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 85,000 other investors today.
To investors,
I’ve spent the last few days talking with many of the smartest investors I know. My goal was to get an understanding of how they are thinking about various markets and assets, while also identifying what they are excited or worried about. Here are a few takeaways that I found interesting and/or worth sharing:
First, many investors feel that COVID-19 and any impending stimulus packages will have a much greater impact on markets than who wins the Presidential election. The thought process is that the President could create long-term systemic environment changes, but most of the short-term changes are going to be related to whether businesses are impacted by government-mandated shut downs, along with how much liquidity is being injected into the market by the Federal Reserve.
The general consensus is that the United States is unlikely to experience another shelter-in-place order. This doesn’t absolve the markets from reacting to negative headlines or lockdown orders in other countries. As the virus continues to run its course, the Federal Reserve and our elected officials are going to have to introduce more stimulus. The size of this stimulus package appears to fall along party lines — Democrat investors see $2B+ on the horizon and Republican investors see less than $2B in the next package. My guess is that we will end up somewhere in between at approximately $2B.
Second, every single investor I talked with brought up concerns related to taxes. There appears to be a strong fear of significant increases in various taxes — from income taxes to capital gains to inheritance taxes — under a Joe Biden administration. As one Democrat investor put it to me, “I’m a Democrat but I don’t like giving more of my money to the government.”
It is unclear what every investor is doing to mitigate these risks, but it does appear that some investors are positioning themselves to accelerate estate planning if Biden wins. There was also a recent article in Bloomberg that highlighted Ken Griffin’s recent comments about potentially moving Citadel to Florida or Texas. This article reflected something else I heard a few times — the President is important, but it may be more important to see how significant the Democrats control of lower levels of government are (House, Senate, Governors, etc).
Third, investors are definitely prepared for high levels of volatility over the coming months. Each person is positioning themselves to deal with the volatility differently, but they are all anticipating it. Some people are considering holding more cash in the short term. Others want to play the VIX. And others are acknowledging the higher probability for volatility, but claim that it won’t change their investment strategy over the medium to long-term.
Fourth, if every investor brought up tax considerations, then inflation was the second most popular topic. Majority of the investors I spoke with feel that inflation is a foregone conclusion at this point — they pointed to the Federal Reserve’s public commitment to get to 2%+ inflation or they commented about the unlikely scenario of printing trillions of dollars without inflation ever occurring. When I asked investors what they were doing to protect themselves, the answers varied drastically. Some investors are buying up precious metals and mining stocks (more stocks than the metals themselves is my feeling), while others are seeking refuge in real estate and luxury art.
It was interesting that majority of the investors I spoke with did not volunteer the fact that they held bitcoin. I would have to specifically ask and then the investors would admit that bitcoin was a part of the inflation hedge strategy. It was weird. Almost like we were talking about a dirty secret, but then once the topic was broached, investors seemed very bullish on the asset’s outlook over the next 12-24 months.
Lastly, most of the investors I spoke with brought up some version of the following — Presidential elections create opportunities for entries to new investment positions, but they rarely lead to mass selling or position exits. The general thought process is that it would be really short-sighted to bet against the United States, regardless of who is the President of the country. Almost every single investor had a feeling that the long-term impact of this election, along with all elections, is minimal at best.
I reminded one of the more bearish investors that we live in the safest, most prosperous time in human history. His response was “Yes, that is definitely not a trend that I see changing any time soon.” So with a long-term tailwind, investors appear to be paying attention to the election but they aren’t making significant investment decisions around the event. However, they are definitely making decisions based on tax and estate planning implications.
As the saying goes, “the more things change, the more they stay the same.” This election appears to be no different. Stay safe out there my friends. Have a great election day and I’ll talk to everyone tomorrow.
-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 85,000 other investors today.
THE RUNDOWN:
PBOC Governor Says 4 Million Transactions so Far in Digital Yuan: Yi Gang, governor of the People’s Bank of China, said a pilot program on the rollout of a digital currency in four cities has been smooth. There have been more than 4 million transactions, totaling over 2 billion yuan ($299 million) in the digital currency so far, Yi said at the Hong Kong Fintech Week conference on Monday. Read more.
PayPal Raises Crypto Buying Limit to $15K/Week for ‘Eager’ Customers: PayPal’s cryptocurrency service is going to expand rapidly in 2021, executives said on the payments giant’s third-quarter earnings call Monday evening. That includes crypto services coming to Venmo and international customers in the first half of 2021, PayPal CEO Dan Schulman said. Read more.
Mastercard President Says Crypto Patents Will Pay Off When Central Bank Digital Currencies Arrive: Mastercard President Michael Miebach said the payments processor’s massive trove of cryptocurrency patents will give it an edge once central bank digital currencies debut. Mastercard's cryptocurrency intellectual property "puts us in a good position" for a CBDC future, Miebach told analysts during the firm's Oct. 28 Q3 earnings call. Read more.
Cybersecurity Threats to Corporate America Are Present Now ‘More Than Ever:’ Securities and Exchange Commission Chairman Jay Clayton is telling corporate America it needs to get much more vigilant on security. In an interview Monday on CNBC’s “Power Lunch,” stressed that significant cybersecurity threats remain, despite the ongoing coronavirus pandemic and election season. “Cyber risks have not gone away with the unfortunate, unforeseen risks we’ve faced with Covid and other uncertainties in our economy,” he said. “They’re still there, and they’re there more than ever.” Read more.
Uber and Lyft Rise as Investors Expect California Voters to Pass Prop 22: Uber and Lyft shares rose 4.2% and 7.3%, respectively, as investors expect California voters on Tuesday to pass Proposition 22, which would allow the ride-sharing companies to maintain their current business model. If it passes, Proposition 22 would exempt ride-sharing and delivery companies from a new California law that forces such gig economy companies to reclassify their workers as employees rather than contractors, and offer benefits such as sick leave and unemployment protection. Read more.
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Mario Gabriele is the Founder and Writer at The Generalist, a new publication that covers the technology industry from idea to IPO. He previously worked at a number of venture capital firms, including Charge Ventures and Red Sea Ventures.
In this conversation, Mario and I discuss:
How Mario built The Generalist so far
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His stories on Ant Group and Audience + Wealth
I really enjoyed this conversation with Mario. Hopefully you enjoy it too.
LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE
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How Investors Are Preparing For Election 2020