#1019 Darius Dale On How We Get To Deflation

Darius Dale is the Founder & CEO of 42 Macro, the leading macro risk manager adviser. In this conversation, we discuss the macro economy, how Jerome Powell is starting to tell the truth about inflation, we we get to a deflationary environment, if stagflation is near, if the 60/40 portfolio is no longer valuable, and how Bitcoin is the only free market currently. 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 ======================= BCB Group is the leading payment services partner for the digital assets industry. BCB Group provides payment services in 30+ currencies, FX, cryptocurrency liquidity, digital asset custody and BLINC, which is BCB’s free, instant settlements network for the BCB client ecosystem. Find out more by visiting bcbgroup.com/pomp ======================= 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 brought to you by Coinbase Wallet, your key to the world of crypto. Crypto wasn’t made to just buy, sell, and hodl. With Coinbase Wallet, you can do so much more: Collect more NFTs, earn more with DeFi, and trade more than 4,000 tokens. Whether you’re looking to play, stake, spend, or just explore a trending new protocol — Coinbase Wallet is your key to more. Long-time HODLers already know that wallets are a must-have if you want complete control of your crypto. That’s why Coinbase Wallet makes self-custody simple, while providing the safety and security of the most trusted name in crypto. Visit http://coinbase.com/wallet to learn more. =======================

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. This episode is brought to you by BCB Group. With a dedicated focus on institutional payment services, BCB Group provides business banking, cryptocurrency, and foreign exchange market liquidity for many of the world's largest crypto-engaged financial institutions.

• 0:47Anthony Pompliano?

  BCB Business Accounts allow businesses to load fiat currency and cryptocurrencies for payments, operations, and trading purposes. BCB's clients can trade FX and cryptocurrencies quickly and at scale with market-leading value. BCB's Blink Network is the European crypto industry's first instance settlements network, and one of the first real-time payment networks of its kind to allow free, real-time transactions across fiat and digital currencies. BCB's vision is to empower the global financial revolution through sustainable and innovative banking. You can find out more by visiting bcbgroup.com/pomp today. Again, if you want to learn more, go to bcbgroup.com/pomp today. Today's episode is brought to you by Exodus, the world's leading desktop, mobile, and hardware

• 1:29Anthony Pompliano?

  crypto wallet. They offer beautiful, user-friendly blockchain products that sync 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 Monte Unverified 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

• 2:10Anthony Pompliano?

  The world's leading desktop, mobile and hardware crypto wallet. Go to exodus.com/pomp today. Today's episode is brought to you by Coinbase Wallet, your key to the world of crypto. Crypto wasn't made to just buy, sell and hold. With Coinbase Wallet, you can do so much more. Collect more NFTs, earn more with DeFi and trade more than 4,000 tokens. Whether you're looking to play, stake, spend, or just explore a trending new protocol, Coinbase Wallet is your key to more. Longtime holders already know that wallets are a must have if you want complete control of your crypto. That's why Coinbase Wallet makes self custody simple while providing the safety and security of the most trusted name in crypto.

• 2:49Anthony Pompliano?

  Visit coinbase.com/wallet to learn more. Again, that's coinbase.com/wallet and learn more today.

• 2:57Speaker 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.

• 3:20Anthony Pompliano?

  We have one of the, I think is the smartest Wall Street analysts in the world, Darius Dale, joining us. Darius, how are you, my friend?

• 3:27Speaker 02

  What's up, my friend? I'm actually changing my name to Sonny Swagu officially as of today. Very swag dad, I don't know why, but let's go.

• 3:35Anthony Pompliano?

  Sonny Swagu! I didn't know that we were going with wrestling names here.

• 3:42Speaker 02

  Absolutely, man. You absolutely, by the way, you just nailed a lot of different things that I wholeheartedly agree with and I just want to reiterate for the audience. Markets are forward leading. They price things in anticipation, particularly when there's clarity around dynamics that are changing dynamics within growth, with inflation, and especially within liquidity and financial conditions. And so very clearly, we're in the middle of a telegraphed, well telegraphed liquidity cycle downturn. It's not going to end, you know, when people need it to end, but ultimately it will end and eventually one of the things that we think will catalyze that in is a recession. But prior to getting to recession, we're going to have to go through what we call deflation at 42 macro first.

• 4:22Anthony Pompliano?

  All right. I got a couple of things I want to talk about before we get to charts and data. Jerome Powell, the honorable central banker, was asked recently, "Do you believe that inflation was caused by the Russia invasion of Ukraine?" And he, to his credit, said, "No, inflation was already pretty high before Russia invaded Ukraine." And then the politician who asked him said, "Well, why the hell is the president keeps saying that Russia's invasion of Ukraine is leading to inflation?" Is this an important kind of data point? In that now the central bankers, not only are they saying it's not transitory, but they're being, honest is like kind of a weird word, but they're at least being more transparent about what they really think are the drivers of inflation

• 5:05Anthony Pompliano?

  and they're not just going with the talking points of any one political party?

• 5:09Speaker 02

  Yeah, 100%, man. So I feel bad for Jerome Powell, really any Fed chair that has to sit in front of our dysfunctional Congress and listen to what I believe are the dumbest series of questions out there. I mean, by Joe, but anyway, so yeah, this whole inflation, what's causing inflation, is very clearly a political football in DC. And the reason it's a political football is because we're heading into midterm elections where I'm pretty sure the Democrats are very clearly going to get smoked as a function of the inflation, the stock market crash, et cetera, et cetera. That's a perfect recipe for losing the majority in the House and Senate. With respect to Powell and this inflation narrative, he is being accurate, and this is something we've been talking about on your program all year, which is the broadening out of inflation pressure. You know, there's a couple of statistics I'll throw at the audience, which is

• 5:54Speaker 02

  the median CPI, the Federal Reserve Bank of Cleveland maintains a statistic that shows the median price change across all the different hundreds of items in the CPI basket. And on a median basis, it's up 6.4% on a three-month annualized rate of change basis, which is the fastest rate of all time in the time series going back to the early 80s. So we do have a problem in inflation and it's broadening out. And then with respect to this whole Russia-Ukraine nonsense, and let's put this to bed, or at least put it to bed from the perspective of our audience, inflation was at 7.5% in January of 2022 before Russia crossed the border and stepped foot into Ukraine. Two, when you look at what's actually driving inflation now, this Particular juncture, it's now services inflation. Core services inflation at seven point eight percent on a three month annualized basis.

• 6:38Speaker 02

  That's the fastest number we've seen since the mid nineties. Or sorry, not the mid nineties, the middle of nineteen ninety. And so clearly it's, you know, these are things that are have very little to do with, you know, rising food and energy prices. If you talk about, you know, the, the, how much it costs to rent your home or, or get on an airplane or go rent a hotel room.

• 6:56Anthony Pompliano?

  So another component of this is that he was asked, do you believe that the United States is potentially headed towards a recession? And he basically said, yes, which goes directly against the White House Press Secretary saying they do not see a recession being imminent. Janet Yellen saying she does not see a recession imminent. And it feels to a degree that Jerome Powell is kind of breaking ranks. He's being a little bit more honest, a little bit more rational, intellectually humble, even maybe to some degree. How do you start to analyze if a central banker is doing that? Is he signaling that it may be way worse than people are thinking it could get?

• 7:37Anthony Pompliano?

  Or is he just trying to keep his own personal credibility so that when he leaves as the Fed Reserve Chairman? He's got other opportunities, you know, from his kind of professional career.

• 7:46Speaker 02

  No, a great question, man. And there's a couple of things I'll unpack towards the end of this, but the one thing I will say is that he's actually not breaking ranks. Don't forget, I'm going to say last month, he Treasury Secretary Janet Yellen and President Biden huddled up together in the Oval Office to decide what would be the, the sort of plan to tackle inflation. And more importantly, I'm assuming what was also going to be their communication strategy. And clearly the communication strategy is from Yellen's perspective, hey, we got this wrong. We're doing something about it. From President Biden's perspective, it's all Vladimir Putin and the Fed's got to do something about it. And Jay Powell is willingly understanding that he's got the full weight of the, the credibility of the Federal Reserve Institution behind him.

• 8:28Speaker 02

  Is effectively taking responsibility, being sort of the scapegoat and ultimately having to be the bad cop. As it relates to getting inflation under control. I sent you a chart. It might be a little bit too wonky for this program, but I tend to think that everyone has the ability to, to, to learn and grow. So can you throw up that chart?

• 8:46Speaker 02

  Powell's still fighting to maintain control over the bond market. Do you have that one?

• 8:50Anthony Pompliano?

  Yeah, the last one you sent us.

• 8:52Speaker 02

  Yeah.

• 8:52Anthony Pompliano?

  Powell is fighting to maintain control over the bond market. What is this showing us?

• 8:56Speaker 02

  Yeah, so the second panel, the bottom chart is the more relevant one for this discussion, which shows the term premium in treasury bonds. So that's a very wonky specific statistic. But in layman's terms, what it means is how much sort of extra yield do bond investors need to get compensated for? To take the risk of just owning a bond because there's all sorts of different volatility with growth expectations, different volatility with inflation expectations, policy rate expectations, et cetera, et cetera. And right now, that term premium is a minus six basis points. You go back to the last time we had the Fed lose its credibility in the, you know, mid to late seventies, all the way into the early eighties until Paul Berger started to get it back. You saw that statistic go all the way up, you know, four or 500 basis points.

• 9:40Speaker 02

  And so right now, what this is telling you is that the bond market still believes the Fed is going to do something significant to get inflation under control, which is why Powell feels comfortable being the bad cop. It'd be a lot more difficult for him to be the bad cop if we were at much higher levels on this chart. I mean, at minus six basis points, that's an eighth percentile reading since going back to the late 1950s. So he's got a decent amount of credibility. He's got a window to use it. Now, if this window closes and we don't get inflation under control before the economy slows down significantly, then he's going to start losing a significant amount of credibility and that could be all hell could be breaking loose in the bond market.

• 10:15Anthony Pompliano?

  So if we go and we take a look at the the topping process, you said topping process is market, in-market based inflation expectations. Help people understand what a topping process is and then how that relates to these inflation expectations.

• 10:30Speaker 02

  Yeah, great question, Pop. So topping processes, so tops are generally processes, right? Like if you look about, like, look at a chart of a stock, look at a chart of Bitcoin, right? You know, Bitcoin tends to have these blow-off tops, it'll eventually mature as an asset class. But you can look at a chart of the S stock market as an instance. You know, they tend to sort of crest into the peak. And when you look at market internals, you tend to sort of lose leadership along the way into the peak. And it's usually the sort of very observed, very measured process, whereas bottoms are usually catalyzed by some sort of cathartic event. And eventually some sort of, you know, very aggressive policy response to to get you going in the other direction.

• 11:07Speaker 02

  Uh, so what I'm showing in this chart here, uh, is two-year, five-year, 10-year and 30-year inflation swap rates is what the market, the bond market is betting inflation is going to be, uh, over the average of those durations. And so that, you know, clearly the bond market is saying, hey, look, we are no longer comfortable pricing inflation expectations up and to the right off the top of the chart anymore. Clearly inflation on a reported basis is up and to the right off the top of the chart. But the forward-looking, you know, sort of mark and going back to our discussion of how markets forward-looking, the bond market is starting to say, hey, I think we're starting to peak out in inflation expectations terms. Which takes me to, you know, sort of this next part of the discussion, which you were talking about prior to me joining the program, which is this eventual transition to deflation.

• 11:49Speaker 02

  Deflation going back to, uh, you know, the, you know, been on the program for a while now, but for those of you who are new, you know, we run a sophisticated sort of systematic regime segmentation process of 42 macro. To help investors manage macro risk and and one of those regimes is called deflation. That's where both growth and inflation are slowing it simultaneously. You know, that's, you know, generally speaking, it's a lot of what you've seen on your screens here to date, uh, could be a little bit worse for certain asset classes. Uh, but also a little bit better if you think, you know, think about bonds, you know, potentially starting to rally, uh, but very bad for things like commodity, physical commodities, et cetera, and digital commodities, et cetera.

• 12:24Speaker 02

  And so maybe this is a leading indicator of that sort of eventual transition to deflation, which we must, we must go to, we must go through in order to get to the good stuff, get back to the good times.

• 12:36Anthony Pompliano?

  So if you then take a look at, uh, this like pivot, uh, that could potentially be coming, uh, they claim they're not going to do it. They claim they're going to stay steadfast. There are appeals to the Paul Volcker-esque era and his, uh, his approach to markets and inflation.

• 12:56Anthony Pompliano?

  What do you see here with the real yield curve?

• 12:59Speaker 02

  Yeah, so, so Powell gave us a lot of information, which by the way, this guy's, I know he's, he's getting a lot of heat for this inflation problem and, you know, to, to a large degree, you know, he is partially responsible for keeping his foot on the gas, uh, last year amid all that record fiscal stimulus, but just in terms of, would you rather have Janet Yellen, Alan Greenspan, or Ben Bernanke, or Jay Powell right now? Definitely rather have Jay Powell right now. Are you kidding me?

• 13:24Anthony Pompliano?

  Yes.

• 13:24Speaker 02

  Uh, no.

• 13:25Anthony Pompliano?

  It's easy to dunk on him. It is very easy to dunk on him because of the situation, but he is incredibly intelligent. And I actually think out of all the people you just mentioned, he's the most measured and appears to be the most, uh, unemotional about the market.

• 13:38Speaker 02

  Unemotional, because he's an investor. This guy's worth a hundred million bucks. You're working at Carlyle, you know, he knows what he's doing. Um, so at the end of the day, he's very honest and he's given us a lot of information in terms of what is spooking the Fed and ultimately what might unspook the Fed. And so going back to that real yield curve chart, there's two charts that I'm, that effectively sort of monitors, I think investors should be paying attention to, uh, to help them understand when the, the Fed might pivot. So, uh, this one right here, and we'll go back to the other one. So this one right here is structural inflation expectations. You know, he talked a lot about this sort of five-year forward, University of Michigan inflation expectation reading, um, that jumped off the chart same day we got that May CBI report. Um, and so when you look at where that statistic is currently at 4.3%, you know, we got to basically break back down 100, 130 basis points on this statistic to give the Fed comfortable, uh, credit, or sort of, you know, quote unquote, clear and confirming evidence that core PCE is getting back to its to, to target, you know, its target, let's call it two and a half percent on the upper boundary of that, that average inflation range.

• 14:38Speaker 02

  Um, going back to the previous chart, the real yield curve, he said another thing he wants to see in order to judge whether or not financial conditions have tightened enough to really give them comfort before they even consider a pivot, which is real yields across the entire treasury curve, um, and, and real yields. And so this is, uh, the 10-year, uh, sorry, the two-year, five-year, 10-year and 30-year across each of those panels, uh, nominal treasury yield, deflated, so subtractive, uh, subtracting, um, the inflation swap rates from each of those tenors. And so right now. Now, we're we're we finally started to achieve it on the five year and 10 year. We've been achieved it on the 30 year, but we're still quite a ways away, about 110 basis points away on the two year, which means they got they got, you know, some more hikes to do. And they got some more jawboning to do, and they got more quantitative tightening to do

• 15:22Speaker 02

  to give them comfort that the bond market is really starting to get under control from the perspective of of inflation expectations, and ultimately that'll filter through the economy on the leg.

• 15:32Anthony Pompliano?

  So when you start to think about this last chart you have here, the Powell Pivot Monitor, structural inflation expectations. One of my big questions is if they are aggressive and they are able to destroy demand, which appears that they are heading in that direction and successfully at least have some some movement on. Could we get stagflation? Like you you mentioned deflation earlier. But is there a world where inflation stays persistently high and they also destroy demand? And from an economic standpoint, we get some sort of stagflation situation?

• 16:03Speaker 02

  Yeah, so we will have some sort of, I mean, depending on how you define stagflation, right? If you define stagflation as above trend inflation and below trend growth, then yeah, we're definitely headed for stagflation. And that there's no question about that. If you define stagflation as persistently above trend inflation and persistently below trend growth, then I think that question is to be to be determined. If this Fed is comfortable sending us into something that is more than a mild recession in order to really kill inflation once and for all, then we won't have a persistent stagflation. If, however, you know, we get to a mild recession or something that looks like that, and the Fed is really starting to back off and stepping on the gas pedal again, then it's very likely we have something that looks like persistent stagflation.

• 16:46Speaker 02

  So it's path dependent. It's very difficult to ascertain to answer that question now. But I'm not truly sure you need to answer that question now. The next major catalyst for financial markets is this transition from inflation, where inflation is going up and growth is going up and the market having to price that in, to deflation, where both growth and inflation are going down, potentially into a recession.

• 17:07Anthony Pompliano?

  So when you start to look at various asset classes.

• 17:12Anthony Pompliano?

  What assets do you think are best positioned if that's where we go? Is it just cash? Yeah, is it cash or is it something else?

• 17:20Speaker 02

  No, so cash is king right now. When you get into deflation, you're going to unlock the entire sort of global sovereign debt market, which has been a hard sell really for the past, you know, call it nine, six, nine months. And so, you know, once you get into deflation, once the bond market is comfortable, that the inflation problem is being dealt with, that, you know, the doctor, the surgeon has successfully amputated the gangrene foot, then we're comfortable, you know, sort of getting back in the pool, getting back in the water. And so that's going to be the next big pivot you're going to see in financial markets is bonds really start to move to the upside and price downside and yield. And maybe temporarily, and I think so, that's, I think what's happening today, particularly in, you know, in the crypto space, you're seeing a significant decline in long-term bond yields,

• 18:04Speaker 02

  you know, really born out of the sort of recession fears rising in Europe. And that's really cascading through global sovereign debt markets, including our sovereign debt market, which by the way, like week over week, we've lost like 40 basis points in the 10-year treasury yield, just like that. You know, so when this move, when the stuff moves, it moves. And in the, you know, the very near term, bond yields going down is the old sort of, you know, buy NASDAQ, buy crypto trade, right? But eventually it's going to be bond yields going down, sell NASDAQ, sell crypto, because I need more liquidity, I need cash, and these things are not working.

• 18:35Anthony Pompliano?

  So Vladimir Putin, President of Russia, recently gave a speech. And I gotta say, it may be one of the most honest assessments of what's going on right now. And a lot of people will discount it because Vladimir Putin's saying it. I wanted to put a huge disclaimer. Myself, not a huge fan, I'm assuming you're not a huge fan either. But let's take away a, for a second, who's saying it? And let's look at what is being said. And he said things like, look, the global economic system has taken a blow. The United States levying the sanctions they did against Russia and taking the FX reserves now has a lot of countries around the world questioning whether they need to keep their own central bank reserves

• 19:19Anthony Pompliano?

  somewhere else or in a different Of asset. He talks about the fact that the United States went from a net exporter of food to a net importer. He talks about the money supply has grown by thirty eight percent and the amount of importing is somewhat related to that. He talks about the EU like, I mean, he just did like a crash course, almost a masterclass in macroeconomics in this speech. Describing, are these people dumb is essentially what he says. And he's like, they are doing things that are actually hurting them more than the people they're trying to hurt. Is this the canary in the coal mine? Like if Vladimir Putin saying this in speeches. How does central bankers like, do they just like, oh, whatever Putin says, we don't listen?

• 20:04Anthony Pompliano?

  Or are they acutely aware of the situation?

• 20:08Speaker 02

  Oh, no, I think they're acutely aware. I mean, when you listen to guys like James Cervetus, who's a former chief commander of NATO. When he talks, obviously, he's very plugged into the political edifice in DC. He they, you know, he's talking about the very same things, which is, you know, the sort of, you know, the two sided risk associated with. You know, you know, basically being very harsh on Russia and on Putin for this Ukraine, Ukraine incursion. There is a range of probable outcomes here, and not the least of which is the world splintering from the perspective of the currency system. You know, the sort of deglobalization, you know, you're going to start to see labor forces really start becoming more sort of, you know, marginalized. It's, you know, the et cetera, et cetera. You know, we're moving into a world that's just going to have structurally higher inflation.

• 20:52Speaker 02

  Because there's going to be more structural friction in terms of transacting across borders. You know, you know, that you being able to use different pockets and pools of labor. We have shrinking labor forces in places like China and stuff anyway, so that's going to be an issue. So I think he's absolutely on to something. I mean, this stuff not going to happen overnight, right? Like, you know, I remember when I was a, I was a kid, you know, I must have been in, I don't know, like eighth grade or something in, in, in two thousand and one, in the WTO riots in Seattle. And I remember thinking like, man, this is a big deal. But I didn't really understand the full consequence and the full scope of why it was a big deal. It was just, you know, people were getting killed. It was a really big deal at the time. Turns out, hey, we ship most of our Factoring jobs to China when they joined the WTO in 2001. So, looking back 20 something years later,

• 21:36Speaker 02

  it was obviously a big deal. And I think, you know, from today, looking forward into, you know, 2040 something, we'll look back on a big deal and say, man, when they did that thing with Russia's reserves and really splintered the whole global currency system, it'll be pretty clear from that perspective. But right now, you know, looking forward, it's gonna, it's gonna take time. It's gonna be all these different processes. So you can't put the whole trade on today expecting to make money on a two decade long, you know, kind of a catalyst, but we definitely are moving in that direction.

• 22:03Anthony Pompliano?

  When you start to look at financial markets, uh, bonds and most fixed income, just absolute trash, frankly, uh, but all of the foundations, the endowments, the pension funds, they've got huge, huge allocations to this fixed income. Is there a world where that will actually prove to be a smart investment over the next decade? Or is it a world where actually this idea of like a 6040 global portfolio, a huge allocation to fixed income? Like all of these things that maybe were considered modern portfolio theory-esque, people are gonna have to unlearn and actually learn a different way of investing, uh, given the macro environment and some of the things that we're seeing, uh, central banks do?

• 22:45Speaker 02

  Yeah. So I gotta tip my cap to, uh, Peter Atwater, um, who's on the Top Traders Unplugged podcast recently, who talked about sort of the souring global mood and how that's likely to lead to deglobalization and among other things is likely to lead to sort of a reining in of, of sort of fantastical investment, you know, opportunities. And part of the reason we've had such fantastical long duration speculation in, in asset markets is because of we've seen multiple decades of disinflation, of globalization, of demography, all these sort of major factors that have contributed to lower and lower inflation, easier and easier monetary policy at every juncture, right? We are no longer in that, in that mantra. We're gonna have higher highs and higher lows in inflation,

• 23:30Speaker 02

  higher highs and higher lows in bond yields and sort of higher lows and lower lows and lower highs and anything associated that needs bond yields to go down to work. Um, you know, I don't wanna say- Say, you know, crypto is, is, is part of that, that fully part of that, that sort of amalgamation. But it is definitely something that's really benefited, right? So, you know, I think when you look forward for the next 10 years, I don't even, you should not, by the way, don't ever listen to somebody talk about 10 years from now. If you, if someone has a process to consistently predict 10 years from now, then they shouldn't be telling you anything. They should be counting money on a yacht in the Mediterranean, right? No one knows what's going to happen for 10 years from now, but we can get, we can ascertain based on these big trends. We can analyze trends.

• 24:12Speaker 02

  So going back to analyzing the trends, it's very likely the next 10 years of investing are very different than the last 10 years. You know, the last 10 years is, you know, crazy Federal Reserve balance sheet expansion, interest rates at or below zero on a real basis consistently throughout every major economy, even some major emerging market economies to a world where the scarcity of resources, scarcity of labor, higher rates of inflation, bond yields are trending higher, not trending lower. And that just makes your asset allocation decision making very, very different than had, had been. The concept of 6040, maybe it's not dead, but will it have to go to 603010 or 602020? To make room for things like real assets, real estate, et cetera, Bitcoin? I don't know, but I think it's going to be very different.

• 24:57Speaker 02

  I think if you're sitting here today in a 6040 style portfolio and you got 10 years to retirement, best of luck with that.

• 25:04Anthony Pompliano?

  So I agree with everything you're saying. The one variable that I keep coming back to Bitcoin, Mark Mobius, I think is how you say his name. Uh, he was a previous Bitcoin skeptic. He was recently on television.

• 25:17Speaker 02

  That's so interesting. He is. He seems like he should be all in on Bitcoin, like he's such a long-term bull.

• 25:22Anthony Pompliano?

  He, he, he, uh, he previously was, but what he said was, uh, he thinks that Bitcoin is a leading, leading indicator now. And he thinks that it has a very significant psychological impact on markets.

• 25:34Speaker 02

  And I agree, I agree.

• 25:36Anthony Pompliano?

  When I come back to the asset, it sounds a little crazy to say, but it feels like Bitcoin is the most free market macro asset we have. And if that is the case. It is likely to be something that has to be in everyone's portfolio, right?

• 25:51Speaker 02

  It's the first thing I check every morning. It's the first thing I check on Saturday mornings. It's the first thing I check on Sunday mornings because it's the only free market out there. Every other market is grossly manipulated, some form or fashion, either by regulation, central banks, fiscal authorities, some form or fashion. It's the cleanest market we have today. So yes, of course, I agree.

• 26:11Anthony Pompliano?

  When you think about that, obviously, price can signal sentiment shift or kind of shifts in the market.

• 26:21Anthony Pompliano?

  If it is the cleanest market we have, does that mean that many of these investors eventually say, I gotta have it in the portfolio? Or just because it's the cleanest market, doesn't necessarily mean that people will allocate to it?

• 26:34Speaker 02

  I think people want to allocate to it. I don't talk to too many institutional investors at this point that are sort of on the other side of the trade. They just might not be, from a regulatory standpoint, allowed to put the trade on its size, right? Like, you know, it's very difficult for Citadel or BlackRock to allocate significant chunks of capital, hundreds of billions of dollars of capital, if not trillions, to something like Bitcoin, right? One, it's extremely volatile, but two, there's no real regulatory framework or real understanding of what would happen if things go wrong, right? Like, we assume things aren't going to wrong, and you know, we're all believers of watching the show here. But something in theory could go wrong. Like, what if the network was hacked, something like that? You know, I don't know. And so like, the Wall Street needs the sort of certainty associated with,

• 27:17Speaker 02

  okay, if something goes wrong, here's how we deal with it in the legal system. Here's who gets their money back first. Here's who gets their money back second, third, and so on and so forth. So, you know, that's kind of the main issue with something like Bitcoin and why it's been sort of a slower-moving adoption phase from an institutional investment standpoint, as opposed to what I think is a very clear and obvious, we should be in this asset. I mean, I haven't talked to a hedge fund portfolio manager or a mutual fund portfolio manager that doesn't have personally allocated to Bitcoin, but they can't do it in their funds and for a variety of regulatory reasons.

• 27:48Anthony Pompliano?

  So, my last question for you.

• 27:52Anthony Pompliano?

  Is earlier when I was talking about Bitcoin as an inflation hedge on the way up and people moving capital before inflation shows up Bitcoin coming down along with other assets. I stated that it was in anticipation of the Fed destroying demand, pulling down inflation, and people moving their capital elsewhere. After I've said that publicly, pretty much all of these, I don't know, nice term nerds in the traditional financial system are like, look at this idiot, look at this moron, what are they talking about, like all this stuff. How do you view the Fed stepping in being hyper aggressive with interest rates raising,

• 28:36Anthony Pompliano?

  quantitative tightening on the horizon, if not already started, and Bitcoin or other assets coming down? How do you kind of relate that to the anticipation of future market conditions versus, no, these are all just speculative tools and the Bitcoins are stupid?

• 28:53Speaker 02

  Yeah, so like I'm looking at Bloomberg now, we just lost $15, $20 in oil in like a week in the price of oil. So like, how is that any different than Bitcoin pricing and eventual transition to deflation? You know, I think nerds is probably too nice of a phrase to talk to anybody who doesn't understand that financial markets are forward looking and anticipatory, right? Like, if you're talking to somebody who's in traditional finance that thinks that's wrong, they're not going to be in traditional finance very long, so I wouldn't worry too much about their commentary. But yeah, no, so you're absolutely right. Like, the market is sniffing out, and this started last Wednesday, in my opinion, with the Federal Reserve press conference, with Jay Powell's press conference. I live tweeted the event, are you going to go back and check the event?

• 29:34Speaker 02

  And I think what's happened is the market finally figured out that this is a Federal Reserve, as we've been saying on your program and every piece of research I've been writing all year, that this is a Federal Reserve that's comfortable slowing the economy enough to get rid of inflation. And that is very different than the Federal Reserve reaction function, the regime that we're exiting, which is a Federal Reserve that anytime we had a hiccup on the growth side or hiccup in financial markets, that became their number one priority. Their only priority right now is dealing with inflation, and they're going to have a mop in the closet to clean up the mess whenever the mess comes afterwards.

• 30:12Anthony Pompliano?

  I think that Bitcoin at $20,000 right now is showing much more resilience and gives me much more confidence about how it will perform in the future than when it was at $69,000 because it's down 70%, right? Stocks are down, bonds are down, real estate, everything's down. But when you look around the room and you ask people, "What do you want to own for the next 10 years?" It brings me back to November of 2018, and we issued a million-dollar challenge. Anyone

• 30:53Anthony Pompliano?

  on Wall Street, pick any asset, we'll take crypto. Not one person picked a single asset. And if they had, we today would still be up like 650%.

• 31:08Speaker 02

  100% look.

• 31:09Anthony Pompliano?

  And it already crashed 70%.

• 31:10Speaker 02

  That tells you everything you need to know. People will talk, talk, talk on Twitter and talk some more because that's where people go to talk. But what happens in their portfolio is a very different story. What happened, you know, I'm telling you, I haven't talked to anybody in a long time on the institutional investment side that is structurally short Bitcoin. You know, I think people get at the trade, they get the joke, and certainly anybody who's doing as much analysis as we're doing understands how these big cycles are turning from a growth, inflation, and policy standpoint, deglobalization, et cetera, et cetera, understands that fixed, the market allocation to fixed income and associated allocations to mega-cap thing-type names and everything that was sort of highly correlated to that, that allocation, that market

• 31:54Speaker 02

  allocation was wrong. The valuations associated was wrong, the price was wrong, and we're seeing it on our screens today. So we're in the middle of a big phase transition from a structural perspective that is also sort of getting tied up in the cyclical aspects of the economy as well. If you talk about inflation and maybe potentially adding to recession.

• 32:11Anthony Pompliano?

  I um, uh, I'm not gonna name names here, but I'm gonna consider screenshotting all of these tweets and then make a little video later.

• 32:19Speaker 02

  Send them my way, man. You know, I'll beat them over there.

• 32:21Anthony Pompliano?

  We're gonna make a, uh, we're gonna make a little video and then we're going to, uh, wait, and I'll set like a calendar invite for like, uh, three years, four years from now.

• 32:30Speaker 02

  I think my former boss has been short Bitcoin the whole time, which is, it makes no sense.

• 32:35Anthony Pompliano?

  Yeah. And, uh, no comment.

• 32:38Speaker 02

  The whole time, like since like 2009, like, yeah.

• 32:44Anthony Pompliano?

  Yeah, yeah, yeah, yeah, yeah. No comment. Um, all right. Uh, where can we send people to find you on the internet?

• 32:50Speaker 02

  Yeah, no, I'm the 42macro D Dale on Twitter, 42macro.com. Come check us out. You're a serious investor. We got serious research for those who don't like getting blown up. Cheers.

• 33:01Anthony Pompliano?

  All right, my friend. I appreciate it very much. I always enjoy these conversations. Uh, the beautiful thing about financial markets is there's a lot of people with opinions on the internet, but, uh, if they go and they look at the scoreboard, I don't think almost any of them have outperformed Bitcoin over, uh, the last two years. So, um, you know?

• 33:22Speaker 02

  A hundred percent. You're, you're, you're a football player too. Whenever you hear some jamoak on the field talking after you're destroying them, what do you say? You just point to the scoreboard. Scoreboard, chump. Get back to the auto.

• 33:33Anthony Pompliano?

  And then wave, wave, wave and just go back.

• 33:35Speaker 02

  Get back to the auto, chump.

• 33:38Anthony Pompliano?

  All right, my, all right. We'll talk next week, Darius.

• 33:40Speaker 02

  I'll see you, man. Be good, brother.

• 33:42Anthony Pompliano?

  Later. 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.