Stephanie Pomboy: The Cracks In The Economy Are Becoming Too Large To Ignore

**Adam Taggart** (0:01)
And we should be live. Welcome to Thoughtful Money, everybody. I'm Thoughtful Money founder and your host, Adam Taggart. Welcome you back here for everybody's favorite video of our two-week bi-weekly schedule with the wonderful macro maven herself, Stephanie Pomboy. Hi, Steph, how you doing?

**Stephanie Pomboy** (0:19)
Awesome, how are you doing, Adam?

**Adam Taggart** (0:21)
I'm doing great. Run a little bit ragged this morning, hence the hair that's still wet from the shower and are starting about a minute or two late here. That's on me, folks. But very excited to catch up with you, Steph. There's been a lot going on. Right before we turned the camera on, we were sharing our different headlines for today's call.
Mine is Cracks in the Economy are Beginning to Show. Yours was Fed Falsehoods. Did I remember that correctly?

**Stephanie Pomboy** (0:50)
Yes, correct.

**Adam Taggart** (0:51)
Okay. Why don't we start there? Folks, I've got some questions for Steph about some of the things that have happened, some of the many things that have happened since her last appearance two weeks ago. And then we'll open up the questions to you, the live audience, in the back half of this discussion. But we've had a lot going on with the Fed. I think as I was interviewing Danielle DiMartino Booth the other day, and I said, there's more drama and curveballs than a World Series tiebreaker here. Because we've had, you know, Jerome Powell come out with the Jackson Hole speech, basically tell the world, yeah, we're going to start cutting. And then we've had all the drama in terms of staffing replacements at the Fed, whether that's who's going to replace Powell himself when his term is up next year, their replacement of Kugler on the FOMC, and now all the drama over Fed Governor and FOMC member Lisa Cook. The last, you know, development on that was that Trump actually sent her a letter saying, you're fired, and then she said, no, I'm not. So we're going to see what happens there, but a lot going on and even questions being raised, Steph, by Powell, sorry, by Trump and Secretary Besant on, hey, you know, just should we revisit kind of how the Fed works too? So it's not just the chairs at the Fed that might be getting new people in it, but potentially we could, you know, see a revisitation of the actual structure and operation of the Fed. So a lot going on there. Where do you want to start?

**Stephanie Pomboy** (2:25)
Well, I guess since our whole objective here, not to be crass, is to figure out ways to make money in the financial markets, I would like to start with why this whole Fed thing matters. And in my view, you know, just for background, for people, when I started Macromavens, my sort of self-imposed mandate was to identify where the market was mispricing potential outcomes related to the economy. So I would analyze the economic fundamentals and sort of look at how the markets were pricing in the economic glide path, whether it was, you know, anticipating stronger growth or weaker growth and sort of analyzing the assumptions built into the market and then going back and looking at the data carefully to see if they supported those assumptions or not. And by identifying areas where the market assumption appeared to me to be straying from the actual direction of the data, I was able to identify both risks and opportunities for my clients. So that's sort of just a general background as to my approach, which admittedly is a fairly antagonistic approach. And it's why, you know, I've constantly tarred as a perma bear because, you know, the market narrative always seems to be bullish. And my job is to identify where that bullish narrative might fall asunder. And it's not necessarily always related to the market overall. It could be specific sectors like, you know, I identified the housing bubble and everyone was bullish on that. And clearly, they missed what was happening and then the knock on consequence for the financial sector. But that's all ancient history. Moving forward to today, the reason why this whole Fed drama, as you put it, is so crucial is that ever since the Fed actually started tightening, let's go back to 2022, when the Fed began to raise interest rates, we saw the markets recoil in a reaction to that initially. And then it wasn't too far into the tightening cycle, then investors began to anticipate the pivot because the average investor alive today has only ever lived in a time where the Fed put was in place. So the higher they raised the Fed funds rate, the sooner and more dramatically they would ultimately have to reverse it. And that was the market assumption. And it's been a good assumption for years and years and years. The problem is that they bet started making that bet, I think, at the end of 2022 I mean, Fed was raising rates starting in March 22 And by the end of that year, the markets were basically saying, yeah, you can keep raising rates, but we're going to ease because we're already anticipating the rate cuts because you guys always get it wrong and you're going to end up panicking and reversing. And so we basically had the better part of two and a half, three years where the markets have been doubling, tripling and quadrupling down on this bet that the Fed is going to cut rates. And as we saw when they finally cut rates last September, they didn't get the reaction that had been anticipated.