Stephanie Pomboy: Melt-Up Or Blow-Off Top?

**Adam Taggart** (0:01)
All right, and we should be live. Welcome to Thoughtful Money. I'm Thoughtful Money founder and host Adam Taggart. Welcome you back for one of our bi-weekly macro sessions with the macro maven herself, Stephanie Pomboy. Hi, Steph, how are you?

**Stephanie Pomboy** (0:14)
I'm great. How are you?

**Adam Taggart** (0:16)
Good. How is life out in the West this summer?

**Stephanie Pomboy** (0:18)
I mean, it doesn't suck. I will put it that way. And we're getting another beautiful sunny day out here. I hope the same for you.

**Adam Taggart** (0:29)
Yeah, it's actually been one of the cooler summers on record here in Northern California. No one's going to cry me a river about that, nor should they. So it's still quite nice. I will say, Steph, it was fun to be back in your stomping grounds in Florida. That was very sad that we couldn't overlap while I was there with Ashley. But we did have a good time. But yeah, man, it is hot and humid in Florida in July.

**Stephanie Pomboy** (0:53)
It is disgusting. I mean, it's for people who like to be active in outdoors, like us. I feel like it's just not a place to be in the summer at all. All you want to do is sit inside in the air conditionings.

**Adam Taggart** (1:04)
Well, that or go jump in the ocean, which we did do. And that was good. Yeah. All right. Well, look, Steph, so the past couple of times you've been on, we've had so much to talk about that we didn't have a lot of room for audience Q&A. So we're going to try to leave a lot of room for audience Q&A this time. So folks, if you're watching, if you've got questions for Stephanie, ask them in the live chat there. Steph, I also saw that you post on your ex-account a request for questions. I'm sure you got a ton. I'll try to pull from those as well. I'll kind of pick and pull here as we go.

**Stephanie Pomboy** (1:35)
Great.

**Adam Taggart** (1:35)
But I do have a couple of quick questions for you, and I had to come up with a title for this last night. So the title was Melt Up or Blow Off Top. So we've seen the markets, we've been talking for months about how valuations slingshotted, slingshot back to the valuation extremes they were at at the beginning of the year. So it's sort of like the March, April 20 percent drop never happened. Some people are saying, look, this is a market that's just a bubble in search of a pin at this point. Others are saying, no man, it's a brand new world and the golden age of America is coming, and stocks are just getting warmed up. I think I know your point of view on this, but what do you have to say to people who are watching this and scratching their heads and just saying, man, this market looks bulletproof?

**Stephanie Pomboy** (2:28)
Well, if you can see this spot here, I'm scratching my head a lot too.
I feel like the markets obviously got extremely concerned about the tariff threat back in April and have recovered all of that, in some sense, on the idea, of course, that resolving the tariff issue somehow was going to set us on the glide path to ever higher valuations. And so far, that has been the case. But as you and I have talked about forever, there's going to be a transition phase. The president himself acknowledged that. The Secretary of Treasury has acknowledged that. And so I think while everyone's understandably enthusiastic about these pro-growth business policies that are being put in place, you know, tax cuts, depreciation, massive deregulation, all of which are tremendously supportive of growth, there is going to be a transition phase. And I think the real obstacle, and I hate to be such a broken record, but I keep coming back to it, is what happens on the interest rate front. And as long as long rates refuse to really come lower, it's going to make that transition really fairly bumpy, because we've got just an enormous amount of debt, not just in the government balance sheet, but in the private sector, consumers and corporations, which we've talked about at length here. And all of these entities have been waiting and kind of tapping their fingers on the table, waiting for rates to be lower so they can refinance and get some relief on their incredibly odorous interest expense, which for consumers, households, and the corporate sector has more than doubled since the Fed raised rates back in March of 2022 So if that relief doesn't come quickly, obviously it's going to continue to weigh on economic activity. And we've also talked at length about specific things like the resumption of student loan payments and how that will impact. And I just did like a quick side by side comparison of what's the potential hit to consumer spending from the resumption of student loan payments versus what's the boost to consumer spending from the elimination of tax on tips up to 25,000. And the estimates are that the potential lost consumer spending from student loan payments will be about 50 to 60 billion annually, while the tax on tip thing is likely to free up about 2 to 3 billion annually. So there's no comparison as to which is more powerful, the drag of debt service versus the no tax on tip. So as relates to just obviously the extension of the tax cuts, that's great that we avoided a huge tax increase, but it doesn't change anything for the average household. They're just extending the status quo. So that's sort of a very broad and generalized answer to your question. But yes, I think that these markets are levitating largely on hope and also on things that they've thoroughly discounted, especially and including Fed rate cuts and the prospect that rates will be lower in the foreseeable future.