#927 Darius Dale On The Odds Of A Recession This Year

Darius Dale is the Founder & CEO of 42 Macro, the leading macro risk manager adviser. In this conversation, we discuss the macro economy, what's happening in the financial markets, how Darius is looking at various metrics, and what you should be considering as you're investing your capital. Darius joins us every Thursday on "The Best Business Show." To see the video with the corresponding charts that Darius references throughout the interview, go to "The Best Business Show: LIVE" YouTube Channel ======================= Exodus is leading the world out of the traditional financial system by building beautiful and user-friendly blockchain products. With its focus on design and user experience, Exodus has become one of the most popular and loved cryptocurrency apps. It’s supported on both desktop and mobile, allowing you to sync your wallet across multiple devices so you can have access to your funds anywhere. You can instantly exchange around 100 different cryptocurrencies straight from your wallet. Interactive charts let you view an asset’s price history and your portfolio’s performance over time. And maybe the best part, Exodus is integrated with the Trezor hardware wallet - making advanced security easy for everyone. Visit exodus.com/pomp for your free download or search Exodus on the App Store or Playstore. ======================= Today’s episode is sponsored by Abra. Based in California and backed by top VC firms, Abra is an all-in-one simple, secure app that allows you to trade over 110 cryptocurrencies, get 0% interest loans using your crypto as collateral and earn interest with up to 14% APY on stablecoins and 8.15% APY on Bitcoin. Join nearly 2 million users by downloading Abra from the Google Play or Apple App store. If you download the app today, you will get $15 in free crypto once you fund your account. You came, you invested — now conquer. ======================= DeFi Technologies represents what’s next in the digital economy -- providing simplified, trusted access to crypto, decentralized finance and Web 3.0 investment opportunities. Institutions and investors can gain diversified, secure, compliant, and easily tradable access to a diversified set of industry-leading equity products and protocols, through a single stock purchase on a regulated exchange. Currently listed on U. S. (OTC: DEFTF) and Canadian (NEO:DEFI) exchanges. For more information or to subscribe to receive company updates and financial information, visit our website at http://defi.tech =======================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  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 Exodus, the world's leading desktop, mobile, and hardware crypto wallet. They offer beautiful, user-friendly blockchain products that sync

• 0:43Anthony Pompliano?

  across all of your devices, making it easier to send, receive, and exchange over 150 or more crypto assets in one place. And with world-class customer service available to you 24/7, Exodus always has your back. But the fun doesn't stop with staking and trading. They recently launched a new NFT marketplace where you can buy and sell your favorite NFTs on the Solana network. By partnering with the popular NFT platform, Magic Eden, they're offering the full Monty on verified collections, with more added every single day. Ready to check it out for yourself? Run, don't walk. Over to exodus.com/pomp for your free download today. Again, if you want the world's leading desktop, mobile, and hardware crypto wallet, go to exodus.com/pomp today.

• 1:26Anthony Pompliano?

  Today's episode is sponsored by Abra. They're based in California, and they're backed by top VC firms. Abra is an all-in-one, simple, secure app that allows you to trade over 110 cryptocurrencies, get 0% interest loans using your crypto as collateral, and earn interest with up to 13% APY on stable coins and 7.15% APY on Bitcoin. You can join nearly 2 million users by downloading Abra from the Google Play or Apple App Store. If you download the app today, you will get $15 in free crypto once you fund your account. You came, you invested, now conquer. Abra, conquer crypto. Go check it out today. This episode is brought to you by DeFi Technologies. DeFi Technologies represents what's next in the digital economy.

• 2:10Anthony Pompliano?

  They're providing simplified trusted access to crypto, decentralized finance and web three investment opportunities. Institutions and investors can gain diversified, secure, compliant, and easily tradable access to a diversified set of industry-leading equity products and protocols through a single stock purchase on a regulated exchange. DeFi Technologies is currently listed on the US exchange at DEF TF stock ticker and the Canadian NEO exchange at DEFI. For more information or to subscribe to receive company updates and financial information, visit their website at defi.tech. I'm really excited about what these guys are doing. I've become an advisor to the business and I highly suggest you go check them out. Go to their website

• 2:52Anthony Pompliano?

  at defi.tech today. All right, let's get into this episode. I hope you guys enjoy this one.

• 2:56Speaker 01

  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.

• 3:19Anthony Pompliano?

  All right, we got a lot of stuff we gotta talk about. Let's start with, uh, maybe Bill Ackman recently supposedly lost $430 million on Netflix.

• 3:27Speaker 02

  I would love to be in a position to lose $431 million.

• 3:30Anthony Pompliano?

  And by the way, his fund's only down 2% for the year. So like he's chilling. He's chilling hard. Uh, Netflix, Facebook, all this stuff is down pretty significantly. Uh, Robinhood, I mean, just like they're all down. Is the bleeding over or is this just the start of something that could get way, way worse?

• 3:49Speaker 02

  Yeah, no, I still think it's the start of something that's going to get worse, uh, way, way worse, you know, for Netflix in particular, probably not. I mean, damn thing was down 30, 40%. Um, but, but the point is like, you know, when you're in these sort of financial market bubbles, I think we can all agree that, you know, the past couple of years was a bubble, pull up a chart of pretty much anything on a log, certainly on a, on a non-log scale. When you're in these bubbles in the equity market, you know, there's always kind of like one or two big companies that come out and, you know, report something, either earnings or guidance, that's really negative and causes the stock to collapse. You know, and that's usually the beginning of the end of the bubble. I would argue Facebook last quarter was kind of like the predecessor for this move we're seeing in Netflix.

• 4:30Speaker 02

  But you go back to the, you know, the housing bubble, Bear Stearns kind of collapsing in 2007 was a, was a big deal. You go back to the prior tech bubble, you know, 2000 Qualcomm kind of missed and guided down, and that was kind of the end of the tech bubble. And so there's always these sort of like seminal moments when you look back in time and say, hey, look, that's kind of when like the whole valuation narrative changed and the kind of range of probable outcomes that investors would assign to value these companies, you know, really started to shift downward. And I think that's exactly what Netflix has kind of given us the looksy on.

• 5:02Anthony Pompliano?

  When you start to see this, how do you know when the market's bottomed? Like, should people look for certain signs to say like, okay, now's the time to deploy capital, which I think is what Ackman was trying to do. Netflix had already fallen, then he went in to buy some, and he said, you know, we're so glad that the market provided this opportunity for us. And then it fell another 35%. So I don't think he thought he was buying something that was falling. I think he thought he was buying something that was heavily discounted, and it was basically bottoming, and then he would benefit on the recovery. So what are the signs that you look for for the stock market to quote unquote have bottomed?

• 5:34Speaker 02

  Yeah, so it's obviously, it's impossible to, not impossible without luck, but it's very difficult to ascertain tops or bottoms in real time, right? And so you have to rely on like different sets of indicators to give you a good sense. So, you know, for something like on a fundamental side of things, when you're looking for a bottom, what you want to find is sort of one be within, you know, one or two quarters of a real second derivative inflection in growth. And generally speaking, you want to be in that part of the process where the third derivative is already improving, it's already positive. So, you know, that kind of is like the first sign that you're getting close to the bottom from a fundamental standpoint. From a policy standpoint, you obviously want to be very close to a dovish pivot out of the Fed or out of the major central bank of the, you know, kind of economy that you're investing in, China, PBOC, you know, ECB.

• 6:19Speaker 02

  And so like, we're Obviously not anywhere close to that. We're nowhere close to a growth bottom. And then typically when you're having an event in asset markets and this could be for single stocks, could be for credit, could be for the broader index. You know, typically what happens if you're, you're already having a problem, investors tend to overpay for volatility, near-term, short data protection. And what typically marks the bottom is sort of you rolling past the expiration of those options. They evaporate. They don't, you know, they don't exist anymore. Investors monetize those options. And then the dealers who sort of have to short futures, short things to kind of hedge that, that risk to the downside. They start to unwind those trades and that tends to create that force of bottom. So neither of those three things, which I would be looking for to ascertain a bottom in something like Netflix or the broader stock market have occurred yet.

• 7:02Anthony Pompliano?

  So when we start to think about the reason why some of this has happened, stocks got super overheated. There's all this undisciplined monetary fiscal policy. We talked about that quite, quite a bit. There was a very interesting comment that I saw. I think it's the Linds economic advisor, Mohammed El.

• 7:19Speaker 02

  Al Anzai, Mohammed El Airi.

• 7:21Anthony Pompliano?

  Yep. And what he described was this idea that the Federal Reserve may actually move their inflation target from 2% to 3%. So I went down this deep, you know, rabbit hole, did this whole look at, that's a 50% increase. That didn't take me that much of a deep dive to figure out, right? But what is an inflation target? How does it work? Right? I wrote all this stuff. And the deeper I got it, and I was like, this may be one of the biggest stories in finance right now. That doesn't seem to be getting a lot of attention, but like, do you think that they would raise the inflation target from 2 to 3%? Like, what would the ramifications of that be?

• 7:55Speaker 02

  So let's, let's talk about what, let's go backwards because the ramifications are more interesting than whether or not if I think they'll do it or not. I don't think they'll do it. That's the kind of quick takeaway. The ramifications are very, very positive because it means the Fed has more leeway from an inflation standpoint in terms of their reaction function. So if you have a higher inflation target, all things being equal, you don't need to tighten as much to get inflation back towards neutral, back towards the, the target. You know, right now core PC, which is their preferred metric is running at a preposterously low 5.4%. Doesn't even sound right when you say it out loud, but let's just say it's 5.4%. That's still, you know, 240 basis or 30. Three hundred and forty basis points above where they're, you know, so where the midpoint of their target range is.

• 8:35Speaker 02

  So that's a big deal. But if it was only two hundred and forty basis points, they would have to do less tightening, less quantitative tightening, all that stuff. And so whether or not they'll do it, the reason I don't think they'll do it is because, you know, when you look at most polls, you know, whether it be consumer confidence readings, you know, Gallup polls, or any sort of like politically oriented poll, inflation really for the past few months has really been the dominant sort of number one fear factor in America. It's been the number one reason why people are pissed off. And so for me, I think the Federal Reserve just kind of give it reading the tea leaves between the Biden administration, Jay Powell, Janet Yellen, and all the kind of commentary we're hearing back and forth. It strikes me that they realize that if inflation got worse and if they were deemed to be perceived to be perceived to be doing

• 9:19Speaker 02

  less than they already are to combat inflation, that would actually exacerbate the problem, make it worse for Democrats to have a successful outcome in November, although they're probably not going to have a successful outcome in November. It's the last time we'll see a dual Democrat majority for quite, quite some time.

• 9:34Anthony Pompliano?

  Yeah. When you start to then think about they're not going to do it, why do you think they're not going to do it?

• 9:40Speaker 02

  Well, this is everything I said. I, if the, if you think the key, the key to winning in November for the midterm elections is to get inflation, inflation genie back in the bottle. And the reason I say that is because the Republican sort of campaign narrative, and particularly the early parts of this, this campaign process, which they get earlier and earlier, obviously, is that Democrats gave you inflation. We're here to fix it. And so the Democrats, it's very powerful. It's, it's, it's worked every time. There's not been a time in U.S. history, going back to the Civil War, and I'm sure probably before that, where that narrative, where that message resonates, it resonates with the people, with the common people. And so the Democrats, if they allow the Fed to sort of ease up on combating inflation, or if they allow inflation just to get worse from either the Fed or from other existential circumstance,

• 10:25Speaker 02

  they're going to get not only just like lose, they're going to get absolutely buried and could potentially get like sustainably buried for, I'm talking like multiple election cycles.

• 10:32Anthony Pompliano?

  But if they move it to three percent, then they have less to get back to their quote unquote target, and then can't they claim like a false victory?

• 10:39Speaker 02

  They can claim a false victory, but people aren't stupid.

• 10:44Anthony Pompliano?

  They told us it was transitory for a long time and people believed them.

• 10:48Speaker 02

  That's why people were pissed off.

• 10:49Anthony Pompliano?

  Yeah, yeah, yeah. I love, I love everyone, but the, the, the education level of the nuances of economics is not quite as high as I think it should be.

• 10:58Speaker 02

  No, not at all.

• 10:59Anthony Pompliano?

  And if something tells me that if they raise the target to 3%, they would gaslight all of us. But oh, so of course it's 3%. If we got to the three, like, look how close we are.

• 11:08Speaker 02

  Totally. And this is the problem, right? Like, it's, it's like, human beings feel the, like, the change in inflation. Like, we, you know, like, we all, like, what matters is the rate of inflation, not like the level, you know, the price of, of goods. Because obviously, things are always changing in the economy. And so getting it back to three would be a victory relative to where we are now, right? Like, we're 5.4%, you know, for core PCE, we're 8.5% for headline CPI. That is a directional victory, but it's certainly not a victory that one that you could sell to the general public. Because even though the general public might not understand the revision to the Fed's inflation target, the general public will understand that, hey, we're probably, the, the rate of change, the inflation level that we're experiencing today is higher than it was when XYZ was president or Congress, you know, was run by this other party.

• 11:53Speaker 02

  So that's the key takeaway. It's that, like, they're politically damned if they do, damned if they don't. And I think the longer, for the longer term sustainability of Democratic Party, getting inflation under control has to be the number one objective.

• 12:04Anthony Pompliano?

  Yeah. We've got this chart here that you provided, saying headline CPI likely needs to average a lot more than just under 3% to catalyze the permanent death of the 60-40 portfolio and/or risk parity. What does that mean in plain English? And what is it showing us?

• 12:19Speaker 02

  Yeah, so the, that chart, it goes with the other chart, which I'll explain in the, in a second. So right now, stocks and bonds are going up and going down together. That's the, they have positive correlation. And empirically speaking, I'm not really sure why. I'm sure there's some theories out there academically. But at least empirically speaking, when inflation is over 5% headline, you typically see a positive correlation between stocks and bonds. And so right now, obviously, we're, we're, you know, 350 basis points above that. And so we've seen this positive correlation between stocks and bonds really start to, you know, it kind of started last summer, but it's really intensified year to date. You know, the reason I Sort of sent you that chart was as a function of the previous chart, which is the Japanese yen devaluation narrative. And so let me give you a little, let me give the listeners a little background on that because that to me is one of the

• 13:04Speaker 02

  kind of underappreciated things that are happening in global macro right now. So the BOJ, because Japan has struggled to generate inflation, had been in, you know, some version of hybrid deflation for a couple, you know, almost two, three decades now, they want to inflate money, they want to continue sort of stimulating monetary policy. They want to continue inflating and so they have this, the policy where they try to cap bond yields in Japan. It's called euro curve control. They are buying unlimited amounts of BOJs to effectively keep the cap on yields. And it's causing the yen to basically get eviscerated. It's, you know, it's going down as fast as it's gone down in quite some time and many years. And so that, that chart really says, okay, hey, look, one of the reasons the yen is going down is because the US rates are getting,

• 13:46Speaker 02

  you continue to go higher and higher and Japanese investors want to go, you know, pick up the higher yield differential. And so, you know, the, the issue is, was the, the issue in the treasury market was that investors thought the BOJ would stop this yield curve control program and start fighting inflation like everybody else. We never thought that, but that was, that was the consensus. And the BOJ sort of effectively came out and said, no, no, no, no, we're going to continue expanding our balance sheet at an unlimited pace to maintain this sort of level of easing in our economy. And so at the margin, that is positive for treasury bond prices. That's negative for yields, which is negative for, um, which is positive for, for, for the yen at the margin. Now, it doesn't mean treasury bonds are done going down. It just means that you're removing this kind of bear case, this part of the bear case out of the Jenga board, if you will.

• 14:29Speaker 02

  And so going back to the correlation chart, if treasury bonds have, or no longer have that sort of bear case in the Jenga board, you could sort of take that out of that bear case out of the stock market as well, because they're positively correlated right now. Sorry, that was a really long winded explanation.

• 14:43Anthony Pompliano?

  But, but it's fascinating to kind of think through this because this is the complexity of the entire system right at play here. And each person or organization that has some levers that they can pull.

• 14:52Speaker 02

  Totally.

• 14:52Anthony Pompliano?

  They're all pulling them, but I may be pulling levers that I don't know, that you know that I'm pulling, right? And so it's all happening at the same time. And so when you start to think about this. Where's the safe haven? Like, if you kind of look at the whole board, you say, all right, I'm playing, I'm playing the game. I just want to be in capital protection mode. Is it cash? Or is it something else?

• 15:13Speaker 02

  Yeah, so I mean, I've been saying cash is king. It continues to be king. US dollar, I know it's probably unpopular in this room, but like, US dollar in these types of circumstances, particularly in a circumstance where the Fed looks like it has more runway, just has a function of the trailing strength in the US economy. It looks like it has more runway, not more runway to not only be more hawkish sooner, but also to stay hawkish for longer than other central banks, particularly relative to Europe. And so if you're looking for an asset that can appreciate in value, you know, the US dollar relative to the euro, US dollar relative to Swiss franc, US dollar relative to the, you know, most currencies is going to do well. You know, for whatever reason, gold is really hung in there for the most part, even though real interest rates have backed up quite considerably.

• 15:56Speaker 02

  And so, you know, that, you know, we all, we talked about a few weeks ago, or maybe a month ago, you know, kind of about the incremental attractiveness of gold in this kind of new, I would, I don't know if it's regulatory or geopolitical regime where, you know, they can just confiscate your, your, your central bank reserve, or your FX reserves. And so I think about the gold, I think about dollar, more dollar morsel than gold. And then, again, just, just don't be a hero. Just take down your risk. You don't need, you can buy, you can be long the same amount of stuff, by the way. Or sorry, sorry, the same composition of assets. I would not recommend being long the same composition of assets. But even if you just wanted to have a high beta portfolio of cryptocurrencies, you just need to have a lot less of that on. You know, sell half of it and then raise cash, right? If you want to maintain that exposure, but I would not necessarily argue that that's a good idea either.

• 16:41Anthony Pompliano?

  So here's two wild stats for you. Gold is up 10% over the last year. The S and P 500 is only up eight. So gold's outperforming the S and P in the last 12 months.

• 16:49Speaker 02

  Both are underperforming inflation.

• 16:51Anthony Pompliano?

  Correct. And

• 16:54Anthony Pompliano?

  Over the last three years, both gold and the S and P 500 up exactly 53%. So dead even flat for the last three years, gold and S and P 500.

• 17:02Speaker 02

  Wow, that's crazy. That's what a stat. I didn't even know that. Do this for a living.

• 17:07Anthony Pompliano?

  That's pretty crazy, right?

• 17:07Speaker 02

  That's crazy, yeah.

• 17:08Anthony Pompliano?

  So to get to get flat for the last three years is pretty nuts.

• 17:14Speaker 02

  I mean, that tells you everything you need to know about why the S and P is up 53% over the last three years.

• 17:18Anthony Pompliano?

  Yep.

• 17:19Speaker 02

  Everyone will tell you it's innovation and earnings growth and all the stuff that Wall Street is goes to business school to, you know, train, train you and tell you. But the reality is, if it was all that stuff, you'd see a spread between the performance of the stock market, you know, capital assets relative to a store value. And so clearly, the stock market is really appreciated in lockstep of the store value because investors are using it as a vehicle to speculate on balance sheet expansion out of the Federal Reserve.

• 17:43Anthony Pompliano?

  Yeah, it's, it's pretty wild to kind of think through this. Joe, John, what questions you guys got?

• 17:49Speaker 03

  How do you think, people in the chat were asking about travel. Travel's surging a lot and everything related with that. How does that play into all of this? Does this make it just worse in your opinion, or does it not necessarily matter?

• 17:58Speaker 02

  So travel, let me take a step back and ask that from the market perspective, like if you look at airlines, so on a trending basis, airline stocks, hotel stocks, restaurant stocks, you know, those kinds of like that kind of that bucket. Those things are have been trending lower and making lower highs for quite some time. Over the past sort of six weeks or so, they've been kind of making higher lows. So the chart looks like it has bottomed, at least temporarily. And so that at the margin is a signal that, you know, things aren't falling off a cliff yet from that perspective. There is still a reopening impulse left to to kind of walk to get us through. Now I happen to think in the month of, you know, April, we're kind of towards the tail end of that reopening impulse. Maybe we get one more month of that in May, at the most into June.

• 18:43Speaker 02

  But the reality is, we've already seen a lot of the reopening. You know, if you look at the economic statistics and all the things that would be associated with that, so.

• 18:51Speaker 02

  You know, again, it's just, it just really just, I would argue it's probably not even as positive as you might want it to be because the reality is the more growth we get upfront in this particular time period, the more tightening we're going to get.

• 19:03Speaker 04

  Yeah.

• 19:03Speaker 02

  You know what I mean? Like it's just the central bank is, you know, going to look around and see that financial conditions aren't tight enough and they're going to start talking 75, I mean, Bullard said on Monday, 75, 75, yeah, floated, I mean, he's a floater, by the way. They always push him out of the door when they need to sort of go incrementally hawkish or incrementally dovish.

• 19:19Speaker 04

  Yes.

• 19:19Speaker 02

  And so, you know, it's the, if we keep seeing higher growth and higher inflation numbers, because, oh, by the way, you need growth to slow to slow inflation, that's usually how it works, then you're going to see Bullard come out of the door and then you're going to see somebody fall out of the door after Bullard and eventually it'll be 75 basis point hike, which by the way, we haven't done since 1994.

• 19:35Speaker 04

  On the macro side of things, obviously, we're not the only country that is looming a recession, right? Bunch of other bond markets have kind of inverse Japan, for example, and other countries as well. How does that all, how does that all like play into effect? Like other, is everyone going in towards a recession, like similar to what the US is? Or is it just different country by country?

• 19:52Speaker 02

  Yeah, so Japan is a little bit different in that, in that it didn't have the sort of amplitude of the recovery that a lot of other economies had. So it's unlikely to sort of, I mean, Japan is always kind of a foot in the grave in terms of recession. So let's be clear about that. But like, you know, do I see the same level of recession risk in Japan? No, probably not. US, Europe are probably front and center in that regard.

• 20:14Speaker 04

  What, so let me ask this differently. How do I make money in international markets right now with a recession in the US looming?

• 20:20Speaker 02

  I mean, money in national, in international markets?

• 20:23Speaker 04

  Yeah.

• 20:24Speaker 02

  It's probably not the best place to be putting your money. I mean, if you're, if you're, if you're going to remain involved in the equities asset class, then defensive, defensive companies in US markets are the best place to go. Utilities, consumer staples, healthcare. Now, I would even say all REITs because not all REITs are defensive. But you know, there's places to park your money. And again, I keep saying this, there's two ways for me to answer these questions. There's the, are you a retail investor or someone, you know, just managing your own money? Or, you know, like you have the ability to get out of the asset class, then cash is always an option. If you're not a retail investor, institutional investor, and you're not, you know, going into cash or raising You know, cash in that regard, then you need to make relative performance bets. And the relative performance bet right now, relative to international equities is very clearly US defensives over everything else.

• 21:09Anthony Pompliano?

  Gotcha.

• 21:10Speaker 02

  Yeah.

• 21:10Anthony Pompliano?

  When you start thinking about stocks in particular, Berkshire Hathaway, obviously, we're seeing CalPERS is going to vote to, to, to take out Warren Buffett. What's your thoughts on, on that specifically? And then like, how do you think about a stock that is kind of the epitome of like value stocks in this environment?

• 21:26Speaker 02

  What, what has Warren Buffett done but generate a crap ton of returns for all of his investors over the last five decades, right? You're like, what is that?

• 21:33Anthony Pompliano?

  It's a, what have you done for me lately league?

• 21:36Speaker 02

  This is, that's, this is, that's, I mean, look, that's, I think that speaks more to the sort of like dichotomy, this, this battle we continue to see that's emerged between baby boomers and millennials and Gen Z, right? Like, there's probably some new quanti millennial running CalPERS or Gen X person or, you know, that's backed by a bunch of quanti millennials and they're looking at grandpa, you know, grandpa Warren and they're saying, hey, look, there's a better way to do this now. And I'm not saying that they're wrong or they're right. It's just that to me, it's more of a dick of this generational struggle that we continue to see pop up in, in various corners of the markets and economy.

• 22:09Anthony Pompliano?

  Yeah, it's, um, it's really interesting. Are there any other stocks that you're like, these should do really well in this environment?

• 22:15Speaker 02

  Stocks.

• 22:16Anthony Pompliano?

  Like, like any equities in particular that you're like, man, you know, this is, uh, this is super interesting for ABC reason. Like, obviously Tesla is doing fantastic right now, right?

• 22:26Speaker 02

  So, yeah, I don't cover individual stocks, but I mean, you know, the problem with, the problem with like, so this is what you want in this particular environment, which is very, very difficult to do, right? You want companies that have a runway to growth that are not attached to, to the economic cycle. I mean, if you could find those companies, you would be a billionaire, you know, hedge fund manager. So let me, let me, let me caveat that saying like, that's what all the hedge fund managers are doing and most of them do it poorly. So like, you know, it's not, it's not, it's not even, sorry, not most of them, at least half of them do it poorly by statistical, by statistical definition. And so like, yeah, it's, it's hard, but I mean, like, if you have a company that just has like a, a ton of runway out of regulatory or there's some product innovation cycle, like a biotech, they just discovered a cure for cancer. I don't care if we're in recession or not, that stock price, that, that stock's going up. You know what I mean?

• 23:11Speaker 02

  So like, you want store idiosyncratic stores like that. The problem is, is that in this easy money era, we've been deluded into thinking that everything in the Kathy Wood ARK portfolio is, is one of those names and everything in the, you know, the XLK, the tech ETF is one of those names. And the reality is no, it's been the damn central bank balance sheet.

• 23:27Anthony Pompliano?

  Yeah.

• 23:30Anthony Pompliano?

  They 10xed the balance sheet since 2008, 2009. Can it go 10x from here?

• 23:35Speaker 02

  Yeah, it will go 10x from here.

• 23:36Anthony Pompliano?

  You think the Fed's balance sheet will go 10x in the next 10 to 15 years?

• 23:39Speaker 02

  It might take another 10, 15 years, yeah. But it's, yeah, it's, why would it? This is not, until they fix whatever the hell is wrong with the system that causes them to keep doing it, and I'm not even sure that anyone really knows what's wrong. I think, I, I, sorry, I have a theory of what, what's wrong with the system. The, the problem with the system is that the buy side, the risk has been pushed to the buy side in terms of, banks used to know their clients, know their customers, know their regions, know their geographies, and they would extend credit based on relationships and, and metrics and all this other stuff. And, you know, it was easy to sort of like, understand the risk and, and even transfer the risk, syndicate the risk and all that stuff. Now, all the sort of risk-taking and risk pricing and understanding fundamentals

• 24:23Speaker 02

  happens on the buy side in the shadows. It's literally called the shadow banking system for a reason. You know, private equity firms, hedge funds, you know, mutual funds are doing all the sort of capitalization in the economy. And so that's an inherently less stable system because I'm at hedge fund A and I don't trust the valuation that hedge fund B puts on this credit or this, this company or whatever. And so there's a lot more friction in the economy in terms of, one, just that kind of process. We don't all agree and agree that this business is worth XYZ. But there's also a lot of friction in terms of funding. Had the way hedge funds get funded, private equity funds get funded, it's a lot, it's more inherently unstable than just plain old bank deposits, you know, something like that. So, we are in a more inherently unstable system, which is why, you know, the kind of advances of society,

• 25:06Speaker 02

  partially why, it's not the only reason why, but partially why the advances of society and the economy have been sort of flowed in such a, you know, not, not a homogenous manner. You know, we haven't seen like, everyone benefit to the same degree.

• 25:18Anthony Pompliano?

  Yeah. It's, um, it's really interesting too, I think, when you start to look at the companies that are still doing pretty well. Uh, they are the like, really, really innovative companies. But like Tesla as an example to Amazon.

• 25:33Speaker 02

  Yeah.

• 25:33Anthony Pompliano?

  For a decade plus, people were mad at, uh, uh, Amazon. They don't make money, they don't make money, they don't make money, it's a shit stock, it's overvalued, it's whatever. Bam. Most valuable company.

• 25:43Speaker 02

  Totally.

• 25:44Anthony Pompliano?

  Tesla seems to be following a similar trajectory, which just three years ago, I mean, there's maybe 18 months ago, there's still people like, it's going bankrupt.

• 25:50Speaker 02

  Yeah, probably less than 18 months ago, right? Like, they're generating real money now, like, this is legitimate business.

• 25:57Anthony Pompliano?

  So do you think that eventually Wall Street and investors start to realize like, hey, these types of companies, like, they're not often, but when they come around, like, you know, I don't know, the best investment strategy the last two decades was just bet on Elon Musk.

• 26:11Speaker 02

  Bet on whatever he said.

• 26:12Anthony Pompliano?

  Tesla, SpaceX, Neuralink, PayPal, SpaceX, or SolarCity, like, all of them, just whatever he touched, just bet on it, boring company.

• 26:21Speaker 02

  Dogecoin.

• 26:22Anthony Pompliano?

  I don't know about that one.

• 26:26Anthony Pompliano?

  That was good. No, but like, but in some way, like, that was literally the thing to do. And you could argue the same thing about Bezos, right, is just like every single thing he touched. I would even argue-

• 26:35Speaker 02

  AWS, man, it's the most, the best business in the world.

• 26:38Anthony Pompliano?

  Yeah, I would even argue, like, maybe there's like a Mark Zuckerberg, right, like, obviously with WhatsApp and Instagram, that kind of value accrued into Facebook's is a little bit different, but Elon has given investors six shots on goal to invest in companies that he's involved with over the last, you know, probably 25 years. Every single one of them is a billion dollars or more, two of them are 100-plus billion, and one's a trillion-dollar company.

• 26:59Speaker 02

  Yeah. Here's one thing I would, I agree with everything you're saying. I think there's a nuance to the story, however. The reason Elon Musk can be a, you know, sort of payment processing person, pivot to cars, and pivot to solar, and pivot to, you know, whatever else he pivoted to, and the reason Jeff Bezos can go from selling books, to selling trinkets, to selling, you know, hosting services, it's because we haven't had a legitimate cost of capital in this economy for two decades.

• 27:31Anthony Pompliano?

  Yeah.

• 27:31Speaker 02

  Certainly not on a real basis. And so, you know, you allow companies that are, what the lower cost of capital does, and there's been research from the Federal Reserve itself that confirms what I'm about to say, is that that depressed, suppressed cost of capital, as much as you think it's sort of stimulating, you know, investment and stuff at the margins, all it's really doing is, you know, reducing the cost of capital for established players. And really forcing it really forcing all of the capital in the economy to these established large players. They allowed them to build uncompetitive moats, allowed them to sort of just spill over in every business. You know, I mean, what business doesn't, you know, Apple do at this point, you know, that. And so that's this is why they're being so partially why they're being so successful is because they have an unfair advantage from a cost

• 28:13Speaker 02

  of capital perspective. If, you know, rates were like 6% on a real basis in terms of raising debt, you know, for Tesla or for raising Apple, you know, we wouldn't see him pivot to SolarCity or pivot to, you know, some other thing that is, you know, away from his core business because the probability of success on that on that capital, you know, actually generating cash flow on that capital is lower. The people who would actually, who really truly know solar or who really truly know all these ancillary businesses like Instagram, you know, for Facebook, those are the people that can actually generate returns with the capital. And so right now, we're just allowing the legacy players to kind of dominate as a function of these sort of easy money.

• 28:53Anthony Pompliano?

  The last thing I have is more of like a breaking news thing.

• 28:56Speaker 02

  Who, yes, give it to me.

• 28:57Anthony Pompliano?

  CNN Plus, which is like this whole streaming thing. So, so obviously.

• 29:03Speaker 02

  See, they have a plus? What the hell does that mean?

• 29:05Anthony Pompliano?

  They spent $300 million trying to build this and less than 10,000 people a day were watching. It's only been live for like a month or so.

• 29:12Speaker 02

  I get 10,000 views a day on my YouTube channel.

• 29:15Anthony Pompliano?

  Facts. And they're shutting it down. 300 plus.

• 29:20Speaker 02

  They could have just gave me 300 million. I guarantee I would have get a better channel. This is a far better channel, not even close.

• 29:28Anthony Pompliano?

  Do you want to, if they gave me 300 million dollars, you know what I would do? I would for a year give away a million dollars a day to the audience. I'd just say, hey, look, we're just going to give away money every single day. You'd have the biggest YouTube channel in the world.

• 29:40Speaker 02

  Apps of freaking lootly, holy cow.

• 29:42Anthony Pompliano?

  Right. 300 plus million dollars they spent on CNN Plus shutting down.

• 29:45Speaker 02

  Actually, you probably break that up into like 50,000 a day for like 10 years.

• 29:49Anthony Pompliano?

  I mean, it's crazy, right? So when you see stuff like that, like, I do wonder how much of trends are changing in the market. It is all the monetary and fiscal stuff as well, but like, there is consumer behavior changes where like, they made a big bet. I think of this as like, real estate, right? If you go to, go to New York City, think about, um, uh, maybe 2014, 2015, a bunch of builders were like, oh, all this Chinese money's coming here, all these foreigners are coming in here.

• 30:15Speaker 02

  Those stupid towers.

• 30:16Anthony Pompliano?

  And they started building a ton of inventory. And by the time that they got done building, all that money had dried up because of various capital controls, etc.

• 30:25Speaker 02

  China devolved stuff.

• 30:26Anthony Pompliano?

  Yep. And so now all of a sudden, they're off with all this inventory, all the foreign money they thought they were going to sell it to dried up. And they're like, oh shit, like, we're left holding the bag. Now, they've been able to salvage it a little bit, but they're definitely not selling it to who they thought and for how much they thought they were going to be. This seemed very similar. All these people are like, oh, let's do streaming. And Netflix is like, dude, we just lost 200,000 subscribers. Like, I think the trend is changing and all these people who took two, three, four, five years to build it, they're going to miss the window of that growth.

• 30:53Speaker 02

  This is exactly what happens in every industry. Capital chases returns and returns are generally highest in industries, you know, with limited capital, you know, you need, you know, so like, now there's a ton of capital chasing streaming content and the returns on generating streaming content just aren't going to be the same. You know, it's actually pretty funny, like, I think it's the microcosm of the day. You know, I, uh, when, when I saw Netflix collapse yesterday morning, I like, kind of triggered me, I was like, oh, do I pay for Netflix? And I found out that I pay for Netflix, so I canceled my Netflix. You know, like, because I didn't even know if I was paying for it. I'm like, do I still pay for this stuff? Like, no, let me get rid of this. I'm like, yeah, I watch most of the stuff I need to watch on YouTube.

• 31:31Speaker 04

  Damn, they lost 200,001 subscribers.

• 31:34Speaker 02

  You saw that? Because of their stock price collapse. I would have never canceled if their stock didn't collapse.

• 31:42Anthony Pompliano?

  I, uh, I did see this last thing I'm going to say, and then we'll, uh, we'll exit stage right on this one. Yesterday at the end of the show, Joe brought up the fact that a huge reason why Netflix may be, uh, suffering is because they got a little woke. And, uh, what do you mean? And then Elon tweeted, he said, the woke mind virus, all this stuff. So Joe sent me after the show.

• 32:01Speaker 04

  I don't know if that was my exact word, but yeah.

• 32:03Speaker 02

  Well, okay, all right, hold on, let me follow it off with what you did say. He was like, did you see the documentary about the dude who's pregnant on Netflix?

• 32:13Anthony Pompliano?

  And so That was the summarized version. And so like, I do think also, though, there's this thing of like, you have a product, there's people who like it. I think society is changing a little bit now. And all of a sudden, there was this like over-rotation to, we'll use the term woke, just because I think that's what people know what that means. Yeah. But I think there's now going to be a rise in the anti-woke and you're going to get this balance back. We just pulled it up. It's called He's Expecting.

• 32:43Anthony Pompliano?

  They're, it's a series. They're like, we might be getting multiple seasons out of that.

• 32:46Speaker 02

  I get, I get that. So I have, I know we gotta go. I have like buddies who are like, um, so I grew up very poor and very left leaning and it's probably migrated to something slightly left of center. And so now I'm like, I'm the one who's like, guys, I think it's, it's gotten a little too woke. Like, you know, you see all this stuff on TV and like my, my fiance's a white girl. And, uh, and so her and I like joke, like every commercial you see on TV is an interracial couple now. I'm like, what percentage of couples are interracial? Like five at most? But like you watch, next time you watch television, you're gonna, once you see it, you can't unsee it.

• 33:19Anthony Pompliano?

  That's interesting.

• 33:20Speaker 02

  Yeah. I'm just like, like what, like they're over.

• 33:22Anthony Pompliano?

  They're speaking to you, Darius.

• 33:23Speaker 02

  Yeah, no, it's like, we don't, we, we want representation, not an overcorrection.

• 33:28Anthony Pompliano?

  Yeah, yeah, yeah. I, I do think it's, uh, uh, interesting. If you're sitting us out of like a corporate office, I can imagine the marketing meetings are very much like, we better make sure that we have, uh, the Hawaiian Pacificer, like whatever represented, right? And you're like, dude, there's four people.

• 33:47Speaker 02

  Literally, there's gonna be bored with like checkmarks.

• 33:49Anthony Pompliano?

  That's literally what I envision, right?

• 33:52Speaker 02

  I guarantee that's what they do.

• 33:52Anthony Pompliano?

  And by the way, like, I always am careful to say like, hey, the spirit of this is actually like, very well intentioned, right? They're trying to correct what is, uh, perceived as, whether you agree or not, perceived as an issue.

• 34:04Speaker 02

  Yeah.

• 34:04Anthony Pompliano?

  But to your point, the over-rotation, I think that people are like, all right.

• 34:07Speaker 02

  That's how you turn people off, unfortunately.

• 34:09Anthony Pompliano?

  All right. Where can we send people to 42macro?

• 34:10Speaker 02

  Oh, well, 42macro.com. Come check me out on Twitter, 42macroddale. Catch you next week.

• 34:14Anthony Pompliano?

  I just, somebody just texted me, is watching the show live and he's just said in all caps, lolololol. And then he quotes, he's expecting.

• 34:23Speaker 02

  Well, I'm out, so I'll cheers. I'll catch you guys.

• 34:26Anthony Pompliano?

  Everyone go check out 42 Mac, bro. Check out 42 Mac, bro. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribe 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 pompscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to pompscryptocourse.com to learn more and I'll meet you guys for the next episode.