The Pomp Podcast - #856 Inflation is At Least 10% 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.

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Starting point is 00:02:55 guys enjoyed this one. 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. What the hell is going on? Pick your topic, man. Let's just jump right in. 7.9. How off is it? So it's I think 7.9 is the wrong number to focus on.

Starting point is 00:03:31 Well, if you don't eat and you don't use energy, it's only 6.4. So exactly. No, the problem with inflation. Right. I've said this last week, which is we continue to build momentum. It's not just that the numbers are coming in high. 7.9 is obviously a very ridiculous number in and of itself. But if you look at it on a momentum basis, if you look at take the month-over-month percent change and annualize that to get to what approximate year-over-year figure would be, it's 10%. Inflation is effectively running at 10% and would otherwise be in a vacuum outside of base effects. And so the Fed is not only losing the battle on inflation, you can make an effective case that it has already lost the battle on inflation. and what i mean by that is that every high inflation print between now and let's call it the middle of this year they're going it's going to cause them to make uh incrementally tighter

Starting point is 00:04:25 decision to or incremental decision to tighten policy faster further okay so they inflation 7.9 everyone agrees on that in terms of official numbers yeah unofficial is much higher yeah the federal reserve is sitting and they're staring at this and say okay we got inflation problems we obviously have the russia ukraine conflict that's going on there's sanctions there's exploding commodity prices like they got they got a a um a view of the playing field they got a lot of stuff on their plate it's thanks what are their options of what they could do what are the tools is it just interest rates and contraction or uh expansion of the money supply and that's pretty much it yeah so the fed at any given time like outside of like you know attacking a foreign

Starting point is 00:05:07 entity or something like that, they only have three tools. It's the policy rate, it's the balance sheet, and it's forward guidance. I think the most important forward guidance that we've gotten in recent weeks was during Powell's testimony last week, where he got his feet held to the fire by, I want to say, Senator Durbin or Shelby in Alabama, talking about the Fed's resolve to kind of combat inflation and really kind of defend the Fed's credibility on price stability. And Fowle basically said, yeah, we'll do what it takes. And to me, I think the markets are underpricing that kind of Draghi moment, if you will. So if you go back to 2012, when the European sovereign debt crisis was sort of at its peak or European growth expectations

Starting point is 00:05:50 were at their nadir, then ECB president Mario Draghi came out and said, hey, we'll do whatever it takes to protect the euro and maintain sound banking for the continent. And those words are arguably the most powerful words in central banking history because they effectively ended the crisis. It told everyone that, hey, look, the ECB is going to backstop all this sovereign debt. None of these peripheral countries are going to default. And to me, you kind of go back and I'm blanking on the quote, but Powell basically said, we'll do whatever it takes last week. And I think markets are very much underappreciating that as it relates to the Fed's resolve to tighten policy. So we're in for a world of hurt in our opinion.

Starting point is 00:06:27 how bad can it get will we see a 10 official number or will they manipulate it and pull stuff out that's a good question well so look if we stay at this pace we will see a 10 official number in a matter of months and that's the problem and so the problem we see it next month given how fast oil has exploded upwards and some of these other commodities yeah i mean you could well you mean yeah we could see it in march is the yeah yeah the march number could come in at 10 you're absolutely right so the february numbers again we're talking about february inflation prints, the energy inflation was annualized at 51%. And so that probably is going to double in March. And so we could very much see something that looks like 10% inflation. So

Starting point is 00:07:06 again, I mean, the Fed is, they're toast. I mean, whatever financial stability mandate they have, or whatever inclination you might have thought as an investor that they're going to protect risk assets or protect growth, protect the economy, I think you have to throw those out the window. And the sooner you throw them out the window, the more likely it is you're going to not lose a lot of money. Joe Biden says that the February inflation numbers prove the cost of sanctions, but the sanctions didn't happen until like the last three days of February and March. What do you think about that? Oh, my God.

Starting point is 00:07:37 Don't get me started with the politicians now. It's like, oh, well, it's all sanctions and the Russian war in Ukraine. Like these are February data points. What are you talking about? You mean the inflation couldn't tell the future? Yeah, I know. I know, dude. But look, this is the problem with politicians, right?

Starting point is 00:07:55 They are still living in the newspaper radio era where they think we're all uneducated and uninformed. But obviously, thanks to programs like this, programs, you know, services like mine and just general knowledge on the Internet to begin with, we're not as dumb as they think we are. People are pissed off. I think there's a serious zeitgeist. I can see it in all the statistics. Consumer confidence is rancid right now. And we are talking about an economy that is – the most recent GDP print is a 7 percent growing economy. It's three times our potential growth rate, and people are pissed off.

Starting point is 00:08:28 What happens when they're pissed off and we slow back to trend or below trend as our models project in the second half of this year? And so this is a big problem. I don't see how we get out of this very easily. And sometimes there's not always an easy answer, right? If they raise interest rates, is it pretty much a guarantee we'll go into a recession? I think it's guaranteed we're going into a recession regardless. I mean, we've done enough damage to consumer confidence, to real incomes, that we're probably going to go into a recession regardless. And this is something I said a few weeks ago.

Starting point is 00:08:56 I mean, we're probably going to have two choices as investors, and really the Fed has two choices. Allow the economy to go into recession because inflation destroys real incomes and confidence enough to cause a decline in purchasing power and ultimately decline in the quantity of goods and services that are purchased. or do you send the economy into recession because you're you know you're clawing back some of the credibility you lost on the inflation and price stability front i happen to think the fed is more likely to choose scenario b over scenario a because scenario a is that's kind of the death nail for the central bank you know if your whole you know if you're here to prevent things like recessions and financial crises you know if you can't prevent that you lose your entire credibility whatsoever and i don't think the fed is willing to risk that at least it's not my indication or

Starting point is 00:09:44 they haven't given us any indication that they're willing to risk that. As we head into a recession, what do you think will actually play out in terms of risk assets like tech stocks, et cetera? I've already sold off a lot. Is there still like 50% more to go? What do you think of other types of assets as well? Yeah, that's a great question. So let me be clear, like recession, we're nowhere near a recession now. You know, this economy is still growing well above potential. The problem is the speed of the decline from growing well above potential to growing something that's below trend is accelerating. You know, we've already had that as a pretty, pretty sharp decel starting in the kind of middle part of this year.

Starting point is 00:10:16 But that pretty sharp decel could actually it looks like it's going to be faster now. And so as it relates to asset prices, you know, it seems like we're only that I hate to use the word seems like. But, you know, there's really not too many perfect corollaries to what we're experiencing. I mean, you can sort of cite the 1970s as it relates to, you know, the response of asset markets to what we're experiencing today. I happen to think where we are today is somewhere between, it's a hybrid between the 2000 and 2002 unwind of the tech bubble and the 2018 experience where the Fed was sort of tightening, tightening, tightening and didn't realize the economy was slowing. And ultimately the markets had to tell the Fed to back off. And I think you merge that experience, Q418, with kind of the unwind of that tech bubble. And I think that's where we are today.

Starting point is 00:11:04 Yeah. What questions you guys got? We obviously can't tell, regardless of what people say, what the sanctions did to the last month's numbers. But now that they are implemented, what impact do you think that they'll have on next month's numbers? See, this is the tricky part. Markets have front-run the sanctions, particularly physical commodities, right? And so there's been a lot of speculation, a lot of financialization in the physical commodity space, anticipating supply shortages across nickel, tin, aluminum, copper, wheat, pick your commodity, obviously crude oil. And so how much of the sanctions have effectively been priced in is the question.

Starting point is 00:11:38 I don't think anybody's smart enough to be quite frank. But I'm certainly not smart enough to understand that. So the problem is, it's not just, well, commodity prices continue to go higher. That's the feedback mechanism to higher reported inflation. But I think the feedback mechanism to the economy and to the markets, you don't need commodity prices to go higher. If they just stay at this price, it is a drag on real incomes, certainly relative to the outlook and relative to the expectation. But it's a drag on your budget. I mean, I have rich people texting me receipts from filling up their cars at the gas station.

Starting point is 00:12:14 People who are very well off. You know, so you can only imagine what the pain is like out there for low to medium income households. I mean, it's pretty remarkable. This sounds really bad, but it almost is like sport, right? Where like literally, I think I've seen them online. People are posting them and there's some people who are saying, hey, send them to me and I'll post the biggest ones or whatever. And people are like hunting for the highest priced gasoline. I had to like prove it, seven, eight bucks.

Starting point is 00:12:37 I mean, it's pretty crazy. Yeah, it's, I mean, I want to say like, this is like 2008, but I think it's a little bit more scary than 2008. One, the speed of the change is faster. Like we have this chart in our slide deck where we take the two-year change in the Brent crude oil price.

Starting point is 00:12:54 And anytime you're basically above 150% on that percentage change, you're walking into a recession. There's been one notable outlier going back to kind of the 70s. this is the fastest two-year chain. We're like up at like 200 plus percent. You know, it's like the highest peak of that analysis.

Starting point is 00:13:11 So not only are you likely to get a recession as a function of this, you're more likely to get something that looks like more of a structural bear market as a function as well. John, what do you got? What are you seeing or are you suggesting retail investors do with commodity prices already so high?

Starting point is 00:13:25 The sediment and confidence is really far down and a recession's looming. So like, what does a retail investor do? Yeah, so this really does matter about the kind of track you've taken to get here. There's two types of investors right now. One's who probably risk managed December, January a little bit better, have a little bit more cash

Starting point is 00:13:44 and can start to be a little bit more selective. I don't think this is the time to be selective, but I think if you're a long-term investor and your favorite name or your favorite digital asset is on sale, this is where you'd start to DCA. But again, I don't think that's the average investor. With the statistics we look at, for instance, You know, one thing we track is sort of, you know, kind of asset class ownership on the household balance sheet.

Starting point is 00:14:08 And if you look at household equity ownership, for instance, you know, as a percentage of total net worth, that's around 30 percent, just off of 30 percent. That's the all time high by like 500 basis points. And so the median, the average investor is as long stocks. And I'm assuming because they're correlated as long digital assets as they've been as a share of the overall net worth ever. And so there's not a lot of people who have cash to start buying dips right now. And that is the problem for the market. If you were the Fed, what do you do?

Starting point is 00:14:40 If I'm the Fed, I send the economy into recession, gain some credibility, and set us up for a good 2023. This year's a wash. You just throw in the flag. Well, it's not even throwing in the flag. It's punting. I mean, you're football. You're all football guys.

Starting point is 00:14:52 You're punting. The Fed, if they don't, there's two choices. You can be, what's my man in San Diego who always goes up, forward, and forth, down. You can be that guy and out of the playoffs, or you can punt the ball and live to fight another day. And I think punting the ball equates to engineering a slowdown in the economy. And it's not just our economy. The Fed can take crude oil from $130 a barrel to $65 a barrel overnight if it wanted to.

Starting point is 00:15:19 Take the policy rate up 500 basis points and see what happens. They don't want to do that, obviously. they don't want big changes because big changes tend to scare people and you get all these side effects as it relates to um you know credit intermediation of all this you know the hypothesis there's a lot of side effects in the financial plumbing of it all so what do they end up doing they just raise interest rates to like they're gonna try to 300 basis points i think three percent yeah no they're i don't think they're gonna get that far the problem is again we the the fed is starting this tightening process too late in the business cycle well to be clear

Starting point is 00:15:51 we're at eight percent cpi they haven't raised rates at all and they were literally buying assets like two weeks ago like two weeks ago yeah i know these guys are doing qe like two weeks ago dude yeah it's funny the fed did qe for nine months while inflation was above five percent i know i'm sure i'll write a book at some point that's a great tweet somebody should fire that one off that's a freebie for somebody out there totally the start of my book would be yeah and the fed was buying bonds like two weeks into this, you know, like two weeks ahead of this. So yeah, no, my point is, so they're going to try to walk a fine line, right? The Fed doesn't want to spook anybody. They certainly don't want to upset what's priced into markets from a policy tightening

Starting point is 00:16:31 standpoint. So they're going to do the 25 basis points. Maybe they'll talk up if, hey, if Russia, Ukraine goes well, we'll do 50 basis points in May or we'll do 50 basis points in June. But the reality is, as long as inflation momentum stays elevated, the probability that that 50 basis points in May gets solidified and 50 basis points in June that gets solidified, those probabilities start to go up. And so it's increasingly looking like the Fed might have to front load a lot of tightening as a function of being so behind the curve on inflation, so behind the curve as it relates to the economy. This is the lowest the unemployment rate's ever been prior to the Fed lifting interest rates ever in the history of the Fed funds rate. And so, you know, there's a saying on Wall Street that the Fed, you know, tends to cause an accident when it tightens policy. It usually tightens until it breaks something. It breaks something in financial markets or it breaks something in the real economy.

Starting point is 00:17:24 The Fed is definitely going to break something because the probability of them breaking something is as high as it's ever been because they're so late in this process. You know, imagine like— Why did we get here? Like, why didn't they do something earlier? Because they— Was it arrogance? No. Well, there's a couple reasons.

Starting point is 00:17:39 I'm so glad you said arrogance. And, you know, certain myself as a professional forecaster, I think I would consider myself and everybody who does this for a living. We all need to eat a little bit of humble pie. Nobody got this inflation call right. I mean, with the exception, I think Jim Bianco, I don't think he had forecast, but he certainly he had a view that inflation would be stickier and persistent. I remember that back in the summer where a lot of folks didn't. But generally speaking, nobody, nobody saw 7.9 percent inflation six, nine months ago. Nobody saw 5 percent inflation nine, 12 months ago. You know, so the reality is we all got this wrong. But the problem is we're not setting policy. You know, the Fed is setting policy on its forecast, which are obviously wrong by a double.

Starting point is 00:18:15 And so that's a problem. So arrogance is a factor in terms of transitory. But the real factor of why they're so late is because they made themselves that they chose to be late. Go back to the fall of 2020 when they changed their their inflation target, their inflation mandate, basically to an average inflation targeting scheme, which means instead of saying 2% is the ceiling on inflation, we're comfortable having inflation average 2%, the core PC specifically. So they changed that. And the reason they changed that was the real change that matters. They, you know, they kind of adopted a woke framework to be quite frank. You know, this, this sort of this concept of maximum and inclusive employment really stem from, you know, kind of the wake of the George Ford protests, all this stuff. And the Fed realized

Starting point is 00:18:54 after having done a lot of research, and this is something I've been talking about my whole career, which is the Fed always takes the punch bowl away when the economy starts getting good for disaffected groups, African-Americans to Hispanics. Those are typically – those people typically have higher unemployment rates. Their unemployment rates go down usually after whites and Asians and stuff like that. So I think the Fed wanted to do something to address this kind of zeitgeist of America back in that particular timeframe. And they what they said was, hey, look, we're going to ease policy until we see the whites of the eyes of the lowest unemployment rate ever for these particular groups. And they actually did that. And they did that. And they made a lot of real substantial progress in Q4 in particular for females, for the folks without high school diplomas, all this stuff. And so they got what they wanted. But the problem is they had to keep easing and go crazy and go ham with balance sheet and zero percent interest rates to get that done.

Starting point is 00:19:47 and now we're dealing with the consequences. There's this belief that the numbers are inaccurate, I think is a fair way to say it. We pulled up earlier that the current shelter inflation number makes up 33% of the CPI. It's like 4.8%. 4.7, 4.8%, year-over-year growth. But rents are up 18% nationally

Starting point is 00:20:16 and home prices are up 19% nationally. I'm not a mathematician, so maybe I just do bad math, but if rents and home prices are up more, three times more than what they're saying, where's everybody living where it's only 4.7%? I mean, I guess they're serving the 10 cities of San Francisco. I mean, no. Which, by the way, San Francisco spent like $200,000 per tent

Starting point is 00:20:43 or something like that on- That's more than my apartment costs. you should probably move to san francisco yeah but uh but but when you think about uh the numbers like we joke around a lot but like 4.7 4.8 is the official number the national average of rent is up 18 the national average of home sales is up 19 how do they get to 4.7 so here's here's how they get the 4.7 it's it's you can i don't know if it's nefarious or not but i suspect because it's the government and the government is incentivized to report lower inflation statistics. I think it's reasonable to assume there is some

Starting point is 00:21:21 nefariousness going on, but here's how, there's a reason there's such a disconnect. The way they survey houses in the BLS survey, particularly owners equivalent to rent, which is, you know, two or three-fourths of shelter CPI, you know, they sort of have these panels where they ask house A, you know, is your, what's your rent? And then they don't survey house A for another six months. And then, so in order to get like a true inflation statistic, it takes like a full year for you to understand like, Hey, like there's, there's some been rental inflation. So that process is very slow in terms of repricing rents higher and lower to both to the downside. You know, we had a big, big tail, a big headwind for inflation for an extended period of time after

Starting point is 00:22:01 the financial crisis, because that process was working in reverse after the housing bubble burst. So it just is what it is. We all think, I think we all can feel it, see it in our rents. You know, We can see it in cost of utilities. We can see it in cost of getting a contract or even being able to get building supplies or anything like that. That inflation is much higher. We'll see that inflation come down

Starting point is 00:22:22 as shelter CPI is likely to continue accelerating though. So at some point, all that stuff will peak. Let's call it six or none from now. But shelter CPI will still be slowly rising as a function of that technical process. It's just crazy to me. It is crazy. that we're making decisions based on bad data.

Starting point is 00:22:41 It's very obvious it's bad data. And so what is the impact on, like, any of the election stuff? Is it just a foregone conclusion we're going to have, you know, 6%, 7% inflation going into an election season and, like, there's likely to be massive turnover in existing politicians getting voted out? Or how do you think about it? Yeah, I mean, I think we're around 6% for September,

Starting point is 00:23:07 which is the last print you're going to get for before the for the election. So it's going to be a problem. I mean, look, we know the Democrats were toast in the elections going back to November when we got the October CPI, when that jumped up to six percent like that, just put the kibosh on the whole Democratic agenda. And obviously that agenda is partially why they got a lot of them got elected. And so they're going to get the boot. I don't think the Republicans probably have a good answer to deal with this either. But the reality is guys who are currently in charge are going to take the bear the brunt of the consequences. I asked my brothers earlier, do we get $15 gasoline or $15 federal mandated minimum wage first?

Starting point is 00:23:44 Oh, no, we're not getting $15 gasoline. What was the national average now, like $4.75 or something like that? I saw $8 somewhere. Oh, yeah. That's only, it was like $4. No, no, the national average is the national average. Yeah, the national average won't get the $15. But do we see a $15?

Starting point is 00:24:01 Oh, do we see a $15 handle somewhere in the States? Yeah, somewhere in the United States. outside okay uh can we caveat this so excluding like hurricanes or anything just like just yeah just in this current trajectory will someone pop that up i sincerely hope not there's definitely somewhere somebody is realizing oh this is bad and i think that's why we saw i mean what is it a week two weeks right the problem is the problem with $15 gasoline though it's like you can't get $15 gasoline in one particular place because it's more likely that you'll have a bunch of 11s and 12s in a geographic location than at 115 and a

Starting point is 00:24:37 bunch of anything less you know it's kind of get spread out refiners are you ever gone to a street corner stupid here gone to a street corner like one guy's at you know it used to be like 240 the other guy's at 199 you're like how does this happen yeah 100% of the time absolutely totally you you like you can't work in financial markets and be someone who's constantly concerned about prices of securities and assets and be dumb enough to put more expensive gas in your car across the street from a place that's other than a lesser price you have to be some kind of like rich connecticut asshole to do that true true true uh what do you think about the u.s going and basically begging venezuela and saudi now for oil i think it's a national embarrassment

Starting point is 00:25:19 and this is a this is a real problem venezuela this is this is the real problem right our reaction to the russia invasion of ukraine in terms of the aggressiveness of swift and all this and kicking them off the dollar settling system and everything like that one china can observe the nature of our reactions and start to build you know contingencies for the pie aren't gonna hold that many dollars now yeah totally well exactly they're shifting to gold but the china was going to do the same thing to taiwan at some point in this century it could be this year it could be next year who knows when it's going to be right but they're in their 300 year plan or a hundred year plan. Totally. They're definitely going to do the same things I want.

Starting point is 00:25:56 So China's right now taking notes about, Hey, this is what they're going to try to do. So let's make contingencies now to prepare for those things. But the second problem is if you're a bad actor in the world, now, you know, the blueprint, well, there's an inflation problem in the, you know, so let me make it worse and do my bad thing. I'll make the inflation problem worse. And eventually these people have to kowtow to me in order to get the raw materials that, that, that they did they demand did putin is he playing chess like did he realize that hey if i do this they're going to sanction me and if they sanction me then like this is going to basically like take what is kind of a small fire economically in the united states now i'm going to just like

Starting point is 00:26:34 set the whole forest on fire no i i don't think he's that's like next level chess times a million no i don't think he's i think he was taken i think the whole world was taken aback by how aggressive the response was and how unified and coordinated the sponsor was because don't forget europe gets you know what 20 30 percent of its energy from russia um the no i think putin was playing chess in i'm gonna wait till i see seven seven and a half percent inflation in the u.s oil pushing a hundred dollars a barrel and then do this and then make it worse so that we can't get those sanctions so that they they're less likely to give those sanctions i think he was shocked by how stringent the sanctions are but now he keeps regrouping and saying hey well look

Starting point is 00:27:12 if i'm going down everybody's going down and that's kind of his thoughts yeah i mean he can We could continue this out for a long period of time, right? And we could be sanctioned when it's not changing. Yeah, well, Putin and Russia are two very different things, right? Putin's a guy barking orders in Russia's economy that needs resources to function. So, yeah, I mean, he can certainly continue this for way longer than anybody whose lever-long risk assets can maintain those positions without getting margin called. So that's the problem.

Starting point is 00:27:41 So I think Putin's regrouping and saying, hey, look, well, this is a new dawn, new era. They have jumped the shark. I've jumped the shark, and there's no going back from this, right? You can't go back from this, really. I just think we've crossed too much. We've crossed the Rubicon, unfortunately. People love using war as almost an excuse to print a lot of money. Are we too far and too close to a recession right now

Starting point is 00:28:05 to just go ahead and print a bunch of money and fund an entire war? No, I think that would be an optimal solution. Certainly, you're going to hear more talk of that once we start to get real data that the economy is slowing down. Like, don't forget, like, PMIs globally are still like at 58. You know, these are real high numbers.

Starting point is 00:28:22 50 is like the dividing line. You know, they're still very high. You know, global GDP, Europe, 6%, US, 7%. Like, we're still, if you look backwards, growth is phenomenal. It's as good as it's been in many, many, many years. But looking forward, you know, folks like myself who make forecasts

Starting point is 00:28:37 or anybody with a brain can see that the economy's kind of slow. And so, again, it's all about the pace of it, economic slowdown. But once we get that slowdown confirmed, it's very likely that we're going to get more talk. And this is kind of one thing that's bounced markets this week, bounced Bitcoin, bounced crypto, going back to, yeah, bounced on Tuesday and Wednesday, which is the Europe is effectively talking about issuing a tremendous amount of debt, you know, like on the order of like two trillion euro or two trillion dollars. I'm not sure if it's euro dollars, but a lot of money to basically finance the acceleration of their green infrastructure agenda, acceleration of defense spending. And so that's the kind of

Starting point is 00:29:14 thing that one is obviously positive for growth, but it's also more inflationary. Where are you going to get the additional supply, the physical resources to do all this stuff? Where you get the additional workers? That's a big problem. Well, they're going to build windmills. And then when the wind shuts off, they're going to complain and be like, oh God, we maybe should have just drilled for oil and built nuclear power plants. Yeah. I don't understand the thing about nuclear. That blows my mind. Why are we not doing nuclear power plants

Starting point is 00:29:39 at this point? Well, it's because everyone heard one time that there was a nuclear power plant leak and they don't understand any of the details and they are scared about it. What did Musk say? He'll go there and eat food that was grown locally in the soil? Wow. He said, I've already done it. He said, yeah, no problem.

Starting point is 00:29:55 Yeah, I mean, it's all nonsense. The other thing is I talked to a group recently that they put an application in to get approved to build a nuclear plant and I got denied. Oh, wow. And I was like, how much of this is like real stuff versus, you know, just bureaucracy? Yeah.

Starting point is 00:30:11 It's all bureaucracy, right? And so if you think about it, by the way, if we start today, we won't be energy independent for 24 months, you know, maybe even longer or whatever. Yeah. But I did see a CNN segment that was just like laugh out loud funny. They were trying to explain how the United States is not a net importer of energy or of oil that we produce much more than we consume and that Russia is only the third largest producer. So the United States is actually in a good situation.

Starting point is 00:30:49 And I literally I was scrolling. I saw it. I watched like two, three minutes of it, and I just had to keep going. I was just like, I'm going to leave this one alone. I said, I don't know if those numbers are right, but okay. Yeah, no, you don't need to engage in that. So the U.S. is a massive energy producer.

Starting point is 00:31:06 It's probably number two or three on the list, but the problem with us- Number one oil producer in the world. Oh, producer, yeah. Number one oil consumer. We produce a very light, sweet crude oil, like the kind of crude oil that is way too expensive and way too light and sweet to run your engine.

Starting point is 00:31:22 You also need to mix it with like heavier sour crude oil that comes from like Saudi Arabia, Venezuela, Canada, Mexico. And, you know, so we do import a tremendous amount of crude oil just as a function of like, you need to find the right feedstock and the balance to make cars and motors run. Well, we're just for the record, we're definitely a net importer of oil.

Starting point is 00:31:41 Oh yeah, exactly. Which was my whole thing, which was like, what is going on here? How are we telling this story that we're not a net importer of oil? Totally. Okay, that's fine. Are you changing anything in your portfolio because of all this?

Starting point is 00:31:54 Yeah, so we have some signals that tell us, I call them GTFO signals, get the fuck out signals, for lack of a better phrase. It's just like, hey, this is a time to start raising more cash and getting more defensive. We were already pretty defensive, obviously, but we got raised some more cash and sold some more things. So yeah, we made some sales.

Starting point is 00:32:16 We bought a little bit more volatility, made a few short sales. So, you know, we're positioned for a bear market. I mean, it doesn't mean you have to get a bear market every single trading day. I mean, any given headline can take the market up 2%, 3% on any given day and in a bear market because that's what happens when stocks and when dealers are short gamma. That just means that, you know, they're constantly having to hedge in the direction of the market as opposed to counter cyclically with the market. You know, you're going to get these big realized volatility spikes and maybe sometimes they'll

Starting point is 00:32:42 last for a couple of weeks, even a couple of months, you know, going back to 08 and spring of 08 in particular. But that doesn't mean we're not in a bear market. you know this is a bear market and investors need to be aware of that um and and treat it as such last question i have for you is nickel basically went through this massive short squeeze recently uh the news came out this morning that the chinese billionaire who owns this like big nickel company who supposedly was short and you know is taking on all these losses uh the banks went to him like hey dude you want to like turn that trade off he said no and he said he wants

Starting point is 00:33:13 to keep shorting nickel uh is this idea of these like massive short squeezes uh in various markets i've saw it with the meme stocks we see it with something like nickel like is this just becoming more pervasive in the financial system in general yeah so there's a couple reasons why one i think people are actually actively targeting assets that have um you know kind of the the options dynamics that would perpetuate that so deals being short gamma you know perpetuating call squeezes and all that kind of stuff but i think what's also happening is that there's just a ton more options activity. The world is more financialized than it ever has been. Don't quote me on the stat, but I think I've heard this in passing. We've quadrupled options activity.

Starting point is 00:33:52 You're looking at the US equity market in particular, quadrupled it or quadrupled it since 2019. And that's a massive, massive, massively underestimated kind of feature of markets because it's not just obviously US equity markets. I'm sure that's correlated to every other market, commodities, cryptocurrencies, things of that nature. And so there's just a lot more gamma out there and you create these bigger moves as a function of that. You know, my man Jim Carson over at Kai Volatility has this word leptokurtic, which means you just have like these fatter, crazier tails. Like, you know, the frequency of these fat tailed outcomes is much higher than it otherwise would be, much higher than a normal distribution would imply. Because I think part

Starting point is 00:34:33 of it is because of the the growth of the derivative space all right you two got any more questions yeah can we can we all take a guess real quick let's put our bets in march inflation number oh what what do you think it is i guessed eight by the way yeah for uh for february you know pop boys motors with their economic predictions we're off by 0.1 it's not bad it's not bad at all uh what would uh what would your guesses be i go 85 yeah i was gonna say higher uh eight five yeah eight five joe let's go well you got all day to think i already got my number i'm going 9.3 oh oh now i handle huh you went eight two yeah eight three eight three eight three all right so we got eight five i was gonna do eight two eight three but now that that's

Starting point is 00:35:21 what the thing i'll do eight point seven percent cpi all right so we got eight two to nine two covered yeah you're the only one in the nine yeah outlier yeah well hey listen if you want to win and you got to go big. That's why I changed my answer. 1% buff. Amazing. The actual retail price of Mark CBI is $1. Oh, you guys have been year over year.

Starting point is 00:35:49 I genuinely believe that if they do not manipulate the numbers, they're not going to be able to keep this shelter number down, 33% of the index. I don't think that the gasoline number, they're going to be able to keep that down, right? The oil prices exploded 20% or whatever. And I think that we're just in a situation where food is probably the actual,

Starting point is 00:36:13 the one where I think people are going to miscalculate it or misanticipate the most, where wheat production, let me just take that as one example, Ukraine and Russia, right? And how big of a portion of the food production, I think all those prices are going to spike materially. It already did spike materially in February.

Starting point is 00:36:30 So it was up 13% annualized in February. 13% in one month? Like, you go to the store and you buy a bunch of chicken and I don't know what people eat. What do people eat? I just eat like animal crackers all day, but chicken and salad and all this stuff. And you go back two weeks later and it's like,

Starting point is 00:36:48 oh man, that went up. You know, like my fiance, 20% of our conversations is her complaining about our grocery bill. We're not poor, by the way. You know what I mean? Like this is, it's, it's, you want to know what I do for food now? What?

Starting point is 00:37:03 I think that, uh, we're going to hear a politician. Like they said, you know, if you don't want to pay high gas feet, uh, prices, just get an electric vehicle. Oh my God. I'm telling, I'm telling you, I'm telling you, we're going to see some moron. If you want to pay so much in food, then just eat two meals a day. Totally. Totally.

Starting point is 00:37:19 John, John's face is like, dude, please for your reputation. Do not say that. Somebody, somebody somewhere is going to say it, or they're going to be like, you know, my bet is on aoc if i have a guess i'm telling you the studies show that you should only eat twice a day yeah no you should only eat 1200 calories the average american eats 3500 calories so therefore if you eat less calories you won't pay a bigger grocery bill the average american eats 3500 i was gonna say that's preposterous it's like thanksgiving no average american i'm probably like 2700 uh oh shit 3600 yo yo y'all need to stop eating so much man i'm 285 pounds

Starting point is 00:38:06 and i don't eat that much the average american 3600 calories a 24 increase from 1961 this is a public service announcement y'all need to stop 3600 calories wow dude yeah that's crazy and i I think the science says for longevity purposes, 1,200 calories. Yeah, of course. It's got to be under 2. I thought 2 was like a happy medium. 2,000, I think, is the average American. That's the target.

Starting point is 00:38:33 1,200 is for optimizing for longevity. The average American eats 3,600 calories. Yeah, I think people- All right, the average American male weighs about 200 pounds, too. That's wild, because the average person is probably 5'9". Yeah. The average weight is 180, but males are around 200. Females are around like 160.

Starting point is 00:38:50 Yeah. damn 200 we got more they got health crises oil crises yeah real quick do you have an eight sleep do you sleep in cold weather do you do you make it cold yeah i make it cold yeah you like sleeping when it's cold yeah one of our sponsors is eight sleeps that's my way of saying plugging eight sleep.com slash pump go check them out obviously the best way to sleep it's thermoregulated you can make it hot or cold on either side of the bed oh this is a bed it's a mattress yeah yeah yeah I make it freezing cold and I sleep like a little baby

Starting point is 00:39:19 when Sophia tries to come and bug me I say hey yeah come over here and then it's freezing and she's a little baby she doesn't understand what's going on so she jumps off and goes back to the other side you're still young my friend you wait till you put the pillow in between so you know that you stay on your side

Starting point is 00:39:36 I stay on my side I already got that don't come over here I gotta go before 4.30 alright ladies and gentlemen where can we send people to find you on the internet and subscribe to the service. Yeah, so I'm on Twitter

Starting point is 00:39:50 at 42MacroDDale, and come check us out at 42Macro.com. Obviously put out a lot of research, help investors with portfolios, make sure we don't blow up in times like these. Awesome. It's a fresh picture you got on the website. I appreciate you, man. Thank you. Fresh cut. I'm about to go get one right now. Somebody

Starting point is 00:40:07 earlier said your sunglasses make them want to move to Miami. There we go. Come on down. Come on down. Miami is an intelligence test we'll see if you make it here all right thank you very much thank you so much all right 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 we've got you covered

Starting point is 00:40:33 head over to palmscryptocourse.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 - #856 Inflation is At Least 10% w/ Darius Dale

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