Correlations Are Rising. Should You Be Worried?

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. Visit ArchPublic.com for more. To investors, The 60/40 portfolio became the standard portfolio allocation for investors on the premise that these two assets were negatively correlated. When stocks go up, bonds go down. When stocks go down, bonds go up. But what happens when this correlation breaks down? The rolling 60-day stock and bond correlation has officially hit the highest level since 1999. The current correlation is approximately 0.7, which has not been seen in the last two and a half decades. The most obvious reason this is happening is that inflation/supply-side risks have become the dominant market driver in the short term. We have disruptions in the Strait of Hormuz, regional infrastructure has been degraded, and oil prices have surged higher. These issues create higher inflation expectations. We can’t return to negative correlations until inflation expectations come down. In the meantime, there are four main ramifications to watch for: Bonds can’t be relied on as a hedge Market volatility will increase Downside risk is amplified The Fed has less options at their disposal My big takeaway from this situation is that investors are getting hit with a double-whammy. First, they are confused why public equities keep ripping higher as part of the AI trade, which is tempting them to chase momentum and pour more capital into the popular stocks. At the same time, investors are watching bonds, the perceived hedge in their portfolio, lose its ability to protect them against a public market downturn. Another way to think about it is that bonds are becoming ineffective at the exact moment that investors potentially need them most. Now, if you are like me and believe stocks are going much higher, you may not care about the higher correlation between stocks and bonds. When everything is going up together, investors are becoming very rich on paper. The returns are intoxicating. People start believing they are a genius. Few people care about hedges, risk, or correlations. But as we know, there will be a day when those things matter again. No one knows if it will be days, weeks, months or years. But markets run in cycles. There are good times and bad times. Although I am a believer in innovation, technology, public stocks, and bitcoin, I still acknowledge that portfolio construction, especially non-correlations, are a timeless idea for a reason. Bonds have been a horrible investment for some time. Equities have been on an incredible tear at the same time. So when both assets start moving in lockstep, that may be the time to pay extra attention. Hope everyone has a great day. I will talk to you next time. - Anthony J. Pompliano Founder & CEO, ProCap Financial (Nasdaq: BRR) 🚨 Today we announced ProCap Insights has partnered with Ornn Exchange, the industry leader in compute data, to produce investment research. Compute is the oil of the AI economy. ProCap Insights’ AI agents will now surface trade ideas + risks tied to the most critical commodity of the new era. Subscribe here: https://www.procapinsights.com The Biggest Bitcoin Myths — And Why They're Dead Wrong Chris Kline is the co-founder and COO of Bitcoin IRA. In this conversation, we break down the biggest myths about bitcoin — including whether it's too late to buy, whether it's too volatile for retirement savings, and whether the government will ever ban it. We also discuss the strategic bitcoin reserve, quantum computing fears, and the convergence of AI and crypto. Get Your Free After Crypto Guide Here: https://lp.bitcoinira.com/after-crypto Podcast Sponsors Figure – True DeFi Democratized Prime to earn ~9% APY! They also have the lowest industry interest rates at 8.91% with 12 month terms! Take out a Bitcoin Backed Loan today and buy more Bitcoin. Check out Figure ! Figure Lending LLC dba Figure. Equal Opportunity Lender. NMLS 1717824. Terms and conditions apply. Arch Public - Arch Public’s cutting-edge algorithmic tools ignite profits, harnessing razor-sharp data analytics to nail perfect entries, exits, and risk management. Turn volatility into opportunity and do it hands free with Arch Public. (Oh, and yes, try us out for FREE too!) BitcoinIRA - Save up to 37% in capital gains taxes on your retirement investments. Signup today and win up to $4,000 in rewards . Simple Mining offers a premium white-glove Bitcoin mining service. Want to grow your Bitcoin stack? Visit https://www.simplemining.io/pomp Uphold - Uphold is the all-in-one platform to trade, earn, stake, and swap across 300+ assets with real-time proof-of-reserves and any-to-any conversions. Manage your entire crypto portfolio in one place at www.uphold.com Bitget - Bitget is the world’s largest Universal Exchange (UEX) , serving over 125 million users with access to over 2M+ crypto tokens, and TradFi markets such as 100+ tokenized stocks, ETFs, commodities, FX and precious metal like Gold. Award-winning Fountain Life - Energy supercharged. Memory sharper. Life extended. Ready for the best investment you’ll ever make? Schedule a life-changing call at www.FountainLife.com BloFin - BloFin is a fast-growing cryptocurrency exchange focused on providing professional-grade trading tools, deep liquidity, and a secure trading environment for crypto traders worldwide. You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.