Going Deep w/ Aaron Watson podcast

422 2020 Financial Crisis, Bitcoin, and the Halving with Anthony “Pomp” Pompliano

3/30/2020

Anthony Pompliano is a co-founder & Partner at Morgan Creek Digital. He leads investments in early-stage startups and cryptocurrency.

He was formerly a product manager at Facebook.

He writes a daily letter analyzing crypto news for institutional investors and a prolific podcast with other top thinkers in finance and crypto.

In this conversation, Pomp and Aaron discuss the Bitcoin halving, economic stimulus, and kindness.

Pittsburgh’s best conference to Expand your Mind & Fill your Heart happens once a year.

Anthony’s Challenge; Remember to be kind to one another.

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Transcript

Aaron Watson: Thank you for hopping online in these crazy times and giving me some of your time to be on the podcast.

Anthony Pompliano: Yeah, for sure. Thanks for having me.

Aaron Watson: So let's start off - and when I told folks that we'd be interviewing someone very, you know, in the crypto/Bitcoin type of space, one of the first questions that came up is something that's top-of-mind for particularly characters in the space, but it's kind of misunderstood or partially understood by those who aren't following it as closely.

Can you start off by just explaining the halving and what that means?

Anthony Pompliano: Yeah. So, if you think of all money, whether it's gold, Fiat currency, or Bitcoin, there's basically two components to the money: how much is in the outstanding circulation? So how much money is in the world? How much gold is in the world? How much U.S. dollars in the world? How much Bitcoin? And then there is the incoming supply. So the net new increase on a daily, weekly, monthly basis. And so, if you take gold, for example, gold has however many ounces are out there in the world and then gold miners are, digging up more gold and they're bringing it into the global supply on a daily, weekly basis.

And so, what happens in Bitcoin is, the incoming supply has been programmatic, since the first day. And what that basically means is that in 2009, when Bitcoin launched, 50 Bitcoin were created every 10 minutes and they were given out to the people who ran the network. So, you know, the first 10 minutes, 50 Bitcoins given out next 10 minutes, 50 Bitcoin given out, it's called the miners rewards.

So the people who are running the network, that was the economic incentive for them to go ahead and learn the software. And they would split it pretty much on a pro rata basis. So if there was three miners, they split 50 Bitcoin among the three of them, if there was ten, twenty, a hundred, a thousand, et cetera. Well, as part of that programmatic, incoming supply, what would happen is after four years of the 50 Bitcoin, every 10 minutes, It got cut in half.

Now it's approximately four years, so it's not exact, but about four years. And, it went from 50 to 25 Bitcoin every 10 minutes. So for another four years it went 25 Bitcoin, every 10 minutes. And then it got cut in half, again to 12.5 Bitcoin, which is where we are today. And so for the last almost four years, about three years and 10 months, we have seen 12 and a half Bitcoin distributed every 10 minutes as that mining award. And in May of 2020, so May of this year, we will see get cut in half again from 12.5 To 6.25 Bitcoin, every 10 minutes.

And the reason why this is important is you can think of it like, if gold was, seen to have, you know, $1,600 per ounce, like it's trading right now, and everyone wanted gold, but all of a sudden 50% of the gold miners shut down. That would mean that 50% of the new gold coming into the market every day would disappear.

And so because of supply and demand economics, you're taking a scarce asset and you're making it a little bit more scarce. Obviously, if demand stays the same, that should drive price, et cetera. That's why everyone is so kind of enthralled by this idea of the halving, but that's how it functionally works.

Aaron Watson: And this is also really directly impactful on one of the sides of the Bitcoin equation that probably goes under appreciated. So people are quicker to grasp from like a consumer facing standpoint, "Hey, I could have this wallet, it could be on my phone. It could be transferred peer to peer", and that's all kind of the initial stage of where someone gets introduced to this.

But the other side of this equation is the miners that are running these very energy intensive operations to keep the chain going and keep building on this blockchain and their rewards and their own enterprise level business structure to keep this thing humming along is really impacted by the halving.

Anthony Pompliano: Correct. Yeah. The beauty of Bitcoin structurally is: one, you've got the halving, so that programmatic reduction in the economic incentive, which ultimately drives price, or value of it. But also you have something called the difficulty adjustment. And the best way to think about this is, every two weeks - and this is a very overgeneralized version - but every two weeks, the Bitcoin algorithm looks out and says, "how many people are running the software?" And it estimates how difficult it should be in order to continue to incentivize people to run the software. What I mean by that is, if Bitcoin has, let's use these numbers: a hundred miners and the difficulty is X, but all of a sudden we dropped down to 80 miners. The difficulty will actually become easier for those miners to get part of the reward, part of that 12.5 Bitcoin, every 10 minutes. Because what happens is they want to incentivize more miners to come on. If it's easier, all of a sudden more miners come back, and we can get back up to that hundred number or more.

If for some reason we get more miners coming online, then it will adjust and make it more difficult. And so it's trying to find market equilibrium, if you will, in doing that. But that every two week adjustment is really important because it keeps price and the mining community in tune with each other on a periodic basis.

Aaron Watson: So, how do you think about that from a consumer level, all the way up to institutions. I know as part of your role with Morgan Creek, you're also talking to large institutions that are responsible with making really significant allocation decisions.

And in the midst of both a health and a financial crisis, some people maybe saw this coming. Some people have something of a plan in place. But a lot of people are grasping at straws to make sense of an environment where, you know, the last two weeks feel more like two months in the amount of information that I've consumed and the sense that I've tried to make for implications for my own business, for the people I love around me. But how as an advisor, or have you thought about talking about this?

Anthony Pompliano: It's going to sound crazy, but, we've been writing and talking about this now for almost a year. I thin, one of the first times that we really started talking about was June of last year, and it was this whole idea that public equities in the market in general was getting very frothy. And, we thought that, regardless of the individual stock price movements, there was the need to reduce interest rates down to zero or near zero. And then there would be massive quantitative easing over the next two, two and a half years. And so that was all going to coincide generally in the same time that this Bitcoin halving was going to occur.

And so, I actually don't think that we realized how simultaneous this was all going to happen. Like, it was all going to happen within 50, 60 days of each other. But, I think that for the most part, there's a little bit of vindication cause frankly people thought we were a little crazy when we started saying that. Now, that was kind of the front half of what we thought would happen: there would be a turnover on the market. There would have to be the rates of zero and the quantitative easing. But now we have to see what happens in the second half, and the second half is basically the idea that rates at zero, quantitative easing drive people to seek inflation hedge assets like gold or Bitcoin. And when they go to do that, you're going to have that Bitcoin halving occur. And obviously, if this plays out structurally how we believe it will, that would lead to a very drastic increase in the U.S. dollar exchange value for Bitcoin.

So we're kind of like, I don't know, 30 to 40% through the thesis. And so far everything is playing out, I think, even better than we expected. But there's still 50 to 70% of the thesis that has to play out for us to feel comfortable about saying, "Hey, we got that one right."

Aaron Watson: And for a lot of listeners are around similar age to me, I'm 28 years old, you hear stories of the 2008 crisis. I studied it and read some books about it: the Michael Lewis book, the Big Short, but it's really hard to wrap your mind around the implications of what runaway inflation or a significant amount of inflation that comes from printing trillions and trillions - it's just an absurd number - but trillions of dollars and injecting that into the economy. So maybe you can take that down even to more of a 101 level for folks, of what that looks like on the ground and why throughout history, gold has served that purpose, but Bitcoin also kind of falls in this as a constrained supply asset, an opportunity to be a hedge against that.

Anthony Pompliano: Yeah. So the best way to think about this is: every asset price that you see in the markets or in finance, they're all denominated in dollars. And what I mean by that is whether you're looking at a stock or commodity, gold, Bitcoin, oil - whatever it is - it's all priced in dollars. So the S&P, or an individual stock, you know, United airlines stock went from like $80, $85 to $20.

So there's two ways to think about that drop. One is that the value of that company dropped and the second way to think about it is that the dollar got more valuable. And what I mean by that is that United Airlines stock - a single share - used to cost $80 to $85. Now, you can buy that same exact stock certificate today for, let's call it $20 or $25. And so it's either that it got less valuable and the dollar stayed stable or the dollar got more valuable. And so when you start to look at how these markets have played out across stocks, commodities, et cetera, what we're finding is that the U.S. dollar has strengthened over the last two to four weeks, let's call it.

And what I mean by that is, you can now spend a dollar and buy more in the market. So the prices of all of these assets, whether they're stocks, commodities, treasuries, et cetera, have drawn down. So my dollar that I'm holding can buy more than it used to be able to buy.

Well, if you think of this from a structural economics standpoint, that is a deflationary environment. My currency is getting more valuable over time. What occurs in these situations? So 2008, this happened, right? What ends up happening is the government realizes when we go into a deflationary environment, the most valuable asset in the world is cash. It's the dollar. And so what is everyone been doing for the last three weeks in financial markets?

They've been selling all their stocks, anything with a liquid market, they're just dumping into the market and they just want dollars, or they want liquidity. So we call it a liquidity crisis. And so what ends up happening here is the government and the Fed will have to eventually weaken the dollar. And what that really means is they've got to stabilize asset prices from continuing to fall down and they've got to: one, get the bleeding to stop, and then two, eventually have those assets recover.

Well, how can you do that if you are the Federal Reserve or the government? Well, one of the things you can do is you can print a lot of currency, right? You can flood the market with dollars because if I own a dollar and there's, let's say, a hundred dollars outstanding, I would own 1% of the monetary supply.

But if all of a sudden they print $900. Now I own one 1,000th of the monetary supply. So in essence, my dollar is becoming less valuable because there's more dollars available. I have a smaller share. And so that's essentially what they did in 2009, 2010 is they printed at the time, hundreds of billions of dollars.

What they're going to do this time is they're going to print trillions of dollars. And so what you're going to see is this transition from a deflationary environment, where the dollar is the most valuable asset, to an inflationary environment where the dollar actually becomes much weaker and all asset prices will rise.

So stocks will recover, commodities will recover. Bitcoin will recover, real estate. Everything will recover. And ultimately what you want to understand in these types of environments is you want to be long dollars or in cash during the liquidity crisis. And then when coming out of the liquidity crisis, you actually want to hold real assets.

And so, there's two core components here that are really important. One is the investors who have the ability to buy real assets will do so. And they will do very well because they're basically buying at low prices. Remember, go back to that stock example, you're buying the same stock at $20, $25.

When it eventually recovers, you make a lot of money, right? But the part that kind of gets hidden in all of this is the fact that, 49, 50% of Americans can't afford a $400 emergency payment. They live paycheck to paycheck. They have no savings for the most part. They definitely don't own any kind of investment assets.

And so when this occurs, what actually happens is their dollars get less valuable, but they don't have assets to enjoy the upside swing of the asset prices. And so what it does is it drastically widens that wealth inequality gap, and it's really, really bad for the bottom 50% of Americans.

And then it's really, really good for the asset owners, you know, at the top 50%. And so people just need to understand how this works and structurally what's going on so that they can educate themselves, but then to protect themselves.

Aaron Watson: And I'm kind of talking into your book here playing into your framework, but the notion that someone could theoretically set up a Coinbase account or something and start buying a Bitcoin for a couple dollars. Whereas, there's certain assets where that's not even - you know, they're doing fractional shares at Robin hood or something - but then there's these other assets that you either have to be like an accredited investor for, or you just don't have access unless you have an enormous pool of resources at your disposal, which makes it one of the few hedges that the average person out there could actually tap into.

Anthony Pompliano: Yeah. So I always am really careful in these conversations, to overemphasize the fact that when you move from a deflationary environment to an inflationary one - the dollar getting less valuable - all asset prices will rise. And that includes stocks, commodities, Bitcoin, real estate, art, et cetera.

So it's less about, "Hey, go buy Bitcoin." And it's much more about just understanding structurally how money works really. It's something that they don't teach us in school. And so that's kind of the first step. The second step then is, well, for each individual person, they need to go through exercise of "how much money do I have? What's the risk tolerance I have? "Am I willing to be more speculative? Do I need to be more conservative? Where do I end up on that spectrum?" And then build a portfolio that fits that risk tolerance.

And so, there's plenty of people who want to be super, super risky. And sure, they'll go buy a Bitcoin or something that is kind of much more binary in outcome. It's either going to be worth a lot more than it is today, or soon to be worth a lot less than it is today, but it's probably not going to stay at the same price. So it's not gonna be very stable. It's highly volatile.

Compare that with, let's say gold, which - look gold should probably do pretty well over the next couple of months and two, three years - but it's not like gold is going to go 10x in value. But at the same time, gold's not going to go to zero either. It's been around for 5,000 years.

And so you gotta just understand what your risk tolerance is and then what assets fit into a portfolio that makes sense for you. And then also the other piece here is sizing it correctly. I always tell folks when I first start talking to them about this, "You should not go and invest a bunch of money - whatever that percentage is for you - in something that you don't really understand."

And by nature, if you're learning about this for the first time, you just can't understand it as well as we've been doing it for a long time. And so I think when it comes to that, it's "Hey, should I put 1%, 5%, if I'm a younger person, into something like this and learn about it, et cetera?" That probably makes more sense than somebody who says "I'm going to go stick 90% of my net worth into this speculative asset, cross my fingers and hope it goes up." Probably not the smartest move.

Aaron Watson: Yeah. It's interesting how you touched on volatility there because that's one of the next questions I want to address. And this is a meta framework I have for all elements of life. I hope, for myself and for the people that I care about around me, that they're exposed to a regular stream of small and moderate volatility so that they can be spared extreme volatility sometime down the line - physically, you know, I hope that you're going to the gym and breaking a sweat and getting your heartbeat thumping. So you don't drop dead of a heart attack cause you didn't take care of yourself at a young age.

And so similarly, one of the things that I learned for the first time a couple of weeks ago was that there were explicit barriers in the general trading for equities and bonds that froze trading after a 7% drop. And this was essentially a decreed mechanism for constraining the volatility of the market as it was convulsing and trying to figure out what was going on. And meanwhile, people were saying - I can't remember where the tweet was, but it was like, you know, "where's the constraints on Bitcoin's volatility as it lost 50, 70% of its value. And you know, it trades through the night. You can't possibly be awake for every single price fluctuation. And it's built in, like you said, to have much more volatility than other things out there.

So partially you can see why it's confirming my priors and playing to some of my biases that already have in place when I see that. But can you just talk a little bit about relative to some of these other assets, part of your more bullish position is the fact that it has that regular cadence of small and moderate volatility. Whereas other assets out there aren't privy to those same shocks.

Anthony Pompliano: Yeah. So there's a couple of things in there. First let's just start with volatility. Volatility is not good or bad. Volatility is just the movement of price, which I think is really important. And the second component of volatility is it works both on the upside and the downside.

I think a lot of the times when people hear about volatility, it has this negative connotation. Everyone thinks, "Oh, that means it goes down in price." But if you think of Amazon stock, for example - Amazon stock is highly, highly volatile. Since it's gone public, every single year, it's drawn down double digits in that year. And the average intro year drawdown is over 30%. It even drew down once over 90% in a year. So highly volatile. Well, it's one of the best performing stocks as well. Because again, volatility works on the downside and on the upside. So that's kind of just how to understand and think about volatility is: if something is volatile and goes down, it can go down a lot, but also if you want to have really high returns, you need assets that are volatile on the upside as well. So don't be scared of volatility, understand what the type of volatility risk you're taking.

Now, when it comes to the stock market, for example, there's a couple of different mechanisms that are in place that, try to temper this volatility. So the first one is hours of operation, which you mentioned. The stock market in the United States is closed more hours a week than it is open. It's obviously closed on the weekends. And then it's only open from about 9:30 to 4:00 during the week. So if you think of it that way, there's this time period where all the trading is stuffed into, this six, seven hour time period during the day.

Now, the second thing is the circuit breakers and the circuit breaker is basically, there's three circuit breakers on the way down. So if the stock market drops 7% in a single day, when it hits 7%, they will actually say, "Time out. All trading is paused for 15 minutes." They halt trading. If then when they turned trading back on, it falls and hits 13%, they will say, "Time out, stop trading for 15 minutes again." So a second trading halt. If for some reason when they turn it back on, it falls all the way down to 20% - so if the stock market loses 20% in a single day, they say, "Time out, everyone go home for the day." So kind of you get the first two circuit breakers at 7 and 13% are 15 minute pauses in trading or halts. But if we hit 20% down in a single day, everyone will go home, trading's over for the day. And so those work on the downside.

Now what's very funny about the stock market is: there are no circuit breakers on the upside. So the other days of the stocks up 9%, 10%, et cetera, no circuit breakers. And so, it's a very systematic way to prevent highly volatile days on the downside without hurting the highly volatile days and the upside.

And then to your point, you know, when you bring up Bitcoin, for example, the reason why Bitcoin is so volatile, is a combination of two things in my opinion. One is it's a fully free market. So 24/7, global. The other thing that it has is that it also is a relatively small asset. So when you have an asset that only trades, a billion dollars a day in some cases or whatever the numbers are, it's just much easier. Somebody comes in and buys 25, $50 million worth of Bitcoin in a day, the price can move pretty drastically.

Or if somebody sells that into the market, the price can move pretty drastically. And so what I think you're seeing is this whole evolution of price discovery when it comes to Bitcoin, and people are trying to figure out, "What is this thing worth?" And that number continues to change daily basis, or at least what the market believes it's worth. And there's no mechanism there to prevent high levels of volatility, so you get very high levels of volatility in a free market. The bad news is you can see days where it drops 5%, 10%, 50% a couple of days ago. The good news though, is you can also see that in reverse. We had a day, I think two months ago, it was up 40% in a day.

And so over long periods of time is really where I focus. I don't worry about trading at all. I kind of think of Bitcoin as this really long-term, investment. And it's either going to be worth way more than it is today, or it's going to be worth zero. And so I kind of act accordingly and don't worry so much about the everyday prices, but that's why the volatility happens.

Aaron Watson: And I've heard you also talk about how its value increases as more people learn to use it, are using it. And that has the beneficial network effects that the big FANG stocks - Facebook, Amazon, Google - all get their credit for. But another way that I've come to think about it is almost in the terms of minimization of regret, where now that I've learned of it, I would feel so stupid to have not at least had a small portion of it if it has that upward potential that's potentially there. I think sometimes you reference it as an asymmetric asset. From an upside standpoint where, almost as a minimization of regret, like if I don't at least familiarize myself with it and get some fractional percentage of a Bitcoin, then I can at least let go of that potential regret that I could have down the road.

Anthony Pompliano: Yeah. You know, look there's people who call it like "chaos hedge", a "schmuck insurance" or all these terms that are out there. And really what they're all talking about is the idea of - it's kinda like what Bill Ackman just did.

So, so here here's exactly what Ackman just did. Bill Ackman's got a multibillion dollar investment portfolio. And at the beginning of March, he spent $25 million, $27 million. And he basically bought a very complex asset that would do incredibly well if the market tanked. So he said, "look, all of my assets are long the market. I'm betting on America, I'm betting on the stock market. I'm betting on these companies. Well, on the off chance on wrong, I'm going to put a very, very small amount of money on this one asset that if all hell breaks loose, it'll make a hundred times it's money."

And so what ended up happening is the market tanked. The market went down 30, 35%, this 25, $27 million investment ended up being worth $2.6 billion. Which sounds like a ridiculous number, right? He made a 100x on his investment. Just on a 27 million to 2.6 billion. Bill Ackman was only up 7% this month. Why? Because all of those assets he was long have lost money. They lost 25 30, you know, Hilton is one of his largest investments, it went down a bunch. But then this hedge that he put on basically not only made up for all the losses, it made a little bit of a profit as well.

And so the way to think about Bitcoin is Bitcoin is really a hedge on the legacy system not operating perfectly. And so, all odds say the legacy system continue to work perfectly fine. That's what the trends show that's what the probability would show, et cetera. But in the off chance that that system doesn't work, Bitcoin will become the global reserve currency and be worth multiples of where it is today. And so going back to how Ackman put together his portfolio, he put a very small amount, 100x, it covers all the losses. I think people are thinking about it very similarly in their portfolios as a "schmuck insurance" or "chaos hedge", which is, "Hey, I'm going to put a little bit into this asset and by the way, if everything else in my portfolio shits the bed, this thing's going to do really well. And therefore I'd probably net out even to a little up."

Aaron Watson: Yeah. So let's talk a little bit about that legacy system and, you know, it's impossible to make any sort of concrete prediction. You guys do have a philosophy and a framework of how you think about everything, but this notion that quantitative easing is just continuing to ramp up, past bail outs of millions or billions of dollars are now turning into trillions of dollars for large hedge funds.

There's this escalation that's happening to the measures that have to be taken by central banks and different economic policy to keep this legacy system running in the way to which people have become accustomed. And one of the things that I I've seen floated or talked about that I frankly don't really necessarily understand the execution of, that I'm hoping maybe you can articulate a little bit for me is some form of the adoption of a digital currency by these central banks in some form of that being the next step solution that they would have to run the next time there is a period where the market seems to be breaking or the legacy system isn't operating properly.

Anthony Pompliano: Yeah, look, I always use the example of a crack addict. And if you think of a crack addict, what do they do? At one point, they were sober. They never tried to crack before. Regardless of what age they tried it first, there was a point in life where they had never tried it. They try it the first time, they get high. "Hmm, that was interesting." Go back and try it a second time. "Hmm. I like that." Start doing it more regularly. As they do it more regularly, then they need more and more crack to get high. They become inundated or used to certain levels of the drug. And so you need more and more to get the same high. Well, all of a sudden, very quickly they're taking so much of the drug that they're are crack addict. And they become unfunctional in society or dysfunctional society. And then, next thing you know, you can push them all the way to the point of death. An overdose, et cetera. And so that's how a crack addiction works.

Well, the same thing happens with stimulus in an economy, right? It's the same thing. It's a stimulant, right? It gives you a high, if you will. And so there was a time where economies used no stimulus. And then they tried a little. And they said, "Oh, that was interesting. Let's try it again. Let's do it again. Let's do it again. Oh, this time we need a little bit more than last time to have the same effect." And it can ballooning and ballooning and ballooning until in 2008, you saw quantitative easing hundreds of billions of dollars.

Well, this time, if you notice, they're not talking about hundreds of billions of dollars. Now they're talking about trillions of dollars because we need a bigger hit of the stimulus or the drug in order to keep the economy going. And so I think what we're doing is we're getting to the point where there's a lot of people historically who have done this. The problem is that it never ends well. And so when people say, "well, what happened in Venezuela? What happened in Zimbabwe? What happened in these places?" They just kept printing so much money that they eventually escaped into hyperinflation. The currency literally failed them. And it didn't end well. The currency failed. And so I think that's the big risk here. Remember, you're going to go from a deflationary environment to an inflationary one, and you're going to see the devaluation of the dollar because they're going to print a bunch and flood the market.

But what you've got to be careful of is that you don't print so much or lose control that it hits hyperinflation. And so I actually don't think that that's going to happen this time. but it is a possibility that it could happen. And also, there is a difference between it actually happening and people being scared of it happening. There's the fear, and then actually what occurs. And I think that when people see trillions of dollars being printed - look around the world, the gold is getting overwhelmed with demand. I think you'll see the same with Bitcoin over time. And so I think that people just are very nervous as to the Fed's reaction. It could be quite detrimental long term.

Aaron Watson: So there's another idea that - so I'm in Pittsburgh, Pennsylvania, we're in that kind of weird region where we're a city, but we definitely don't identify as coastal elites or part of that coastal narrative that drove the 2016 election and all this other stuff that's happening.

And one of the conversations that's happening here is concerns about, in general, the financialization of the economy and the feeling that people are seeing with all the PPE that people need associated with healthcare workers treating the coronavirus. "Hey, we don't make enough stuff here, whether that's a ventilator, masks, or these other things."
And Pittsburgh has this rich history of being a place that made steel, and we made America, we made the world because of how much steel we pumped out. And there's a strain of a conversation here happening of, "can we get back to that and almost detach to some degree from the financialization that has pervaded so much of the economy." And I'm curious how you see this inflation of Fiat currencies and the role of cryptocurrencies and potentially playing into that.

And if you've heard that sentiment elsewhere, because when you use the example of Zimbabwe in Venezuela, I don't know a deep amount of the history there, but we do have this unparalleled geographic advantage relative to other economies in that we have oceans protecting us from a national security standpoint. We have an enormous plot of arable land in the middle of the country. All sorts of other riches and resources that other economies aren't privileged to have access to and have a diversity of. So I'm curious - that's a big question, but I'm hoping maybe you can tie some dots together.

Anthony Pompliano: Yeah, look, I think that you're kind of hitting the nail on the head here, that there's a lot of issues. And, one of them is the financialization of the economy for sure. The second thing is, the current financial crisis is being driven by the fact that the U.S. Government has told people to go home and shut down their businesses. And there's a huge debate as to whether that is the right decision or not. I think most people side on the side of, "yes, that is the valid thing to do given the health concerns and the COVID-19 crisis, et cetera." But really what you have is you have a health crisis in this pandemic-type situation that is now cascading into an economic crisis.

And when faced with the decision, I think a lot of people look at this and say, "Hey, we could one, allow the healthcare system to fail, or we can allow the economy to fail." And we're choosing to protect the health care system and the lives of American citizens. I think that that will be an okay decision and people will be cool with that for awhile. But if this stretches on for any extended period of time - more than, I don't know, two months - I think you're gonna have a lot of pent up social unrest, and so I don't see that happening, just because again, people need to eat, they need to get out of their house, et cetera.

And so what that leads to then is this talk topic about the economy. And you nailed some of it. "Hey, how come we don't have PPE?" I tweeted a picture yesterday of a nurses literally wearing trash bags in the hospital. And the only reason why that picture went viral is because somebody at that hospital who's a nurse manager died. He's like 40 years old and died from coronavirus. Well, why don't those people have what they need? Ventilators - huge problem. Why don't we have more ICU beds? Well, the truth is because we never needed this stuff. Actually they've been pretty good. And they've had the PPE that they need given the influx that they've had.

Now I think that there will be - a lot of that will change, but also what's going to have to happen here is you're going to get a big change in the American economy, right? Most of these small businesses that have recently shut down are not coming back. There's people who are just packing it up. Restaurants saying, "look, I'm done. I'm not coming back." And so, we just saw that the unemployment numbers today: 3.28 million people. If you put that in context, at the end of February, there was 3.5% unemployment, which is about 5.8 million Americans. And so, today, we jumped from 3.5% to about 5.5%. So more than a 50% jump in the unemployment level in United States.

Well, if you go back to the Great Depression, something that's really interesting is in 1929, the unemployment number up through two, three was only 3.1%. So it was kind of a historic low then. We just had a historic low, a 50-year low in February of this year. Well, in 1930, we got to 8.7% unemployment. Then we got to 15% in 1931. So in the first year you go from 3.1 to 8.7, then you go to 15 point whatever it was. Well already, we just jumped - in a matter of three weeks - from 3.1 to 5.5. If we go another month, we're probably going to be somewhere in the 7 to 8.5% range. If we go through Q2 into Q3, we're going to be over 10% unemployment by the end of Q3 at this pace.

So what I think ends up happening here is people start to realize the way to solve an economic crisis is to get people back to work. Turn American businesses back on, put American workers back to work. And when you talk about places like Pittsburgh, that kind of are outside of that coastal leader or intellectual elite type situation, what do they know? One of my favorite people in the world, is John Rockefeller. And I've probably watched shows, like I don't know if you've ever seen, The Men Who Built America. It's a big documentary the history channel did. And it talks about Andrew Carnegie and John Rockefeller and the Ohio, Western Pennsylvania, that whole region of the world really drove a lot of American innovation during the industrial revolution, et cetera - for the railroads, oil, steel, et cetera.

And so what I think you end up seeing is people saying, "look, this is in our DNA, this is in our community. Economic output is what we do. We've built our families and our legacies on this stuff. We want to get back to work." And what I think you're gonna find is you're gonna see a lot of companies that may have been doing one thing and say, "Hey, we're going to move and do something else because the economy needs us to do that." And then there's other people we're just gonna go back to work. And so we've got to do it in a safe manner. You gotta be careful with the COVID-19 stuff and make sure you're not exposing people. The last thing you want to do is let everyone go back to work and then you get this huge flare up again.

But I do think that the economy will look different moving forward, and whether it's good or bad, I have my opinion, but my opinion doesn't matter. You're going to get more of a nationalistic view of the world because people realize, "Hey, we had this reliance on China and our supply chains and look what just happened. We can't have that happen again." Or, there was the spread of the virus from a whole bunch of other countries. It's not just China. I mean, if you look at other countries around the world, they got it from each other. And so you ended up getting this kind of nationalistic view of the world because we have recency bias. And we all say, "Hey, we got to change is something that doesn't happen again." I think you're gonna see that in the economy is everywhere else.

Aaron Watson: Yeah. Just keep fighting the last war.

Anthony Pompliano: Yeah. And here's the crazy part. If you think about - I actually wrote something up and then I deleted it, so you're the first person I'm saying this to publicly. I wrote up a piece and I basically said, "look, we're at an economic war. But we're at economic war with ourselves. And we sent our best soldiers home, our most productive employees and of workers - we sent them home. And we probably sent them home for good because of the COVID-19 thing.

But the only way to win a war is you got to get the soldiers back on the battlefield. And to get them producing economic output. And so what I actually think that we should do in some form or fashion is we should one, immediately identify, "Who are the most vulnerable? How do we protect them?" So the old and those with preexisting conditions.

Let's get them quarantined, get them in safe places. Then we should say, "if you're under the age of 40 years old, this is a time of national emergency. We need people who are willing to serve their country and go to work. And by the way, if you volunteer to do this, you may get sick. But that's the risk you're going to take, which our country needs you right now."

And my guess is that there's actually a lot of people who would be willing to go to work. And if you can kind of do it in a way where one, it's on a volunteer basis. Two, they understand the risks that they're taking. Three, they also are quarantined, meaning that you put them up in hotels or whatever.

So they're not going to work. And then going home and getting their parents or grandparents or their loved ones sick, whatever. What you ended up doing is you try to create a situation where the world's not black and white. We don't have to choose healthcare system or economy. There's actually probably some gray solutions in there.

But we've gotta be creative and we gotta be innovative and, and kind of have some ingenuity to ourselves in how to do that, my guess is that the government's not going to come up with those solutions. We've got to turn to private businesses, and the entrepreneurship streak of America and say to American entrepreneurs, "help us solve these problems , and let's get people back to work so that we can turn around this economic crisis.

Aaron Watson: Yeah, it's scary and there's headlines and numbers that pop up and can definitely scare you, but I'm with you on the human ingenuity and the potential for this to be our finest hour as a race and as a population.

So, I'm really grateful that you shared some time to come on the show. Before I let you go and ask our standard last two questions, is there a restaurant that you are going to rush out or have been rushing out to support locally in the face of the hardship that obviously is besetting the restaurant industry.

Anthony Pompliano: Yeah. I took a walk the other day in New York City and I walked from in the forties down to about in the twenties. And, as I was walking, I was just looking. At least 50% of stores and restaurants are all shut down, probably closer to like 75%. And as I walked down there, what I realized was, I want to go to every single one of the restaurants. And it's almost a thing where you say, "look, not only one, am I tired of eating inside of my apartment, but we've actually been ordering out a lot because we're trying to help whatever these businesses are that we can at least do the ordering mechanism.

But at the same, you just realize these people are going to need help. And so it's less about like, "Hey, there's this one food that I really want", and more so just hopefully people will realize that there's going to be this time in the timeline where you're going to be allowed to go out. You're going to be allowed to go support those local restaurants. And I hope people do that.

Aaron Watson: Yeah, I'm itching to do it too. We have a full list that we're hammering takeout from, but also ready to get back in the restaurant as well.

Pomp, this has been great. Thank you so much for sharing some time with us. For folks that want to listen your podcast, follow along with the stuff that you're thinking about and studying, where can they connect with you in the digital world?

Anthony Pompliano: Yeah, podcast is the Pomp Podcast. You can just Google it. It's on all the major platforms. And then if you go to Twitter @apompliano, I'm probably tweeting a little too much and spending too much time on there, but that's where you could find me.

Aaron Watson: Respect. We're gonna link that in the show notes, at goingdeepwithaaron.com/podcast for this and every episode of the show.

Before we let you go, Pomp, I'm going to give you the mic one final time to issue an actionable, personal challenge for the audience.

Anthony Pompliano: Yeah. So, throughout this whole thing, I've been ending the letter that I write each morning just asking people to be kind to each other. And my whole thing here is, it's a time of great stress for a lot of people. And some of that stress is going to be due to uncertainty. Some of that stress will be due to financial circumstances. Some of that stress will be due to health issues, family issues. And so at a time like this, where most people are just generally stressed, the little acts of kindness can go a long way. And this doesn't have to be the cheesy, you know, "Hey I went and I donated money to some guy on the street and then I got to take a picture and put it on social media" or, you know, "Hey, go through your phone book and call every person." It doesn't have to be that. It can simply just be a thank you. A smile, just little things that, I think try to put people in a better mood and show that hey, we're all going to get through this.

It's going to be okay, but, there's people suffering right now. And, if you can't help them with financial means or anything else. The least you can do is just be kind to them and frankly, you don't know what other people are going through. So I think that's kind of the mantra right now.

Aaron Watson: Amen. I think that is the perfect note to wrap up on.

Anthony Pompliano: Awesome man. Well, I really appreciate it, Aaron. Thanks so much for having me.

Aaron Watson: We just went deep with Anthony Pompliano. Hope everyone out there has a fantastic day.

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