The Pomp Podcast - #894 Personalized Monetary Policy Is Coming 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 42 macro 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 Pipe. Crypto is all about giving the

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Starting point is 00:03:09 Abra, Conquer Crypto. Go check it out today. All right, let's get in this episode. I hope you 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.

Starting point is 00:03:24 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. yeah they don't say it again are they allowed to like or dislike things the government does in china are they allowed to or just put your head and keep moving no i think that uh by the

Starting point is 00:03:48 way darius is here i'm always here by the way you just don't see me in case anyone didn't know darius is here they just move the tv out of the way one of the uh one of the uh the big things that i think uh people don't really understand about the whole china thing is uh you may not no like uh so i'm not an expert let me first just throw that out there i'm not an expert on this but there's these octopus cards uh which allow you access to the uh kind of public transportation whatever um and these octopus cards during the hong kong protest all of a sudden they started to be used as surveillance tool because what they were saying is oh why did you get on the train at that station and then get off at the one right next to the protest you must have been going to

Starting point is 00:04:32 the protest we're gonna come after you we're gonna do something with the social credit system like all these issues so i remember during that protest there was incredible lines because what people were doing is they were going into the machines they were getting cash and then they were using that to pay so that they didn't have to use the card that couldn't be trade right untraceable payments and so you start thinking about this stuff and it's like okay that sounds kind of crazy like that only happens in an authoritarian government situation oh wait canada just did the same shit if you went to the protest and you participated and they were freezing your bank accounts they were you know coming after you with financial sanctions all this stuff and so

Starting point is 00:05:09 like in the world i don't think a lot of people are like oh china and canada those are run by similar people in almost every conversation you'd be like those are very different the similarity though is your actions tied to your financial transactions became a target for the government now take it a step further which people don't like when i say it but if you just happen to win the ovarian lottery and be born in russia yeah you kicked out yeah right just because you literally were born on a piece of land with an imaginary line around it and a flag that everyone sits and looks at in the classroom yeah totally and so you start to look at it now again there's more complexity to it than just that but again where you are born ends up putting you in a situation

Starting point is 00:05:54 if you participate in a protest if you use a specific type of transaction like all that stuff ends up being like damn we're heading in a direction like that don't sound good what's the bull case for all this like you guys obviously talk to a lot of people a lot more about these topics than i do is there someone in support of these ideas oh yeah if you are suit and tie got cologne and a fake rolex and you walk into the uh washington dc office you love this shit right think about this i get to now send money cheaper right i don't have leon cooperman or ken langone going on uh cnbc being like i'm a billionaire why did i get a 1200 stimulus check well it's because you didn't show that you actually made a billion dollars last year yeah you had

Starting point is 00:06:37 losses uh so like that you end up getting hopefully easier uh to get money in the hands of people in times of emergency like all that type of stuff uh second is i think you have a whole argument around uh the rails are better so if i can drop the cost for people to actually use this stuff uh there'd be more transactions more velocity of money it ends up being better for the average person whatever and then the third thing is uh i think that there uh is a desire to be seen as innovative to not actually that's what it is it's like oh everyone else is going to do it we have to be early because we're innovative that's what it is but doesn't change the monetary policy like there's still going to be eight percent inflation whether it's a physical dollar or an electronic

Starting point is 00:07:18 q-sip or a digital token it's still eight percent because you all think monetary policy way worse This is how monetary policy currently is what works. Fed tells market participants that they're going to do something. Market participants price that into money markets and interest rates and all across the sovereign debt curves and particularly money markets. And then the rest of the financial markets price off of that. At least there are smart people in that sort of chain of command that are taking risk and have capital allocation and real consequences for making poor investment decisions. If you just allow it to just go back to the entire monetary policy, back to that round table in the Eccles building, then to me, that's a significantly worse outcome than where we are today, which is a completely unmitigated disaster. So I'm going to take it one step further.

Starting point is 00:08:02 There's three things that are like real scary stuff. Monetary policy right now, 12 people, FOMC, they go into a little conference room. They get horrible data fed to them by all of their consultants and their staff. They do the best they can with bad data, and they come out and they usually make decisions that short-term mitigation of pain, long-term consequences, and that's the way that this works. It's called smoothing, by the way. Correct. When you think about that, when they make that decision, and literally Jerome Powell, whoever the chairman of the Federal Reserve is, is standing up at the conference, press conference, and people are trying to guess what's he going to do. Raise rates, not raise rates, whatever.

Starting point is 00:08:39 That is a one-size-fits-all monetary policy. so you me them everybody else in the country and around the world that hold dollars all are subject to the same monetary policy exactly well when they digitize this now you get a different monetary policy than i get so in the most positive light as you could possibly have oh you're in a dire financial position what we're going to do is we're going to give you a lower inflation level we're going to give you cheaper access to capital because you're going to get a personalized interest rate versus somebody who is wealthy or in a good financial position. Maybe we will smooth it by giving them higher inflation or giving them a higher cost of capital. And so

Starting point is 00:09:19 you start to play this game of personalized monetary policy. Everything else in your life is personalized. Your music playlist, your search results, literally the maps. When you go and use Google maps, your monetary policy is going to get personalized as well. Now the negative, worst nastiest view of it darius you ate too much mcdonald's this week joe your ass ate too much candy and john you've been eating healthy so guess what joe and darius you guys we're gonna jack your inflation level up we're gonna give you the highest cost of capital because you're doing things that are negative towards uh society you're leading to obesity but all the stuff john you're amazing we're gonna drop everything for you and make it the most attractive monetary

Starting point is 00:10:01 well they can even bar you from going to those places right we haven't even got there yet we're just talking about the monetary policy wow you don't even think about going there so that's problem number one it's personalized monetary policy second thing expiration of money so china is already testing this we have this in the united states already uh ebt cards they give it to you they tell you what you can spend it on has to be unprepared food not prepared food things like that if you most people don't know this but if you get an ebt card and you save so you don't spend all let's say it's 500 bucks 12 months later if you have not spent the money from that first cart, it disappears.

Starting point is 00:10:35 So you have a 12-month window. Now, 12 months, most people are like, okay, 12 months, not the craziest thing in the world, whatever. Well, if I give you the CBDC, I now can make the money expire on a certain time frame. So in China, oh, we're going to give stimulus. The point of giving the stimulus is for you to go spend it,

Starting point is 00:10:51 not for you to go and save it. And so you have two weeks to spend the money. Imagine if during the pandemic they said, okay, $1,200 checks, everyone gets it. You have two weeks to spend the money. If you don't spend it, it expires. Everyone would spend it. can't save it can't invest it can't do any of that no it's just there's rails you got to spend it on the things we told you to if you don't it's done like you get in a weird crazy world

Starting point is 00:11:09 and then lastly third point is uh just no like it just cbdc declined you cannot go to the movies or yo fat ass gotta walk to walk to mcdonald's yeah because you've been eating too much food what you mean like you can get like really really egregious with it like that's the stuff that like I don't trust that these people are not going to go there in those situations. But in a weird world, this drives much more people towards Bitcoin, right? So don't you agree, right? Doesn't this ultimately set them up for failure when it comes to people leaving, whether it's a digital currency, the U.S. dollar, whatever it is,

Starting point is 00:11:44 but going towards a solution like Bitcoin? I don't know. What do you think? 100% it does. Well, it's the alternative. I mean, if you have a government, an entity that could just take away all your life savings, I mean, obviously they wouldn't do that. You certainly wouldn't expect a country like the U.S. to do that or be able to even pass laws that can get you to that point. But let's take this, you know, we got to play, we got to go to the extremes to really make points here. If, you know, you had an economy like that, that's very similar to like what you experienced in third world countries with, you know, physical goods confiscation, obviously banks closing and things of that nature.

Starting point is 00:12:12 So, yeah, definitely. I mean, it's the bull case for digital assets is becoming very clear by the day, you know, for it. And so, you know, if you're not to me, it's like it's a no it's a no brainer. But it's when you make these commentaries and, you know, I've used to be in the camp that Central Bank Digital Currency was actually a good thing because I for all the reasons you just described in terms of, you know, being able to enact more thoughtful monetary policy right now, it's a complete chit show. But in the reality is, you know, we're not it's not just monetary policy. It's all kinds of what it really does is expand the scope of policy. The big P word. That's all it really does. which as you can see from that standpoint oh we're gonna have more tools if we have more tools we can

Starting point is 00:12:52 better address we can better intervene in the market we can better do all so like the pro argument sounds amazing but it's kind of like the like mmt stuff right it's like wait i get free money like yeah sure politicians how do i get elected like i'm gonna give you free money everyone's like yeah it's kind of like in high school when the student government you know thing gets uh done what does the winner always do they hand out candy always they bribe you exactly like that is what politicians are starting to do is like oh we're gonna give you a trillion here a trillion there i saw a clip uh recently somebody had one of the white house spokespeople talking and they were like uh yeah we need you know there's a bill or something with uh asking for

Starting point is 00:13:27 more money and uh a reporter was like you had trillions from covid uh relief where'd it go like you guys are out of money you need more money now and they wouldn't answer you like asked again he's like but like where did the trillions go if he was smart like we gave it to and so like you know people got all upset whatever but like i think that's part of this is uh you you then get the surveillance stuff right which uh is i don't know what are you how would countries around the world perceive the u.s if we issued a cbdc i think the western societies would definitely follow our lead on that um you know there's just sort of you know i would i would call like the dot there's a someone smarter than me uh hedge fund manager

Starting point is 00:14:12 I'm blanking on the name, but they kind of created this persona, the Davos man, the global man, the, you know, the institutional person, you know, that person. And I think, you know, pretty much every central banker in Western society is very connected to that community. They're in that part of that community. They're a very key part of that community. And so if we adopted a central bank digital currency, it'll be cheered. It'll be celebrated. It'll be, you know, further adopted by all the Western nations. And for probably for a extended period of time, it'll be a great thing, right?

Starting point is 00:14:40 Like the benefits will come sooner than the than the than the costs. And that's kind of the issue with a lot of these types of things, which is, you know, we give you free money. We give you all this stuff. But guess what? A year and a half later, we have the worst inflation we've seen in 40 years. And everybody's out there hurting and struggling. And oh, by the way, all that free money is gone. And it's getting eaten up, eaten alive by inflation, by rental increases, by, you know, food costs increases, by transportation costs increases. So I think it'll be very similar to that, which is, yeah, this is great. Oh, no, wait, it's not great. Oh, no, wait, it's getting worse.

Starting point is 00:15:10 What's the out? So the only way I think they could probably do this well, and what I mean by well is something that's acceptable to the four or five guys in this room, which is you'd have to sort of, you know, I think you'd have to amend the Constitution to account for the potential overreach of government and to society as a function of being able to sort of regulate the big P at a more kind of higher level. A lot of these politicians, there's Emmer, there's Lummis, Cruz, a bunch of them. I'm going to not be able to name all of them.

Starting point is 00:15:39 But a bunch of them want to either prevent the Federal Reserve from doing this and issuing it directly to the individuals. Or what they want is they want a guarantee that it will be permissionless and basically preserve all the aspects of cash around the privacy, et cetera. yeah and uh hard to see a path how we get there we we should right there's no chance why would a central bank go through all the problems of issuing a digital currency if they don't get all the goodies yes that's like yeah no it doesn't make any sense it's uh it's pretty crazy um we've got a uh a chart from you uh that you sent over the uh the bitcoin and ethereum yeah finally broke out to bullish we were talking about let's get into it baby broke out to bullish what i told you I told you we had a window of opportunity here.

Starting point is 00:16:29 You know, we still, like I said, we have this window of opportunity between now and let's call it May or June, where the economy is still hanging in there and growth's not decelerating fast enough to catalyze like a breakdown in risk asset prices. And in the context of this window, you know, the next chart actually is Bitcoin theorem charts, pretty obvious. The next chart, which I show the financial conditions actually viral tweet yesterday, which I think is pretty funny, which came from a hilarious conversation. I had with my good friends over the weekend, which is we still are like, we're all talking about tighter policy and quantitative tightening and rate hikes and stuff. But the reality is the Fed's only done one rate hike. The Fed's balance sheet is still, you know, eight, $9 trillion. And guess what? As a function of those two things, we still have booty models on TikTok giving financial advice, you know? And then so that

Starting point is 00:17:19 with the red line in that chart shows is the Goldman Sachs financial conditions index. So it's like the it's like the vix so when the financial conditions are really loose the chart the price of the red line is low when the financial conditions are tight it's like the vix you know goes up when things are getting worse financial conditions are tightening right now at the today we are as loose from a financial conditions perspective as we were or more loose rather than we were at the peak of the tech bubble the dot-com bubble the peak of the dot-com we are more loose today that is wild that is wild like imagine like back in 2000 i mean we wouldn't have TikTok, but you would have had like Wall Street Journal ads with like booty models pitching like

Starting point is 00:17:59 tech stocks. So that's exactly where we were. We didn't even have that back then. So this is not kind of making a joke with the booty models, but it's a microcosm of where we are today in society, where we are today in policy. And so until we sort of really start to drain that liquidity, you know, hike rates at a more expeditious pace, you know, it's very unlikely that we see, you know, new lows and things like crypto and digital assets. In fact, it's probably likely that we could you know see some some highs here but will we get back to the prior all-time highs put a gun to my head i'd probably say no i don't think the window of time is long enough for that um but i certainly and just relative to how fast we start hiking rates aggressively like yeah

Starting point is 00:18:36 this is a one to two month window at best you know it could be shorter depending on what happens you don't think that there's an opportunity for them to continue to increase in price in the face of that it's yeah so there's two countervailing forces right there's the holy crap this whole thing is it's everything the the the long-term secular bull case for bitcoin has it's all happening right now like everything satoshi's been saying since day one and every bitcoin bull who's been accumulated over the last decade plus is now seeing the the bull case play out in real time and it's a lot easier to sell it to somebody else who has not participated in the asset class so there's that that fundamental flow um there's but the on the other the other side of it you

Starting point is 00:19:16 still have you know a decent amount of people who bought bitcoin and either are institutional or people who have overly allocated to you know other risk assets and are feeling pain so it's it's you have these two massive forces uh my man jim carson um has been using this word i think it's a perfect word to describe what's happening in financial markets in the economy this year which is leptokurtic you know you have these sort of massive fat tail distributions you have these big forces on either sides of the tails that are really you know pumping up against each other. And, you know, we had a big, you know, kind of slip down in asset prices when the Fed sort of start to signal that they were going to reprice monetary policy in January. Then we had

Starting point is 00:19:54 another slip down in February with, you know, with the Russian invasion of Ukraine. Then we had a massive slip up as a function of, you know, one, we didn't fall off a cliff from growth terms. We didn't go to World War III. And so you're having all this massive two-way volatility. And so I think that's what's likely, that's what's been happening in crypto markets really since they bottom in early in late January and it could continue to happen but I just think the window of time for now is positive enough for the bull case to win for a little bit and how do you think about it when it comes to institutions versus retail right because if we get into a recession obviously retail they need money they need to access that capital right they can't last within

Starting point is 00:20:31 they can't hold it right uh but institutions potentially could even in the face of rising rates or whatever it is depending on kind of what catalyst we see if we see a positive catalyst are they able to stay in there and be able to see the price raise or institutions are they going to drop out also you think? The problem with most institutions any legitimate hedge fund has generally strict risk parameters you can't even really be a hedge fund these days without having very strict risk parameters

Starting point is 00:20:57 and most risk systems or volatility is kind of the central component of risk a measurement of risk VAR is kind of the most popular value at risk but there's other frameworks You know, I know Citadel uses a different framework. If we did got into anything that looked like a recession or more importantly, it's not even the recession because generally speaking, risk assets bottom in recession. It's the path to recession. It's going from economy slowing to, oh, no, wait, this could be a recession. That's the that's the window where you get the most pain. And so on that path, it's very unlikely that an institution will be able to maintain the same size exposure to a high beta risk asset because at the bare minimum, other high beta risk assets are going down in price.

Starting point is 00:21:40 And from a correlation perspective, that correlation is going to drag down Bitcoin and other assets. And even if it's uncorrelated, just the sheer fact that you've got to take down risk broadly means you've got to sell everything systematically just to reduce the size of your portfolio. And you don't think we're on that path. Like in my mind, right. It's pretty clear that we're probably on the path towards, but we haven't seen, I mean, we've seen some sell off, right. But we haven't seen total destruction bottoming out that you would imagine. Right. Exactly. And this is the great, great question. So that, that to me is like the trying to add some calendar to this. Cause to me that that's the name of the game in social finance is understanding like the actual catalyst and when things should happen. So you can actually

Starting point is 00:22:20 hedge appropriately in both directions um we are not going to be going you know remember i said that we had the window where it's like okay growth slowing we're below trend and if we keep slowing recessions it's going to go from a 50 probability something higher than 50 that to me that window is probably q1 of next year okay well how's this change if you got guys like dokuan in the market buying billions of dollars of bitcoin like how much of the macro gets overridden by market structure and the individual asset versus it flips and like it doesn't matter what's happening in the market it's the macro depends on what window you're in right now we're in a window where that could overwhelm prices to the upside i think if we were in q1 of next year they would

Starting point is 00:22:58 bury it would get overwhelmed by everybody else selling and so to me um the markets the markets have choices right so you know that's where i think the economy is likely to be i'm speaking to the u.s economy here you're probably a quarter behind um you know that's where the economy is likely to be in that particular timeframe. So asset markets can price that in sooner or later. It's never, you typically never more than one to two, at most three months ahead of those types of catalysts. So let's call it Q4 of this year. You're probably likely to see enough pain to, you know, to really spook investors, both institutionally and retail to kind of demand liquidity. And more importantly, I think what's most likely to happen is that demand for liquidity

Starting point is 00:23:38 is going to spook the Fed out of tightening us into a recession. We still have time to avoid the recession if the Fed doesn't do what it's already told us it's going to do. The problem is if they just do what they're going to tell us to do, they're going to be doing it for way too long, and by the time we get into the first part of next year, it'll be too late. So I want to switch gears for a second.

Starting point is 00:23:55 For sure, let's do it. We've been talking about Bitcoin and crypto. I'm going to throw a curveball and just get your thoughts. Oh, let's go. Because I just saw this recently. I can't hit a curveball for shit. Don't even look at me. The new home sale price in the United States is up 25% over the last year,

Starting point is 00:24:12 and it just today crossed and hit $511,000. Median. Like two weeks ago, it was a big deal because it crossed $500,000. It's an $11,000 increase in a matter of weeks. What the fuck is going on? Well, there's a lot of things going on in the housing market, but one, there's obviously not enough supply. For whatever reason, I can't tell you why,

Starting point is 00:24:34 But it's very probably for the same reasons that the energy sort of the EMPs, the energy producers, won't drill. You know, they just refuse to respond to supply. And maybe they're saying maybe it's a tacit admission that they themselves don't believe in the sustainability of prices. Now, generally speaking, you don't tend to have, and this is a very famous last words, you don't tend to have nationwide declines in home prices, which I think is what Bernanke said right before the financial crisis. So I'm borrowing a quote for him. So it's a little bit, you know, the lending standards, you know, in today's housing bubble are extremely different than they were back in 2003, 2004, 2005. And so, you know, you certainly, lending standards and products, you know, adjustable rate mortgages, all that kind of stuff, no income verification loans.

Starting point is 00:25:20 We don't have that stuff now. So the probability that we have a housing burst for this bubble is low. But what is likely to happen is you're just going to price people out of the market if you haven't already. and eventually you're just going to have a lot of inventory that does not move and homebuilders are not responding to the demand fast enough. So what's that going to do? It's going to create a massive sort of secondary wave that we're already experiencing that we're in the early innings of

Starting point is 00:25:44 in terms of rental inflation. Is it fair to say that this is a better measurement of inflation than the CPI? No, no. I mean, so neither is a perfectly good measurement of inflation, right? Which one's closer, 8% or 25%? no cpi because at least cpi is a broader basket right it's assuming it's assuming so which one's closer to three percent let me let me uh let me let me let me answer this appropriately that's a good question that's a good question so housing price inflation today is probably more reflective

Starting point is 00:26:18 of where the level of price changes in the economy than cpi but cpi generally is a better basket to represent price changes in the economy okay so over the long term cpi is better right now housing Like, right now, especially down here. That's a good answer. Especially down here. I mean, it feels like there's 50% inflation down here. Crema, they just jacked up another quarter. It's $5.25 now for a large iced coffee.

Starting point is 00:26:42 It's outrageous. When we moved here, it was like $3.75. How does that happen? How much is it now? I can't afford my pastries, man. This is getting ridiculous. I mean, look, by the way, I'll pay them $6 if they want for the iced coffee. Hear that, Crema?

Starting point is 00:26:55 Some people are like, I'm going to complain about the gasoline that I put in my car. You're about to get personalized prices. We don't need CBDCs for this. $10 iced coffee. Like, shit, okay. I need my gasoline to get going. And that's the issue with inflation, right? It's like, it's personalized.

Starting point is 00:27:15 Everyone in this room can afford a $6 or $10 iced coffee, although I'd probably stop myself out at $7. At $10, I'm just, I'm over. like if you get to nine dollars and 99 cents you got me you cross the 10 just on principle but i do think this idea of like how do you measure inflation right now and it's like okay i'm not going to go as far as to say i believe inflation right now is 25 percent in america but i sure as hell don't think it's eight percent i think it's double digits is it 12 or 20 so i told you it is it's already double digits it's definitely 10 minimally it's but that's what i'm saying it's like like when you start to look at what how to measure it like we're in the teens

Starting point is 00:28:07 at least so how we measure it um at least throughout the pandemic because you know there's been so much variance with respect to the covet waves it's been difficult uh to measure things in a year of your base or not difficult it's been stupid you know it's not a true representation of what's happening. So we've been measuring all, you know, mostly hard economic statistics on a month-on-month or three-month annualized percentage change basis, you know, which is, you know, similar to the year-over-year, but just looking at it month-on-month or three-month-on-three month. Inflation on a month-on-month annualized basis headline is 10% already. So we are having double-digit inflation. It just hasn't caught up to the year-over-year. It will catch up to the

Starting point is 00:28:42 year-over-year statistics, will catch up to the annualized momentum. That's what happens in the time series. And so, yeah, we do have double-digit inflation in this country, and it's probably being underreported if we're being honest the march inflation report oh where were we i was at eight five eight five it's coming out on sticking with that tuesday april 12th yep yep and this is before boomberg consensus hasn't even put out their forecast yet i think they'll do that tomorrow you think eight five eight five got eight five on the way to ten what did i say eight three i don't remember it was just below you i think we'll go to the tape but i i may go up now no no no no i here's why you should go up i actually you know you think you should go i think i think nine's

Starting point is 00:29:19 probably closer to the reality after seeing the european inflation data so in the last two days we got uh spanish german france and italian preliminaries march cpi data um they were all pretty high so spanish was like nine eight german was seven six france five one in italy seven percent all but italy like germany was like 100 basis points north of the estimate spanish was over 100 basis points north of the estimate france was like 30 or 40 basis points north of the estimate how much of that is because of energy given that they're so dependent on uh russian energy and natural gas uh versus the u.s has some differences or do you think it's pretty much across the board no it's gonna be across the board we're gonna feel the same energy price

Starting point is 00:29:58 shock as they felt and so the point i'm making is that inflation the reported data blew the expectations out of the water even though everybody on earth knew we were going to have a big surge in inflation on march and we economists still were too low on it and so i think the probability that Did we get a 10 print? I don't think so, but it could. How much do you think the inflation this month will be affected by, hey, we've seen price raises over the last year, so you can't raise that much year over year over year on a percent basis?

Starting point is 00:30:26 Yeah. The compounding effect. Yeah. Last year, inflation wasn't that high. Well, we didn't get it until a couple more months, right? I think it was like June was when we started getting into fives. March, yeah. So April, the April data was where the sequential momentum really accelerated.

Starting point is 00:30:43 And so April will be the first month where base effects really kick in. But again, that's a moot point. I think economists are being disingenuous right now. We keep talking about we, economists, particularly at the Fed, continue to say base effects, base effects, base effects, you're going to bring down inflation, base effects, it's going to be non-inflation. And that's true.

Starting point is 00:30:58 That's accurate. But the problem isn't the level of year-over-year inflation. The problem is the fact that inflation continues to accelerate. Price increases continue to go higher. So eventually when those base effects wear off, you're still going to be at like 10%. Well, your point is like, if you grow 5% year over year, and then you grow 4% the year over year from that, you shouldn't celebrate. You should be like, why the hell is it still going

Starting point is 00:31:19 up 4% after we went up 5% the year before that? Bingo. And we're actually, we're not even, so what you just said is accurate. And what I'm saying is what's actually happening is we grew 5% year over year, and we are now growing six sequentially. So the expectation that we're going to four next year is ridiculous. We're actually on our way to six, you know, not using those particular numbers. Do you think we hit 10% at all in the United States? So, again, we are at 10% sequentially. When we get to 10% year-over-year, we only have one month to do it because by the time we get to April,

Starting point is 00:31:47 the year-over-year numbers are going to start to come down. And so that's a problem for— You sound pessimistic. I mean, that would be a big jump from 8 to 10, right? Yeah, so if it happens, it has to happen in March is what I'm saying. The probability that it happens in April is much lower because the base effects accelerate so quickly in April. So that's—I don't know.

Starting point is 00:32:05 Again, we're a long ways away from anything that get the Fed off of what it's doing, which means we're a long ways away from getting back to a more positive market dynamic. I think it's 50-50. We hit 10%. Ooh, okay. Okay. I don't know. If this was a sports book, that would not be the odds. No.

Starting point is 00:32:27 No, you're runners are not. I'm going to caveat that. which is the 50-50 breakdown is, I don't think it hits it in March. I think we probably come, I do think that there's a higher probability of breaking nine than most people are assigning to it. It's like 9.1, 9.2.

Starting point is 00:32:44 After this data, I would agree. So 10, the only reason why I probably put higher odds on it is I'm not convinced that fertilizers, natural gas, oil, like all those issues, like I think people are like, oh, it peaked. there's not gonna be any more problems right or like we saw the worst of it but like i don't think we quite understand if fertilizer prices really do spike how it looks like they are it looks like we're not going to get a lot of the ukraine and russia wheat out of there yeah and so you start

Starting point is 00:33:15 to add this complex like there's too much global chaos and what i'm assigning more probability to than i think other people is that the fed and politicians don't know how to solve these problems from a first principle standpoint the only thing they know how to do is spend money and so if gasoline prices stay above five six dollars in the united states they're going to hand out gas cards if food all of a sudden becomes a huge uh issue they're going to start to do all sorts of things that create more inflation so stupid and so if you do that even though there's the base effect there's a shot again i say 50 50 because i don't know but it's just like there's a structural thing underway which their response unfortunately is going to be step in spend gas cards like all this

Starting point is 00:34:02 shit and like just how inflationary i don't know but they spent trillions yeah and we got to eight percent so far like the next bill what are they gonna do five trillion seven like these guys are just going to go bigger and bigger and bigger so i'll i'll push back on that a little bit because i agree with that's where we're going but the process of getting there is non-linear because you need 60 votes in a senate to change uh tax and spending law and so obviously you know democrats have the narrowest majority ever in the house and senate uh 50 50 with kamala harris being the tying vote they're not going to be able to change tax and spending law particularly ahead of a midterm election the republicans aren't going to go for that probably aren't going to do anything

Starting point is 00:34:44 that makes the Democrats, you know, helps the Democrats in any way. You're assuming that there's a difference between those two parties. There's a difference heading into a midterm election, but there's not a difference in terms of their policies. By the way, I've been saying that for years. I'm going to go on a rant right now. I've said this for years. Going back to 2017, Tax Cuts and Jobs Act.

Starting point is 00:35:03 When I saw that legislation, I said, wow, so it looks like the Republican Party prefers blowing holes in a deficit this way. The Democrat Party prefers blowing holes in a deficit that way. But it looks like both parties love blowing holes in the deficit. There's no difference between two parties fiscally anymore. There was when I first started on Wall Street, Paul Ryan and Ron Paul, those guys, there was a real faction that the Tea Party was legitimate.

Starting point is 00:35:23 There was no more Tea Party. There's just blowhole with tax cuts, blowhole with spending. But guess what? You're just digging a deeper and deeper hole, so rant over. No, but I think that this is the whole thing, is there's more of an appetite now to spend tax cut, like the whole thing, and I don't see a world where regardless of what the Fed does,

Starting point is 00:35:42 the fed is not just fighting inflation the fed is fighting politicians yeah and the politician i mean we've already seen it they did a press conference yesterday they're like we need more money and the guy's like what do you mean you had trillions where'd it go did you see aoc's comments about price controls no no oh my god this is like where do you get these people from like just pick up a book and read two pages of a book about how bad price controls what did she say just generally well she was just like like this is where we got to go we got to we got to do something about inflation so price control is the next you know what's funny about that on december 29th of 2021 i wrote a piece that said price gouging price controls and inflation and i basically said that

Starting point is 00:36:20 uh this is exactly what uh they were going to do and i uh the exact quote was the united states is experiencing nearly seven percent inflation and we see our politicians calling out various industries from beef producers to grocery stores in regards to alleged price gouging if history stores as a guide is unlikely that the corporations are actually price gouging it's much more likely that their labor material costs have drastically increased and then i basically started to talk about turkey and i think i talked about argentina in here if i remember as well uh but what i basically said is uh if you're going to continue to accuse grocery stores of price gouging uh including things like kroger with a three percent profit margin yeah all of a sudden we may

Starting point is 00:36:57 be talking about some issues and so instead what we need to do is we need to prevent against this And my whole idea was you better be very careful because the price controls, they're going to try to destroy the productive capacity of the economy. And it makes the inflation problem way worse over the longer term. This is how we got to the 70s. This is part of the 70s was price controls and unionized labor. We don't have as much unionized labor anymore, but I think we have a form of unionized labor in the sense that the the total number of job openings right now is one point seven times the total number of unemployed workers. which means workers right now have as much bargaining power as they ever had which is effectively a union right they're not unionized but in terms of worker bargaining power for wages

Starting point is 00:37:41 it's as high as it's ever been you're seeing you know the turnover in jobs is as high as it's been the quits rate uh right now in terms of private sector quits rates at 3.2 percent that's 20 basis points off an all-time high so people are actively moving jobs looking for higher wages at a rate that's never been seen before so it feels like we have unionized labor and obviously if we do anything that looks like price controls, this thing's going to get way, way, way worse. And the problem with this situation is that there's smart people in a room like ours

Starting point is 00:38:08 and there's plenty of smart people in plenty of rooms across the country and across the world that can see this slow motion train wreck. But the problem is they're not communicating or they don't have avenues to communicate to these buffoons like AOC and Senator Warren. And I mean buffoons because this is ridiculous. They don't understand economics. It's okay.

Starting point is 00:38:23 Where can people go to 42Macro? Oh, 42Macro.com. Go check us out. I'm at 42MacroDDale on Twitter. We got Bitcoin conference next weekend so come down here have some drinks with us let's have some fun yeah man i'll see you guys next week thank you so much appreciate it 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 head over to palmscryptocourse.com

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The Pomp Podcast - #894 Personalized Monetary Policy Is Coming w/ Darius Dale

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