#838 How Will The Market Respond To Russian War? w/ Darius Dale

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 of 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. ======================= The Pod Pro Cover by Eight Sleep is the most advanced solution on the market for thermoregulation. It pairs dynamic cooling and heating with biometric tracking. Go to https://www.eightsleep.com/Pomp to check out the Pod Pro Cover and save $150 at checkout. Eight Sleep currently ships within the USA, Canada, and the UK. ======================= 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 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 across all of your devices, making it easier to send, receive, and exchange

• 0:47Anthony Pompliano?

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• 1:30Anthony Pompliano?

  I have purchased over the last three years. It completely changed my life. I'm not joking, pay attention. The Pod Pro cover, which goes over your mattress by Eight Sleep, is the most advanced solution on the market for thermal regulation. It pairs dynamic cooling and heating with biometric tracking. You can go to eightsleep.com/pomp to check out the Pod Pro cover, and you save $150 at checkout. They currently ship within the United States, Canada, and the UK. And I told you, it changed my life. It helps me sleep deeper, helps me sleep longer. I feel much more refreshed, and I have better energy. You want to know how I have relentless energy every single day? Because I sleep on an Eight Sleep. Seriously, go check it out, eightsleep.com. Today. This episode is brought to you by DeFi Technologies.

• 2:14Anthony Pompliano?

  DeFi Technologies represents what's next in the digital economy. They're providing simplified, trusted access to crypto, decentralized finance, and Web 3 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 U.S. Exchange at DEFTF 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.

• 2:58Anthony Pompliano?

  Go to their website at defi.tech today. All right, let's get in this episode. I hope you guys enjoy this one.

• 3:04Speaker 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.

• 3:27Anthony Pompliano?

  We happen to not only have me and John here today to talk about this. He has not been sitting here the entire time. He just got here to make that clear. He was not just looking at us monologuing for 30 minutes.

• 3:41Speaker 02

  I have been for 30 seconds. I'm impressed.

• 3:44Anthony Pompliano?

  But we have, we have Darius here with us.

• 3:48Anthony Pompliano?

  Lot of stuff going on.

• 3:49Speaker 02

  Dude, lots going on. You know, let's, obviously, let's just start by saying, you know, like we talked about last week, we have a lot of stuff to be thankful for and grateful for in this country. You know, kind of just seeing, you know, the American flag behind John, just kind of really thankful for our military. Like, we don't have to worry about this kind of stuff. Obviously, with the people Ukraine are going through right now, it's terrifying and our hearts and prayers are out with them. So, you know, it's just going to be a tough situation for a while because it doesn't seem like Putin is of the mind to acquiesce and use diplomatic measures to accomplish his goals.

• 4:22Anthony Pompliano?

  When you think about the financial market impacts, let's start, maybe we talked a little bit about oil before you got here, over $100 a barrel, obviously Russia's making money by being one of the largest oil producers. What's the impact on Americans? Should we just expect gasoline prices to continue to explode? It's up 50% year over year. Unfortunately, the media is incorrect in that them claiming that inflation or high gas prices is because of Ukraine. The Ukraine crisis started, you know, maybe in the last 60 days. So the two years before that obviously did have an impact. But I do think that it would be fair to say, hey, moving forward, a material increase in gasoline could be attributed to this situation

• 5:05Anthony Pompliano?

  in combination with kind of Russia and Saudi Arabia not increasing production. Is that kind of your read on this?

• 5:10Speaker 02

  Yeah, for sure. Absolutely. So there's a lot to unpack financial markets wise. So I'll start with with gas. The fact that crude oil is up as much as it is today, it was up at 8% this morning, or up 8% this morning when I when I checked, could be up more or less now, but tells you that there is this sort of concept about a geopolitical premium baked into the oil price. And it very clearly is rebutting that today. There was not a geopolitical premium baked into the oil price, otherwise you wouldn't see of the kind of price action that we have today. Number two, it's very likely to be persistent to the extent that we continue to have geopolitical conflict. And as we, I said earlier, there's no really no exit ramp for this conflict anytime soon, because it strikes me that Putin's odds are

• 5:53Speaker 02

  directly, Putin's goals are directly at odds with the Biden administration. So somebody's going to have to blink. And I'm usually, there takes a lot more pain for, you know, for these major powers to blink, unfortunately. You know, one thing I thought was really interesting to me, the most interesting thing that's happened in the last 24 hours is the big decline in the, in the real interest rate here in the US. This morning is probably the biggest one day decline ever, if I had to go back and look. But the 10 year TIPS yield, which is inflation adjusted Treasury bond yield, declined 25 basis points day over day. It was like a 40% move in terms of the percentage change of the move. And it's directly at odds with what happened yesterday. So yesterday, we saw bond yields rise because the sort of specter of war would tax the sort

• 6:37Speaker 02

  of the already depressed productive capacity of the economy. You could actually see more inflation as a function of this. But then today, I think the market is sort of realizing, oh, no, wait, this is actually bearish because we're going to talk about $100 oil. We're going to $110 oil, going to $20 oil, and ultimately, the negative impact that that's likely to have on the US consumer and by extension, the global economy.

• 6:59Anthony Pompliano?

  When you start to think about the Fed, let's go there.

• 7:05Speaker 02

  Your favorite topic.

• 7:06Anthony Pompliano?

  Yeah, well, because I do think that whether people like it or not, the Fed is ultimately the decider of what happens to asset prices right now.

• 7:13Speaker 02

  Hundred percent.

• 7:14Anthony Pompliano?

  And you could argue that that's always been true. But I think right now, when you get uncertainty, when you get chaos, when you get complexity in the system, and you're looking for signal, a lot of times, if you just zero in on where does the chain of events start, the Fed usually is the originator of a lot of action, not all of it, but a lot of it.

• 7:35Speaker 02

  Totally.

• 7:37Anthony Pompliano?

  Asset prices, especially risk assets, have sold off over the last four months or so because everyone thinks the Fed's going to raise, they're going to raise the interest rate, they're going to raise the interest rate, as much as I think JP Morgan said nine times over the next year. Obviously, I think that was probably a little excessive.

• 7:50Speaker 02

  Strategists are tripping over themselves at the highest number.

• 7:53Anthony Pompliano?

  Who could say 11? Who could say 11 and not get fired? You won't write 11, I'll buy you a beer. Oh, he wrote 11! Like, literally, I feel like that's what's going on there. So nine, I think people are like, all right, that's the extreme upside. But I do think that if you went and talked to most people, no raise to 50 basis points in March was kind of the aperture of like, reality. And I do think that most people would say 25 basis points to 50 basis points as a raise in March. Forty-eight hours ago, I literally think that's what people thought. I don't know if a lot of people think that now in forty-eight hours with, you know, literally the move, you know, kind of the chess move of Russia saying, hey, we're going

• 8:37Anthony Pompliano?

  to go invade Ukraine. Does that change? Or do you still think that they have to raise in order to still address the issues here in the United States?

• 8:45Speaker 02

  Oh, no. The Fed's hands are very much tied in terms of monetary tightening for a couple of reasons. One, you know, there has not been a big enough feedback sort of mechanism in financial markets in terms of tightening financial conditions for the Fed to suggest that somehow they're going to achieve their inflation mandate or, you know, sort of, or somehow they need to defend their maximum and inclusive employment mandate at this particular juncture. We have not seen enough carnage. Credit spreads are, you know, what, 400 basis points over on high yield, roughly thereabouts. They could double before you actually start to see a real big hit to economic activity as a function of that. So that's number one. And then number two, and this is something that, you know, sort of, I think is kind

• 9:28Speaker 02

  of the second order thinking, which is if the Fed does not raise, just given all the tightening that's been pieced into, you know, Ford's curves, then they effectively amount to easing, which I'm not sure that the central bank wants to send a signal that they're easing at this particular juncture. You know what I mean? Because it's already priced in, so you almost have to do it, right? If you don't do it, then the markets will take it out and that that's how markets will function and respond to that. So they're already on the path to losing their credibility if they haven't already. Certainly they've lost it with a large pocket of investors. They might lose it with all of us if they don't, if they don't at least try to start normalizing monetary policy.

• 10:09Anthony Pompliano?

  I'm going to read you a portion of a DM. I got a, I reached out to somebody and I said, hey, what do you think about this yesterday? It's somebody who has a very unique kind of intersection. They understand some of the geopolitical stuff. They understand some of the macro economy stuff. They understand Bitcoin, et cetera. And he sent me back a number of really intelligent points. I don't want to say who it is because I didn't ask him. But one of them says Putin's making a play on collapsing the dollars because he can see the massive spread between CPI and fixed income yields and driving energy prices higher will put the ineptitude of the Fed and ECB on full display right to the moment they were going to pretend to raise rates. And I actually think that like, it's a pretty astute.

• 10:53Anthony Pompliano?

  You know, identification of uh, there's other things going on. But one of the impacts or one of the reasons to take these actions is to basically just say like, no, you're not, you're not, we're gonna raise rates like everything you just said is not gonna happen.

• 11:10Speaker 02

  Yeah.

• 11:11Anthony Pompliano?

  Is that kind of like what you're anticipating now? Like, do we get a interest rate raise in 2022 now? Like, did we go from nine as the extreme to zero?

• 11:22Speaker 02

  Some poor analyst is gonna get fired for publishing 11 today. But no, I know what you mean. So let me start by saying, whoever wrote that is an extremely astute investor. That's been my take on this the whole time, which is Putin being the sort of thug that he is, but a very educated, smart thug, understands the pain points, right? Across the global economy, pain points in the global financial system. And why would you not wait until inflation's at a 40-year-high to invade Ukraine and cause trouble in financial markets? Because you know, at the bare minimum, the you're gonna put the Fed in a conundrum. At the bare maximum, you're going to expose them and cause them to lose their credibility.

• 12:03Speaker 02

  And so, you know, this is, this is, you know, it's sort of like, I can't even think of a good analogy, but it's the, it's the former KGB operative in him that chose to wait until now, you know, just on the eve of the Fed's normalization agenda. Because again, there are credibility's at stake here, Bullard said as much a couple of weeks ago. Obviously, the data would suggest that the credibility is at stake as well. So I think Putin is really enjoying himself right now because quite frankly, he's got the upper hand.

• 12:30Anthony Pompliano?

  When you think about um, his uh, what's the best way to say this? His position in the world. Most people, I think, were kind of just like, oh, I was told not to like Vladimir Putin. So like, you know, bad guy, right? If you start to learn about Russia, one of the books that probably has had the most influence in terms of my view of how some of the financial markets was Red Notice, Bill Browder's whole book, right, about the financial markets and kind of American investors, Russian investors, he mentions Putin in there as like, just like a competitor, basically, in the market, and the next thing you know, he becomes president.

• 13:13Anthony Pompliano?

  China seems to be like, oh, somebody just put like more pieces on the chessboard. And there's obviously the concern that like China says like, oh, well, if Russia can invade Ukraine, then like you guys are just going to sanction them, like Taiwan, come on over, right? And so like, whether that happens or not, what remains to be seen. But it does feel like those two countries, and they explicitly are talking about it, they want to get off the US dollar, they're starting to work together more, et cetera. Like, is there a world where we just get a bifurcation? And it's literally like, for better or worse terminology, I'll say like, Western world and Eastern world. And basically, in that bifurcation, literally, there's circular, there's two separate circular economies, or insular economies, that maybe are like frenemies.

• 13:58Anthony Pompliano?

  So maybe there's some crossover, or, you know, selling of goods and services, or whatever. But for the most part, like, Russia and China, you know, try to produce and consume each other's goods, and that works. And then the Western world does the same thing for themselves, and we don't have this like globalization happening?

• 14:14Speaker 02

  Hundred percent. And this has been happening since 2014. Yeah. You know, sort of Luke Gorman over at Force for the Trees is kind of an expert on a lot of these types of topics, him and Jeff Snyder. And, you know, but they'll tell you, both of them, you're really going back five, six, seven years, which is, the world splintered. Jeff Snyder would say, hey, the world splintered in 2007 with the breaking of, you know, sort of the euro-dollar network and the credit creation therein, or at least the former way of doing things. And, you know, Luke Gorman would suggest that the sort of global monetary system splintered in 2014, when the rest of the world really stopped sort of sterilizing our debts and deficits by accumulating, by stopping the accumulation of foreign exchange reserves, dollar-denominated foreign exchange reserves.

• 14:58Speaker 02

  And so since 2014, I would argue, I'm probably more in loose camp on this, since 2014, we, you know, that, that, that drive, this sort of, it's a, it's a, it's a realization amongst emerging market and amongst other, you know, kind of Eastern, if you will, central banks to say, hey, look, this system isn't working for us. The cost of capital is too high, the availability of capital is too scarce. We're not able to grow and meet our development needs, our goals to bring folks out of poverty and things, all that good stuff, quickly enough because the supply and price of dollar-dominated credit, which is the global, obviously global, most credit is denominated in dollars globally, it's too hard to obtain. And so I think we're very much on a path, I've always thought we were on a path towards

• 15:42Speaker 02

  bifurcated monetary systems. It's unclear at the speed of which, you know, if that's all going to happen at once. And these things tend to happen like slowly, slowly, slowly, there's an event here, an event there, an event here, and then there's usually a big event that sort of catalyzes the big change. I'm not convinced that this is the big event that catalyzes the big change, but I am convinced that both Putin and President Xi of China are well aware that this is the path that we're on, and they're going to take every liberty to sort of perpetuate this, because ultimately it is a better outcome for them, which is to get off from underneath the sort of the foot of the dollar system.

• 16:19Anthony Pompliano?

  So while we've been talking, Putin's made some more comments.

• 16:22Speaker 02

  Oh man, he's on fire today.

• 16:24Anthony Pompliano?

  Which is interesting, because I think exactly what you're saying, they've publicly talked about this, right? I remember, we pulled it up yesterday, in 2018, I wrote a piece, and it was like Putin was at a conference, he basically was like, "The US dollar system sucks, it's too expensive, it's dangerous, we gotta get off this thing." Like, he wasn't hiding anything, right? He was standing right there in the conference. But he just said, "Russia remains part of global economy. We do not plan to damage the system that we belong to." And he says that his partners, or Russia's partners, should understand that and should not push them out from the system. So again, we get into this, I'm gonna call it gamesmanship, that might be too positive

• 17:06Anthony Pompliano?

  of a word, but I don't mean in a positive way as much as, maybe geopolitical chess is a better way to describe it. Where you get like, what are they saying? What does it mean? And then what are they doing?

• 17:18Speaker 02

  Yeah.

• 17:20Anthony Pompliano?

  And it feels like this like, constant, "Don't kick us out from the system, we're part of the system, we want to be part of the US dollar-based, you know, financial system." Like, it's all the right things to say.

• 17:33Anthony Pompliano?

  But it seems like they've positioned themselves for a different world.

• 17:36Speaker 02

  I have a great analogy for this.

• 17:37Anthony Pompliano?

  All right, let's hear it.

• 17:38Speaker 02

  So good. So one of my guilty pleasures of being a fiance, engaged man now, is watching Vanderpump Rules on Bravo with my fiance.

• 17:50Speaker 02

  And this is so reminiscent of Jax being a total asshole to Brittany because he wants her to break up with him. And so he's not the bad guy for breaking up with her. This like total angelic sweetheart. And then finally, he just snaps and breaks up with her.

• 18:04Anthony Pompliano?

  Yep.

• 18:06Speaker 02

  And so this to me, it seems like he's like kicking and screaming, trying to hopefully he gets pushed out of the system. So he can finally say to China, hey, look, we need to, you know, advance this pretty aggressively. Right. To me, and one thing I also think in terms of this bifurcation process, it's not going to come without the loss of human life. It's not going to come without, you know, great financial and economic costs. Right. It's, you know, stasis is generally preferred if you're thinking about, you know, generating profits. Right. And if you have big change and it makes the whole thing kind of slow down and grind to a halt. And so it's a lot to lose for all parties involved to make this transition. But the reality is that I think the folks that are sort of on the wrong side of the dollar system, if you will, Russia, China, a lot of emerging markets.

• 18:51Speaker 02

  I think they're real, they're getting, they've gotten to the point where they're like, there's a lot to lose if we stay. Right. And so they're, you know, they're kind of kicking and screaming, hopefully to get dumped so they can go, you know, really transition at a more expeditious pace. That is, and then more importantly, explain it to their citizens, right? They gotta market this to Chinese citizens, to Russian citizens as, hey, look, see, they kicked us out of the SWIFT system, the global dollar system. We got to transition. You gotta deal with this pain for now, but we gotta make this transition. And I think they're looking for political air cover to do that, but who knows if we'll give it to them at this particular juncture again.

• 19:22Anthony Pompliano?

  I'm going to start asking you about stuff you may not know about, so feel free to just look past. There was a great tweet this morning from WSB chairman who said, if you invested $10,000 in the Russian stock market yesterday, today you'd have 5,000.

• 19:39Speaker 02

  It went down 50%.

• 19:40Anthony Pompliano?

  Right.

• 19:41Speaker 02

  Yeah.

• 19:42Anthony Pompliano?

  And so how did the stock markets trade in these situations? I saw somebody else, I forget who tweeted it. And you know, you can judge whether people should tweet, not tweet, whatever, in these situations, certain things, but I saw a tweet yesterday that basically went back and looked at the Gulf War, Desert Storm, Iraq, Afghanistan, and I forget there was one other one, maybe Crimea or something. And it was basically like, buy the invasion. Right? Like, basically, when something like this happens, stocks take off and like, buy the stocks, even if there's some short-term price decline, because ultimately it ends up being like a pretty good financial decision. Again, serious situation, people's lives are at risk, but if you're looking at it from a financial market standpoint, that's one perspective.

• 20:27Speaker 02

  Yeah, for sure.

• 20:27Anthony Pompliano?

  Same time, Russian stock market went down 50%. And so like, how, if at all, do you have thoughts around like, the stock market of the countries involved versus like, US-based assets in these types of environments?

• 20:39Speaker 02

  What do you mean by US-based assets?

• 20:41Anthony Pompliano?

  US stocks, US commodity markets, etc.

• 20:44Speaker 02

  Yeah, so I mean, look, I think the problem is, is we're sort of, we can't, we can't sort of narrow risk management down to this one singular catalyst, right? Like, there's this geopolitical concerns that may or may not get resolved over a shorter, medium-term time horizon. There's the growth concerns that, you know, we don't think are being respected enough, broadly speaking, irrespective of geopolitical concerns. I mean, $100 crude oil, consumer confidence on a 10, 12-year low, you know, all these sort of things are telling you there's problems, you know, mostly through the real income, declining real income front. Those are problems that are, you know, would be here without Putin. And there's obviously the 40-year high in inflation, and then what the Fed's going to do about it. So there's sort of four kind of buckets to bucket these all in.

• 21:27Speaker 02

  Geopolitical concerns, obviously, none of us is sort of, you know, had Putin on speed down. I'm not sure if we had Putin on speed down, we'd actually be getting good information, because this guy's a chess grandmaster, right? And so, you know, the reality is, you're probably right, I think isolating that variable, that factor, geopolitical concerns, you're probably right to buy the invasion, most, you know, nine times out of 10. The problem is, is where we are in this current market cycle, this current market environment, we're still coming off some pretty aggressive valuations, just looking at equity and credit market valuations, both domestically and abroad. Mostly domestically, we're a lot more overvalued than our peers globally here in the US. That's an issue. Obviously, the policy normalization agenda is an issue, particularly in the context of the growth outlook.

• 22:10Speaker 02

  Normally, I said this, you know, saying this to me blew in the face. This is the latest the Fed has ever waited to start tightening policy in any business cycle, like in terms, at least by the by the letter of the law, in terms of the level of the unemployment rate, which is how economists date the business cycle, whether it starts going up or down. And so it's just a weird setup, you know, it's a gross setup. It's said yesterday, it's gross. You know, everywhere you look, there's a headwind. And this is why stocks are going down. This is why Bitcoin, Ethereum, crypto are going down. This is why NFTs are finally starting to crash. It's not a good setup for for taking risk. There will be a good setup for taking risks at some point in the medium term. Once the Fed realizes the growth outlook has become so challenged that they have

• 22:54Speaker 02

  to back off, I just don't know that we're there yet. We haven't seen enough data. We haven't seen enough of a tightening of financial conditions for them to credibly back off of tightening. They can back off of tightening at any point in time, but I fear that I fear that they fear they're going to lose their credibility if they do so.

• 23:11Anthony Pompliano?

  So Sam Bankman Fried had this whole thread last night about stocks, Bitcoin, war, et cetera. He basically talked about, you know, it makes sense that stocks are down in the kind of very immediate term, Bitcoin as well. People are selling things to get cash, uncertainty, all of that, liquidity, et cetera. But he also talked about, let's start with destabilizing Eastern European currencies and the Eastern European financial systems, which means that they might look for alternatives. If you were in Ukraine right now, where would you trust your money? It's like that was one of his like early points. And I think this is really fascinating because ultimately, we usually think about people seeking alternatives to their local currency because of undisciplined monetary and fiscal policy.

• 23:56Anthony Pompliano?

  Your currency is failing. Shit, I got to get something else. I want dollars. I can't get dollars for whatever reason. My bank's going to confiscate it. It's dangerous in the black market. It's expensive, whatever.

• 24:05Speaker 02

  Totally.

• 24:06Anthony Pompliano?

  Screw it. What's on the internet? Let me go do something there. Or let me get physical gold, hope somebody doesn't confiscate it as I'm leaving, whatever.

• 24:12Speaker 02

  Yeah, yeah, totally.

• 24:15Anthony Pompliano?

  When you start thinking about it from a war perspective, when you start thinking about it from literally a, is my government gonna be around? There's reports all morning that Russian forces are trying to literally take the government. They're trying to install new leadership. They're trying to take over the Chernobyl plant. Like, I mean, this is like, an invasion of, on the invasion scale, this is like, true invasion, right?

• 24:41Speaker 02

  This is rules, yeah.

• 24:42Anthony Pompliano?

  Yeah, this isn't like, hey, we like, shot some rockets and like, did we do something?

• 24:45Speaker 02

  No, no, they drove tanks to the capital.

• 24:46Anthony Pompliano?

  Yes, correct. And so, it does beg the question of like, okay, if you're one of the thousands of people that we pulled up that are literally leaving Kiev, what do you do with your wealth? Do you leave it in a Ukrainian bank? Do you put some gold in the trunk and hope to God no one stops you? Do you hope that you have enough physical cash to put in your pocket and that you prepared for this situation? Like, these are real things. And if you're sitting there, thinking about this, like, it's not that, oh, I'm gonna get rich with Bitcoin. Like, whether it's stable coins, Bitcoin, whatever asset, there's like, a very real consequence to having these assets now and an advantage to having them.

• 25:26Speaker 02

  Yeah, so starters, obviously, digital assets are a cheap, not cheap, certainly an effective solution for people in these trying times. I'm not sure that everybody in Ukraine at this particular juncture has the ability to remove their money out of banks and put them in digital asset space. But to the extent that you're already trapped in that financial system, buy stocks. Like, the blue chip Ukrainian businesses, and that may be an oxymoron, I'm not too familiar with how rock and roll in Ukraine's economy normally is, but to the extent that there are blue chip businesses, you know, like the best grocery store in Ukraine, you know, the Uber of Ukraine, you know, all those kinds of companies, they're not going anywhere. You know, they're still going to operate and exist. They might be under different leadership. They might be under Putin's buddy

• 26:10Speaker 02

  running the company in six months, but, you know, they're still gonna be generating capital, generating profits, and ultimately servicing the Ukraine economy. So, if I was, I would be much more concerned about having money in physical Ukrainian dollars. What's their currency? Ukrainian zlotny? Or, yeah, so, yeah. I don't know how the hell I knew that. It's ridiculous.

• 26:30Speaker 02

  It's because you're smart. I'm such a nerd. Anyway, but no, like you don't want your money in the local currency. So clearly stocks tend to inflate when there's a hyperinflation episode, which again, hyperinflation in my book or a lot of economists' books is defined by a loss of confidence in the currency, not necessarily by a certain level or threshold of inflation, but rather an absolute collapse in the currency. You could see a collapse in the currency if we thought if the regime was to change, or if there was a fear that the regime was going to change. Right? And so you definitely going to buy assets that Russians themselves with Russian rubles would want to buy. That would be the best trade.

• 27:08Anthony Pompliano?

  John, before you ask your question, John Kerry gave an interview, I guess, this morning, and he said, I hope that Vladimir Putin helps us stay on track for our climate goals. It's like.

• 27:18Speaker 02

  Wow, jeez Louise, man.

• 27:20Anthony Pompliano?

  That wasn't on the bingo call. What questions do you have?

• 27:24Speaker 03

  Yeah, I agree that like Ukrainian businesses, the infrastructure will be there no matter the leadership, like they will eventually come somewhat relative back to normal, whoever's in power, the country itself that will operate.

• 27:35Speaker 02

  Yeah, totally.

• 27:36Speaker 03

  What do people around the world, we're talking about US, Ukraine, citizens, Russian, obviously, everyone's very fearful right now, right? Buying, they don't know what's going to happen in the future with the stock market. Is it right to be fearful? Or is this the time where, hey, kind of be greedy when others are fearful and vice versa? Like, is it's okay to be fearful right now? Or what are your thoughts around that?

• 27:59Speaker 02

  I tend to think that fear and greed are two emotions that cause you to lose the most money in financial markets. So generally speaking, if you can, obviously, it's impossible because we're all human, right? We all make more decisions that we need to make in terms of risk management, portfolios and things of that nature. But I think it's best to just make calculated bets based on where we are in the various cycles. Again, there's geopolitics, which is hard to ever truly handicap and gauge, but you can understand where you are in the growth cycle. You can understand where you are in the inflation cycle. You can understand where you are in the monetary and fiscal policy cycles. And then also you can understand where you are in the valuation cycle. And most, all of those cycles right now, all five of them are moving in the wrong direction.

• 28:40Speaker 02

  And so to me, I think if you're saying sort of there's blood in the streets by, yeah, over a long enough time horizon, risk assets, you know, stocks, crypto, all this stuff goes up in price over time. One, because there's an expansion of the money supply. But more importantly, there's an expansion of the human supply. And obviously, we're going to create economic activity and economic growth just as a function of, you know, having babies and, you know, being alive and advances in medicine. And so that stuff, if you have a long enough time horizon, it's always a good enough, a great time to buy. An all time high is a great time to buy if you have a long enough time horizon. But the problem is, most people, particularly people at or near retirement, cannot afford to suffer material drawdowns. And this is where the whole concept of risk management comes into

• 29:24Speaker 02

  play. It's not about people who can, you know, hodl Bitcoin for 20, 30 years, which is what most people should be doing, obviously. It's about the people who, the reason we see selling ever, is the people who are, who cannot afford a big drawdown, get nervous about their asset allocation and start to make decisions that broadly impact financial markets. And so that's what we're dealing with now. That's what we'll be dealing with for the rest of human time, until we have some sort of universal, again, I'm certainly not advocating this, so don't shoot me, some sort of like universal retirement program or basic income. But obviously, we're probably, you know, that's many, many, many, many, many, many years away from occurring in the US if ever.

• 30:01Speaker 03

  So have enough money to weather the storm, essentially, at any time.

• 30:05Speaker 02

  Yeah. And most people do not, right? The average person does not, right? The average person's a lot richer than they were prior to pandemic. But I think inflation has taken a real big bite out of that for the median to below median consumer from an income perspective. So, but I think we're probably, for a lot of people, we're worse off than where we started. And for a lot of people, we're slightly better off and getting less better off by the day in terms of declines in asset prices.

• 30:28Anthony Pompliano?

  You think inflation goes up from here?

• 30:31Speaker 02

  Yeah, I mean, so it's not scheduled to. Let me, let me answer this question in the most stupid wonky economist way possible. There's a high probability that it decelerates and starts to decelerate. We're starting to get to the point in the process, particularly once you get to March, where inflation, the base effects really start to kick in. And so you need to see a substantial acceleration in the current trend growth rate of inflation, the sequential rate of inflation, to maintain the same level of inflation on a year-over-year basis. Now, that doesn't necessarily mean that once inflation starts coming down on a year-over-year basis, that inflation's under control. You could be sort of maintaining the same very elevated level of inflation, sequential momentum. It's just that the

• 31:15Speaker 02

  year-over-years are going down because, you know, we already did it last year, basically. And so I think that is a high likelihood of occurring. There was also, there was a, prior to today and prior to oil, you know, basically going from $90 a barrel to $100 a barrel in one day, there was a high probability that we were going to lose inflation momentum. So not only were we going to win on the year-over-year, we were going to win on the sequential and the momentum. And the Fed would be able to say quicker, sooner, that, hey, look, we got this thing under control. Now, it's a function of this move in commodity prices because it's not just crude oil. And more importantly, what a war could do in terms of taxing the productive capacity of the economy. Like, what if, you know, we might not be sending a ton of troops there. What if Germany and France send a bunch of troops there? You know, what if Ukraine mobilizes and Russia mobilizes more? I don't know,

• 32:00Speaker 02

  there's a lot of things that could happen that could actually, you know, sort of really become an additional tax on the productive capacity of the global economy. And if that is, if that occurs, they were likely to see, you know, something that looks more like what we saw kind of in the fall of this, this most recent year, which is supply chain disruptions. And so if that continues to happen, then we're going to have a big problem on the inflation front. That will be a secondary problem relative to what we already have.

• 32:25Speaker 03

  Inflation, I believe, will, if we continuously kind of step in, go to war, I think it will get worse by, based off the amount of money that we're going to have to print.

• 32:33Speaker 02

  Totally.

• 32:33Speaker 03

  But for the Fed, it seems like they don't have to raise rates, right? Like, they would have, I guess, right? So they were expecting everyone from three to nine interest rate hikes. But it seems like it's almost being priced in, everything got overvalued a little bit. And it's kind of coming back to normal as what we're seeing now, right? So are they, are they going to still raise in March, you think?

• 32:54Speaker 02

  Yeah, no, I think, again, I think the Fed... Is it the worst, again, I think I said this last week, the US economy is already sort of on this slow, but in my opinion deliberate road towards recession. We've had persistent real, a negative real income growth for, on a per capita basis for months now. And so, you know, how you can have a economy growing on a real basis at all in the absence of stimulus with that dynamic is beyond me and beyond the math of anybody operating Excel or Python or any other program. And so, you know, if the Fed did nothing, it was likely that we were going to have

• 33:35Speaker 02

  an economy sort of just decay naturally on its way to recession until we got inflation under control, until we had a more, a better realignment of demand with the productive capacity of the economy. The Fed is, in order to control inflation, is effectively trying to speed that process up, right? You know, they think they have the ability to sort of get us right to the brink of recession just enough to get inflation under control, but then to make this perfect pivot and, you know, get us to stave off recession and make sure that the labor market doesn't, doesn't take it on the chin. History is very, very unkind to the Fed and their ability to do that. And I think they probably get better every time, right? They're more responsive, there's more data, there's more people, there's more Twitter, there's more everything, there's more information, right? So they're probably going to be better at it than they have been historically.

• 34:20Speaker 02

  But that doesn't mean they have the ability to turn the US economy on a dime, to turn the global economy on a dime. There's all these dynamics that happen in terms of credit creation, off balance sheet, in the shadow finance sector, non-bank entities, you know, that the Fed doesn't necessarily have a real true control over. They have signaling power over, but they don't necessarily have true control over. So I just, it's kind of wrapping this up. I think the key risk here is that we could slide into recession, albeit on a slower pace, if the Fed does nothing and loses his credibility in the process, or we could slide towards recession or even into recession if the Fed does something to rein in inflation. To me, I think the first outcome longer term is much worse.

• 35:02Speaker 02

  Because once the central bank loses credibility, S and P goes from, I don't know, 4,000 to 1,000. Like, right now, so much of the S and P 500's valuation is a function of the Fed having credibility, right? And if the Fed just loses his credibility on inflation and its ability to control the business cycle, then I think there's a lot of valuation premium in US assets in particular that is at risk.

• 35:28Anthony Pompliano?

  We've, we've got another guest that's going to join us here in a second. So I'll give you one last question and then we got to move on.

• 35:34Speaker 02

  Yeah.

• 35:36Anthony Pompliano?

  The central bank of the United States has been the pristine lighthouse on the hill.

• 35:44Anthony Pompliano?

  If other countries begin to add other assets, move off of the US dollar, et cetera, does that make them their job easier or harder in the sense that one argument would be the more people that hold dollars, the more people that are holding assets that are impacted by dollars, the harder it is to essentially manage the monetary, you know, policy for billions and billions of people around the world in all these different economies. If in the most extreme example, we just became an insular economy and they just had to manage the US actual geographically constrained economy, is their job easier then?

• 36:20Speaker 02

  Their job is easier, but everybody else's job is harder. You know, so that this sort of reliance on this global dollar system artificially depresses our interest rates, you know, kind of relative to what they probably should be based on our credit metrics, you know. And the same thing is happening in Europe with, you know, the periphery in terms of Italy, Spain, all that stuff. So, you know, this dynamic where, you know, the US dollar is the dominant currency, the global dollar system is the dominant monetary system is really beneficial for us. And this is why I do believe that, you know, going back to my earlier comment, a transition to a sort of dual hybrid, you know, Western versus Eastern monetary system, which oh, by the way, is in the book of Revelation, go check that out. You know, this transition is, you know, it's not going to be easy for anybody

• 37:03Speaker 02

  trying to usurp us because we, I think our politicians and our people who control our military understand how important that is.

• 37:11Anthony Pompliano?

  Where can we send people for 42macro?

• 37:13Speaker 02

  Absolutely.

• 37:14Anthony Pompliano?

  Are you, are you dropping data today?

• 37:16Speaker 02

  Yeah. Oh, tons of data, man. Absolutely. So I'm on Twitter at 42macroddale and then come check us out at 42macro.com. We specialize in helping make sure people don't lose all their money.

• 37:28Anthony Pompliano?

  It's like the pitch of all pitches. Hey, uh, maybe we can't make you rich, but we definitely can prevent you from losing all the money. Maybe a lot of the way you might make some too.

• 37:35Speaker 02

  Totally. There's half the time you just lick your finger in the air and buy the highest beta security and you'll make money. And the other half the time, you need to pay attention to people like me and not lose all your money. So you can go back to the party when the party starts again.

• 37:46Anthony Pompliano?

  That is incredible. The other thing real quick, uh, I saw a tweet that said, uh, well, if we go to war, we should send the vaccinated first, all the troops are safe.

• 37:56Speaker 02

  We're still doing that, huh?

• 38:00Anthony Pompliano?

  It's just like, you know, it's one of these things like I appreciate that people are trying to find some like, you know, some humor in a time that is obviously very, a lot of people are very stressed out, but still it's just like, come on.

• 38:12Speaker 02

  Absolutely. Well, boys, I'll catch you back here next week, man. Thank you, guys.

• 38:15Anthony Pompliano?

  Next Thursday. See you, buddy.

• 38:17Speaker 02

  See you this weekend.

• 38:18Anthony Pompliano?

  All right. Ooh, this weekend. Ooh, hey, hey, hey. 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.