#1124 Darius Dale | Should We Expect The Fed To Pivot?

Darius Dale is the Founder & CEO of 42 Macro. In this conversation, we discuss the current state of inflation, the potential Fed Pivot, what to expect in the coming months, the liquidity washout from the past 2 years, and how Bitcoin has proven itself to be resilient amidst all the chaos in crypto. ======================= Amberdata provides the critical data infrastructure enabling financial institutions to participate in the digital asset class. We deliver comprehensive data and insights into blockchain networks, crypto markets, and decentralized finance. Download our Digital Asset Data Guide at https://www.amberdata.io/pomp ======================= The number one name in NFT domains and the world’s most powerful wallet are teaming up to bring something new to the crypto and Web3 world: That’s right, Unstoppable Domains and Blockchain.com partnered to create NFT domain names ending in . Blockchain. It’s the perfect ending to show that you’re a believer in a decentralized future. The Blockchain.com community can get one, for free by signing up for the waitlist here. Free NFT domains provide all the benefits of premium Unstoppable Domains, including fee-free, lifelong ownership. Don’t have a Blockchain.com wallet? No worries, these new domains are available to everyone for as low as $5. Either sign up for a free blockchain.wallet or visit Unstoppabledomains.com to buy your domain today. ================== This episode is brought to you by Eight Sleep. The Eight Sleep Pod is a tech layer that fits onto your mattress like a fitted sheet. The Pod dynamically cools and heats each side of the bed, to maintain the optimal sleeping temperature for what your body needs. With the Pod, you can start sleeping as cool as 55°F or as hot as 110°F. The result: Clinical data shows that Eight Sleep users experience up to 34% more deep sleep. Go to eightsleep.com/pomp for exclusive holiday savings and ring in the most wonderful time of night. Eight Sleep currently ships within the USA, Canada, the UK, select countries in the EU, and Australia. =======================

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

• 0:00Anthony Pompliano?

  All right, guys. Bang, bang. Darius Dale is back. Yes, he's not dead. He's right here. Darius, super excited to talk to you. Let's first jump right into the Federal Reserve. They say that they are committed to getting inflation down. The inflation number is coming down on year over year, but is it base effect or is it simply that they have hiked interest rates high enough and the rate is going to come down and continue to fall?

• 0:23Speaker 01

  Load of question, man. You are the best. And thanks again for having me back. It's always great to be here. So I'll start with respect to inflation. So yes, base effects are kicking in to the year over statistics. That's been the case since, uh, since July of this year. What happened specifically with the October CPI report was pretty wonky. Um, you know, we don't need to get into too many details. So I think I'm going to put people to sleep if they're at the outset of this discussion, but what in terms of how the, the BLS, which the agency that measures inflation calculates medical care CPI, a portion of that, a very small portion of the overall basket, uh, resets every year based on the profits that insurance companies make from us, you know, in terms of the spread that they pay doctors relative to our consumption of care, uh, relative to what we're paying

• 1:07Speaker 01

  them. So that spread is effectively what the BLS measures as the change in that spread is what they measure as inflation. And so we had a big wholesale revision lower in the month of October that will impact the data, uh, over the next 12 months. Now the issue with that is that because that happened and it's such an important time in asset markets where effectively investors are, you know, leaning net short, very much looking for opportunities to sort of, you know, chase this market, chase this narrative into, into Santa Claus rally, uh, that caused some very aggressive action, at least in the equity and bond markets. Uh, but the reality is when we look at the math in terms of our data, uh, we don't see that as a very sustainable outcome. In fact, we may see various measures of core inflation and underlying inflation. If you look at things like median CPI, trim

• 1:51Speaker 01

  mean CPI and, and sticky CPI, those things are actually likely to retrace higher on a sequential basis, uh, here in the month of November.

• 1:58Anthony Pompliano?

  As that happens, do we get a pivot? Are they going to pivot? When are they going to pivot? What does that pivot look like? Talk to me about the pivot that everyone seems to be holding, uh, holding on to their seats and they're like, oh, it's just right around the corner. When do you think it's going to happen? And what exactly would that look like when they do decide to, uh, maybe return to a looser monetary policy?

• 2:16Speaker 01

  Yeah, 100%. So, uh, so the looser monetary policies, uh, we'll table that for a second. So I would almost argue there's two pivots, right, that markets need to get, uh, to get on, to get their hands around. Uh, the first pivot is the ratcheting down in the terms of the speed of, of further interest rate hikes. We've already seen that priced into Fed phone's futures. If you look at, uh, what's implied for the, uh, December 14th meeting, uh, there's a over 80% chance probability that they're going to hike 50 basis points, which is a deceleration from the hikes, uh, the rate of hikes that they've, uh, put on, uh, over the last three to four meetings, uh, the 75 basis point clip. So the first pivot mission accomplished, uh, at least for now. Um, we don't, we think, we're not so sure that, that they're going to be able to keep that, um, based on the data we're going to get on the first, uh, core PC they prefer deflation measure. We'll get that on December 1st,

• 3:01Speaker 01

  December 13th, we'll get the November CPI data that I just alluded to, uh, right a day before, uh, the FOMC meeting in their blackout period. So it's going to be very interesting. The market response to that data, uh, but that's pending. The pivot you're referring to is the actual pivot where they bring out the bazooka, the ambulance sirens come to clean the blood up, uh, off the streets. Um, it's our view, um, that that pivot is, is, is, is quite a ways away. It could be over a year away from where we're sitting today. And part of the reason we say that is because we think, at least here at 42 macro, some of the work we've done, uh, on the resiliency in the US economy, particularly with respect to the consumer, uh, which is really kind of the bolus of the coincidental lagging indicators, uh, bucket. That data suggests we're probably not going to go into

• 3:42Speaker 01

  recession until late 2023, maybe even as, as, as late as early 2024.

• 3:48Anthony Pompliano?

  So what happens between now, we're at the end of 2022, uh, before the recession? Are we in the pre-recession? Is, is there like, uh, like, uh, we're kind of just floating along and then eventually like the bottom falls out and now we're in recession? Like, how, how does that work? Especially if it's a year away? Like, that's a pretty long time period. And I think a lot of people are already saying like, no mas, like, I already feel the pain now. What do you mean? I gotta wait a whole nother year until we're actually in the recession?

• 4:12Speaker 01

  Yeah, no, that's that's exactly the point. Um, you know, it kind of feels like you're a dead man walking. So you can look at this two ways, right? You know, like, you know, you could say that you're on your way to recession on day one of the new business cycle, right? The day one of the new new expansion, which I guess was effectively April 1st of 2020, after we sort of came out of lockdown, or at least the first state started to come out of lockdown. The reality is the recession process really takes, you know, several takes several quarters, particularly when you don't have the sort of leveraged cycle dynamics in the private sector that would suggest a more sort of material a kind of ratcheting down of activity, consumption, etc. You know, if you think about like, one thing we like to look at at 42 macro as it relates to timing the business cycle

• 4:54Speaker 01

  is the spread between the 10-year nominal treasury yield minus the 10-year or the three-month nominal treasury yield that has been at least, you know, empirically proven to be the best recession indicator. And when you sort of back test that recession indicator in terms of when it goes to inversion, i.e. the 10-year yield is below the three-month yield, which is deeply inverted as of today and inverted a couple of weeks ago. You know, on a three, zero to six-month forward basis, you're talking about 100% chance of the economy still growing in terms of that particular interval, at least this is data going only back the last eight business cycles since the mid 1960s. You look at the six to 12-month forward interval, there's a 75% chance

• 5:35Speaker 01

  that the economy is still growing in this six to 12-month interval. That's April of next year through October of next year. So the 75% chance the economy is likely to still be growing. When you get into this 12 to 18-month interval, that would be October of 23 through April of 2024. That's where you start to see the the math on the percent positive, the percent negative ratio math flip in a way that suggests the economy is more likely to be in recession in that interval. It's right around kind of, you know, two-thirds probability of being in recession. So from a base case scenario standpoint, that's our modal outcome. That's our base expectation. And then when you from a Bayesian standpoint, we started at later on, different things. I sent you a few charts.

• 6:17Speaker 01

  One chart I like to for you to pull up is slide 32 from our most recent November macro scouting report presentation. We put out this presentation.

• 6:25Anthony Pompliano?

  Household sector balance sheet.

• 6:27Speaker 01

  Is in excellent shape, man. Hercules, Hercules, Hercules. So let me let me run you.

• 6:34Speaker 01

  Let me walk you through each of these four indicators because I think these are four of the most important indicators that me, you know, doing this for a really long time. These are four of the most important indicators at this particular juncture of the business cycle. So let's start with the first, uh, first panel. The first panel just shows the amount of cash that's on household balance sheets. It's right around 7.6 trillion dollars currently. As you can see, it's, it's well north of the pre-COVID trend. It's like in Wally world relative to anything we've ever seen. Uh, obviously it's on a nominal basis, but the growth rate that we've seen in this, uh, in this post-COVID era has really been, you know, obviously betressed by very aggressive fiscal policy. You had, uh, STEMI's, you had a P forgivable PPP loans, you have forgivable SBA loans.

• 7:19Speaker 01

  I mean, it was, you know, you name it, everyone got money, forgivable debt, student loans. All this, uh, excess cash has really contributed to households. You know, really growing their balance of checkable deposits and, and money market funds. These are, these are cash balances that at any moment can be transformed into economic activity. This is not time savings that you had to wait a year or two to get your money back. This is right now, I can spend that, that's 7.6 trillion dollars. That's almost a third of GDP. When you look at that number on a ratio, looking at the second panel in this chart, when you look at that number on a ratio to, to, to, uh, overall household assets is at 5%. We haven't seen that high of a ratio since going back to the 1950s. And so, you know, you have to think about, okay, households feel good about their liquidity situation.

• 8:04Speaker 01

  You know, they're not, the, the sort of reaction function to negative news or even people getting, losing their jobs, et cetera, is not the same. And this households aren't going to be like, well, I got to ratchet down and spend less and, you know, all that cascading, you know, kind of reflexive, um, you know, doom loop, if you will, really that really, you know, trends to trigger recession. That, that the probability of that, you know, really occurring over the very near term is actually quite low. And then so that takes me to the last two panels, which we look at it from the debt side of the equation. So that's on the household and the, on the asset side of the equation, the first two, uh, panels and from a liquidity standpoint. When you look at the debt side, I think it's just as important. So the third panel here just shows, uh, uh, sort of total household debt, mortgages.

• 8:44Speaker 01

  This auto loans, consumer loans, et cetera, as a ratio to nominal disposable personal income. So this is how much income you're generating minus the taxes that you pay to the government. That ratio is currently at one, you know, currently, so we have one dollar of debt per one dollar of nominal disposable personal income. Now, you look at the last cycle, you know, we were at a hundred and thirty-four cents on the dollar in terms of debt to disposable personal income. That's a much higher ratio. And so it kind of tells you that, you know, we have not really gotten to levels that would be particularly threatening. More importantly, we've not really grown. You know, we've seen, you know, I've studied, you know, cycles, many cycles through various lenses. And the number one thing that I've learned about the business cycle in terms of what

• 9:27Speaker 01

  truncates it and what causes it to end is two things. You need to have two things that happen simultaneously. You need a sharp growth rate in credit in terms of leverage, like a metric like this, total debt to nominal disposable personal income. And you also have to have a sharp growth rate in debt, in the debt service ratio, which is the fourth panel, the final panel in this chart. What the debt service ratio is, is the total amount of income. This is for the household sector and specifically, it's the total amount of income that, that, that a particular sector, the household sector is using to, to, to, to pay down debt, either through amortization, which is paying back principal and, and, and paying down interest. So as you can see, at nine point six percent, you know, we're at historic lows.

• 10:08Speaker 01

  I mean, we're, you know, we were slightly lower in the early phases of COVID when, you know, the government was handing out trillions of dollars. But the reality is, if you take that out of the time series, we are at historic lows in terms of the debt service ratio for the household sector. So you add all this up, let me just summarize. Households have a ton of cash. They probably feel really good about that cash because it's such a high percentage of their assets. They're actually quite unlevered and more importantly, the speed of the change in their leverage is not signaling anything that's particularly onerous with respect to the business cycle. And oh, by the way, the change in their debt service, the both the level and the change in the debt service ratio would seem to suggest that we have several quarters, if not potentially years,

• 10:49Speaker 01

  before households have to really start to rein in and tighten their, tighten their belts, you know, kind of sit on their wallets, if you will.

• 10:56Anthony Pompliano?

  So is it fair to think about this as there were such good times that the household balance sheets got so strong that now that we're going into a recession, consumers never been better prepared for a recession?

• 11:09Speaker 01

  Yeah, and this is ironically what may push out and delay the recessionary process.

• 11:14Anthony Pompliano?

  Because they got to run out of cash?

• 11:16Speaker 01

  Yeah, well, it's not that they have to run out of cash, enough of them have to be fired so that they start demanding liquidity in a way that causes them to spend less.

• 11:25Anthony Pompliano?

  Got it, so they got to monetize the assets that they have in order to have that money to spend, that's where you start to get in kind of deeper trouble in the economy.

• 11:34Speaker 01

  Totally, totally, it's really more a function of jobs and it's hard to see, there's a couple of things, you know, that on the jobs front, you know, the job, losing your job, no matter how much cash you have in the bank, you're probably going to spend a little bit less unless you're, you know, some YOLO millennial who thinks they can travel the world on, you know, whatever budget they have, but the reality is, especially if you have a family, you lose your job, you're going to spend less money. So that's one big, the indicator that we're watching, but the reality is, it's kind of reflexive. If everyone's still able to spend, and oh, by the way, we got some ridiculously positive retail sales data this morning that we can talk about in a second, if everyone continues to spend in an economy that's two-thirds to 70% consumer spending, how do you have enough

• 12:16Speaker 01

  bad stuff in the economy happen for a bunch of people to lose their jobs? You know, it's been very hard for, you know, I run a business and you run a business, it's been very difficult to attract and retain talent in this business cycle. The employment to population ratio is still down 140 basis points from its pre-COVID high, the labor force participation rate is still down 140 basis points from its pre-COVID high. So there's millions of people, right around just shy of 2 million people who were formerly employed are no longer in the United States labor force. And so the probability that companies respond this early in the sort of, you know, kind of deterioration phase with firings, et cetera, and en masse is actually quite low in our opinion.

• 12:57Anthony Pompliano?

  Bitcoin. What are the thoughts there? This is an asset that it was ballin'. $69,000 in November. Everyone thought they were rich. Now it's coming down quite a bit, 75% or so. As we've had to remind people, there are single stocks that are down more than that. But Bitcoin is down 75% or so. I know you've got some thoughts between Bitcoin, net liquidity and the kind of broader macro environment. How are you thinking about this?

• 13:22Speaker 01

  Yeah, great question. So let me take a step back and I know you will appreciate this and your viewers will appreciate this. I think the number one thing we learned about Bitcoin this week is how freaking resilient it is.

• 13:31Anthony Pompliano?

  Bang, bang.

• 13:32Speaker 01

  Like, yeah, like, like, like, think about this, like, in middle 2008, when Lehman Brothers was going bankrupt and the world thought AIG was about to go bankrupt, which is really the problem. Everyone thinks it's Lehman going bankrupt. It wasn't Lehman that really caused the big problems. It was AIG and all their derivative exposure because Lehman exposed what, you know, AIG's derivative exposure was. If AIG would have went bankrupt, there was, there was a legitimate palpable fear that the economy and all the financial markets will go into a permanent state of depression. You know, I was around for that, like, you know, I was, you know, I wasn't as smart as I was now about all these market cycles, but you know, I was paying attention. And the reality is that didn't happen. But the, you know, the reason it didn't happen is because we had the Fed come out and pull out a bazooka. We had TARP.

• 14:17Speaker 01

  I mean, I mean, it was an alphabet soup of, oh my God, we gotta fix this because if we don't, the stock market's done, the bond market's done, the economy's done. That's not happening to Bitcoin. There's nothing at all at fault or wrong with the protocols. And again, I'm not the smartest guy on the math and the, and the science behind everything. But what I do understand is that we just saw the second largest crypto exchange in the world go belly up. You know, I don't want to make any, you know, I don't want to get sued. So I'm not going to say anything about why they went belly up. But, but, you know, they went belly up and guess what? The asset, you know, I don't, I wouldn't say it shrugged it off. It went down in price, but that no, nothing at all happened to the protocols. If anything, it should give you a tremendous amount of confidence that this asset is here to stay.

• 15:02Speaker 01

  When something that major happens to it, you know, it's not like, oh, people thought that. In March of 2009, people thought the stock market was going to zero. No one thinks Bitcoin is going to zero in the context, even with all the stuff hitting the tape. So I just wanted to throw that out there and if you had any thoughts on that.

• 15:17Anthony Pompliano?

  I believe that Bitcoin is doing exactly what it was designed to do. And part of, I think, what has the people so excited is that people love to have control and some sense of being able to peacefully protest, to peacefully protect themselves, to participate in this thing. At the same time, the mainstream media, large financial institutions, a lot of those things, they don't understand how to play the game, right? It's kind of like if you take the world's best baseball player and you're like, hey, we're going to take you and we're going to have you play cricket. Now, it's similar, but it's different.

• 16:00Anthony Pompliano?

  And if you don't understand the rules, if you may not be as good at it, if you may not even know what the actual plays and strategies are, like you're kind of fish out of water a little bit. And so I think that's kind of what goes on is that there's a whole bunch of people that get pushed further and further out on the risk curve because actually in this entire kind of large ecosystem, Bitcoin looks the most different from the legacy financial system. But the further you get out on the risk curve, the more it looks like the old system. Because now all of a sudden, what are you talking about? You're talking about, oh, we create coins, we create things out of thin air, we insiders get them, right? Like, all these things, there's leverage, there's centralized platforms, like, it becomes this whole system, they're like, yeah, you recreated Wall Street. By the way, cool, fine, whatever, I got it.

• 16:44Anthony Pompliano?

  There's a lot of people on Wall Street that make a lot of money, that help people, that do all this stuff. There's also a lot of people who do some sketchy shit, too, and like, you know, there's bad outcomes. Yeah, so it's like, like, I get it, but, but I do think that Bitcoin's resilience is very different, because if you think about it, Wall Street's not resilient. It's backstopped by the most resilient organization in the world, which is the federal government. And so they happen to constantly have FDIC, FDIC insurance, they happen to come in with bailouts, like, they're constantly just saying, like, we got the safety net. Bitcoin doesn't have that, which is pretty interesting.

• 17:19Speaker 01

  No, Bitcoin doesn't have a safe net and doesn't need a safe net because it's not going anywhere. I mean, don't you think every government in the world, particularly the ones that are most closely tied to the center of the sort of current financial structure with respect to the reserve currency status, you know, the US dollar, the yen, the euro, the British pound? They don't want an alternative to their hegemony to being able to capitalize themselves at low rates. They don't want to hedge, you know, to having every good and service priced in their currency across borders. That's, that's, those are exorbitant privileges of which, you know, the US enjoys more than anyone by orders of magnitude. So clearly they don't want that. But just on your point, going back to sort of, you know, how much the legacy, how much the, the sort of, you know, I guess, I don't even know what to call it.

• 18:02Speaker 01

  The altcoin or the, the, the, the DeFi space started to resemble the TradFi space. And, and, and one thing that, you know, Jim Bianco made a great comment on this in a recent podcast. He basically said, hey, look, the main difference between the DeFi and TradFi right now is in all the technology. It's just the fact that the TradFi has the Federal Reserve that can bail them out of all these mistakes. The DeFi does, currently does not have it. And so going back to your original comment on net liquidity, I threw you that chart, slide eight from our, from our macro scattering port. You know, where we show the 42 macro net liquidity model, which is the blue line in this chart here. So the, the blue line in the chart shows our net liquidity model, which is the Fed's balance sheet, the total assets on the Fed's balance sheet. Then you subtract the Treasury general account balance from that.

• 18:47Speaker 01

  And you also subtract the reverse repo facility balance from that. And that gives you sort of an approximate kind of net liquidity function with respect to how much sort of liquidity the government in aggregate is supplying to the private sector and to the financial markets ultimately. So the black line is the Bitcoin in the, in the chart and the red line is S and P, a purple line or pink line is Ethereum. As you see the title of the chart, so let me just take a step back and explain a couple of things. I was going to say the FTX block because I tweeted this out. I want to say maybe last Tuesday or Wednesday when the, you know, poop was really hitting the fan, which is. It wasn't Sam Bankman-Fried's brilliance. It wasn't CZ's brilliance. You know, I pronounced his name wrong, so I'm not going to go there.

• 19:30Speaker 01

  But apologies to him, Mr. Binance. You know, it wasn't the brilliance. These are brilliant people. Don't get me wrong. I'm sure they're very brilliant. They're well-connected, et cetera, et cetera, et cetera. But one thing that is missing from this discussion is the fact that we saw the sharpest expansion, not only in speed, but in terms of size and magnitude of net liquidity in the history of the time series between, you know, like an 18-month interval. So from like February of 2020, kind of where it troughed in late February of 2020 to where it peaked in November of 2021, i.e. where a lot of crypto digital asset peaked, net liquidity expanded by $3.4 trillion. It just, it's like, that's like all the QE of the years past combined and then multiplied

• 20:15Speaker 01

  by two, right? Like, it's just like, in such a short period of time, we created geniuses out of people who created paper, you know, or not paper assets, digital assets, right? And then, oh, by the way, all it took was a mere $1 trillion reduction in that net liquidity from that November 2021 high to today to basically destroy the entire kind of, you know, token, whatever you want to call it, TradFi industry. You've obviously uncovered a lot of cockroaches and some misbehavior and a fairies behavior, or at least alleged misbehavior. But again, that misbehavior is a function of people think they're the smartest guys and gals in the room, when again, net liquidity in like an 18-month interval is like going

• 20:58Speaker 01

  up as fast as it's gone up, you know, over the last decade by like a factor of two. So in our opinion, you know, all this stuff is, it doesn't happen in a vacuum. There's a reason FTX blew up in 2022 and not in 2021. And that's specifically because the blue line on that chart has declined by a substantial degree.

• 21:18Anthony Pompliano?

  As we look forward, what is your expectation for stocks, real estate, commodities, and Bitcoin? What do you think plays out? Let's call it over the next quarter or so. I think which people are saying, hey, going into the holidays and kind of coming out next year, a lot of the same, down only, sideways, rocket recovery coming out of COVID all over again? What are you expecting?

• 21:41Speaker 01

  Yeah, so just based on some of the guidance we've received from the Federal Reserve as it relates to its balance sheet, sort of balance sheet program, the guidance we've received more, I would argue more importantly, from the Treasury with respect to, you know, kind of the projected changes in the borrowing schedule, how much they're borrowing, where they're borrowing on the curve, and ultimately, kind of their targeted into beer cash balance, it's very likely we see a substantial reduction in net liquidity between now and year end. Now, the one caveat is, we saw a $189 billion decline in the reverse removal facility balance month to date, in November to date, and I want to say around 150 of that has

• 22:22Speaker 01

  really occurred since we saw that October CPI report on November 10th, I want to say. And so what's happening is that investors are feeling incrementally comfortable taking duration risks, taking credit risks, taking all sorts of risks in capital markets, and they're pulling that excess liquidity out of the reverse removal facility balance and parking it into other assets and taking risk. If that continues, then you're going to see the decline, the increase, the likely increase in the Treasury General Account balance get offset alongside the likely decline in the Federal Reserve's total assets on their balance sheet. Now, we don't think that's going to increase, because again, going back to the early part of the conversation, we think consumer spending, and ultimately, a lot of coincident and lagging indicators, not the least of which is the labor market, are

• 23:06Speaker 01

  likely to remain resilient for some time, which means it's very unlikely we see a significant deceleration in inflation that would ultimately allow a lot of what we've seen over the last week or so from reverse removal facility balance to continue. In fact, it may actually start to reverse. So to answer your question on risk assets, very likely that we start to sell off from here into now and to year end, but then it's likely that we start to improve in the first half of next year. And in fact, a lot of those dynamics I highlighted from a net liquidity perspective are likely to improve in the first half of next year, and I think there's going to be a mass, I think there's going to be a window of opportunity on the long side of risk assets, and perhaps even bonds as well, because investors are kind of too bearish on growth as it relates to the near

• 23:48Speaker 01

  term outlook. I think this path towards recession is likely to be longer than the average investor realizes, which sets us up for multiple strings of positive growth surprises in the first half of next year. So again, I don't know that we need to put that trade on today, because again, we got some downside ahead of us, in our opinion.

• 24:05Anthony Pompliano?

  As you look forward, what is the one thing that you're waiting for or the one thing that you want to see happen where you'd be getting excited and kind of, hey, I want to be an investor again in this market? Because right now, being in cash has been a great strategy for the whole year. Like, when would you be like, okay, you know, now's the time to start getting excited? Is it just the Fed and they're in control?

• 24:26Speaker 01

  I mean, I hate to reduce macro down to that, but I mean, and so, look, macro, the most important things in macro and why asset markets go up, why they go down, is really just a function of how much money does the government need from us and how easy does the Fed make it for us to give it to them? If the Fed makes it very hard for us to give them that money and they need a lot of money, then asset prices, risk assets, go down a lot. If the government doesn't need any money from us and the Fed, oh, by the way, is making it even easier for the money that they do need from us for us to give it to them, then asset prices go up because there's more liquidity on our side of the table in the private sector to actually chase and capitalize financial assets. And so if you think about macro through that kind of basic lens and start to sort of,

• 25:09Speaker 01

  you know, understand some of the dynamics that might make the government need more money, need less money, start to understand and forecast some of the dynamics that might make the Fed inclined to make that process easier or harder, that's where macro starts to get difficult and you really need some, you know, kind of experience at the bare minimum, some, somebody on your team that can really help you with that. So, but going back to your question, there, you know, if you understand that that's what's really driving the bus here, then yeah, you really kind of do need to see a credible, legitimate Fed pivot, not, you know, to get really sustainably long Bitcoin, really start to, you know, kind of, you know, increase the size of your dollar cost averaging and accelerate the pace of your dollar cost averaging in a way that, you know, allows you to really participate in some material upside. I mean, that could be quite a ways away, just given

• 25:54Speaker 01

  our recession forecast. But again, I do believe there's going to be a window of time in the first half of next year for risk assets to really do well before we get to recession, before markets at the price in that credit risk. We've been saying in our research at 42macro that there's always two phases to the bear market. And the first phase is the sort of tightening net liquidity phase, you know, where it becomes really difficult for us to hand over money to the government. So we got to sell some of our assets in our portfolios to make that process work. There's also the second phase, which is the credit risk phase, where when the economy really starts to slow down and kind of head into recession, investors start to get very nervous about, you know, kind of their forward cash flow estimates and their ability to sort of, um, their ability to value companies and value credits.

• 26:38Speaker 01

  And that's when you start to see some significant sell off. That tends to be where the capitulation happens. Most bear markets, that process is kind of, you know, linear and they're close together. Phase one is, you know, generally, you know, kind of follow quickly by phase two. That was like 2007 to 2009. I don't know that this bear market is likely to see that. You know, it can be more like kind of the 2000 and 2002, call it 2003 episode where you had multiple months, if not quarters, where the market was doing kind of just fine on a, on a, off of a local low, because again, you know, the, the economy wasn't really doing what it needed to do to cause, um, you know, a significant change in Fed policy. So, um, you know, that it's our view that we might have that investable window. But as it relates to kind of expecting, you know, a significant recovery in Bitcoin,

• 27:23Speaker 01

  you know, well beyond its previous highs, uh, that could be, you know, if not, you know, a year away, it could be multiple years away.

• 27:30Anthony Pompliano?

  Where can we send people to find you on the internet or find out more about 42 Macro?

• 27:35Speaker 01

  I appreciate you, man. So come check us out, 42macro.com. You know, like I said, uh, I think if we've learned anything in 2022 is the value of a legitimate institutional macro risk management process has never been more valuable. And I don't think you need, I don't think you need to be an institutional investor to benefit from our services. In fact, we price our services specifically so that everyone can take advantage of it. Because, you know, as you, you know, my background, uh, very much grew up on the outside looking in, uh, to a lot of this, um, you know, a lot of what we're talking about today as relates to making money, uh, in financial markets. And so I want to give back, uh, the best I can, you know, in terms of, uh, you know, allocating my time, my resources to helping everybody. And so, uh, come check us out. Do a lot of great research at 42macro, a lot of very actionable research.

• 28:18Speaker 01

  And then if, you know, still I understand that not everyone who's paying attention and can watch, uh, can afford it. Some people might be early in their learning journeys or early in their capital journey. So definitely come check me out on Twitter. We put out a lot of decent content on there as well for free. So I'm at 42macro, uh, D down that platform.

• 28:34Anthony Pompliano?

  Amazing. Ladies and gentlemen, we're gonna be doing this a lot more often, maybe once a week. Every other week, we'll let you know, but uh

• 28:40Speaker 01

  Every other week?

• 28:41Anthony Pompliano?

  Always, uh, maybe we'll, you know, it depends on what happens at the market. Maybe somebody will do something stupid and we'll have to come talk about it again. All right, uh, as always, I appreciate talking to you and we definitely will keep doing this. So, uh, thanks so much and I hope everyone enjoyed it. Talk soon.

• 28:54Speaker 01

  Appreciate you, brother. Always, man. Thank you.