The Pomp Podcast - #1036 Darius Dale On Why The Fed Will Tighten Until Something Breaks

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. Darius Dale is the founder and CEO of 42Macro, the leading macro risk management advisor. In this conversation, we talk about what's going on in the macro economy, what's happening in the financial markets, how Darius is looking at various metrics, and also what you at home should be thinking about as you invest your capital. I really enjoyed this conversation with Darius, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. This episode is brought to you by BCB Group.

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Starting point is 00:03:20 personal opinion. This podcast is for informational purposes only. Darius, my friend, how are you? What's up, man? You're still looking spiffy. Hey, listen, Bear Mark has called for extreme measures. I'm ready to defeat this bad boy. I can look fear in the face. You're definitely helping, man. This thing, it looks like it wants to find a bottom in this range. The only person that I'm worried about staring down eye to eye is Mr. Jerome Powell. Jerome, bring those rates down. Send the assets back up, buddy.

Starting point is 00:03:55 You notice, by the way, not you, but just generally speaking, he's J-Pow when they're doing quantitative easing. and when they're taking away the punch bowl he goes back to jerome big daddy jerome listen it's like when your parent your parents never call you by your full name the second you do something wrong anthony like oh shit darius antoine dale i think i heard that like twice though that's all right uh one of my questions for you is uh we've seen a number of data points that are starting to suggest uh the rest of the world is waking up to us maybe being in a recession we saw the uh the fed now uh or the uh fed gdp or gdp now whatever the hell they call the thing

Starting point is 00:04:44 uh the atlanta fed uh it went from like i think it's going to be a positive gdp reading to negative real quick i think it was last week what's your take on the time that it takes for us to actually see data points that will give more and more people in the market confidence that we are actually in the recession? Like it's not like we have real time data. So how do you think about the time that needs to expire for people to internalize we are headed towards worse and worse financial conditions? Oh, that's a great question, man. Big time question. So I'll start by saying the US economy, at least according to the Atlantis Feds models and other models that similar nature now casting models, we are in a, what we call a technical recession in the

Starting point is 00:05:29 economics community. That's where you have two consecutive quarters of negative GDP growth, headline GDP growth. We are not in an actual recession. And what I mean by actual recession is sort of how the NBER, the National Bureau of Economic Research defines it. And this is the organization that really determines our recessions. How they define it as sort of a statistically significant downside deviation in output. It could be measured across different industries and industry manufacturing sectors, et cetera, et cetera, income, et cetera. That is very clearly not happening. If you look at that first chart, I don't know if you got the charts I sent you, but the first chart I sent you is the U.S. economy is not likely in an actual recession yet.

Starting point is 00:06:09 And what this chart just shows is our initial jobless claims, a pretty famous statistic, is this is people applying for unemployment insurance usually have to lose their job. And the reality is, you know, we're ticking up off the lows, but neither the sort of rate of change nor the level would imply that we're actually in a, you know, significant, you know, sort of decline in labor demand, a significant decline in total employment. So I would dismiss the Atlanta Fed sort of projections as sort of more kind of noise. What will be the real signals as we progress throughout the Q3 and into Q4 is when measures like initial jobless claims, total employment, non-bond payrolls, when those really start to slow alongside things like PMIs, that'll be a real clear indication that we're actually into or heading into a quote unquote actual recession. When you see this, is it important, the technical kind of definition? Like, does that actually matter or does that just give people something to talk about on the Internet, but it's less important? Yeah, 100 percent. It's just noise.

Starting point is 00:07:11 This is what gives people a fodder for FinTwit to go back and forth on what they speculate the Fed may or may not do. But the reality is the Fed, one, is not looking at stuff like, you know, the Atlanta Fed should be now cast to determine policy, right? You know, the Fed is looking at, you know, this whole host of compendium, a whole large compendium of indicators, particularly focused on inflation in the labor market to to determine what that what that what that stuff is. And when you look at the labor market, I sent you another chart. The labor market is cooling rapidly, but not rapidly enough. You know, the labor market is still white hot. Like we're like we are nowhere near a recession in labor market terms, which is clearly one of the main statistics you're going to need to determine if we're in recession. And so what I mean by this, I'll explain the chart. So the light blue bars are sort of where the different metrics, you know, where they averaged throughout 2015, 2019. So kind of the baseline trend, the gray bar is the prior month's data and the dark blue bar is the most recent month data. I'll draw your eyes to the second cluster of bars and the final cluster of bars.

Starting point is 00:08:12 The second cluster bar just shows the trend in average hourly earnings for the private sector at five point six percent. We're literally running at a double on a three month annualized rate of change basis than we did in the sort of on the baseline period, which is the light blue bar. The fourth cluster just shows private sector sort of aggregate income. when you do the product of hours worked, wages, and then total employment, at 8% on a three-month annualized basis, we're more or less a double in terms of where the labor market was running on a trend basis through 2019. So this labor market is not only not in recession, it is basically growing as fast as it's been in recent years by basically a factor of two. And so the Fed is paying attention to data like this that's telling you they're eventually going to break, they're

Starting point is 00:09:02 going to continue tightening until they break some so when i think of uh the labor market there's i don't know 10 and a half 11 million open jobs in america most uh or around the most that there's ever been uh unemployment is uh near historic lows uh sitting at 3.5 percent or whatever which still is higher because i think it was 3.4 percent in february of 2020 if i remember correctly uh but you know generally the same um we saw this week i think that uh the data just came out, there was like a 4,000, uh, increase in jobless claims, uh, which was a little bit higher than, uh, than the consensus was expecting. It came in at like 235,000 or something like that. Um, when you think of all that, the first thing that jumps to mind is why is there so many

Starting point is 00:09:48 open roles? Why, why is in, uh, unemployment so low? If anecdotally we see companies preparing for a recession. They're starting to do hiring freezes. They're starting to do layoffs. Like, is this just, we're early in this process and we should expect unemployment to go up? Larry Summers, former treasury secretary, claims that we need five years of five plus percent unemployment to bring inflation down. Like, how do you kind of think about that? Yeah, that's a very draconian forecast. We're definitely not in that camp. We certainly don't see the leverage cycle dynamics to get you to an outcome like that. You'd basically have to have the Fed go AWOL in order to get there. But, you know, in terms of why there's so many open jobs in the country, one,

Starting point is 00:10:29 there's a few reasons, right? We've seen a, so what economists are calling this sort of quote unquote great resignation, where you've seen a lot of folks who, you know, because of the financial crisis, because of the dot-com bursting of the bubble, they weren't able to retire, at least according to their initial plan. So they effectively were working for longer than they anticipated. Obviously, we're continuing to have better health outcomes, generally speaking, for most cohorts in the society. So people have been working longer. And so what we seen is a pretty significant reduction in the labor force participation rate for sort of, you know, the elderly cohorts, you know, 55 plus in this cycle. We've also seen a broad-based reduction

Starting point is 00:11:06 in female labor force participation rate as well, you know, obviously the sort of change in COVID. During COVID, obviously, a lot of, you know, sort of females had to help, you know, sort of called upon to help raise kids incrementally with schools being closed, et cetera. But I also think there's another factor to that as well, which is, you know, you have people moving from high cost cities to lower cost residential areas, suburban areas where you no longer need sort of two whole incomes to support a family. So there's been a significant reduction in the total number of people available at the same time while the economy is growing on a nominal basis, 8%, 10%, you know, very quick, you know, very fast. And so clearly companies are scrambling to sort of meet

Starting point is 00:11:45 the demand for their customers and new orders, which by the way, are falling off a cliff if you look at ISM surveys. You know, so that's, that's why we see this sort of big, big thing in job and in Jolt, big, big sort of lofty level in Jolt. But there's one chart I did want to sort of conclude with, which is something, you know, I think is really important in the context of the Fed's framework, which is the Fed will tighten until it breaks something, labor demand. And this chart just shows the, the ratio of Jolt's total job openings relative to the total number of unemployed workers. And we're starting to move down, which is what Jay Powell has explicitly called out as something he wants to achieve, which is getting this thing back into equilibrium,

Starting point is 00:12:22 which is somewhere around one job opening per one person unemployed. That would bring, in theory, the labor market into some sort of equilibrium. We're coming off the all-time high there, but we're not moving down fast enough, nor have we achieved a level or a threshold that would tell the Fed that its job is done here. So I think the markets are saying, OK, we're moving in the right direction. Markets tend to function at a rate of change. But the Fed is an academic institution that functions on levels and thresholds. And right now, from a level slash threshold perspective, we are still very hot, very much overheating in the labor market, again, even looking at this statistic by a factor of two. When you see this, how low does it need to go?

Starting point is 00:13:05 How much further does this need to fall before it, quote unquote, breaks? Is there a threshold where you say like we hit this number bam it's broken they'll they'll pivot yeah so this this no i think that the fed's mandate is singularly focused on inflation for this for the current time being um obviously if we crater in this statistic it's going to drag down growth and ultimately drag down inflation with it which is you know clearly what the whole purpose of creating an engine engineering a recession would be right is to slow growth enough to slow demand for labor, slow demand for goods and services, and ultimately cause a recession. So where can this go? So the Fed, Jay Powell has basically said he wants to get it back to somewhere near one,

Starting point is 00:13:47 which would be sort of the equilibrium state of the labor market. The problem with this and most other time series is something I've talked about in the program, which is time series don't really spend much time at their averages. The average is just really a statistical concept that we do in Python or Excel, right? Like, you know, if it goes to one from 1.9, it's probably going to well below one if you go back and pull up the chart. You know, where does it go in recession? Well below one. So the reality is this concept that the Fed is going to be able to sort of sap, you know, the perfect amount of demand from the economy just to get this thing right back to 1.00 and everything will be fine and dandy and we won't have any sort of, you know, over correction to

Starting point is 00:14:25 the downside in either markets or in the economy. I think that's a Pollyannish estimate. I think that's ridiculous, quite frankly, to say the least. You also have this chart, the Fed will tighten until something breaks wages. And those appear to at least starting or they're continuing to accelerate, it appears. But we've got the quits level is coming down. What is this showing us? Yeah. So that quits, that blue line in the chart is the private sector quits rate. So that's the percentage of people in the labor force who are who are willingly quitting their jobs, obviously, to go find higher wage employment, better opportunities, et cetera, et cetera. When that thing's up, it's a leading indicator for wages.

Starting point is 00:15:03 That's the red line. That's the employment cost index. That's the broadest measure of employee compensation that we have in our economy. So the quits rate has peaked. It peaked at an all-time high in November, around 3.4%. But the problem with the level going down, again, this goes back to that economy between market participants like myself focusing on the rate of change and the direction of travel and the Fed focusing on the level. The level is still in the 95th percentile of all the

Starting point is 00:15:29 historical data going back to 2000, I would believe, when the statistics started. They're not going to pivot on a 95th percentile reading on a leading indicator for wages, because what that's going to tell them is the red line, which is at an all-time high, the employment cost index at 4.5 percent. This is data through Q1. It's pretty lagged. It's still going to be somewhere in the 90th plus percentile by the end of that process when we get the data for the second quarter. And so this is the key takeaway is that, hey, yeah, we're moving, we're making progress, which is to be expected, given how much the Fed has tightened both actually in terms of the Fed funds rate and quantitative tightening, but also rhetorically tightened with their words,

Starting point is 00:16:04 really going back to November of last year. So we're going to continue to see progress, quote unquote progress. And I do use my quotation marks here because obviously progress on this front means, you know, there are people and families losing their jobs, you know, how you have going through tough economic conditions. So you never want to cheer on a recession. But the reality is a significant slowdown in output in the economy is a stated goal of the Federal Reserve because they're prioritizing returning inflation back to their target much more than they're prioritizing growth at this particular juncture and even financial stability. So we saw the report, obviously, of the

Starting point is 00:16:40 unemployment claims inching up a little bit. Trade deficits have hit a low in 2022 right now. How do you read that? Yeah. So, I mean, it tells you that a couple of things, right? Like demand in the U.S. economy is still fairly robust, particularly when you look at a real final sales basis, which is part of the reason why the GDP now cast statistic is noise right now, because it's being heavily influenced by things like inventory, swings, et cetera, et cetera, stuff that is less relevant for the labor market, less relevant for the Fed. So your final sales, at least in the U.S. economy, on a nominal basis, again, because the trade data is reported on a nominal basis, and obviously we got 8.5% inflation in these statistics.

Starting point is 00:17:29 But on a nominal basis, the U.S. economy is still growing at a very healthy pace. unhealthy from the perspective of how much that share is being allocated to inflation, but that's neither here nor there. But we also have the global economy really starting to slow significantly. We got PMI data out of Europe and the broader global economy, and it's definitely moving in the wrong direction and at a quickening pace, actually. If you ask me all these same questions about, is Europe in a recession? I would have to say, put a gun to my head, I'd say they're certainly probably very close to one. I don't think the U.S. economy, just given the starting point of the robustness of the labor market right now, can be deemed to

Starting point is 00:18:06 be in an actual recession. But eventually, over the next call, six to nine months, we might be getting close. Europe is much closer to the precipice of sliding into the abyss. So when I think of current things that people are worried about in the moment, gasoline prices is a huge problem. We've seen President Biden tweeting at mom and pop gas gas stations, lower the prices now. What the hell is that? I don't know. Jeff Bezos called them on it, which I thought was pretty, uh, uh, pretty important. Um, but we have seen gas prices, uh, slowly and, you know, very, very recently started to come down a little bit. Uh, gas futures appear to be coming down, uh, which I think many people, uh, say, okay, that should

Starting point is 00:18:52 lead to lower prices in the future. How do you read something like gasoline? And if gasoline comes down, obviously, that it has a portion of the CPI, but it doesn't have core inflation, or it's not included in core inflation. How do you start to think about gas and its role in kind of the Fed being able to claim victory over inflation if it does come down? Yeah. So if gas comes down significantly and crude oil, energy, inflation, food, inflation, et cetera, all the stuff that continues to say that it has no control over, they would actually that would be they would welcome that as a partial victory. Right. Like, you know, that's part of the problem is the rise in energy and food prices. So this is new. It's a new dynamic. If you look at our models at 42 Macro, we have ag prices of bearish. We've long had industrial metals prices bearish and crude oil, irrespective of its

Starting point is 00:19:45 balance, is flirting with at least a bare minimum breakdown from being bullish. So if those things hold, we will see that feed through into headline CPI. Let's recap the most recent statistics. We're at 12% on a three-month annualized basis, accelerating to 12% with food inflation. We were accelerating to 50% on a three-month annualized basis in energy inflation. So we will be moving in the right direction in subsequent months if we continue to decline and or hang around these levels. So that's positive at the margins. The issue is, why is why are these things declining? Right. And so there's for a couple of days and I would argue even today still, you know, there's a view that the declining, you know, food and energy prices means the U.S. economy.

Starting point is 00:20:29 Plus, when you couple it with the Atlanta Fed thing, U.S. economy is inching closer to recession, which means ultimately it's bullish for the markets because the Fed is inching closer to pivoting, stopping rate hikes, stopping quantitative tightening, and ultimately giving you what you really want as an investor, which is more drugs, QE, rate cuts, et cetera, et cetera. The problem with gas and food prices declining in isolation is twofold. One, if it's declining because China's zero COVID policy, it's telling you that the supply chain disruptions that we sort of celebrated, you know, kind of moving past in recent months are no longer going to be something we're moving past. We might actually be backtracking on that front. So that's an upside surprise, a potential upside shock to goods inflation, which, oh, by the way, reaccelerated in May. But more importantly, what we talked about, you know, going back, you know, a month ago or two months ago on this program, it said, hey, look, by the time you get to the middle of the year, goods inflation, whether it be commodities or core goods inflation, you know, the stuff we make out of all the commodities, will give the baton in terms of what's driving the bus on inflation over to services. Services inflation, let's go back to the last print, accelerated to 7.8% on a three-month annualized basis. That's the fastest pace of services inflation we've seen since 1990.

Starting point is 00:21:44 The reason that's going up is for a variety of reasons, but most notably is the continued acceleration in shelter inflation, which is being driven higher by owner's equivalent rent, which we all know is just a lagged impact of the bubble we've seen in housing prices. That's something that's going to continue to inflate inflation. The Fed has got a lot of problems. It's going to welcome the decline in food and energy prices, but guess what? That's not going to be the only thing they focus on because the things that lead core PCE, their preferred metric, median CPI at an all-time high, three-month annualized rate,

Starting point is 00:22:17 sticky CPI at a 30-year high in terms of the annualized rate. Those things are still moving in the wrong direction. So when you start to look at how certain assets are performing in this environment, take Bitcoin as what I would think as the most macro asset of all of them. The cleanest one. Yeah, the cleanest one. You mentioned earlier that maybe we're starting to bottom here? How do you view Bitcoin in the grand scheme of all the macro chaos and uncertainty at the moment? Yeah, so let me be clear. I do not think a durable bottom is formed in Bitcoin, nor do I think a durable bottom is formed in risk assets broadly. I mean, our math, and this is going back to March when we did the presentation, our math says the base case, the upside target for

Starting point is 00:23:01 our base case scenario is $3,400 on the S&P. On a correlation basis, that translates to roughly $16,750 for Bitcoin. Our base case downside target is $3,200 on the S&P, which translates to right around $15,000 for Bitcoin. When you do the fair value on our math in terms of our net liquidity analysis, which takes into account the changes in the Fed's balance sheet, changes in the Treasury general account balance, and changes in the reverse repo facility balance, all three of those things are currently draining liquidity from markets. Fair value for the S&P by December 31st is somewhere around 2,900. And that would roughly equate to something around 12 to 13,000 on Bitcoin. So I don't think we're going to get to that fair value target because I think the Fed

Starting point is 00:23:41 is likely to pivot before we get there, because we will be in an actual recession if we get down to 2,900 in the S&P. And they'll be able to say, hey, job's done. We got the recession. Inflation is going to be coming down, which we're going to do a big presentation on how that all works tomorrow for 42 macro subscribers. But the reality is everything doesn't have to get priced in today Just because you have a view on how the medium term is likely to play out with respect to the liquidity cycle or the growth cycle, inflation cycle, et cetera, doesn't mean that Bitcoin has to go to $17,000 or $15,000 or $12,000 today. It's got to play out. It's got to play out over a series of months. So when you start to look at these price targets, how do most of the institutional investors that you service at 42 Macro, how do they think about entering the market when they believe they're close to the bottom?

Starting point is 00:24:30 Do they start dollar cost averaging in? Do they basically wait for some threshold to be breached and they go ahead and they deploy all the capital at once? Like, what does that look like from an institutional approach to investing in bottoms? Yeah, that's a great question. So it's I'll ask this for two ways. Neutral funds generally more or less fully invested. At most, they're going to have, you know, five percent cash. Maybe they'll cheat and have seven and a half percent cash. But generally speaking, they're generally almost always getting inflows. um, from 401k type stuff. So you're there, you know, when they get towards the bottom and they think they're at the bottom, what they're more likely to do is sort of rotate the types of sectors and style factors, really mostly sectors that they're long, uh, in their funds, you know,

Starting point is 00:25:13 from things like over, you know, super defensive consumer staples, utilities, REITs, et cetera, to things that are much more early cycle cyclicals like home builders and financials and consumer discretionary, you know, particularly, um, you know, the more, um, you know, luxury, you know, luxury type stuff you know so that that that's like what the mutual funds do that's kind of a uh i wouldn't say less sophisticated very bright investors there it's just it's a less involved process when you're at a hedge fund particularly the market neutral hedge funds which tend to dominate most of the asset assets under management and certainly dominate the the flows and then the term of turnover in the hedge fund industry you know that that's a different

Starting point is 00:25:48 process it's sort of a two-step process one you've got to pivot your your longs versus your shorts a lot of times they'll be long you know defensive sectors and style factors within industries you know within industry silos um and then they'll have to pivot to being offensive so you know you know let's say um something like walmart is a defensive company that's a consumer company but then they'll have to go instead of being long walmart they'll have to get long target and short walmart you know to pair it off and then ultimately the the the key decision makers you know at the risk management level for the entire firm will ultimately determine whether or not to dial up overall leverage for the firm and you know ostensibly they've dialed it down

Starting point is 00:26:23 considerably year to date. And so they'll go for maybe like the whole fund being two to three times levered to like four to five or six times levered. And so that's kind of a big process. And it's not going to be a one day process unless there's like a big major Fed catalyst Fed announcement, like we saw in March of 2020, which is we're bringing out the biggest bazooka ever. We're making stuff up. Here's an alphabet soup of facilities. Go buy stocks. We're probably not going to get that in this moment because we don't have a kind of a sort of one catalyst to look forward to, but we're more likely to see as a series of catalysts in terms of Fed speak, Fed changes to policy, slowing down interest rate hikes, pausing interest rate hikes,

Starting point is 00:27:01 slowing down quantitative tightening, pausing quantitative tightening, and ultimately giving you quantitative easing. I think it'll be a multi-step process where you bring fund A in, fund N, fund B in, and fund C in, and fund D in, and so on and so forth. When you think about a lot of the politics that are around this, it's obvious Biden tweeting, now you got Bezos, Elon can't help himself. It seems like all these different entrepreneurs and also politicians have opinions right now. Where do you kind of look for signal among all of that noise? Is there certain people or types of occupations where you say, that's where I go focus and that seems to be the best signal right now of what's actually happening?

Starting point is 00:27:41 100%, man. That's a great question as well. So, you know, if we don't meet, I pride myself on being intensely data dependent, you know, I don't really think you need to wait for these people to talk. Like these people are responding to the same data that you are, it's eminently available and that you can go crunch the numbers on or, you know, pay someone like myself to crunch the numbers on. So, you know, we, we glean signals from the actual data and manipulating statistics in order to derive forward looking insights from them. But in terms of people, I think the only person you really need to listen to, maybe there's one A and one B is Jerome Powell, not Jay, Jerome Powell and my man Bullard out of St. Louis. But, you know, going back to the Fed minutes yesterday,

Starting point is 00:28:18 we got the minutes from the June FOMC meeting, and I thought there was a statement in there that, to me, told me everything I need to know in terms of how to position for the second half of this year, which is, quote, many participants judged that a significant risk now facing the committee, the FOMC, was that elevated inflation could become entrenched if the public began to question the resolve of the committee to adjust the stance of policy as warranted. Now, that sounds like a lot of academic godly gooks, so let me translate it for you. You, listener, investor, think that there is a Fed put if growth slows fast enough or credit spreads widen enough, et cetera, et cetera. There is no Fed put. There is no Fed put. We are focused on fighting inflation. And so to me,

Starting point is 00:29:03 I thought that was one of the most telling things we said. I mean, Jay Powell's been talking like this for months now. So I'm not sure it certainly wasn't a surprise to markets. But to me, it cemented everything we needed to know about the Fed's resolve in terms of not just fighting inflation, but again, as something we talked about this program as well, which is regaining credibility after the transitory debacle. When you start to see things like Boris Johnson stepping down, resigning, whatever, it seems like the world is getting more chaotic. There's always been chaos in the world. Maybe social media is just amplifying it. But what's the impact on markets like boris johnson resigns the eu market uh or european markets go up today and like sure

Starting point is 00:29:44 that's one day it's one data point maybe it reverses tomorrow whatever but like how do you start to think about um the relationship between things like you know the prime minister stepping down seems like a pretty big deal noise i mean unfortunately in terms of our process you know that that stuff's like that's all noise i mean look it it certainly matters i mean it's it's been a headline for a while now it's eye candy right it's football term it's i can't you know don't don't don't take the cheese you know don't be a mouse and take the cheese off the trap there's a lot of eye candy in financial markets and right like on any given day you know it's the job of cnbc bloomberg reuters market watch etc etc to take whatever the news

Starting point is 00:30:22 headlines of that day that the raw material the news that day and relate it back to markets but not every time that's what's actually driving markets nine times out of ten on the very immediate term perspective was actually driving markets or, you know, very non-discretionary choices. You know, these are sort of systematic funds that are, you know, redialing up or dialing down their exposure to certain asset classes. These are, you know, forced buyers, forced sales, liquidating assets and stuff or accumulating assets because they got inflows. So nine times out of 10, the market price is more just a function of, you know, how many sellers are meeting buyers in that particular day and less about, you know, sort of Boris Johnson or things

Starting point is 00:31:00 like that. You know, it's usually only when you see a big spike move up to the to the upside or downside on an actual catalyst, like an economic statistic or an earnings release, that's actually new information that's being digested from the market. So just if I can leave everyone with one thing today, it's like, hey, don't assume that every headline you read can be correlated and should be more importantly, should be correlated back to what you're seeing on your screen in that particular moment. So another piece of this is, I've seen a number of videos of the Netherlands or elsewhere where farmers are blocking highways and it's hard to kind of wrap your head around the size and scale of these issues but obviously there are as part of the supply chain breakage

Starting point is 00:31:42 there's now kind of protests that are going on and it seems like people continue to talk about food shortages and escalating food prices how quantitative of the analysis ends up being accurate and like, hey, you just look at the numbers and that tells us the whole story versus does the qualitative stuff, like if there's a news story, you know, and it's the Dutch farmers are blocking all the highways and they're not going to produce any, you know, wheat or what, you know, I'm making up kind of an example. But like, how do you kind of balance out the qualitative and quantitative stuff in these situations? Oh, that's a great question. So the, you know, I have a phrase that I live by, and this is, you know, not my own doing it.

Starting point is 00:32:23 folks like Danny Kahneman, Amos Daburski, you know, Cass Sunstein, these, these are Nobel prize winning behavioral economic folks, you know, the numbers lead the narratives and I'm embarrassed for getting my own Bob Schiller, my apologies. You know, the numbers lead the narratives, right? Like, and so like when you think you see a headline about, you know, the sort of the farmers protesting, et cetera, et cetera, nine times out of 10 is a, as a function of something that was eminently observable in data, i.e. price changes rising,

Starting point is 00:32:56 shortages of XYZ supply, shortages of XYZ capital, et cetera, et cetera. So if you can get closer to the actual data changing, you're going to be able to front run the change in the narrative, which is what we, I would say that's the number one thing we specialize in is being so close to the data that we can observe when it inflects that we typically stay one to two steps ahead of consensus on the changing and evolving of the narrative in the market. And so when I see stuff like that, that is sort of new, i.e. there's no, I haven't been able to observe any data that can get me to that, then you do have to factor that stuff in. But it's usually rare. And I don't think you want to make a career out of doing that stuff because the reality is most narratives are lagging

Starting point is 00:33:34 indicators. Yeah, that makes sense. My last question for you is Jim Cramer recently said that all of crypto has no value. I think if you press them on the details of it, he probably would say, hey, Bitcoin probably isn't going to zero, but majority of other things are. What are you hearing from institutional investors right now, are they saying crypto's over, let's go do other things? Or are they still excited about the asset class in the industry? Yeah, I mean, so I'll be honest, like it's certainly not a focus right now. I think most institutional investors, most of their focus right now is trying to figure out where exactly are we in the profit cycle? Because that, in my opinion, is the next major shooter drop. If we have a significant sort of, you know,

Starting point is 00:34:15 kind of downturn in the profit cycle, one, it's not priced in asset markets. And two, We have certainly not seen it reflected in changes in estimates, either from the GDP top down perspective or from a bottom up, you know, company earnings, company sales perspective. So to me, I think, you know, all the excess work that's being done across the buy side of this particular juncture is on, hey, which companies can I actually trust the numbers on? Which companies can't I trust the numbers on? You know, how do I reposition my portfolio for that? So, you know, crypto has become less of a focus. But, you know, whenever you see and I tend not to want to pick on Jim or, you know, any other investor, you know, people, we all have mistakes and wins in this industry. But, you know, whenever you see, you know, big newsy headlines like that, you always have to remember how these people get paid.

Starting point is 00:34:58 Right. Like at the end of the day, he doesn't get paid on being right on his calls. He gets paid on getting you to click on the headline. Right. And so, like, he did his job in terms of getting us to focus on it. But the reality is Bitcoin is going to go where Bitcoin is going to go. And in our opinion, at 42 Macro, it's going to be where it's going to go is being driven by the liquidity cycle and the growth cycle and the profit cycle, all these cycles, et cetera. So at the end of the day, that headline is moot at best. At worst, it's noise. It's pretty incredible.

Starting point is 00:35:25 Where can we send people to find you on the Internet or find more about 42 Macro? I appreciate you, man. Thank you. So, yeah, come check us out, 42 Macro. We're going to do a big deep dive presentation tomorrow on sort of like the mechanics of a recession, whether or not one has been priced in, what that's going to look like, et cetera. So that's going to be on our July macro scouting report tomorrow afternoon. I'm going to check that out. And then on Twitter, I'm at 42 macro details. So appreciate everyone. Thanks for the audience.

Starting point is 00:35:48 And I'll catch back here in a couple of weeks. I'm actually going to be off next week. You're the man. I appreciate it. Always. You somehow have the ability to make me bullish and bearish at the same exact time. My friend, the data, the data will do that, man. That is true. I wish you could see me at four 30 in the morning. Like, ah, that's bullish.

Starting point is 00:36:05 Ah, that's bearish. We'll talk soon. 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 to get a new job in the Bitcoin or crypto industry,

Starting point is 00:36:22 we've got you covered. Head over to pompscryptocourse.com. We've developed a curriculum with the top teams 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 - #1036 Darius Dale On Why The Fed Will Tighten Until Something Breaks

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