The Pomp Podcast - Will The K-Shaped Economy Destroy America? | Darius Dale

Episode Date: June 25, 2026

Darius Dale is the founder and CEO of 42 Macro, a leading investment research firm. In this conversation, we break down what Kevin Warsh's Fed chairmanship means for monetary policy, the K-shaped economy creating historic affordability pain for millions of Americans, and why every investor must participate in asset markets to survive financial repression.=====================Award-winning Fountain Life - Energy supercharged. Memory sharper. Life extended. Ready for the best investment you’ll ever make? Schedule a life-changing call at http://fountainlife.com/pomp Get $1,000 off the cost of a life-changing membership with Fountain Life when you schedule a call at https:www.http://fountainlife.com/pomp=====================Simple Mining makes Bitcoin mining simple and accessible for everyone. We offer a premium white glove hosting service, helping you maximize the profitability of Bitcoin mining. For more information on Simple Mining or to get started mining Bitcoin, visit https://www.simplemining.io/pomp=====================Looking for a better place to trade? BloFin gives traders access to deep liquidity, advanced futures products for crypto AND TradFi assets, fast execution, and a clean, intuitive interface—all in one platform. To celebrate their partnership with us, they're giving away $100,000 in Deposit & Trade Rewards. Deposit, trade, and earn rewards based on your activity during the campaign. Check them out at (https://partner.blofin.com/d/Pomp ).=====================Arch Public is an agentic trading platform that automates the buying and selling of your preferred crypto strategies. Sign up today at https://www.archpublic.com and start your automated trading strategy for free. No catch. No hidden fees. Just smarter trading.=====================0:00 - Intro0:56 - Kevin Warsh & the new Fed10:27 - Energy prices & the consumer12:58 - The affordability crisis17:30 - Real cost of living (cars, diapers, groceries) 25:31 - Economic data & future outlook31:35 - Mag 7 & the AI CapEx bubble34:55 - Political instability & societal collapse

The job of the Fed is to boil us alive without us hopping out of the pot. If we hop out of the pot, then we have financial stability concerns, and then we have all sorts of issues that cause problems in the real economy and asset markets at the Fed that will be worse than just having, you know, sticky above target inflation. And so, you know, this is the lesser of two evils in the context of the fiscal dynamics that we continue to highlight in the U.S. economy. What's going on, guys?

Today, we've got a great conversation with Darius Dale. He's here in person. We talk about what's going on at the Federal Reserve, Kevin Walsh stepping into the leadership role, how you should think about inflation expectations in relationship to actual inflation. What does this mean for your portfolio, for public stocks, or how should you actually think about the impact of AI? On top of that, we dig into the affordability crisis that is hitting millions and millions of Americans. We talk about some anecdotal examples of exactly what it means. I literally look up live

some prices of items that are going to shock you. And Darius explains some of his life experience and where he's actually started to meet people and what he's learned from them. All of that and much more in this conversation with Darius Dale. All right, Darius, Kevin Wurst now has taken over the control of the Federal Reserve. He's the big dog at the Central Bank, and he seems to be wanting to run the place a little bit different. What's your take on his original press conference and kind of what he's doing differently than his predecessor? Yeah, look, before we even get started, man, I just want to say thanks for having me. Love this set, man. And this studio is gorgeous. I feel like I'm part of history in here, man. So let's make some history today.

um i'll say the first thing i'll tell you is that you know we think kevin warsh is a dove in hawks clothing what does that mean a dove in hawks clothing someone who ultimately wants to have easier monetary policy uh maybe because of his relationship with the administration but i doubt it i think he genuinely believes that ai has massive disinflationary potential however he has to wear the armor of a hawk in order to create the scope, the landing space for the Fed to get to that outcome. And so ultimately what we think we're going to have to do here over the next, let's call it two to three quarters perhaps, is the Fed has to either tighten monetary policy or use this communication tool to signal to the markets that it may tighten monetary policy or

both in order to create that scope for a much- Why do you think it needs tighter monetary policy? Like if you look at inflation expectations, maybe over the last couple of weeks it started to come down. Do you think that that changes that need for them? Yeah. So what I'll say on inflation expectations, we've done a big statistical analysis on the drivers of inflation, the things that lead and lag inflation and inflation expectations have very little statistical relationship with future inflation outcomes. What has a meaningful impact on future inflation outcomes are things like the monetary drivers of inflation. So the rate of change of money supply, the expansion and or contraction of the money velocity. That's important. There are policy

drivers of inflation, most notably deficit spending, the Fed's monetization. And then to the extent that there's meaningful deregulation in the banking sector, which there currently is, the credit growth cycle can be a leading indicator of inflation. And then there's ultimately these sort of, I don't necessarily agree with them. There's these sort of like output gap drivers of inflation to the extent that the economy is growing above potential or the unemployment rate is below the NARU, the non-inflation accelerating rate of unemployment. Those are all the kinds of things that kind of lead inflation. Nothing perfectly leads inflation, but when you put all those things together on net, they're sending a very hawkish signal to policymakers and to the

markets that the Fed has to do at least a little bit of something to get this- Because these signals, you're basically saying these signals are saying, hey, inflation is going higher according to these different data points. And therefore, if inflation goes higher, then they're going to have to act. Yeah. Well, what it's saying is two things. So it was saying inflation is going higher. It may be saying inflation is starting to peak, but peak at very uncomfortable levels and trend at very uncomfortable levels. What they're currently saying is that we're not at all on a credible path towards disinflation and certainly not on a path towards achieving

the Fed's 2% target anytime soon. So let's unpack some of those drivers of inflation like we just started. We'll start with the output gap, Nehru, the output gaps at about 110 basis points, usually at about 200 basis points. You're talking about a Fed that has to tighten the economy into recession. So we're halfway there, basically, a little bit more than halfway there. Nehru, we've seen the unemployment rate get more meaningfully below Nehru. It's currently about 20 basis points below Nehru. You get it to about 100 basis points below Nehru, which I'm not sure we're going to do in the context of AI, but that's when the Fed typically has to tighten the business cycle into a downturn. On the policy drivers of inflation, you look at the year-over-year rate

of change of deficit spending that's growing at about 8% well above trend. You look at the year-over-year rate of change of Fed monetization that's growing at about 7%, 8% year-over-year well above trend. And then you look at bank credit growth, which is also growing at about 7% year-over-year well above trend. The growth rates of these statistics are very inconsistent with a 2% inflation environment. And so ultimately, and you also have the lagged impact of 175 basis points of rate cuts that are flowing through the economy right now based on our business cycle model, which confirms that there's about an 18 month lag between changes in the policy rate and outcomes in the economy. You think they've given up on the 2%? Oh, for sure. You and I have been

talking about this for almost half a decade, at least six years almost. Yeah. Now the Fed doesn't want 2% inflation, but the Fed has to signal to the bond market that it wants 2% inflation. Otherwise, it's going to lose control of the long end of the curve in a way that will be kind of productive to their maximum employment and price stability mandates. So ultimately, we've been saying for years at our company, 42 Macro, to our global investor community that, look, we're all frogs being boiled alive in a pot of financial repression and monetary debasement. The job of the Fed, you know, Kevin Walsh, in my opinion, I think he's a pretty credible Fed chair in terms of doing this particular job, this aspect of the job. The job of the Fed is to boil us alive without us hopping out of the pot. If we hop out of the pot, then we have financial stability concerns. And then we have all sorts of issues that cause problems in the real economy and asset

markets at the Fed that will be worse than just having, you know, sticky above target inflation. And so, you know, this is the lesser of two evils in the context of the fiscal dynamics that we continue to highlight in the U.S. economy. Now, when we look at the Fed right now, inflation is hanging in there, right? It's higher for sure, but it's not like it's significantly, at least some of the signals telling us it's going to accelerate from here. PCE came in though. And I think people are looking at that and they're saying, wait a second, this is a little bit higher than I thought it was going to be. The market sells off and there's some concerns there. So it almost feels like there's different data points telling us different things, which means that it's complex. It's confusing for a lot of folks. Is that why the Fed is just saying, we're not going to do anything? We're not going to hike. We're not going to cut.

Just keep kicking the can down the road. Let the complexity work itself out and let us get a clearer picture before we make a decision. Yeah, I think that's part of it. You're spot on about the complexity theory. And then you've seen, you get our research. You know, it's never one data point. I've been doing this for almost two decades and tried to build every model.

Like, if there was an Occam's razor way to pinpoint to the decimal what inflation was going to be at every parameter with the non-farm payrolls print would be at every print, then we'd have figured that out by now. I mean, if we can build AI, we can certainly figure out what the nonfarm payrolls number is from a statistical standpoint. But the problem is, is that the variance and the standard error on all these time series, these often revised time series is too wide. So you have to have a mosaic approach when you're approaching financial markets and modeling the economy. It's never just one data point. What it is, is an amalgamation of data points that are sort of moving together like a swim of fish or a pattern, you know, a clock of birds. Yeah, let them swim a fish. that they're going to tighten monetary policy in a meaningful way, i.e. making a big pivot with their balance sheet, which we can talk about, or, you know, kind of ratcheting up for guidance through the dot plot. Because we know Kevin Warsh doesn't like the actual talking. Yeah. What's interesting to me is he got rid of forward guidance, which he might as well just say, hey, we're going to stop bullshitting, right?

You said it, not me. Bullshit. And by the way, like, that's OK, because the market was like, hey, everyone kind of sort of knows this isn't real. It's guidance, but we got to listen to them because it's another data point they're giving us. And so almost in a weird way by subtracting that data point from the market, they're trying to be additive, I get the sense of, and clear up some of the complexity because they're taking away a thing that really had no standing in terms of accuracy. And so by taking it away, does that help investors? It won't in the medium term. I think over the long term, it will. In the medium term, removing the fans' handholding of the bond market, you're essentially taking off the trading rails.

And so ultimately what that means is that there's going to be a wider range of probable outcomes with respect to the expected path of the policy rate, which should push up the term premia. And there's going to be a wider and as a function of that wider range of outcomes to fit the bond market is also not going to know how serious the Fed is on inflation to some degree. It's going to pull back on that. And so ultimately you wind up with a higher real term premia, a slightly higher inflation risk premia. So it should inflate term premium in the bond market. But the benefit of that, of going through that pain, because this is not a costless exercise, but ultimately there is some good on the other side of this. The benefit of that, as Kevin Walsh alluded to last Wednesday in that FOMC statement, is once you take the trading rules off of the bond market, the financial markets can get back to do what they're supposed to be doing, which is pricing risk and assigning units of risk and return. And so once the financial markets get back to doing that, then the Fed can actually start to lean on financial markets as a forward looking signal of what they should be doing from a policy standpoint. Right now, if you're sitting at one of the 19 members of the FOMC, you have to be sitting there going, should I tighten monetary policy because the two year went up? Or is the two year going up because it expects me to start talking more hawkish? Like right now, you don't know what the chicken or the egg is.

And so if you cut off the communications channel, you create more of a clear distinction between what the markets are signaling and what the Fed may or may not do, which allows the Fed to then tap into the collective wisdom of the crowd, which we all know is much better than any committee. What about energy prices? Like those spiked, obviously, now they've come back down. We even saw below $70 a barrel for a few hours, I think, in the last couple of days. If energy keeps staying somewhat muted or even falls further, does that put less pressure on inflation and therefore that would be good for the American consumer? Yeah, of course it is. And we saw that in some modest resilience in the PC report today. I think we accelerated, we have a weak positive impulse in real personal consumption expenditures to a slightly below trend rate of 2.1%. Return is about 2.5%. But again, this is coming at the context of having a massive inflationary surge and ultimately in the context of real disposable personal income down about 1.5% through methanulize, well below trend. So, you know, the fact that the consumption is only slightly lower than trend and we have a sharp decline, sharp contraction in the income, real income, tells you that the consumer is being very resilient, which is something I first called out, I think, on your program in the summer of 2022 when everybody was talking about recession. recall that on this program in the fall of 2021 i said hey there's going to be something that nobody's talking about that everyone's going to start to talk about over the next let's call it 12 months i said the r-word and then by the summer by the fall of 2022 i said everyone needs to stop talking about the r-word because the economy is going to be resilient they're talking about the

wrong r-word and so um you know we think all this data really does support our resilient u.s economy theme which ultimately gives the fed a little bit more scope to tighten monetary policy not meaningfully, but, but, but, but they can. Today's episode is brought to you by Fountain Life. Your body is incredibly good at hiding disease. Unless you look. True wealth isn't measured in possession. It's measured in the time you gain, the energy you feel and the life you create. It may be the smartest investment

of your time you'll ever make. Life is so very, very precious and I want each of you to be truly awakened to your aliveness and live longer without limits. your number one job is to educate yourself and Fountain wants to help educate you. Now, when we go and we look at what's happening in the economy, obviously asset prices have taken

off once again. The American consumer is resilient, yet they're all complaining, saying that everything's unaffordable. And my take is that all three of those things are true. It is unaffordable because of how much price appreciations happened over the last five or six years. But we live in an economy where, oh, the Knicks are going to the finals. I to get a ticket, right? Oh, this is personal on Instagram just bought this thing. I need two of them. Oh, this trip is going, yeah, that looks cool. Let me get the photo, right? That is the economy that we live in. And so then the question kind of becomes, do we just live in a world where everything is about output as a consumer? I want to output capital into investments. I want to put

output into consuming material goods. Is that just the new normal? It's been the normal since We outlined that resilience economy thing back in the fall, in September of 2022. Pomp, you were a parent of four beautiful children, you and Polina. Tell me this. Is there a median or average statistic that you could use to describe and set policy for all four of your children? No, of course not. Exactly.

And so when you think about that from the perspective of the broader macro economy, you have to recognize that this is, you know, we look at aggregate statistics because they are useful for forecasting financial markets and policy responses. But there's really nothing, you know, homogenous about those agri statistics, you know, and, you know, the very heterogeneous when you start to break it down. So, you know, our analysis, you know, in terms of the research we've published to our global investor community highlights the K-shaped nature of the economy through two channels. On the low end of the K, we see that delinquency rates, 90 day plus delinquency rates, you know, heading for charge off for credit cards, auto, student loans are either exceeding or right near the peak rates that we saw, you know, at the height of the global financial crisis and great recession. Like right now, right now, even with, you know, reasonable consumption growth, stock market booming, you know, the economy growing well above trend on a nominal basis and earnings growing at a level that's, you know, historically unprecedented in an economic expansion, a

multi-economic expansion, we have basically global financial crisis level delinquency rates on an aggregate basis, which tells you how bad it is for the households at the bottom of the K. At the top of the K, we, you know, we obviously, you can very- Killing it. We're killing it. Look, I hate to say it. We're killing it.

And one of the core drivers of that is something we talked about last time I was in your program, the West Village Montauk Effect thesis. You and I have some boots on the ground knowledge on that. So the key takeaway from the thesis is when you have a high stock of savings, you don't need to save as much of your income. So you have a low flow of savings from a savings rate perspective because you already have a high stock of savings. And how I arrived at that conclusion was just boots on the ground research out in Montauk and West Village over the past 10, 20 years. What I noticed is that the people at these well-established places, hard to get in places like a surf lodge or a common ground, the people who spend the most money at those places aren't necessarily the people with gray hair, balding hair and folks like you and me. It's the people who are in their mid to late 20s who have rich parents. And it's not pejorative. I'm not saying this in a pejorative manner. But what I'm saying is that because they don't have to save for retirement, for a rainy day to take care of their parents like many people do, they then can go spend a greater share, a greater proportion of their income into the economy month after month because they don't need to save. And so taking that same lesson from my personal experience and applying that to the macro economy, we see that the stock of cash, checkable deposits plus money market fund exposure on the aggregated household sector balance sheet in the U.S. economy is up to just shy of $12 trillion from a starting point of $3.5 trillion just prior to COVID. it. So we've grown about $8 trillion in cash. It's crazy. More than tripled in terms of the amount of cash on the household sector balance sheet since just prior to COVID. And so you apply

that same West Village Montauk effect thesis to the whole economy. Now the folks at the households at the top part of the K have all this cash they're sitting on on an aggregated basis, which means they can take the personal savings rate down and down and down. And so no matter what happens to income, they can always dip into those savings to continue to support consumption. That's exactly what we see. We have a strong negative impulse in the personal savings rate. I think the three-month average rate on that is somewhere close to 3.5%. The pre-COVID trend was somewhere north of five, maybe 6%. And so that's exactly what's happening. That's exactly what we continue to see. And I guess part of that is not only are they spending on all goods, but you can

only spend so much money on groceries. You can only spend so much money on gas, right? What ends up happening is if you have the excess savings that you're going to use for consumption, it starts to trickle towards things that you frankly don't need. And so that's where you see luxury prices exploding, experiences exploding. I mean, it's just crazy to see. I use sports affordability as a very weird dynamic. I saw Frank Michael Smith recently had a video that he put out and he talked about the idea of like private equities now starting to participate in these different sports leagues. What do they do? They need to flip this thing in three to seven years. So guess what they're going to do? They're going to start to degrade quality and increase cost

so that they can extract more profits. And as they do that, that means that valuations go up and that's how they make money. Whether you like private equity or not, they've been doing this for decades and decades and decades. At the same exact time,

the pool of people who have capital. I mean, when the Knicks finals happened in Madison Square Garden, you have a city full of 9 million people. That doesn't even include Knicks fans all around the world who then say, wait a second, I think MSG's got like 20,000 seats.

There are 20,000 seats to go to this thing. Let's say that there's a couple thousand that are not going to be sold. They're going to give them away or whatever. Okay. So maybe you got, I don't know, 16,000 seats. You put them in front of 9 million people, some who have been waiting 50 years. 50 plus. No wonder the get in ticket price is $7,000 for the nosebleed seats.

Shocked it wasn't higher. I'm actually shocked it wasn't higher. And so you look at this dynamic of you have so much capital that is trying to chase these things. Now that's sports and somewhat unique, scarce, live events, et cetera. but that's playing out all across the economy and that's why you start to see some of these price points of different items that come out is crazy and i've even talked about diapers i mean you uh uh are in the heart of being a uh a parent of a young child right changing them every day

and i talked to plenty she's like yeah i spent yeah i bought two boxes of diapers off amazon 150 bucks i don't know how people buy diapers like you it's crazy their sticker shocked us So we make tons of money and no offense, but like, like there, it's ridiculous. How do people afford to have kids in this country? Well, that's the whole thing is they're, they're not. And then the other piece that I saw recently is, uh, you know, one of the data points are now pointing to as to why people aren't having a third kid, gotta get a new car. Right.

So if all of a sudden you got to get a new car, then go look at car prices. If you go look at pick 10 cars that have been around for a while and go look at how much they cost. It's crazy. It's insane. Go to the luxury side of the market. So if you're a family and you say, okay, I want to have something that's super nice

and I want to be able to put my kids in it. So if you go and you look at New York, there's all these private drivers all the time. They got Escalades. It's probably one of the most popular cars there is, right? If you go look, a brand new Escalade is like $130,000 to $150,000. Wait, what?

It's crazy, right? i without exaggeration i'm pretty sure that when i was in like elementary school middle school a ferrari was like 200k yeah right maybe 175 to 225 somewhere in that range was probably 20 ish 25 years ago that was a ferrari a escalade suv these things are super super nice right yeah but even if you go on the lower end of a large vehicle for a family that's got you know multiple kids etc you're still talking about 70 to 100 grand for a brand new car and so you start to look at this and you say to yourself like dude what is going on this is crazy yeah too thanks for sharing that because that breaks my heart uh i mean i think i've taught i'm sure i've talked

about this on your program you know my very humble beginnings you know it's been many of a year in homeless shelters and waiting in food bank lines and and you know that was i had a rough you know 0.001 percentile, uh, kind of upbringing, uh, prior to going to Yale. And that breaks my heart, what you just said, man, I think the greatest sin that we've seen was the policymakers convincing us that the feds $7 trillion balance sheet is not inflationary. Okay. What a sin. I mean, if you hear I've, I've, I've long had this, this core principle, um, which allows me to kind of see the world from a political standpoint and a social standpoint and ultimately an economic standpoint uh at a very high level and i'm about to share this with you guys if i strongly believe

that all money is is just a transferable unit of human time and so you think about the devaluation of money of purchasing power what you're really doing is you're devaluing someone's lifetime their time their precious time that they have here on this earth you're devaluing that and so you have to work more and more hours just to be able to afford a car that can fit you and your wife and your three kids in just to make your ends meet. And it breaks my heart. Obviously, the government's been highly incentivized to under-report inflation in terms of the cost of living adjustments for things like Social Security and Medicare. So we know they're under-reporting inflation, but we can just see, going back to those statistics that I highlighted,

We have all-time high delinquency rates at credit card, auto, and student loan. All-time high, the same kind of levels that we saw in the height of the Great Recession and global financial crisis on an aggregated basis. So we must be twice as high if you're thinking only focusing on the lower end of that K. And so this goes back to where we started the conversation, which is we don't ultimately think the Federal Reserve is serious about 2% inflation, but they have to at least pretend that they're serious about 2% inflation for two reasons. One, you're going to lose the long end of the curve in terms of the bond market if you don't. And more importantly, come on, can we give the folks on the bottom of the K a break? No. You want to know why? I just looked up. What do you think a 2026 Honda Civic costs? I hope not more than 15, 20 grand. Okay. 29 to $32,000 for a 2026 Honda Civic. Now they got hatchback sports, sedan sports, all these kinds of different variations, but 29 to $32,000 is what I'm seeing just by Googling Honda Civic. Now let's say that that's New York, right? And the surrounding areas. Okay. What does that mean?

What is it in the middle of Missouri or Iowa or in Arizona? You think it's that different? Probably not. Probably not. Right? And so you start to say, okay, hold on a second here. You know what's interesting? The poverty line in America is still officially $15,000 for a single person, I think $30,000

or $32,000 for a family. Try to go to McDonald's and eat for 365 days a year with $15,000. You're going to run out of money by August. It's crazy, right? So then you say to yourself, okay, well, hold on a second. That's a brand new Honda Civic, right? So some people may say, well, I don't necessarily want to do that. Again, I just Googled Honda Civic. The first used car that I see show up in the sponsored section is in Jackson Heights, a 2022 Honda Civic, $21,000. Are you kidding me? So you start to look at this. And again, people can play, you know, anecdote versus anecdote all day long. But we're talking about pretty simple things.

Car, diapers, gas, groceries, all this kind of stuff. So then the question becomes, okay, if that stuff is continuing to tick up, then I think a lot of people in the economy have basically convinced themselves the only way out of this thing is I got to invest. I actually agree with that. I agree with that. But then they're faced with, hold on a second, these AI stocks are flying. But every time I turn on the TV, all these people are telling me the end is near, a big crash is coming, the bubble, you know, like all this crazy stuff.

And so I think a lot of people are saying to themselves, wait a second, I know what I'm running from, right? I know I got to get away from the affordability stuff. And hopefully they got enough common sense and their head screwed on, right, that they're not turning and looking at the crazy extreme socialism nonsense and saying that's the solution. They're saying, I got agency, I'm going to go and fix this with my portfolio. How do you look at the equity market? And AI is this amazing thing, but also there's people who are really scared. They're like, you know, watch out below. Yeah. Look, man, I think you're asking the question, which is, you know, you need to participate, right? Everyone, you have to participate. If you're not trying to put yourself, align your income and wealth creation with the income and wealth creation activities of the folks on the top part of the K, then you're going to be left behind. You're going to be suffering from a historic Cantillon effect. That's, in my opinion, I think that's the number one cause of the political angst that we see in this country is there's a Cantillon effect. Oh, you mean the richest counties in America are all around Washington, D.C.? Yeah, well, that's part of it.

How'd that happen? That's part of it, 100%. Bipartisan sucking from the teat of big government. You want to know another interesting stat I saw recently? This one blew my mind. 89% of people over the age of 65, they are in support of raising taxes on young people so they can continue to get paid their benefits. That's wild, man. My question, how is it not 99%?

Well, some people care about their grandkids. Only 11% do. It's 89% of people over the age of 65. Well, they're probably suffering from the same dynamic in terms of everything we're talking about from a Cantillon perspective, the rapid increase in everyday items that you actually need to survive. They're suffering too. A lot of these folks are on fixed or limited income, certainly relative to where they were midlife. And so I understand their angst and I empathize with them and I support their desire to improve their own situation. But the problem is, isn't raising taxes on people who barely make any money and have no savings. I don't want to get political here, but the reality is we know that we have a wealth pump on. Peter Turchin talks about this in his work. Ray Dalio alludes to this in his work. My former colleague and mentor, Neil Howe, alludes to this in his work. You know, we have a, you know, just we for a variety of reasons, mostly because of campaign finance, we've allowed, you know, the elites, I guess, technically speaking, we're part of that class. We've allowed our class of people to change regulation in ways that is very harmful for the common man. We've allowed the folks in our class to change fiscal policy in ways, particularly tax policy in ways that are very harmful for the common man. And then we ultimately allowed them to change monetary policy in ways that are very harmful for the common man.

You know, the Federal Reserve's, you know, balance sheet and interest rate policy. I mean, you know, if you look at, you go back to 2021, just using this as an example, you know, the Federal Reserve kept the policy rate in 2021 prior to the big upsurge in inflation that we're still talking about today. They left their interest rate at a level that was about a thousand basis points below what the Taylor rule would have said at the time, which is the most common kind of, you know, model based estimate of the policy rate. So 1,000 basis points compares to 700 basis points for Arthur Burns in the 70s at the height of his malfeasance. You think about the balance sheet took up to 36% of nominal GDP. We're at 21% of nominal GDP now. Why is it at zero? Why does the Fed need to constantly be expanding its balance sheet and devaluing, creating more supply of money in a way that devalues the purchasing power of money that is obviously very clearly being underreported? you know, if you look at measures of, you know, economic angst, you know, financial hardship, all those types of measures, they're going one way while at the same time, the equity market and wealth of the folks like us is going another way. You know, the only way out of this mess is to turn off the wealth pump. We're going to have to eat some, some, some, some, eat our vegetables for once in the last 30 years, at least we're going to have to eat our vegetables in order to save

our country. And I'm not sure that everyone in the baby boomer generation agrees with that, or we'll go, you know, along with that. I think there's a lot of people who say, what can I get, right? What can I get? Today's episode is brought to you by Simple Mining. Bitcoin mining has a reputation for being complicated, risky, and hard to evaluate as a real investment.

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crypto traders. Go sign up, pay attention because we're giving away $100,000 in deposit and trading rewards. Now, the other thing that I think is really interesting is when you look at the equity market is the MAG-7, they were killing it. They were the pretty girl at the bar. Emphasis on were. Huh? Emphasis on were. Were, yeah. Now I saw someone say it's not the MAG-7, now it's the LAG-7. 493 other stocks, they're flying. And so on one hand, that's how indexes work. And thank God

this is a team sport. And so, you know, some carry some at other times. But on the other hand, maybe people should be concerned. Maybe there's cracks in the armor. Maybe the, you know, the valuations aren't what people thought they were. What's your take? On the Mac seven specifically, there's two things I would say. One, we've all, we've been of the view since last fall that the Vespas will use the Mac seven as a source of funds to capitalize AI adopters. And there's two primary drivers of that. One, you know, this is where the card of positioning was. And so to the extent that investors get more excited about the economy and the diffusion of AI throughout the economy, they're going to start to look at the other 493

or the other, you know, 3,000 stocks and start to capitalize, use their profits and their proceeds on the MAC-7 to start to capitalize other businesses, which were very cheap on a relative basis and then uh the number two point is on the max seven specifically on the on their on their you know own operating dynamics and i'm not an analyst you know this is not not my own um you know analysis but you know there's some real questions about the decline in their free cash flow right you know historically speaking when you have big capex cycles two things since that happens one you always overbuild uh we've seen this with the railroad the canals the consumer durable goods uh internet technology every time you have a capex bubble there's always some element

of overbuilding. And two, whenever you, you know, when you go from an asset light business to an asset heavy business, your maintenance capex starts to get much, goes much, it ascends to a much higher height and stays at an elevated level. And so there's a real question about the massive expected recovery and free cashflow for these companies and the ultimately these stocks in the coming out years. I think, you know, if you look at sell side estimates, you know, they basically have a hockey stick recovery and free cashflow for these companies starting in like 2029 or 2030. And like, that seems very unlikely in the context of history, those CapEx bubbles. And two, the fact that you're going to have to constantly be, you know, maintaining these

data centers. It's not like you can build a data center and leave it alone for 10 years. You're going to have to continue to reinvest. We'll put them in space. No, we can't get them down. Well, I think that's another thing. I think Elon's pitching this data center in space thing to get away from the pitchforks. Because if we don't turn off the case-shaped regulatory policy, You know, without, you know, the lack of trust busting, we've seen the Supreme Court's, you know, coddling a big business in recent decades. You know, we don't turn off the K-shaped fiscal policy in terms of the convoluted tax code, 10,000 pages, 10 million words of ways for people like us to get more income and siphon wealth from the bottom part of the K. We don't turn off the K-shaped monetary policy, then the pitchforks will come out. They're going to come out.

They may already be out. Well, no, we would hear it because America has 400 million guns and 300 million legal owners. So you will hear the pitchforks in this country. And so, you know, I have the great privilege of living somewhere. I used to live in the city, obviously, for a long time. And I have the great privilege of living somewhere that's, you know, it's not rural. you know it's definitely nice um you know in terms of the the income stratification but the surrounding areas are you know what you would consider to be what what elites like us would consider to be trump country and so i go to church with a lot of folks like that and i'll tell you one thing uh i'll tell you a few things uh from this experience because the first time i've the first time in my life i've ever been around poor white people if you don't mind me saying that like i grew up around very poor black people very poor hispanic people very poor uh samoan people

tongan people very poor african people immigrants um i'd never seen poor white people then i went to yale it's just a bunch of rich white people then i moved to new york even richer white people you know then i dabble in miami rich white people rich latin people now i live somewhere where there's you know still rich white people but you know the surrounding areas and surrounding towns are are not affluent at all in fact you would consider most you would consider these folks to be on the bottom of the k and uh and i'll say a couple things one these are some of the sweetest nicest kindest people you're ever going to meet um the media does them a terrible injustice in terms of how they characterize them as you know racist and and and and and you know sexist and

and just you know deplorables if you will to borrow a a horribly used phrase um so that that deplorables moniker is not true uh what everybody wants is the same thing to be able to take care of their family 100 that's all anybody wants now that i've seen poor black people poor hispanic people poor Samoan people poor African people and now poor white people I tell you right now everybody wants the same thing which is to be able to take care of their family period I tweeted this recently I said politics has become a competition between two extreme groups that are competing to capture votes by promising unsustainable policies to unhappy citizens yep and so in a weird way both political parties are offering a different form of socialism yeah one is saying we're going

to give it to the top and it's going to trickle down the other side is saying we're going to take from the top and we're going to give it to the bottom 100 you nailed it i don't know if either one of those is going to work no it will unfortunately they're not going to work and here's why uh peter turchin um the the cleo dynamic specialist uh complexity theorist um whose work i tremendously admire and is featured in in our own research peter he's the author of ages of discord in times um you know probably the the best mathematician the person who's applied math to this problem, the best in the world. He would say what you just, this dynamic that you just described is what we call intra-elite competition. Whenever you have what he calls

elite overproduction, which is the concept of having too many elite aspirants and not enough elite positions for those elite aspirants, whenever you have elite overproduction and popular immiseration, which is folks not being able to get ahead and falling behind from a real income perspective, which is what we've been doing for 50 years, ever since Nixon took us off the the gold standard. And we put our foot on the accelerator with the neoclassical era of the Reagan administration. And obviously neoclassics plus devalued fiat money equals 50 years later, you have a country full of very angry people who can't get ahead. And so you have popular miseration plus elite overproduction equals unstable society. And so unstable societies,

whenever you have these types of dynamics, they've studied, I want to say, I think their database has studied 168 civilizations dating back 5,000 years. They've collected data over the course of 10 years to arrive at this conclusion. 75% of those 168 civilizations end in violent collapse, not collapse, violent collapse. And we are certainly tracking one of the most extremes of that combination of dynamics. It's crazy to see just how much we're following historical trend it's crazy it's it's actually kind of scary i'm as a father of a two-year-old son i'm hopeful very hopeful that whatever reckoning that we're heading for we're vast i think we're fast heading for uh happens you know be before you know my my son is of military age

100 i uh i agree all right uh anyone who has not yet checked out 42 macro darius is one of my uh not only smartest friends, but I think that they do an incredible job in terms of putting together very, very kind of intelligent, but thorough. And I think thorough is probably the most important word, research to help investors, a lot of institutional investors, but increasingly a lot of independent, sophisticated investors who manage their own portfolios, help them figure out what's going on in the market, what's going on in the economy, what's going on with monetary and fiscal policy, and then how do you invest your capital, understand different regimes that markets are going through, where the economy is going through. So go check them out at

42 macro.com. I appreciate you coming in my friend. Oh, it's a real pleasure, man. Thank you for allowing me to speak my voice. You know, I think we have a, you know, I, I obviously I'm an investor and that that's what pays the bills, but you know, someone who's ascended from the very bottom of the, of the, of the K, um, to somewhere in the, you know, I would say certainly above the middle of the top part of the K, um, you know, I feel like I have a duty, I have a duty to, to, to heal our broken society. I may die trying, uh, but I, you know, it's very important for me. So thank you for allowing me to be part of your platform and spread this message and hopefully more people take it to heart. I think you're doing a great job. Do it again soon.

Thanks, brother. Appreciate you.