The Pomp Podcast - #791 How The Macro Economy Is Affecting Your Investments w/ Darius Dale

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. Today's episode is brought to you by Abra.

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Starting point is 00:02:30 your crypto by linking to btcs staking pools this groundbreaking dashboard is currently in beta mode test out the btcs data analytics dashboard now by visiting btcs.com again that's btcs.com go check it out. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Darius, my friend, are you there? I am there man what's going on I am super excited to do this so thank you so much for uh for agreeing

Starting point is 00:03:17 every Thursday at 11 30 Darius is going to be joining us for a little ask Darius which basically is my ability to get him on here and ask him all the questions I have uh and then everyone in the audience can just sit and listen and learn as well uh let's start first just to refresh everyone help us understand when you think about uh investing macro risk management etc like how do you think of your philosophy in general when it comes to evaluating financial markets or the macro environment? We're more risk managers. And what we're trying to do is use our information, our models, our forecasts about various impulses and growth, impulses and inflation, changes in policy, changes in investor sentiment. And we're trying to quantify all those things in order to

Starting point is 00:03:58 sort of help us risk manage our way into and out of the right exposures. I have this saying all the time, and I think it's really important to sort of kind of kick off our first segment with this, which is, you know, being bullish or bearish doesn't really help you make money in financial markets. You know, what helps you make money in financial markets is being positioned in the right things that are going to go up in price and not being positioned in the things that are going to go down in price. And it doesn't matter about being bullish or bearish. That's just a characterization of your broader sort of investment view. So, you know, when we think about the world, it's regime segmentation. We have four distinct states that the world can be in, the U.S. economy,

Starting point is 00:04:33 the global economy. And there's different types of behaviors and asset markets that we'd see to be reflected across stocks, bonds, commodities, crypto, et cetera. You're in each of those four regimes. So we can unpack any of that as we go on. All right. So let's break into some of these charts here. They're very colorful, by the way, which, you know, immediately grabs my attention. You've got the 42 macro grid framework. So walk us through a little bit of how, as we discuss a lot of what's going on in markets, how people should think about this grid framework and kind of what it exactly means. Yeah, absolutely. So I'll start by saying growth and inflation are the two most important variables you need to get right. The direction of travel and the magnitude

Starting point is 00:05:10 of the change in those two variables in order to risk manage asset markets properly. Those are very clearly, you know, I'm going to lose some folks when I say this, but those are very clear that when you run any back test, the two number one and number two principal components of asset class return. So you need to have a good model in terms of predicting, again, the direction of travel and the magnitude of the change in those. So that's what our model is designed to do. If you look at the x-axis, that's the change in inflation as measured by headline CPI on a year-over-year rate of change basis. And the y-axis shows the change in growth as measured by the OECD composite leading index time series. That's a proxy leading indicator for GDP. So we use that instead of GDP

Starting point is 00:05:50 because it's more lagging. What we're trying to do is identify which of those boxes the economy is end. So as you know, we can sort of track it across time based on realized data, but we also project it based on our models as well. And so when you're in the upper left box there, that's called Goldilocks, that's where growth is accelerating and inflation is decelerating, growth's improving, inflation's sort of getting worse. That's the best sort of regime for risk assets. That's the best regime for crypto. That's the best regime for commodities, stocks, credit, all those things that cause investors to take more and more risk and go further out on the risk spectrum. When you move to the right clockwise, that's where growth and inflation

Starting point is 00:06:27 both have positive values. The deltas are positive, and that's when they're both accelerating. That tends to be the sort of regime where you're still getting good returns in the stock market, the crypto markets, the currency markets, or in the credit markets, but you're starting to lose money in bonds. That's the regime where bonds tend to sell off the most and really have the most negative performance on a relative and absolute basis. Keep it going clockwise, and I'll wrap it up quickly. When growth's decelerating, inflation's accelerating, you can get paid being long risk assets in various intervals, but it just makes it a lot harder. It's a higher volatility regime. You tend to want to be concentrating your risk to lower beta exposures.

Starting point is 00:07:03 If you're going to be in the commodity markets, you tend to want to be in digital commodities as opposed to broad physical commodities, although energy and food commodities can tend to do well there. And then lastly, when you move finally to the bottom left box, that's the deflation. That's what everyone's concerned about. That's what they're ultimately what all us risk managers are tasked with helping influence investors and clients avoid this from a P&L perspective in terms of their profit and loss in their portfolios. That's where growth and inflation are slowing simultaneously. That tends to be the regime where you see the most negative performance in stocks, crypto, credit, et cetera. And that's the regime where you tend to get paid to being long bonds and actually being long cash relative to everything else. So is it fair on this grid to think about where we have been over the last couple of months when we have this very high inflation? We've kind of been in the bottom right in that inflation bucket.

Starting point is 00:07:54 And now the question and really the debate of many people is, are we going to stay there in that inflation type kind of side of this chart? Or are we going to move to one of these other three areas? Yeah, so that's a great question. So our forecasts are calling for inflation to peak out, you know, kind of in this December, January timeframe and eventually start to roll off that peak and decelerate into that into that bottom left box there. Now, I'll say I'll caveat that by saying inflation is likely to remain very elevated relative to historical patterns and historical norms, which will keep the Fed tightening narrative in play. It's very unlikely that they'll be able to sort of pivot back to a dovish monetary policy setting that will allow risk assets some reprieve from a lot of the tightening we've recently priced in. So we'll be decelerating and that has asset allocation implications, but we won't be decelerating fast enough. If you look at our forecast up there in that in that table, you know, we got six handle on CPI all the way through, I want to say, May of this year.

Starting point is 00:08:56 that's deceleration, but it's not enough in terms of backing the Fed off of monetary tightening. So that's what we call tightening into a slowdown. The Fed is historically, the Fed has a brilliant and very untarnished track record of tightening into slowdowns, which obviously is a stupid thing to do. But this is not necessarily the best and brightest institution in terms of their realized policy. There's obviously a lot of smart people working at the Fed, some of the world's smartest people working at the Fed, but in terms of their actual policy sort of initiatives, they haven't necessarily had the best track record in terms of what they're trying to get accomplished. So when we think about this, right, obviously,

Starting point is 00:09:33 we've had a growth not as fast as we would like. And we've had a pretty significant increase in inflation over the last 12 year kind of, or I'm sorry, 12 month change. But really, the thought process now is that growth doesn't really change that much, we continue to kind of get poor growth. But now inflation has peaked and will come down. And that's where you get that deflationary period. You've got a chart or graph here that really goes through how this is playing out around the world as well. How should we think about this on a global basis? Is this just something in the United States or is this happening everywhere? No. So you brought up the colors, man. I mean, the only person I know who doesn't appreciate the colors and he'll appreciate me

Starting point is 00:10:14 joking about this, but David Einhorn, he's colorblind. So, you know, he's like, I can't tell your colors apart. But aside from that, like, it's pretty easy. I mean, that's why we use color coding. It makes it very easy to sort of, you know, kind of amalgamate and ultimately understand what the whole world economy is doing. And it's very clear that we're transitioning from, you know, the lime green, which is very positive in terms of reflation. That's where growth and inflation are accelerating simultaneously. We sort of lost the growth impulse for most economies in terms of inflation continuing to accelerate. Those are the red boxes, but growth now starting to decelerate. And then ultimately, we're going to have a situation, we're going to transition

Starting point is 00:10:52 to a situation where both growth and inflation, again, the two most important things you need to get right as an investor, as a risk manager, as anybody operating in financial markets, they're both going to be going down. And that going down simultaneously does have asset allocation implications by itself. And then you layer on the fact that the Federal Reserve is hiking interest rates, shrinking its balance sheet. The fiscal authority in the U.S. and a lot of other economies are also reducing the amount of fiscal stimulus. You know, it kind of makes for a nasty concoction. And we've backtested all this. And that's exactly what the backtest would say as well. Got it. Now, when we go ahead and we look at this next chart here,

Starting point is 00:11:31 I love that you say you are here. It's like when you're looking at a map in a building and they got to tell you where you're starting. So let's understand how you think about this market cycle. Yeah, man. Great, great, great, great call out. So the blue line in this chart to me, let's start by saying this is the most important chart of 2022. Like in my opinion, I think investors, everyone needs to sort of screenshot this, save it on their phone, make it the background of their phone, print it if you have a printer, fax it to your grandmother. Like I'm serious. Like this chart is really important. And I'll take a second to explain. The blue line in the chart shows the OECD composite leading index time series for the world economy. It's a proxy

Starting point is 00:12:07 for GDP growth. So it tends to lead, the leading indicator time series tend to lead GDP by, you know, kind of one to three quarters, pick your economy. So what that's effectively saying is, hey, look, the growth cycle, the global growth cycle in the blue line has peaked and we're now starting to decelerate. And it's very likely that we decelerate based on our models for an extended period of time, at least through the end of this year and more than likely into the beginning of next year as well. And so as we go down that deceleration process, again, the blue line going down on the y-axis, it's likely to catalyze some pretty significant sort of underperformance of what we call higher beta risk assets, high beta risk assets. I'll unpack what that means in a

Starting point is 00:12:50 second. But actually, let me take a second back and say, OK, what do I mean by when I say high beta risk assets? These are the types of assets. So risk assets are stocks, credit, like lending money to companies, commodities, both digital and physical. And so those types of things where you get kind of paid to take risk, the return stream is uncertain. You're kind of peering into the future and hoping that things go your way in order to make money. The high beta component of those risk assets are the ones that tend to be more volatile, that have less certainty around their cash flows, that tend to be sort of longer in terms of commodity speculation, that take longer to get out of the ground or wherever it's buried or kind of take it harder to mine or things of

Starting point is 00:13:34 that nature. So there's more volatility, more uncertainty around those future cash flows. And so those things tend to go down a lot. If you look at the stock market, the high beta stocks relative to low beta stocks tend to decline by at least 30%. This is on a relative basis. And so if stocks are going down at all, you know that the bare minimum, they're going down on an absolute basis, at least 30%. And so we've seen this over the last three growth cycles. We've seen that high beta, low beta ratio decline by roughly 30%. That's not why we're here. Why we're here is the red line. And the red line is certainly kind of obviously your community is very keen and interested in that. But what I'm showing in the red line is the Bitcoin price relative to treasury

Starting point is 00:14:18 bond price ratio. And the last three global growth cycles, so I'm a firm believer in sort the longer term dynamics of Bitcoin. I understand the halving cycle and believe in that as well. And I certainly believe that, you know, sort of, you know, this is an asset class where volatility is a feature, not above. However, if you're an investor who, you know, sort of can't handle that, that sort of these types of drawdowns, your ears need to perk up and hear what I'm about to say. You, the Bitcoin tends to lose about 75 to 85% of its value relative to treasury bonds, not just cash, boring old treasury bonds in these global growth cycles whenever we're decelerating from a global growth perspective. And so taking it back to what you

Starting point is 00:15:00 said at the beginning of this discussion, you are here, which means we had at least a year, potentially more of deceleration from a global growth perspective that should, if this whole historical cycles hold true, which we certainly believe they will, we certainly think we're kind of already underway for a lot of stuff. If these things hold true, there's a lot more pain to come as we progress throughout 2022. So I just want to make sure everyone is aware of that and screenshot this chart, my face next to it. I'll give you a quick smile.

Starting point is 00:15:29 Just so everyone can remember that because I want to help investors kind of not lose money. When you think about that, what would you put the probability on Bitcoin losing 75 plus percent from here? Is that something that you're like, is a high probability, low probability? It's just something that could happen. How do you think about the probability?

Starting point is 00:15:49 That's a great question. So we've seen, you know, kind of, you know, at the worst, you know, 85, 90 percent drawdowns in Bitcoin, you know, kind of in it, you know, over the last kind of 10, 12 years of its life cycle. And so from here, I would argue, no, right. We're already down a third from the from the November highs. And so, in my opinion, I think losing that much more from here, it's possible. But, you know, I think it's more likely that kind of Bitcoin doubles, you know, kind of the rate of its decline, you know, at that point, you know, to its ultimate nadir. Now, I'll say that to say this. We're currently, from a market regime perspective, pricing in that reflation box. So we kind of diverge from the broader economic fundamentals, which means we're kind of in this weird, awkward moment in terms of what markets are looking at from a near-term perspective that ultimately needs to get resolved and back towards the fundamentals. So as long as we're in this reflation regime, it's very likely we could see a bounce in Bitcoin that will give a lot of investors an opportunity to get out of some of the digital asset exposures and some of the broader risk asset exposures that they don't like and do not wish to maintain throughout 2022. But that bounce, in our opinion, is not going to be one that's going to be sustained well into the year.

Starting point is 00:16:59 If anything, it probably only has, once we start to see that bounce, it probably only has one, two, maybe even three months of upside. Joe, John, what questions do you guys have before we continue with some of the charts? I got to get the first one printed out with Darius's face. Oh, we already got it. We're good. There we are. That's amazing. I might get a t-shirt of that. Yeah, I'm going to need one of those too. So Darius, when we think about everything you just said, right, kind of what's going to happen

Starting point is 00:17:34 in digital assets over the next time period, however long that ends up being. How do you think about people? How do you how do you generally think about how people should act in these circumstances when they're kind of their idea is just to hold the stuff as for as long as possible? Right. They just want to continue to keep buying. Should they think more about trading things? Should they be watching certain indicators or should they just keep buying as much Bitcoin as they can if this is something they're going to hold for 10, 15, 20 years? Yeah, no, I say this all the time. I mean, look, I wouldn't have a job if we didn't have behavioral limitations as human beings, right? You should, as an investor, find things that have a 10 to 15 year bull thesis

Starting point is 00:18:10 and allocate it and dollar cost average into it over a 10 to 15 year time horizon. That would be the ultimate ideal solution. The problem is, is we're all human and we're all susceptible to our own behavioral cognitive biases that cause us to make more investment changes, changes to our portfolio, then we should. It's empirically proven. Danny Kahneman, Amos Tversky, Cass Sunstein have done a tremendous amount of research on this in terms of investors sort of trying to beat the market. And that act of trying, you know, those decisions, those incremental decisions you're making tend to actually make it worse and sort of put you further behind. And so, you know, we also, from this as investors, I'm myself notwithstanding. And so the reason I have

Starting point is 00:18:51 a job, the reason a lot of active managers have a job or investors are capable of earning income doing this is because we know we're going to make decisions along that path. We know we're not going to buy Bitcoin and dollar cost average for 10 years because it's not possible. We're human beings. We need to do stuff. We need to put our brains to use and actually touch things and move things around and trade around things. And so my goal as an investor, as a macro risk manager, is to help investors improve the quality of those decisions. You know, hopefully reduce the frequency of those decisions, particularly the bad decisions that make you worse off than the status quo.

Starting point is 00:19:28 But at the bare minimum, we know we're going to make these decisions anyway, i.e. trading more, investing more, making different decisions, different allocations and portfolios. And so what we tried to do, going back to that first chart, that grid regime framework, is say, hey, look, let's make the appropriate kinds of decisions for the appropriate sort of regime that we're in, the market regime, the bottom-up macro regime.

Starting point is 00:19:50 Let's do that. And as long as we're doing that, the decisions that we do wind up making will tend to be better than the ones we otherwise would have made. And the other thing I'm curious about is, I think like the bear case for some of this stuff in some people's mind is that Bitcoin is relatively new.

Starting point is 00:20:03 It's a new technology. We don't have enough kind of data to back test, right? And when it comes to gold or fiat or any of this other stuff. Who says that? That's a dumb- People are saying that in the chat right now. So, like, what is your response to that? Right. Like, how do you deal with that of saying, hey, Bitcoin's only 10 years old at this point. We don't have enough information. I'm sorry. I don't mean to disrespect anybody in the chat. So I'm not disrespecting the person who said that.

Starting point is 00:20:25 But that statement is really dumb. You know what else was new when I was in college? This thing. This thing. It's called a damn iPhone. Like it was new when I was in college. Apple was not a three trillion dollar company. But guess what? new technologies come out and you have to, as an investor, have an ability to price that risk in terms of that business cycle risk and their execution risk. And I don't think Bitcoin is any different than any other nascent technology. The automobile was new. The combustion engine was new. The iPhone was new. The sewing machine was new. There's all these new technologies that are new, but that doesn't mean they don't have value. And more importantly, can't appreciate in price

Starting point is 00:20:59 over an extended period of time. They said, feel free to call the chat dumb. We've got thick skin. i'm sure there's a lot of really really thoughtful intended to uh to discourage any but any one person john what do you got dearest can you just talk about your thoughts about what we're going to see in 2022 moving forward with inflation core and then the inflation the fed rate hikes and then that correlation into bitcoin and other crypto assets yeah absolutely so um i'll sort of break this down into kind of like three time frames because that's another thing that i i think is really important for a lot of investors to realize when you're constructing your portfolio, it doesn't

Starting point is 00:21:38 need, it should not be, it should very much not be one static dynamic view. Like, oh, I'm bullish, therefore I'm short everything, or I'm short a bunch of stuff, or I'm bullish, or I'm sorry, I'm bearish, or if I'm bullish, I'm long a bunch of stuff. It should be carefully constructed across different themes, i.e., you know, I have some allocation to secular inflation, maybe I have a tail risk hedge on to some big deflation events and geopolitical risk, But more importantly, at times, and I think this is one of those times, it needs to be sort of constructed across different durations, right? Like you might be long Bitcoin and think that the five to 10 year, 15 year view, but you might actually have some positions that actually offset that to help you manage the risk in the interim. And so taking a kind of understanding that that's what we're trying to attack this problem set, that's the angle with which we're trying to attack the problem set. Let me sort of give you kind of a multi-duration theme of view on what I think is likely to happen in 2022.

Starting point is 00:22:32 This is our base case scenario. Our base case scenario is that stocks, crypto, a lot of stuff bottoms here over the next week or two and finds a sort of a relief rally kind of into, you know, kind of the perhaps as long as into the latter part of Q1, into the early part of Q2. maybe be as late as mid Q2, because I do believe the world is sort of transitioning from a pandemic phase of the kind of COVID-19 crisis to an endemic phase. And I do believe that endemic phase is likely to catalyze a positive, a fleeting, a transitory positive impulse and growth that I think asset markets are trying to move to price in now. We can talk about why stocks and crypto have gone down recently. I think stocks are a little bit different than crypto at this point, but we can talk about why they've gone down recently. But I do believe it all has the potential to recover over the next month, two months, three months, maybe even four months

Starting point is 00:23:21 at the longest. Once you get into that timeframe where you're kind of late Q1, early to mid Q2, the game is likely to start to get a lot hairier. And it's not obviously the Fed's likely to be hiking interest rates and well on a path towards shrinking their balance sheet through quantitative tightening. To me, that's a big issue. But I think the one thing investors aren't talking about, and which is why we see, you could see some pretty material weakness develop from that kind of timeframe in the middle of the year, starting in the spring and into the summer, the growth outlook from that point will really start to come under question in our opinion. You know, that's right around where our models have the speed of the decline in growth really starting to pick up

Starting point is 00:24:01 to the downside. And it's, you know, it's our belief, you know, that, you know, the consensus growth expectations for 2022, you know, they're calling for, you know, roughly 4% real GDP growth in the U.S. economy, a little bit over 4% real GDP growth in the global economy. Both of those numbers are well north of the kind of potential growth that we've historically seen in both of these economies. And so there's a lot of hope riding on sort of consumer balance sheets. There's a lot of hope riding on ending the pandemic and that positive impulse to services consumption. And I think a lot of that stuff will happen, but the risk to asset markets is that it doesn't because that's where consensus expectations already are, right? You've got the Fed tightening

Starting point is 00:24:42 monetary policy. You have them shrinking their balance sheet. So their hiking interest rates are shrinking their balance sheet. The fiscal authority in the U.S. is dramatically reducing the amount of easing that they've supplied in recent years. And so when you put all those factors together at the same time where growth is starting to slow down, you might actually have a growth scare in the middle of the year in terms of normalizing growth back towards its trend line faster than investors really think. So I think that process in and of itself may catalyze at least a 20% correction in the stock market. We saw a very similar process play out in Q4-18 as a call we made back then where we said, hey, look, a lot of what I just said, you could pair it and say,

Starting point is 00:25:21 hey, that was exactly what we're saying in September of 2018. And all that sort of catalyzed a 20% correction in stocks. Well, we're not coming off the similar asymmetric highs from evaluation and leverage perspective, 20% decline in these contexts, in the context from this starting point, would actually be more like a 10% decline in Q4-18. And so that's why I'm saying, hey, look, I think it's very reasonable to expect the stock market to be down at some point 20%. Now, stocks don't stay down. We know the Fed will back off if stocks go down 20%. They'll continue on their hiking path, but maybe they'll amend this pace of quantitative tightening or something like that. I don't know what it's going to look like. Who knows? I don't have a crystal

Starting point is 00:25:58 of all. But from that point, you are likely to see a recovery. Earnings probably aren't going to go fall off the bed. Companies are doing quite fine. And so maybe we have a flat year from the perspective of the equity market, but you could have a 10% drawdown at the beginning of the year, a 10%, 15% recovery off that low, and then a 20% correction, and then a recovery to finish the year flat. That, to me, seems like a very legitimate, reasonable base case scenario for 2022. And everything I just said about stocks, you can sort of, um, kind of, um, extrapolate towards digital assets as well. Darius, last question we got for you and then we'll let you go. Uh, how are you allocated personally right now? So given everything that you know, in terms

Starting point is 00:26:36 of what's going on in the market, what you believe to happen in the future, how do you think about the asset allocation in your own portfolio? Yeah, absolutely. So we, as I mentioned, we have, um, we're our portfolio construction that we run at 42 macro. Uh, so that's my, that's my PM. My personal account looks like that, it mirrors that portfolio construction, which we put together to help investors kind of risk manage these cycles. So it's broken apart, but in the same sort of buckets that we've identified earlier, which is, hey, multi-duration. So we have about 20% of that in reflation type assets, because we do believe that we could see a bounce in reflation kind of into the springtime of this year. And so that 20% is really allocated to take advantage of that.

Starting point is 00:27:18 we got another sort of 20% or thereabouts in what we call, or sorry, roughly about 30% in what we call inflation. Those are the kinds of exposures that, you know, should do well in the kind of environment where growth starts slowing, inflation start to do, they're still accelerating. That, both of those exposures need to go once we pivot towards, back towards what we call deflation. And roughly about 50% of the portfolio is in assets that sort of align with the deflation view as well, which is a more medium term view, kind of looking out two to three quarters, two to four quarters. So, you know, we're very prepared to sort of raise, you know, at least 50% cash at some point over the next kind of, let's call it quarter or so in order to sort

Starting point is 00:27:59 of fully pivot to deflation. But we already have a decent amount of that exposure now. What would cause, I lied, I got another question. What would cause you to pivot or make that decision? Is there like a specific data point that you would look for and you'd be like, okay, find we're going to sell our reflation and inflation assets and then either move to cash or move into the deflation and kind of double down on that? Yeah. So there's four things and I'll be quick because I know we're running out of time, but there's four things we've been actually writing about. We measure and map each of these four things daily in our research notes. So it won't be a surprise to our subscribers, but the sort of number one thing that will kind of get

Starting point is 00:28:35 you to make that pivot sooner rather than later is what we call our four horsemen of market risk, looking at the VVIX fixed ratio, the high beta, low beta ratio, small cap, mega cap ratio, and then the value to growth ratio. When three of those four ratios are signaling negatively, signaling bearish and making new lows, that's time to get the heck out of risk assets. That tends to presage some pretty material corrections historically. So that's number one. That's kind of what we call sudden stop risk, like get out now. Rolling stop risk, like, okay, I have a little time to get out, is when we see our dispersion analysis pivot back to defensive leadership in the stock market, which means your more defensive companies like Coca-Cola and Costco are doing

Starting point is 00:29:17 better than your high-flying energy, financial-type stocks. Right now, it's being very much dominated by pro-cyclicality, which in our opinion is a signal of risk on dynamics are building up and could resolve themselves to the upside. Number three, so that's rolling stock risk. Number three would be kind of at the party, but having drinks by the door, you're enjoying a few beers by the door. You know, that's what we call, we have this analysis, what we call our sum of confirming markets, but specifically the conviction score within that. If things get really good, you know, if we do see this bounce into the springtime, that analysis will tell you when things are getting too good. We actually made a very similar call back in June where we said, hey, I think the reflation

Starting point is 00:29:57 trade is getting too good here. And so you've got to start to book gains and a lot of that stuff. And then lastly, sort of, you know, kind of dancing into the music stops, the old Chuck Prince from Citigroup quote, we have what we call our cross-asset correction risk indicator. Not only does it tell you that things are going too good, you're willing to go past the point of things being too good and actually only really selling down risk and raising cash once you get that first tick down from things being too good to things being slightly less good. So we have four sets of indicators that we refresh daily to give us a clue as to, hey, do we get the heck out now or do we wait until things get better? And when they get better, what are our indicators

Starting point is 00:30:35 saying about the terminal destination for that improvement? I love it. It's almost like you know what you're talking about. Almost. I know a thing or two here. It's mostly from a career of making dumb mistakes and learning from them. Darius, obviously, what I appreciate about you is not only that you uh you've got kind of frameworks to think through this stuff but also uh you you've got the uh the data to back it up and do the work on a daily basis so there's uh there's only one person i know that grinds uh grinds more than you and uh you're talking it's me but i was gonna say yeah it might be you but other than that i uh i appreciate a lot from you over the years and certainly the grind is one of them man so i appreciate your leadership all right sounds

Starting point is 00:31:15 good we'll talk next thursday anyone who's got questions go check out 42 macro joe john you guys got any questions okay good not to shout out 42 macro let's get it i'll see you in miami in a few weeks all right buddy sounds good

The Pomp Podcast - #791 How The Macro Economy Is Affecting Your Investments w/ Darius Dale

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