#1186 Darius Dale on Bitcoin Rally, Interest Rates, Inflation, & Banking Crisis

Darius Dale is the founder & CEO of 42 Macro. He is one of my favorite people to talk to about the financial markets. In this conversation, we talk about interest rates, inflation, bitcoin rally, stocks, cash, and what the Fed has to do moving forward. ======================= Pomp writes a daily letter to over 200,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

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. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. We have no advertisers on this podcast, so it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Darius Dale is the founder and CEO of 42 Macro. He's one of my favorite people to talk to about financial markets. In this conversation, we talk about interest rates, inflation, why Bitcoin has performed so well to start the year, how he's thinking about

• 0:45Anthony Pompliano?

  stocks, cash, and what the Fed's got to do moving forward. I always enjoy talking to Darius, and I hope you guys enjoy this one as well. Here's my conversation with Darius Dale.

• 0:57Speaker 01

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• 1:25Speaker 02

  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.

• 1:49Anthony Pompliano?

  All right, guys. Bang, bang. Darius is back. Darius, Bitcoin, $30,000 now, two times off the bottom. 100% appreciation since the bottom. What exactly is going on? How are you evaluating what's going on with Bitcoin? Yeah, no, great question, man.

• 2:04Speaker 03

  I think it's a hat tip to anyone who made that call specifically looking at my boy here over here rocking the New York hat had to join you. Um, but you know, there's a couple of things going on in in this market, and I think all of which are appropriate for where we are in this particular phase. And so we'll start with the market pricing in of the Fed pause pivot. Historically speaking, you know, when you would go back and we sequence, you know, we've done a big study on bear markets, you know, through the lens of the S and P. Whether it be through the lens of the inflation cycle, the growth cycle, but most importantly, the liquidity cycle. And what we found is that a couple of things. Markets tend to bottom right around when the Fed inflects liquidity cycle, either with rate cuts or pausing or panic rate cuts, et cetera, or doing QE, obviously, in the most in the post crisis era.

• 2:47Speaker 03

  But another thing that we've learned in that study is that historically speaking, pause pivots tend to be the most bullish pivots. And the reason I think that is the case, again, the data is, you know, speaking to me, is I believe the market, when the Fed pauses, looks forward and re-flates, soft landing expectations. They go, the coast is clear, things are fine, you know, the Fed didn't break anything, it did not over tighten us into a draconian economic scenario, therefore investors feel a lot more comfortable taking risks. So I think that's part of what's going on here is the market is clearly sniffing out the Fed eventually getting to this pause pivot. We happen to think it's probably more likely to be the June meeting, but that's neither here nor there. It's obviously April, markets are forward looking.

• 3:29Speaker 03

  The second thing I think is happening in the cryptocurrency market, and this is broader broader markets in general, is the inflection in the Chinese, both growth cycle and the Chinese liquidity cycle. And this is something that's had a pretty significant influence on on global, you know, sort of assets, you know, really since October. You know, we've seen Chinese growth bottom and really start to re-accelerate, particularly coming out of their, uh, the end of their zero COVID policy. And then more importantly, we're starting to see, we're not starting to see, we have seen a pretty significant acceleration in the size and growth of the PBOC's balance sheet. It's grown by roughly about, you know, 1.5 trillion yuan, which is somewhere around, let's call it 350, 370 billion US dollars in the last three months.

• 4:10Speaker 03

  So that's very clearly been very positive in terms of supporting assets that the Chinese themselves like to speculate in, namely Bitcoin. So I think those confluence of factors are really contributing to what you're seeing on your screens here.

• 4:21Anthony Pompliano?

  What's fascinating to me is this idea of global liquidity. So a lot of people have been focused on the US central bank balance sheet and obviously looking at, you know, it's going down, it's going down, we're losing, you know, hundreds of billions of dollars off of that balance sheet, quantitative tightening is happening. Oh, are they going to pivot? And we saw with the banking crisis, there was some liquidity added back and is that QE, is it not? But actually, since really the start of the year, we have seen a net growth of global liquidity, mainly because as you point out, there's a ton of inflows happening in Asian countries. And so when we go ahead and we see that occurring, is that something that it's a simple, look at the top 10 or top 20 global central banks and simply say,

• 5:02Anthony Pompliano?

  if it's net positive, asset prices go up. If it's net negative and there's tightening going on on a global basis, asset prices are going down. Like, can we just boil it down to that simple equation?

• 5:11Speaker 03

  Yeah, that is actually true. I've done a tremendous amount of work on this and the correlations are very tight. They continue to be very tight. And this is across digital assets. This is called stratify assets, both stocks and bonds. You can very clearly see that tight correlation, particularly on a levels basis. And what we, you know, if you sort of aggregate, what we would, what we do here 42 macro is we aggregate the top five central banks. Once you get beyond the top five, you know, there's really, you're hardly talking about any share. So when you aggregate their, their total balance sheet, their size in US dollar terms, what you see is global equity market cap is very correlated to that. Global fixed income market cap is very correlated to that. And obviously in the post crisis era, a digital asset market cap is all very correlated to that. So I don't think it's as simple as aggregating it because again, by the time you aggregate it,

• 5:56Speaker 03

  you know, it's a coincident indicator. It's our job as investors to, you know, anticipate inflections and trends in the indicator as opposed to just acknowledging that it's gone up or gone down because by then it's obviously again, too late to do anything about it in asset terms. It's our view, you know, for a variety of reasons that we're sort of getting, I wouldn't say to the end of the global liquidity cycle in terms of the inflection that we've seen, but we're certainly starting to see it peter out and stall out. And it's our view that by the time we get into the second half of the year, a lot of the positive dynamics that we've seen out of the Bank of Japan balance sheet and some of the positive dynamics that we've seen out of the PBOC balance sheet are likely to start to dissipate,

• 6:36Speaker 03

  which would ultimately give way to what we think is still ongoing, which is the balance sheet contraction here in the federal, in the US, vis a vis the Federal Reserve.

• 6:44Anthony Pompliano?

  So when we see this playing out, one of the pieces that I keep coming back to is the United States Federal Reserve, they went ahead and they jacked interest rates from zero to 5% and they dropped a couple hundred billion dollars off of their balance sheet. We never got the official inflation number below 6% when they did all of that. At the same time, in 2023, we have seen inflation month over month actually accelerating in what seems to be a little bit of a scary situation. And so if we are now talking about pausing of interest rate hikes and inflation has not come back down to 2%, should we just buckle up and expect, you know, 8, 10, 12% inflation?

• 7:26Anthony Pompliano?

  Or is there some other dynamic at play that will keep inflation down even if they return back to some level of a loose monetary policy?

• 7:33Speaker 03

  That's a phenomenal question, one of the best questions I've gotten all year because I think the underlying question within the question is, is this a Federal Reserve that is serious about its price stability mandate? Because I think that's the, if you, if you have a, depending on what your answer is to that question, that really dictates what you're doing here in financial markets. We happen to believe that they are serious about their price stability mandate and there's a couple of reasons why. One, it's very clearly that so many people in the United States of America live paycheck to paycheck. And so it's very clear from our perspective that under a democratic regime, democratic administration, you know, you have the left, you know, kind of pushing and leaning on the Fed, Liz Warren being a prime example of that. We do believe that the Fed is sort of more focused, would be more focused on, on achieving inflation outcomes than it would be otherwise.

• 8:18Speaker 03

  But that's, I think that's the less of an issue. I think the bigger issue is with respect to the Fed policy and its desire to, to get the inflation genie back in the bottle. I think it has a lot more to do with, you know, the financing in the treasury market. And if you go and you look at, you know, kind of, you decompose the treasury market, you know, us, us private sector participants, we now own just shy of 40% of the treasury market and that's up from like 30% in, in recent quarters. And, you know, part of the reason for that, obviously, we've seen foreign central banks, you know, divest their treasury holdings. We've obviously seen the Fed divest its treasury holdings vis a vis QE and obviously, you know, commercial Banks, you know, are looking around and divesting their treasury holdings as well. Signature Bank, Silicon Valley Bank being, you know, two, um, you two banks have gone by the wayside because they didn't do it fast enough.

• 9:04Speaker 03

  You know, this is a real big issue. You were losing a lot of the sort of core components of the treasury demand curve. And as the more we push the, you know, sort of the incremental kind of supply upon the private sector, the lot more, the greater the probability is that we have higher and higher interest rates that we, we need to use to capitalize the US government. And I think first and foremost, one, the Fed doesn't want that to happen to be in with because it's part of their mandate. If people think the Fed has a dual mandate, it doesn't have a dual mandate, it has three mandates. Price stability, maximum employment and moderate and long-term interest rates. And the moderate long-term interest rate piece comes into play when you think about, if you don't put the inflation genie back in the bottle, going back to your question, where are our long-term interest rates supposed to be over the long term?

• 9:47Speaker 03

  I happen to think the bond market thinks the Fed is going to put the inflation genie back in the bottle. That's why we still see interest rates with a three handle on the 10-year, et cetera. But ultimately, if the Fed, if the bond market is wrong on that expectation, then we need a significant repricing higher across the entire interest rate curve to account for that. Ultimately, that's going to be extremely bullish for asset markets, right? You're talking about a Fed that's just going to be perpetually easy. But I think the process of going from point A to point B could be a little bit of, a little bit challenging.

• 10:13Anthony Pompliano?

  So I always like to dumb things down for myself to make sure that I understand. And one of the, you know, kind of ideas that I have or frameworks is, you know, when you're in high school and every weekend there's a party and you go to the party and they're like, you know, B plus, A minus parties. And you go every weekend, you see your same friends, you guys have a good time. But then every once in a while, like maybe once a year, there's an absolute banger. Like there's just a party that you will talk about for 30 years. And it's usually because there's a bigger crowd, it's crazier, it's more fun, there's more alcohol. I obviously know when drinks in high school, it's just this awesome thing, right? And when you think about that party, you basically spend the next couple of years trying to recreate the magic of like that one night, right?

• 10:58Anthony Pompliano?

  If you think of financial markets, 2020 and 2021 were the banger.

• 11:05Anthony Pompliano?

  Emergency interest rate cuts to zero, quantitative easing like the world had never seen before, and asset prices skyrocketed to the moon. It was awesome. We were all drunk and we had a blast. I think that an entire generation of investors are going to be begging for a recreation of that time period. Will we see 0% interest rates and trillions of dollars of quantitative easing again in the next three, five, 10 years? Like, how do you think about the potential to recreate that type of environment versus like, no, maybe we'll just be in a more moderate kind of normal interest rate, normal loose monetary policy type of environment?

• 11:46Speaker 03

  That's a phenomenal question. Again,

• 11:49Anthony Pompliano?

  That's all I do. That's all I do here.

• 11:50Speaker 03

  That's all you do is ask it on the questions, man. I appreciate you, bro. So the answer is yes, but not to the same degree. I do believe we're headed for what we call, you know, recession, what most people call recession, what we call a phase two credit cycle downturn, same, same thing. And in that process, the Fed is going to likely, you know, be, you know, concerned about, you know, ultimately the level of unemployment, et cetera, and will ultimately have to respond to asset markets telling it to do those things. Now, are we going to cut from five back to zero? Are we going to do, you know, let's call it go back to $120 billion a month of QE? I don't think so. I think, I think what we saw on COVID was a pretty unique and extraordinary circumstance that in my opinion, going back to this kind of chasing the, the banger of the

• 12:34Speaker 03

  party analogy, I think it's sort of trapped a lot of investors in a regime that thinks monetary policy, the Fed reaction function and the reaction function of, you know, policymakers globally is going to get easier and easier and easier. We happen to think the opposite is true. It's actually at every subsequent market cycle and business cycle, it's probably going to be slightly less easy than it was in the previous cycle. And I think this is going to be a classic example of that. And part of the reason for that is the underlying structural trend and inflation is transposing itself higher. You know, if we, uh, we have a pretty sophisticated dynamic factor model that we built, uh, that is specifically designed to project a longer run trend of inflation, not just what

• 13:17Speaker 03

  inflation is doing on a next six month, next 12 month basis, but the underlying trend of the time series and that model suggesting that the underlying trend in time series is practically doubled, almost doubled from where it was trending at prior to COVID. And so that doesn't really sound like a lot, but not only is that doubling process a lot in delta terms, but it's also we are now talking about an underlying trend of core PC inflation, you know, underlying, you know, measures of underlying inflation like trim means PC each median PC, you know, these are, these are kind of your more wonky measures of inflation. We're talking about levels that are going closer to three as opposed to below two. And when you have a lot, and don't forget, let's not, let's remember the Fed's, uh, very, uh, inflation target is 2% and I think it's going to be 2% for quite a while until we get

• 14:01Speaker 03

  that employment rate high enough for them to have political cover to take it higher than two. But until we get to that point, it's very likely that this is a Federal Reserve that has to sort of, I don't want to say sit on its hands, but it's certainly going to be a lot more gun shy relative to the keg part, the kegger that we just described, you know, this, this banger of a party, um, you know, because again, inflation is a congressionally mandated mandate, you know, as long as the treasury market's not malfunctioning, you know, as long as the jobs market is reasonably robust, they have to turn their attention to this congressionally mandated mandate. And it's unfortunate because we all know how this party ends, right? It's going to end with the cops coming or all, you know, climbing over the fence and running in the alleyway. We've been there.

• 14:44Anthony Pompliano?

  It's funny you say that because that's exactly what my next question was going to be is it feels like the banking crisis where we saw the second and third largest bank failures in US history was kind of like when the cops show up and everyone's like, oh shit. And they just run to someone else's house and they try to get away, right?

• 15:04Speaker 03

  Like, I literally have so many great memories right now.

• 15:08Speaker 03

  This is so good.

• 15:09Anthony Pompliano?

  I never did any of this. By the way, this is all hypothetical. I read about it in books and watched some YouTube videos. But is that kind of what's going on is like, hey, we had the party and then the cops are showing up. And that's why there's bank failures and pain and people are trying to figure out how the hell we're going to get through this without more things breaking.

• 15:25Speaker 03

  You know, I, I wouldn't say it's the cops yet because I think the cops is the actual business cycle. The cops are the, hey, look, you did too much. Not only did you just cause a couple of banks to go bust, you're actually causing a broader credit crunch in the US economy, which I think is already underway. We can already see it in the CNI or in the, in the small business, um, you know, lending data uh, that we get on a weekly basis in the H8 survey. Uh, but going back to, to the analogy, I think what Signature Bank and, and, and Silicon Valley Bank and, and, and you know, the, the other bank that went bust. And this is what happens when you go bust, people forget you.

• 16:03Speaker 03

  The, the, so what I think is the more appropriate analogy for this moment in time is the nosy neighbor. The nosy neighbor is knocking on the door, say, hey, can you turn the music down? Or I'm going to call the cops and you know, da, da, da. So you turn the music down, you put everybody inside, you pull the kegs inside and you know, everyone's partying inside. But eventually, you know, there's too many people there to keep the, keep the party, um, keep the party going unnoticed for an extended period of time. So eventually that nosy neighbor will call the cops and ultimately that call in the cops process in our view is the recession that in our opinion has yet to be priced in.

• 16:35Anthony Pompliano?

  So what are you paying attention to moving forward? Are there specific metrics or data points that you're looking for that will tell you all is clear? Or, you know, brace for more kind of pain ahead? What, what is specifically are you looking at?

• 16:48Speaker 03

  Yeah. Great question. So no, no, there's never going to be an all clear signal in my opinion. Financial markets never say, hey, sell here, buy here. That's just not how the, the process works, right? You have to fight through a lot of confirmation bias whenever you're making these inflection type calls, uh, at the lows or at the highs and, and financial markets. And we certainly have some, some great experience doing that. I think what you need to do is have a more robust process to understand, hey, look, there are some cycles that, you know, you know, going back hundreds and hundreds of years of, you know, market history that need to get priced in. We're talking about the employment cycle, we're talking about the growth cycle, the inflation cycle is yet to come, come fully, um, you know, fully, uh, get to where it needs to go. And ultimately, the liquidity cycle, in our opinion, has yet to meaningfully inflect.

• 17:32Speaker 03

  So, you know, there's some, you know, with respect to, I think the liquidity cycle is probably the most important one. Going back to that study we did on bear markets, uh, that suggests that markets tend to bottom right around that inflection liquidity cycle. And the Fed in liquidity cycle, because again, dollar liquidity is the more important, most important, uh, feature of that global liquidity system. Um, you know, when we're looking at, you know, the dollar liquidity cycle, I think what's most, I think what's happening right now, that I think a lot, a lot, not enough investors are paying attention to, is the destruction of private sector liquidity. We have N1 growth contracting at one of the fastest rates it's ever contracted. N1 is narrow money growth, this is the monetary base, plus all the, you know, checkable deposits, uh, in the banking sector.

• 18:12Speaker 03

  And that money is effectively leaving the banking sector and chasing money market fund exposure, which eighty-three percent is, is, is, you know, sort of treasury government style money market fund exposure. And as a function of not having enough T-bill supply, a lot of that money is winding up in itself in the super facility. So I don't see a real reason for that to stop until the Fed cuts interest rates. You know, we're talking about a hundred percentile spread between what money market, government money market funds are, are paying investors at around, you know, it's called four and a half percent versus the forty-nine basis points that banks are paying on average across the country. And so that hundred percentile spread, in our opinion, was just the, you know, the Silicon Valley Bank Signature Bank, that was the wake-up call for investors to realize, hey, look, I press a few buttons and get, you know,

• 18:57Speaker 03

  not a decent amount of money on my, on my cash. And I think a lot of investors, it's very clear in the data that a lot of investors are doing that. And more importantly, it's very clear in the data that this is causing, you know, small banks, small regional banks. And I say small with air quotes, because the Fed defines small banks as any bank outside the top twenty-five in, in total assets. Well, these things are meaningful shares of the economy. They're about forty percent of all loans and leases. They're about thirty percent of total bank deposits. So we have a serious problems in small banks. It's going to be a serious problem for the large US economy. And so I'm watching the destruction of private sector money and seeing how that is not you is or is not being offset by the reflation of public sector money. It's clearly not being offset by public sector money reflation here in the US.

• 19:39Speaker 03

  But it has been offset by public sector money reflation in China and Japan. So what I'm most intensely focused on is when that sort of crosses. You know, when we still have this public sector money or private sector money deflation here in America. That again is not being commensurably offset by any central bank in the world. That's when I think we're going to start to run into problems in asset market terms again. And I think that's probably sometime in Q three, maybe early Q four.

• 20:04Anthony Pompliano?

  As we continue to watch this play out, Jerome Powell is going to have some tough decisions to make here. Are investors just watching him? Or do you think that investors will start trying to front run what they believe he will do? Do you see there being some other strategy for investors? It seems like a lot of people are sitting in cash or treasuries. They're trying to kind of figure out what to do. Real estate, there's almost like no deals happening, right? We've seen massive drop off because the cost of capital has spiked so significantly. We've seen a lot of stocks fall. Many of them have not yet recovered. Bitcoin seems to be one of the unique ones where it fell and it's recovered pretty significantly, but it's still down, you know, fifty percent or so from its all time high. What are investors going to do? What do you think they should be doing in this type of scenario?

• 20:48Speaker 03

  Yeah, in our view, because again, we have the view that there's going to come a time where that private sector money deflation is not being offset by the public sector money replay. It will eventually, but I think there's going to be a window of time that could be multiple quarters. Where that that is not being, that is not the case where that public sector money reflation is not offsetting the private sector money deflation. This is happening globally, by the way. If you look at narrow money growth globally on a world PPP weighted basis, it's actually declining for the first time ever. The time series on a year over year basis. And so we have considerable private sector money deflation on us. Right now it's just being offset for now. So in terms of what I think markets are doing, I think they're front running the fit. Markets are always trying to. Front run and game the Fed, right? You know, if you look at the the bond market, particularly the the shorter end of the bond market, the money market curves,

• 21:33Speaker 03

  you know, they're pricing in some pretty significant rate cuts over the next twelve to eighteen months. In fact, if you look at the euro dollar curve, we're talking about three full rate cuts by the end of the year. So that's a pretty significant move, and I think that pricing in markets is effectively allowing investors to sort of buttress risk assets in the context of not seeing more private sector money deflation. That might be the theme of this interview, right? You know, in the context of markets being able to say, well, we know the Fed's about to be easy. So I can speculate. That's totally fine, and I think that's a very appropriate thing to do at this phase of the of the market cycle. I think as you roll the clock forward, maybe one, perhaps two quarters, I think the the the actual private sector money deflation will be too great for investors to speculate with. You're going to actually need that offsetting private sector, public sector money reflation.

• 22:18Speaker 03

  And so I think the most appropriate thing to do as an investor from our perspective is to be reducing your risk at certain price levels. You know, we we actually had a thirty K price target on Bitcoin a few weeks ago. Said, hey, look, it's probably going to go to thirty K. I think I would be selling it at thirty K. Obviously, this is not the program to tell people to sell Bitcoin. But, you know, that's our, you know, that's our our view for, you know, institutional investors, folks who are actually, you know, trying to risk manage the capital market cycle. Broadly speaking, equities, I think, I think equities have a lot more downside in delta adjusted terms and volatility adjusted terms than Bitcoin. Because I think Bitcoin is is actually undergoing what could potentially be a regime change. You know, it's it's actually becoming the digital gold that it was marketed as for a long period of time, but technically wasn't.

• 23:01Speaker 03

  It was really just a high beta speculative risk asset. And it's now actually pulling forward some of these digital gold transitive properties. And so ultimately, I think that probably will insulate its downside. Again, on a volatility adjusted basis, more it's a higher beta asset, so it's going to go down more if the S and P goes down a lot. But again, I I don't think you need to be overly concerned about Bitcoin retesting its lows in a way that I do think you need to be concerned about the stock market retesting its lows. Because again, stock market has not only these liquidity dynamics and these growth dynamics to contend with, it also has earnings. You know, we're about to go on to potentially be a very deep earnings recession at the bare minimum. I think we're gonna get a pretty deep earnings recession and not only will it be deep in delta terms, it's also gonna be deep in expectations terms.

• 23:45Speaker 03

  You look and you pull up Bloomberg consensus earnings estimates, they're talking about earnings gonna be growing 10% in Q4 year over year. They could be down 30. You know what I mean? Seriously, I mean, our model suggests a recession is likely to commence in the fourth quarter of this year. So they, I mean, they could easily be down 30. So I mean, in our opinion, I, I think the stock market is probably the most dangerous asset class here. And you know, gun to my head, I'd rather be long Bitcoin here than the stock market, but the reality is I'd probably be selling both.

• 24:10Anthony Pompliano?

  When you see a recession on the horizon, is it possible that some of these asset prices could continue to increase even in that recessionary period? So use Bitcoin as maybe the, the example. Is there a world where, you know, recession comes, we have to get some easing and that drives the asset prices up. And so we're in this weird world where like investment assets are going up, but the quote unquote average citizen is being hurt with a recessionary type period. And so it's leading to layoffs and contraction in revenues of companies and things like that. Or are these things more likely to move lockstep? And if we get the recession, then asset prices will go down.

• 24:44Speaker 03

  Great question. So no, uh, the answer is yes, you could easily see asset markets rising, particularly once you get into the recessionary phase. And this is usually going back to that bear market study that we did with respect to the liquidity cycle. Markets tend to bottom around the inflection liquidity cycle, whether that's the beginning of the recession or the end of the recession. I happen to think it's going to be towards not necessarily the end of the recession, but it will be well into the recession this time around. And part of the reason for that is twofold. One, we still have structurally elevated inflation. If you look at core PCE, the Fed's preferred inflation metric is compounding three month annualized at 4.8%. And the reason I say compounding three month annualized is because we know core PCE is going to go down on a year over year basis, partially be mostly because the base effects are steepening as we progress throughout the year.

• 25:29Speaker 03

  The issue with that is if you roll the clock forward long enough in time and you don't stop the compounding from compounding at 5%, eventually you're going to bottom at 5% and start to reaccelerate from there on a year over year basis. And that's why I'm so concerned and I think partially reasoned. I think Jay Powell is so concerned about the inflation dynamics. So that's One reason why I think the Fed's reaction function to the recession will be delayed in this particular cycle. The number two reason, which is probably should have been number one, which is I think the Fed is implicitly forecasting recession. If you look at their summary of economic projections, they're calling for the unemployment rate, the headline unemployment rate to rise from three point five percent to four point five percent by the end of the year. So over the next nine months. There's never been a hundred basis point increase in the unemployment rate without a recession.

• 26:13Speaker 03

  In the history of the time series, going back to nineteen forty something. Every time unemployment rate's up a hundred fifty, a hundred basis points, you are in a recession. And so, you know, if I can figure this out, certainly the PhD economists at the Fed can figure this out. And so I think implicitly, they're targeting for some pretty, you know, meaningful increase in labor market slack that I think they're not going to be overly responsive to at the beginning of the downturn. They're going to say, yeah, we, we actually thought this would happen. They're not going to say, oh, my God, the unemployment rate's rising. We got to cut interest rates and do QE. And so that to me, that's very worrisome in the context of, you know, this broader deflation of private sector liquidity. It's like, they need to be doing something now, in my opinion.

• 26:54Speaker 03

  If they want to ensure that we have a mild recession and asset markets can really survive that without, you know, being scathed too materially. I think they're going to be way too damn late, to be honest with you. And that way too damn late is going to cause, in our opinion, a lot of problems in the second half of the year, most likely concentrated in Q four.

• 27:11Anthony Pompliano?

  Where can we send people to find you on the internet? You drop bombs on the show every time you come on. I always learn a ton from you. Where can we send people to find you?

• 27:18Speaker 03

  I appreciate you, brother. We drop bombs on the show, my friend. I appreciate you. So anyway, and come check us out forty two macro dot com. I'm on Twitter forty two macro weather. We have our private Twitter account forty two macro as well. So, you know, we try to do our best to help the community, man. I think, I think there's a lot of knowledge to be given away. Uh, to you know, because I, as you know, you know, this, I started my career in institutional finance and the reality is, we all need this information. It's not just the hallowed halls of, you know, Parker Avenue and Wall Street and then all the stuff that go to Boston and Congress Avenue. It's not, no. London and Canary Wharf, we all need this information, you know? And so that's what, that's what forty two macro is here is to democratize, you know, the world's, you know, world-class institutional macro research.

• 27:57Anthony Pompliano?

  I think you're doing a fantastic job. Again, I learn something every single time we talk. So anyone who hasn't checked out forty two macro, I highly suggest you do that and we will definitely do this again in the future, my friend.

• 28:06Speaker 03

  Appreciate it, man. Thank you, man. Appreciate you so much, though.