacoin Storage Platform Raises $3M, Rebrands as Skynet Labs: The startup formerly known as Nebulous has raised a $3 million funding round led by Paradigm with participation from Bain Capital Ventures, Bessemer Venture Partners, A.Capital, Collaborative Fund, Dragonfly Capital Partners, Hack VC, INBlockchain, First Star Ventures and others. Read more.

Economist Stephen Roach Issues New Dollar Crash Warning: Economist Stephen Roach warns next year will be brutal for the dollar. Not only does he see growing odds of a double-dip recession, the Yale University senior fellow believes his “seemingly crazed idea” that the dollar would crash shouldn’t be so crazy anymore. “We’ve got data that’s confirmed both the saving and current account dynamic in a much more dramatic fashion than even I was looking for,” Roach said. Read more.

JPMorgan to Pay Almost $1 Billion Fine to Resolve US Investigation Into Trading Practices: JPMorgan Chase is close to paying almost $1 billion to resolve government investigations into the alleged manipulation of metal and Treasurys markets, according to a person with knowledge of the matter. A settlement between New York-based JPMorgan and several U.S. agencies could come as soon as this week, according to Bloomberg, which first reported news of the fine. The deal would resolve probes from the Justice Department, the Commodity Futures Trading Commission and the Securities and Exchange Commission. Read more.

Peterson Ventures Just Closed a $65 Million Fund: Peterson Ventures, a 12-year-old, Salt Lake City, Utah-based seed-stage fund, has long operated fairly quietly, but many of its bets have become known brands in the respective worlds of consumer and enterprise software investing. Among these is the shoe company Allbirds; the men’s clothing company Bonobos (acquired a few years ago by Walmart); and Lucid Software, which closed its newest, $52 million round back in April. Read more.


Podcast Sponsors

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Nothing in this email is intended to serve as financial advice. Do your own research.


The Next Big Bet — Digital Art

  
0:00
-6:55

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 50,000 other investors today.


To investors,

Jason Williams and I are making a big bet on digital art.

World-class investors know that the best way to make generational returns is to pursue investment strategies that are unpopular, while ensuring that the new investment strategy is also correct. If you merely do something different than everyone else, but you’re wrong, then that only makes you the idiot in the room. If you do something different than others, and you’re right, then you capture significant profits.

In my opinion, one of the easiest ways to pursue a non-consensus investment strategy is to look for markets that have either (a) been abandoned by the crowd or (b) are so new that most investors don’t realize they exist. Selecting the right market is the most important decision. This second category — the industries that are incredibly early in their lifecycle — is my favorite place to go hunting for opportunity.

Jason Williams and I have been searching for a new market that is too early for most people to have spent the time building an investment thesis. We finally think we have found the perfect opportunity — digital art

Before we spend time talking about the digital art market, let’s take a quick look at the traditional art market:

  • The art market is estimated to have a market cap of approximately $65 billion for the last few years.

  • The United States, United Kingdom, and China make up about 85% of the entire market.

  • US sales of traditional art was nearly $30 billion in 2018, which made up more than 40% of the market.

  • Art dealers are responsible for about $36 billion in global sales.

  • Art auctions are responsible for about $29 billion in global sales.

  • Online art sales are only responsible for about $6 billion in global sales.

  • More than 50% of US art collectors are over the age of 50.

  • Asia, particularly Singapore (46%) and Hong Kong (39%), have high percentages of millennials as art collectors.

The traditional art market has done incredibly well over the last 20 years. From 2000 to 2018, the art market outperformed the S&P 500 by over 180% (see today’s sponsor Masterworks for more details and a cool traditional art opportunity). The world’s wealthiest people have been acquiring art for decades, whether it was for store of value, capital appreciation, or pure creative and intellectual stimulation. Regardless of your personal experience with traditional art, the numbers are absolutely staggering. 

There is a shift about to happen though. The world is going to change and it is going to change much quicker than most people realize. 

Similar to how Bitcoin is superior to gold in almost every way, digital art is superior to traditional art in almost every way also. A traditional piece of art is static and sits on a wall. There is no motion. The art does not change unless someone takes the art off the wall and hangs a different piece. Physical art is hard to move around the world, it can be easily damaged, and there is difficulty in proving what is authentic and what is not.

Digital art is the next evolution of art. Each piece can incorporate complex movement and motion into the art. A single screen on a wall can periodically cycle through different pieces of art at the predetermined direction of the homeowner or art collector. The digital art can be sent to anyone in the world with a few clicks of a button, it is immune from damage, and authenticity and provenance is transparently available for anyone to verify. Quite literally, digital art has significant advantages over traditional art in the same way that digital news has advantages over physical newspapers.

This transition to a digital art world is not a question of if it will happen, but rather when. In fact, I personally believe that the digital art market cap will grow to become larger than the physical art market cap. This may sound ridiculous today, especially since the digital art market cap is less than $10 million and the traditional art market is more than $60 billion, but this is exactly what disruption looks like. Estimating the exact timing of the digital art market eclipsing traditional art is hard, so I’ll refrain from making a fool of myself on that front. My confidence level that we see a future 6,000x increase in the digital art market cap is fairly high though. 

Jason Williams and I have spent the last few months thinking through the best way to capitalize on the potential growth of the digital art market. We ultimately settled on the idea to partner with the best digital artists in the world in an attempt to bring attention and awareness to the great work they have been doing. Recently, we have commissioned a number of pieces and collections with the artists we believe to be absolute world-class. The first artist we are revealing is FEWOCIOUS

In my opinion, FEWOCIOUS is the best digital artist in the world. We have commissioned a 6-piece collection that takes radical new ideas and merges it with the FEWOCIOUS style of pop art that has become globally recognized. The first piece in the collection that we are sharing publicly is titled “The Innovator’s Dinner.” 

This piece features famous innovators over the last few centuries. From left to right, it includes Benjamin Franklin, Henry Ford, Amelia Earhart, Walt Disney, Steve Jobs, Elon Musk, Beyonce, Jay-Z, Dr. Dre, and Malala Yousafzai. Each is presented at the same table in a tip-of-the-cap to Leonardo da Vinci’s The Last Supper. It is our hope that this iconic digital art will serve as the quintessential example of what is possible in this new world.

"I’m super excited to work with Jason and Pomp on this collection! Digital art is the future. Our goal is to create dope art that shows what’s possible for that future. I can’t wait for everyone to see what we’ve been working on together!" - FEWOCIOUS

In addition to the FEWOCIOUS collection and other private commissions, we have been busy participating in various digital art auctions. We are not ready to showcase everything we have done yet, but here are a few highlights:

Jason and I both have deep conviction in the future of digital art, so we plan to invest heavily in the space over the coming months and years. We are constantly looking for the best digital artists. We’ll continue publicly sharing the various artists we work with and the pieces we add to our collection. This should be a lot of fun — check out the digital art at Nifty Gateway, SuperRare, and OpenSea.

We would love to have you join us.

-Pomp


SPONSOR: What’s the most lucrative investment in the world? With paintings selling for $450,000,000+, our money is on art. That’s not a typo: blue-chip art has outperformed the S&P by 180% from 2000–2018, according to Artprice. So what do you call it when one startup makes investing in great works by Banksy and Kaws affordable for everybody? We call it a great opportunity—and so do 80,000 other investors. Why wait?

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*See important disclosures here


THE RUNDOWN:

Philippine Central Bank Warms Up to Digital Money to Aid Fintech: Philippine central bank Governor Benjamin Diokno said the technology behind digital tokens could improve delivery of financial services, as the regulator proceeds to study the feasibility of its own digital currency. Digital tokens expand reach and lessen costs of financial services, Diokno said in an emailed reply to Bloomberg late Thursday. It could also help the central bank eventually reduce the use of fiat money, he said.Read more.

Crypto Exchange Bitfinex Wins More Time to Present Documents: The crypto exchange Bitfinex won additional time to provide documents in a case filed last year by New York Attorney General Letitia James that claims that it hid the loss of comingled client and corporate funds. In a virtual ruling Thursday, New York state Judge Joel M. Cohen extended an injunction by 90 days and directed a special referee to set a schedule to provide documents requested. Cohen said he’d defer to the referee in determining which documents related to the cryptocurrency Tether, which is affiliated with Bitfinex and related companies, are pertinent to the case. He also hinted that he may not extend the injunction again. Read more.

Investment Firm Blockchain Capital Joins Libra Association: One of the oldest investment firms in crypto has joined the governance organization behind the Facebook-backed Libra project. The Libra Association announced Friday that Blockchain Capital would advise on the creation of its global payment system. Read more.

US Space Force Taps Blockchain Firm Xage Security for Data Protection: The recently created United States Space Force, or USSF, and the U.S. Air Force Research Lab has chosen blockchain firm Xage Security to develop data security systems. In a statement, Xage Security said it was awarded a contract to provide end-to-end data protection for the USSF. The company will employ its blockchain-based Xage Security Fabric solution for the project. Read more.

World’s Largest Sovereign Wealth Fund Indirectly Holds Almost 600 Bitcoin: The Norwegian Government Pension Fund, also known as the Oil Fund, has over $1 trillion in assets, including 1.4% of all global stocks and shares. It is considered the world's largest sovereign wealth fund. According to Arcane Research’s report on Sept. 19, the fund also owns almost 600 Bitcoin through its investment holdings. Arcane Research analysis data shows that the Norwegian oil fund has 577.6 BTC through its investment in business intelligence firm MicroStrategy. This puts the company’s portfolio in BTC at around $6.3 million. The Norwegian Government Pension Fund has a 1.51% stake in MicroStrategy. Read more.


LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE


Robert Rosenberg served as the CEO of Dunkin Donuts for 35 years. He took a company with 100 shops and $10 million in sales when he first became CEO, to 6500 outlets including Baskin Robbins Ice Cream Shops and nearly $2.5 billion in sales the year he retired.

In this conversation, Robert and I discuss:

  • How to hire

  • How to fire

  • Finding culture fits

  • Defining competence in specific areas

  • The four primary functions of a leader

  • When to go public vs stay private

  • The value of a brand

I really enjoyed this conversation with Robert. Hopefully you enjoy it too.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE


Podcast Sponsors

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

  1. Athletic Brewing is re-imagining beer for the modern adult. They love beer. But they also love being healthy, active and at their best. The non-alcoholic beers are fully flavored, clean ingredient, and a fraction of the calories of full strength beer - they fit in any occasion. Check out www.athleticbrewing.com for more details and free shipping nationwide.

  2. Choice is a new self-directed IRA product that allows you to buy Bitcoin with tax-advantaged dollars, while still holding your private keys. You can go to retirewithchoice.com/pomp to sign up today.

  3. Unstoppable Domains is working to make the internet operate how it was originally intended, which means anyone can publish anything from anywhere. You can go to unstoppabledomains.com and claim your censorship resistant domain today.

  4. BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it by getting a loan or earning interest in their interest bearing accounts.

  5. Crypto.com allows you to buy, sell, store, earn, loan, and invest various cryptocurrencies in an user friendly mobile app. Join over one million users today. You can download and earn $50 USD with my code “pomp2020” when you sign up for one of their metal cards today.

  6. Blockset by BRD is your hosted blockchain infrastructure. Blockset enables enterprises and developers around the globe to deliver high-quality blockchain-based applications in a fraction of the time, at a fraction of the cost.

  7. Bybit currently has over 300,000 users, with numbers growing in double-digit percentages monthly. The exchange features no overloads during volatility, low latency trading and 24/7 live customer support. Newly registered users can receive up to $90 in rewards!  


If you enjoy reading “The Pomp Letter,” click here to tweet to tell others about it.

Nothing in this email is intended to serve as financial advice. Do your own research.


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