
Today’s Letter is brought to you by Arch Public!Unlock unparalleled returns with Arch Public’s algorithmic trading tools. Our Bitcoin Algorithm Arbitrage Strategy has delivered an astounding 247% annual return over the past three years. The entries, and exits speak for themselves; precision that drives success. Trusted by more than 15,000 customers and industry leaders, we’ve partnered with Gemini, Kraken, Coinbase and Robinhood to bring you cutting-edge solutions. Whether you’re a seasoned investor or just starting, our proven strategies maximize your potential. Join the ranks of those who trust Arch Public to navigate the markets with confidence. Talk to us today and discover why our expertise sets us apart.To investors,There is a national crisis unfolding in the US economy, but it isn’t the type of crisis you got used to over the last few years. Rather than the persistent risk of high inflation driven by out of control government spending, the economy is being swallowed by an expansive deflationary force.This new risk is dangerous because it requires humans to update their mental models to be able to identify, understand, and mitigate it. And we know humans are horrible about changing their mind, especially when it requires them to synthesize new information.First, let’s discuss where the challenges lie in identifying this deflation risk. There is a past experience issue and a modern data error that is driving the problem. The past experience issue is that an entire generation finally capitulated in recent years after realizing that undisciplined government spending led to higher levels of inflation. These folks failed to see the cause and effect coming out of the global financial crisis and they only took the lesson to heart after the pandemic era insanity that drove inflation over 9% in the government’s data.The folks in this cohort are now trained to look at government spending and conclude that inflation will rise if the national debt is increasing. That was true in the past, but it is not true right now, which is why I call it a “past experience issue.” People are looking at the inputs, but not thinking critically about what that means for modern outputs.The second big issue is a modern data error. Most of the “experts” and mainstream reporters are still relying on the Bureau of Labor Statistics to tell them what the inflation reading is. It doesn’t matter that the BLS is estimating more than 40% of the CPI inputs, nor does it matter that the BLS continues to manipulate the data collection by leveraging unproven and discredited methods.These people simply believe whatever the government says.The Bureau of Labor Statistics is reporting inflation to be 2.7% year-over-year. But compare that number to Truflation, which is reporting inflation under 0.9% as of yesterday.This is a very wide gap in the metrics. In fact, the most concerning part is that the BLS is saying inflation is almost 50% higher than the Fed’s stated target, yet Truflation is saying inflation is more than 50% lower than the Fed’s stated target.The sky can’t be blue and green at the same time, nor can inflation be high and low simultaneously either.It is no secret that I trust the Truflation data much more than the BLS. Truflation uses more than 14 million daily data points provided by over 40 independent data providers. I’ll take the real-time, verifiable metric over the lagging, estimated metric any day of the week.But this brings us back to the most important question in the economy today…why is inflation falling if the government is continuing to print money like drunken sailors?This is where the deflationary force swallowing the US economy comes in.There are three main contributors in my mind:* Tariffs are deflationary, not inflationary. I know this is still heavily debated, but I continue to explain that tariffs bring down domestic prices over time and they change consumer demand trends. There are anecdotal businesses that will show their input costs are rising, which is then being passed on to the consumer, but those anecdotes are heavily outweighed by the aggregate impact of tariffs on the US economy.* Artificial intelligence is the largest deflationary force of our lifetime. Companies are literally bragging on a daily basis how they are being more productive with less employees. The industry is moving so fast that it is hard for most people to keep up and the economic incentive to adopt this technology is only going to get larger. Lastly, A.I. is now in the “exponential production” phase where A.I. is writing code, so we are no longer limited by human time and energy.* Robotics is a subset of the A.I. story, but it deserves its own call out. It
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