The Pomp Podcast - #1027 Darius Dale On How To Navigate These Difficult Moments In The Market

Starting point is 00:00:00 what's up everyone this is anthony pompliano most of you know me as pomp you're listening to the pomp podcast simply the best podcast out there now let's kick this thing off today's episode is an interview between darius dale and julia laroche in it they talk about the macro economy the federal reserve interest rates monetary and fiscal policy and what the hell is going on in the american economy i really enjoyed listening to this episode and i know that Darius, and Julia really enjoyed actually recording it. I hope that you enjoy it as well. Before we get into this episode, though, I first want to talk about our sponsors. This episode is brought to you by BCB Group. With a dedicated focus on institutional payment

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Starting point is 00:03:20 personal opinion. This podcast is for informational purposes only. All right. Well, I'm excited to bring in our next guest. We have Darius Dale. He's the founder and CEO of 42 Macro. Darius, Welcome to the show. Hey, Julia, what's up? How are you? I'm really excited to talk to you. It's like something I'm like, oh, my gosh, I'm just it's something I've always wanted to do. So I appreciate that. Yeah, I get to even get going. I think you need to tell Joe and John that we're currently running at an all time high in the employment cost index. That's the broadest measure of wage inflation. So they might need to have a talk with their brother. Oh, they've been trying to unionize. I don't know if you've heard about that.

Starting point is 00:03:59 Yeah, I don't want to be in their union. they're mad at me now um definitely will all right so um we're closing out the quarter we're closing out the first half of the year obviously like markets have just been a steep decline um worst for the s&p about or such a close at the worst since i don't know since 1970 so um it's been a long time i would just love to start with like more of like your big picture of where we are in the markets and maybe your outlook ahead yeah absolutely so uh you know for those who have been paying attention to the show, it's pretty straightforward. So I'll summarize everything. At 42 Macro, we believe that if you use enough data, use enough math, have enough of

Starting point is 00:04:41 a repeatable process, you can sort of harness these sort of big macro cycles that tend to drive dispersion within and across asset markets and obviously take advantage of that from a portfolio perspective. There's sort of, you know, we consider there to be four big cycles. There's the liquidity cycle. So as you know, if you think about the Fed balance sheet or interest rates, is that getting more positive or favorable for asset markets or less favorable. Clearly, we're in a liquidity cycle downturn. Our views is we're close to, let's call it, inning five or six on that. For those of you who are not Americans, baseball is played in nine innings, so we're probably, let's call it, two-thirds of the way done in terms of liquidity cycle downturn. As it relates to the

Starting point is 00:05:20 growth cycle, which is another important cycle, we're probably in inning four or five in the growth cycle downturn. That's significantly deepened in the coming months, at least according to our forecast. We're probably in extra innings in the inflation cycle upturn, as evidenced by the most recent headline PC and headline CPI reports that we've gotten in recent weeks. And then lastly, I think we're probably close to inning one or two of the profits cycle downturn. And what I mean by profits, we're talking about corporate profits, corporate earnings, of things that will drive, you know, incremental decisions, you know, going back to your previous discussion about, you know, whether or not companies are spending more money on marketing,

Starting point is 00:05:59 more money on hiring, etc. So we are not in a favorable place to be speculating on the long side of most risk assets as a function of those four downturns. There's a lot of talk right now about, you know, are we in a recession? We'll obviously find out when we get this second quarter GDP print. But what is kind of your thought process there? And like, how do you kind of think about that. Yeah. So I see you guys are charts. Are you able to put them? Yeah, we can pull the charts up. Which one would you like us to pull up? Maybe the first one. So model by probability. Yeah. Let's pull up the model and model implied probabilities chart if we can. Yeah. So this this first. So what we're trying to do with these charts is identify

Starting point is 00:06:38 whether or not we are in recession or likely headed to a recession over the medium term and some investable time horizon. Anything over a year is generally not investable from a risk management perspective. You can talk about stuff from here and from now, but it's not going to really matter to markets. So what I'm showing in this top chart, the blue line in the upper panel just shows the New York Fed, that's the Federal Reserve Bank of New York's recession implied probability model, down at 4%, 4% probability of having a recession over the next 12 months. One, I think that number is wrong, but two, it's significantly lower than where it's typically at on a mean basis heading into recession, that number is around 27%. So typically right into

Starting point is 00:07:19 a new recession, that number is on average around 27%. So it tells you a couple of things. It tells you, one, at the onset of recession, even the recession probabilities are still generally low. So you need to have forward-looking indicators to give you a better view on that. And then number two, the red line in the upper panel just shows the model I put together just based on a couple Bloomberg models that are anchoring on the 10s-2s treasury yield curve and the 10-year-3-month treasury yield curve, that recession probability is currently around 25%. Historically, it's been on average around 35% at the onset of recession. So that's much closer to signaling, hey, look, we might actually be in recession. But to me, I think the discussion around recession is really

Starting point is 00:07:59 coming from the consumer. The second chart I sent you is consumer confidence. Yeah, we can pull that up too. Yeah, absolutely. So the chart, the top upper panel on that chart shows, the blue line just shows conference boards, consumer confidence measure. That's sort of one of the more stickier autocorrelated consumer confidence measures that we have. It tends to be more correlated to the labor cycle than the University of Michigan survey, which is also widely followed. That tends to be more correlated to inflation. But the key takeaway on this chart is that historically you've seen consumer confidence break down below its trailing three-year average. You're typically in or just about heading into recession. And very clearly with the most recent data point we got

Starting point is 00:08:38 yesterday, I want to say yesterday or two days ago, you know, 99, I think we're now careening well south of the trailing three-year average, which takes me to my final chart, consumer expectations. You know, this other chart, consumer expectations sort of breaks into a couple of different indices within that consumer confidence report. Again, these are June data points, so they're pretty relevant. They're pretty fresh. The red line in the top panel just shows the present situation index within that conference board consumer confidence report. The blue line shows the expectations index. So how do consumers think about what's likely to happen over the medium term? And as you can see, there's this massive divergence between how consumers think

Starting point is 00:09:18 the economy is today, how they feel about the economy today relative to where they think the economy is going to be in the future. That's denoted by the spread there down at the bottom panel. Now that spread, you know, minus 80, 90 basis points wide to the negative side is about as deeply negative as it has ever been. You know, it's in the first percentile of all monthly readings since going back to the late 60s when these indicators were born. So that tells you that, you know, as you can see where those red bars are in the chart, historically speaking, when you get to a very deeply negative spread between consumers' expectations and how they currently feel about the economy, you typically are walking into a recession because that's

Starting point is 00:09:55 typically how it happens, right? You start feeling bad about the future and therefore you adjust your current spending, your current expenditures, et cetera, to how you feel. And this is all part of the behavioral dynamic associated with, you know, economies of financial markets called prospect theory. We don't need to get into that now. Definitely go check out Danny Kahneman's book, Thinking Fast and Slow, if you want more details on that. I like that. And it's like the psychology of it. I guess like a follow on to that, because like I'm looking at your models, like, is there a way to like assess um you know how severe recession might be like when you're looking at these indicators like how do you kind of think about like is it like something that's quick and

Starting point is 00:10:32 i would love to explore that with you yeah so that's a great question julie so there's a couple of ways to do that on an ex-ante basis uh one you could sort of you know the the the the easiest way to do that is try to understand kind of the different leverage cycle dynamics the first would be, how fast has credit grown into the downturn? Historically speaking, whenever you see a significant positive deviation in the credit-to-GDP metric, particularly private non-financial sector credit-to-GDP into a downturn, that's what we saw in 2007, you typically get a more deeper, nastier kind of asset price-led recession that takes longer to recover from. A second way to explore that on an ex-ante basis is looking to observe if you have a positive

Starting point is 00:11:16 deviation, a significantly positive deviation from the trend in what we call the debt-to-service ratio. So that's the total amount of sort of interest payments and amortization or paying back debt for the broader private non-financial sector. And currently speaking, neither of those two indicators are signaling kind of a cause for significant alarm, i.e. neither are suggesting that we're likely to have a deep, lasty, prolonged protracted recession, which is a good thing. Now, the one thing I'll caveat this by saying, the data that we get this out, we derive those statistics from are released on a pretty severe lag. So we're talking about Q4 21 statistics, and it's obviously the end of the second quarter of 2022. So fast forward six months

Starting point is 00:11:55 from now, we could be getting statistics for the second quarter of this year that may say otherwise. But for now, just being data driven, we can understand that any recession we're likely to experience over the next 12 months or so should be shallow, should, in my opinion, I think it's more likely to resemble the 2001 recession, which was, you know, you got to need a magnifying glass to kind of really see it on the map. It was the shallowest recession in U.S. economic history at peak to trough decline and output of minus 70 basis points. But guess what? That didn't matter to the market. S&P was cut in half. NASDAQ was down 80% in the span of that two and a half year bear market. So you have to be careful not to associate your expected outcomes in financial

Starting point is 00:12:35 market terms with your expected outcomes in economic terms. The destination doesn't have to be the same, but the rate of change is likely to sort of perpetuate and feed upon each other. That's interesting. You say that didn't matter to the market. Also, it just kind of makes me wonder, say we find out, we get the Q2 GDP number, and it's like, okay, you have two consecutive quarters of negative GDP growth. Do you think the market's kind of priced in that scenario? Or is there further to go here? What do you think? Yeah, great question. Great question. So I'll start by, there's two things to unpack there. I'll start with the first part of your question, which is the two consecutive quarters of negative GDP. That would constitute a technical recession by the letter of the law, two consecutive quarters of contraction is a technical recession. That will not constitute an actual recession by the sort of market and by the Federal Reserve and certainly by the people who determine whether

Starting point is 00:13:31 or not the economy has been in recession, which is the NBER. Their definition is more along the lines of my definition of recession, which is a statistically significant deviation, negative deviation from the trend in output. You can measure output, obviously, through GDP, industrial production, consumer spending, consumer income, total employment. All those things tend to be correlated to the downside and a significant deviation from their respective trends. We have not seen that yet. However, when you go back and you think about it from a technical recession standpoint, we are certainly developing that one. I mean, we got the PCE data, the personal Consumptions Expenditure Data Point for the month of May this morning. And it was pretty bad. It was

Starting point is 00:14:08 very bad, actually. We talked about that in our Macro Minute program. Check out our YouTube channel, by the way, for those of you who don't pay attention to those. But anyway, so on a headline basis, so aggregate consumer spending in the economy, which is two-thirds of overall GDP, slowed to 0.2% on a three-month annualized basis through the month of May. And so if we stay around these levels, or if it gets any worse for the month of June, we will have negative consumption growth on a three-month annualized basis, on a quarter-over-quarter basis in the second quarter. That's being dragged down by goods consumption, which is down 1.4% on a three-month annualized basis. Services consumption is up at 1%. But guess what? 1% ain't going to cut it. One,

Starting point is 00:14:50 that's half the trend growth rate. And number two, we're supposed to be in the middle of a services sector boom, right? I mean, how many stories have we heard about the pandemic being over and getting on airplanes. We're going on a vacation. We're going out to eat. We're going to the theater, et cetera, et cetera. And guess what? All that narrative adds up to a mere one percentage point growth rate in three-month annualized terms for services consumption. So we continue to see consumers get squeezed from a real income perspective. Real incomes have been basically trending at down 4% year over year for the last year on either an aggregate or per capita basis. And so in our opinion, the data is starting to get nasty enough to start pondering

Starting point is 00:15:27 the question, are we currently in recession? Are we, you know, getting close to entering one? And I think the jury, the sort of, you know, the answer to that question certainly moved in the direction of recession very much in the last kind of two to three hours. I think that's why, like, I love, like, listening to you, because I feel like I always learn things, too. And you point out, yeah, like, there's been that narrative, like, oh, it's a services boom. But as you point out, probably not the case, as it turns out. I want to ask you about inflation, too. Like, you mentioned we got the PC this morning. It was bad. And I know that's a gauge that the Fed does look at. How do you think about inflation? Is it systemic? Is it abating? I just wonder how

Starting point is 00:16:07 you begin to assess that. Yeah. So inflation is very much systemic. There's several ways we can assess that, not the least of which is the data we got from this morning's report. We saw an acceleration in headline PCE inflation, both the three-month annualized and year-over-year rate of change terms. So that was a problem. We saw a re-acceleration in three-month annualized terms in core PCE, which is the Fed's preferred inflation metric at 4.1%. It's basically a double of where the Fed needs it to be. So that's a problem from the liquidity perspective of the liquidity cycle. But to answer your question specifically on is inflation systemic, the answer is unequivocally yes. The Cleveland Fed has an index called median CPI, which measures

Starting point is 00:16:46 the median rate of change in inflation terms for everything in the inflation basket. There's of indicators in the inflation basket. And what we're seeing on a median basis, not on a weighted basis, on a median basis, inflation accelerate to new all-time highs. 5.5% on a year-over-year basis, that's a new all-time high in May. 6.4% on a three-month annualized basis, that's a new all-time high for that time series. So to answer your question, yes, we are very much in a systemic broadening inflation shock that ultimately we think the Fed is going to stick to its guns and do something about. Let's talk about the Fed and sticking to its guns. Jay Powell, we had comments from Jay Powell this week. We also heard from Christine Lagarde. We heard from BOE's Andrew

Starting point is 00:17:27 Bailey. Just kind of would love to hear your reaction from what we're hearing from central banks as it relates to some of these issues. Yeah. So I thought Jay Powell, so was that yesterday, Wednesday? Yeah. At the ECB forum, Jay Powell really stood out to me, one, in his tone, But also he made a very important direct comment to financial market participants and investors, you know, to everyone in the economy. And it was, you know, it was very basic. Look, we are going to do whatever it takes to get inflation back to our two percent target. That process will involve some pain, but that it will be a worse that will be less of a pain than just not achieving our objective. Right. So he's basically saying if we allow inflation to stick around here, more people, particularly people on the low end of the income spectrum, are going to get, you know, they already feel like it's a recession for them already, by the way. Some 10 to 20, 30% of the

Starting point is 00:18:16 economy is already in recession just as a function of their income level. And so what he's effectively saying is, look, it's going to be bad no matter what. And right now, if we allow inflation to continue to fester, it's going to be bad for the largest number of people for the longest period of time, as opposed to just tightening us into a significant enough slowdown in output to get us to a more balanced supply and demand spectrum that will ultimately give us better outcomes on the inflation front. So I thought that was about as direct as I've ever heard a central banker talk. Usually, sorry, I take that back in hawkish terms. When they talk, usually they're very direct when they're talking about stimulating, right? Because they want to prevent deflation. They want asset

Starting point is 00:18:53 markets. They want to revive animal spirits. It's very rare that these people talk so directly and frankly, when they're actually trying to, for lack of a better term, beat asset markets with a wooden stick. I've been making this joke that Powell's got this aluminum bat. He's like a 12 year old at a birthday party with the aluminum bat taking it to the pinata and he doesn't even have a buying photo on so he's just beating the crap out of the pinata until this dang thing breaks i.e inflation he's going to keep beating the pinata yeah all the all the candy is going to be the inflation that's an interesting visual um you just mentioned like him being direct like just as a market participant someone who's been in this business for a while like i mean i imagine

Starting point is 00:19:31 like your peer group also was feeling similar things like you probably want him to be more direct, I'd imagine, like, do you think that that's the kind of pal we're going to get going forward? Yeah, I mean, well, so I'm sort of dating myself. I found out today I have a bald spot. I didn't know that. So I guess I have been in this industry for a while. I've been in it for a while, too. So that's neither here nor there. But yeah, so the answer is yes. This is a Federal Reserve. Don't forget, I made this comment on this program many times for the last, you know, six, nine months, that this is a Federal Reserve that is fighting two wars, not one war. It's not just

Starting point is 00:20:05 inflation, they're fighting the war of credibility as well, right? Like they spent all of last year aggressively easing, aggressively expanding their balance sheet to the tune of $120 billion of QE per month as inflation was continuing to fester with this sort of narrative that it was going to be transitory. One of the worst calls in financial market history, let alone one of the worst calls for the central bank. So now they're fighting to regain the credibility associated with getting the inflation call so wrong, that call that was so wrong that it's currently roiling the budgets of so many millions of American households right now. If you, I, everybody watching, many of the people watching this show, inflation is a nuisance for a lot of us. I grew up very

Starting point is 00:20:50 poor. It's not a nuisance when you're poor. It is a life-altering event. You have to stop consuming. You trade down even though you're already at the low end of the trade-down spectrum. If you're buying bagged cereal because you can't afford boxed cereal, now you're no longer buying cereal. That's what 8.6% inflation does in this country. I'm not sure that everyone understands that. It's a really important point that you bring up, how it affects lower income America. And you just gave that example. Let's explore that further. What could be some of the broader consequences of that? What could that mean for maybe even the social fabric of our country? So as you can see, it's being clearly reflected in Joe Biden's approval rating,

Starting point is 00:21:27 on the broader approval rating of Congress. You know, obviously there's a lot going on down there. So let's, you know, don't get too far into that. But, you know, it's clearly an issue. I mean, this is the key takeaway. And in some way, I'm going to misquote or misassign the quote, but it was one of the most sort of,

Starting point is 00:21:42 one of the most interesting things I heard about inflation all year. And I apologize for who I'm still in school from. I'll remind everyone next Thursday. But they said, and I thought I agreed with it. And I realized, oh my God, this is what Powell thinks. And the quote is, when you go into recession, the unemployment rate backs up two, three, four, at worst, four or five hundred basis points. So that's that percentage of people in an economy are going to have that hard time.

Starting point is 00:22:09 When you have a significant inflation shock, 100 percent of the American citizens are dealing with it right now. So we're talking about, you know, a recession being this big boogeyman that may only impact, you know, significantly impact, you know, let's call it three to five percent of the economy, as opposed to this inflation, which is currently impacting, you know, skimming off the top of rich people who don't even notice, you know, at least 90 percent of the economy. So I think that's the battle they're fighting. And to me, it's a it's a much more common sense battle. Yeah. Let's see. I'm trying to think what's, let's kind of pivot a little bit and just bring up some other topics just because I think it's interesting. Like I like at the top of this, you go over like the indicators that you pay attention to. What are kind of maybe more of the underrated signals that you look to or pay attention to that could be helpful for folks watching? so i mean you know anybody who's subscribed to our work see my work over the years or my career you know there's not any we look at everything i mean if there's a statistic that matters to financial markets or that matters to predicting gdp to predicting cpi to predicting you know eventually inflections in the liquidity cycle then we're analyzing i mean our now cast models

Starting point is 00:23:24 have thousands of data points in them from a fundamental standpoint our market regime model has 100, no, sorry, 1,048 data points sent in on a daily basis to identify what market regime we're in. You know, we run serious models at 42 Macro. So I don't want to give your listeners the sort of the sense that, oh, there's one or two things you can look at to do this at a high level, because there's not. You know, it's a full-time job to be average at this industry, average at what we're trying to get accomplished here. And knock on wood, we've been a lot better than average this year. Totally. Fair enough. And then also kind of going back to when you were showing the models. When you had your first chart, how the one was kind of like totally off, what are they

Starting point is 00:24:05 missing though in the model? What is it that's not in there? Well, so right now you have a pretty, the number one thing that will tell you that we're unlikely to be in, two things that'll tell you we're unlikely to be in a recession right now is corporate profitability. Historically speaking, you've seen sort of a significant decline in corporate profitability during recession. So on a trailing 12 month basis, that is very much not the case. We have some pretty robust earnings growth on a look back basis. And then second, the yield curve that is typically associated with timing recessions, which is the 10-year, three-month treasury yield curve, that continues to be very positively sloped, very wide yield curve on that measure. So that continues to tell

Starting point is 00:24:46 investors, say, hey, look, if we are going to recession, it's a ways away. It's a year away at best, if not, you know, maybe even two years away as a function of that. But, you know, I have the belief that if you get into a significant slowdown in growth, which is what our models are forecasting for, you know, really the better part of the third quarter and really into well into the early part of next year. Once we start to observe the economic statistics associated with that significant decline in output, then you're very much likely to start to see a rally in long end of the treasury curve while the Fed is continuing to hike. And that's how you can eventually get that inversion perhaps by the end of the year okay um how about in terms of i'm just

Starting point is 00:25:23 thinking back to from the beginning of our conversation um i i guess i i wrote down a couple notes here but you know anything over a year not being investable when you're kind of going over like the big cycle so we're in um from an investment it's not that it's not investable it's just the market won't give a damn yeah you know when you talk about you know the market's response to the growth cycle the inflation cycle the profit cycle and most importantly the liquidity cycle, you, when we, I mean, we've back-tested this as well as anyone I've seen. I mean, certainly we don't have the opportunity to look at everyone's buy-side process, but certainly I can observe what's happening on the sell side. And I think we have some of the best back-tests

Starting point is 00:25:57 in the world. And our back-tests show that once you get beyond three months, you know, in terms of, you know, look forward, markets don't really have any response to those kinds of dynamics. Right. And so if you're talking about like liquidity cycle, growth cycle, pile inflation growth having an impact on asset markets, it's usually within the next few months that the market is trying to, you know, fill around and price in. It's not the next two to three years, you know, that stuff will happen along the way. You know, the catalysts are, you know, drive you higher or drive you lower along the way. That's a good point. Yeah, it's happening, I guess, much more, I guess, closer to where we are than further out. I do

Starting point is 00:26:35 want to just ask like maybe um from an investment perspective like i don't know if you could share like like what where would you want to be like right now like yeah i mean so uh you know out of respect for our paying subscribers and we're very appreciative of them you know i'm not going to give too specific of advice but you have one thing i'll say um you know just uh something i've been saying in the program all year which is cash is king in an environment like this you don't need when you're in a simultaneous liquidity cycle downturn, growth cycle downturn and profit cycle downturn, you know, few things in the history of asset markets are as negative for risk assets as

Starting point is 00:27:13 those things being, you know, in that state, in that condition all at the same time. And so, you know, if you came into the year looking backwards, you know, we were in a growth cycle upturn, liquidity cycle upturn, it was the liquidity bonanza. I mean, it wasn't an upturn, it was a bonanza. Some of the most aggressive easing we've ever seen out of the federal reserve in the history of that institution you know so it was you know if you were whatever risk you were running whatever you know capital risk you were running in that environment it needs to be

Starting point is 00:27:39 significantly curtailed to risk manage this environment i mean just just have less risk on is the number one the answer to your question then obviously you know which is called we may going back to november last year the higher beta the more volatile the things that go up the most of the markets going up the most tend to go down the most when the market's going down and so we made a call to say, hey, if you have a lot of high beta assets in your portfolio, you need to get rid of them because the market is going to sell them. And ultimately, obviously, it continues to sell them to this day. Yeah. I want to bring it up with you just because of the makeup of our audiences. Just kind of your views on, I don't know what your latest is on Bitcoin. I'm just

Starting point is 00:28:18 looking at the price right now. It's just under $19,000. So it's $18,930 and some change right now? What are your kind of your views? I think it's on track. It's going to be, I want to say it's like worst month, at least in a long time. Worst quarter since 2011. There you go. See? Yeah. So Bitcoin, I'm concerned. I don't want to scare you. I know this is a Bitcoin friendly program. I myself am a Bitcoiner, but I'm definitely concerned. And here's why. We made a call going back to April that we thought the support for Bitcoin, where you would back the truck up and buy it was 19,000. I am shocked that we are here so fast. I am absolutely shocked that we have gotten down here so quickly. And that tells me that if 19,000

Starting point is 00:29:02 doesn't hold, I don't know, pick a round number, 15,000, 10,000, I don't know. There is no support when you break 19,000, at least not in terms of our analysis. And so, you know, we talk about this liquidity cycle downturn. Let's not forget that we're only doing about half the total amount quantitative tightening that the Fed intends to initiate, you know, over the course of the medium term. So by September, we're going to double the pace of quantitative tightening from draining $45 billion of liquidity out of the market, for lack of a better phrase, to $95 billion. That's as fast as the Fed has ever drained liquidity from the market by a double. And so my point I'm bringing up is that when you factor that in, you factor in the overcapitalization

Starting point is 00:29:45 of the treasury as a function of, you know, the T-bill shortage as a result of that, and ultimately the rapidly rising uptake in the Fed's reverse repo facility balance, all these dynamics are sort of combining to drain massive amounts of liquidity from financial markets. And so if you do the math on our analysis, you know, we get to about, you know, basically, you know, just I have a trillion dollars of liquidity is going to get drained from financial markets between now and year end if the Fed stays on this course and if the dynamics with reverse repo facility don't materially change. If that happens, fair value on the S&P 500 is $2,900. So guess where Bitcoin is going to be on a correlation weighted basis if the market

Starting point is 00:30:24 declines significantly from here? I'm just looking right now. You said a trillion? It's $915 billion to be exact. Sorry. Okay. I guess the quick following question too, when you talk about the liquidity cycle downturn, you said the top of this program, we're in the fifth or sixth inning um does it accelerate over time does it get like as you go through that cycle like how does that kind of how does that play out is it like a smooth thing or does it just like spiral and get worse and worse as you get further in the cycle i'd love for it to be smooth but the reality is i wake up before 30 in the morning every day because it's not smooth it's non-linear markets are you know they're dynamic ecosystems and so the reality is

Starting point is 00:31:06 you know one acceleration and one factor can lead to a deceleration another factor and vice versa one thing we know we're going to get is we're very likely to get a reduction in the size of rate increases, particularly as we get past this July 27 FOMC meeting. I'm not so sure we're going to get another 75 base point rate hike. I mean, maybe it's 75, but I think by the time we get there, it could be 50. If we get a couple of decent inflation prints, we get June CPI on the 13th. Maybe we get some significant decline in crude oil into the summertime, potentially. I don't know. I'm not making that call. That could cause the Fed to go to 50 in July 27. But the reality is we're not going to stick at 75, 75, 75. That's unlikely. So we're going to see a

Starting point is 00:31:44 slowdown in the pace of rate hikes. But at the same time, we're going to get an acceleration in the quantitative tightening program. So on net, generally speaking, quantitative tightening has more of a near-term sort of coincident impact on asset markets, QE and QT, than interest rate hikes and interest rate cuts. Just like you mentioned the inflation print, do you have like, um, kind of a number in mind? Like, I don't, I don't know if we actually mentioned a specific number, but what do you kind of think in there? For headline CPI, we are at, sorry, pull up our estimates now. We're sticking at 8.6 for June or yeah, sorry. Yeah. For June. Yeah. So that number will be out on, um, on July 13th. Gotcha. Um, any parting thoughts before I

Starting point is 00:32:29 let you go? Yeah. Um, this is, this is not the time to be cavalier. Um, I know a lot of folks of probably this first half of the year has not gone the way they probably hoped. And that's okay. You know, not everything in life is going to go the way you hope, but the most important thing you need to make is you need to make a decision and determination on what is your next play. You know, sometimes you give up a sack, sometimes you give up a touchdown, but at the end of the day, the game is not over.

Starting point is 00:32:52 You have to make a decision on how to regroup, refocus your, reallocate your focus budget so that you can take advantage of the next series of opportunities and catalysts and markets. and if you don't know what those opportunities and catalysts are then come check us out at 42 macro if not just so catch back here next week i love that well i was going to ask you where can folks find you online so you mentioned 42 macro uh let yeah let folks know where they can find you and learn more yeah so uh come check us out at 42 macro.com if you're a serious investor and what i mean by serious investors someone who has legitimate investment objectives you know serious

Starting point is 00:33:21 size in terms of their asset allocation in terms of their capital risk um you can be professional you can be non-professional you know both obviously as subscribers and if then you know obviously if you're either a non-serious investor, someone who can't afford it, college student, et cetera, then come follow us on Twitter. We put out a lot of research on our YouTube channel as well. So, you know, we definitely have something for everybody, but I definitely think this is the time

Starting point is 00:33:42 where if you don't have a legitimate macro process heading into the second half of this year, you will struggle. That's a guarantee. Yeah. They can also find you on Twitter as well. We just showed your handle. 42 Macro details, my handle.

Starting point is 00:33:54 Amazing. Well, Darius Dale, founder and CEO of 42 Macro. I thank you so much for your time and your fascinating discussion and just also the way you end things with like those parting words of wisdom for everyone really puts things in perspective. So thanks again.

Starting point is 00:34:08 Of course, Julia. Look forward to next time. Cheers. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you're subscribed on Apple, Spotify or your favorite podcast player. And if you're looking to try to transition

Starting point is 00:34:20 to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to palmscryptocourse.com. We've developed a curriculum with a top team across the industry it's a three-week intensive training program with over 50 events packed into that three-week time period go to pompscryptocourse.com to learn more and i'll meet you guys for the next episode

The Pomp Podcast - #1027 Darius Dale On How To Navigate These Difficult Moments In The Market

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