#856 Inflation is At Least 10% w/ Darius Dale

Darius Dale is the Founder & CEO of 42 Macro, the leading macro risk manager adviser. In this conversation, we discuss the macro economy, what's happening in the financial markets, how Darius is looking at various metrics, and what you should be considering as you're investing your capital. Darius joins us every Thursday on "The Best Business Show." This week, he joined us in our Miami studio. To see the video of the interview, go to "The Best Business Show: LIVE" YouTube Channel. ======================= Exodus is leading the world out of the traditional financial system by building beautiful and user-friendly blockchain products. With its focus on design and user experience, Exodus has become one of the most popular and loved cryptocurrency apps. It’s supported on both desktop and mobile, allowing you to sync your wallet across multiple devices so you can have access to your funds anywhere. You can instantly exchange around 100 different cryptocurrencies straight from your wallet. Interactive charts let you view an asset’s price history and your portfolio’s performance over time. And maybe the best part, Exodus is integrated with the Trezor hardware wallet - making advanced security easy for everyone. Visit exodus.com/pomp for your free download or search Exodus on the App Store or Playstore. ======================= Today’s episode is sponsored by Abra. Based in California and backed by top VC firms, Abra is an all-in-one simple, secure app that allows you to trade over 110 cryptocurrencies, get 0% interest loans using your crypto as collateral and earn interest with up to 14% APY on stablecoins and 8.15% APY on Bitcoin. Join nearly 2 million users by downloading Abra from the Google Play or Apple App store. If you download the app today, you will get $15 in free crypto once you fund your account. You came, you invested — now conquer. ======================= DeFi Technologies represents what’s next in the digital economy -- providing simplified, trusted access to crypto, decentralized finance and Web 3.0 investment opportunities. Institutions and investors can gain diversified, secure, compliant, and easily tradable access to a diversified set of industry-leading equity products and protocols, through a single stock purchase on a regulated exchange. Currently listed on U. S. (OTC: DEFTF) and Canadian (NEO:DEFI) exchanges. For more information or to subscribe to receive company updates and financial information, visit our website at defi.tech ======================= The Pod Pro Cover by Eight Sleep is the most advanced solution on the market for thermoregulation. It pairs dynamic cooling and heating with biometric tracking. Go to https://www.eightsleep.com/Pomp to check out the Pod Pro Cover and save $150 at checkout. Eight Sleep currently ships within the USA, Canada, and the UK.

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

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Darius Dale is the founder and CEO of 42 Macro, the leading macro risk management advisor. In this conversation, we talk about what's going on in the macro economy, what's happening in the financial markets, how Darius is looking at various metrics, and also what you at home should be thinking about as you invest your capital. I really enjoyed this conversation with Darius, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. Today's episode is brought to you by Exodus, the world's leading desktop, mobile, and hardware crypto wallet. They offer beautiful, user-friendly blockchain products that sync across all of your devices, making it easier

• 0:45Anthony Pompliano?

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

• 1:30Anthony Pompliano?

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

• 2:14Anthony Pompliano?

  investment opportunities. Institutions and investors can gain diversified, secure, compliant and easily tradable access to a diversified set of industry-leading equity products and protocols through a single stock purchase on a regulated exchange. DeFi Technologies is currently listed on the US exchange at DEFTF stock ticker and the Canadian NEO exchange at DEFI. For more information or to subscribe to receive company updates and financial information, visit their website at defi.tech. I'm really excited about what these guys are doing. I've become an advisor to the business and I highly suggest you go check them out. Go to their website at defi.tech today. All right, let's get into this episode. I hope you guys enjoy this one.

• 2:56Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 3:19Anthony Pompliano?

  What the hell is going on?

• 3:21Speaker 02

  Pick your topic, man.

• 3:23Anthony Pompliano?

  All right, inflation. Let's just jump right in. 7.9, how off is it?

• 3:27Speaker 02

  So it's, I think 7.9 is the wrong number to focus on.

• 3:31Anthony Pompliano?

  Well, if you don't eat and you don't use energy, it's only 6.4.

• 3:34Speaker 02

  Exactly. No, the problem with inflation, right? I've said this last week, which is, we continue to build momentum. It's not just that the numbers are coming in high. 7.9 is obviously a very ridiculous number in and of itself. But if you look at it on a momentum basis, if you look at, take the month-over-month percent change and annualize that to get to, you know, what a approximate year-over-year figure would be, it's 10%. Inflation's effectively running at 10% and would otherwise be in a vacuum outside of base effects. And so the Fed is not only losing the battle on inflation, you can make, you can make an effective case that it has already lost the battle on inflation. And what I mean by that is that every high

• 4:17Speaker 02

  inflation print between now and let's call it the middle of this year. They're going, it's going to cause them to make incrementally tighter decision to, or incremental decision to tighten policy faster, further.

• 4:29Anthony Pompliano?

  Okay, so they, inflation is 7.9%, everyone agrees on that in terms of official numbers.

• 4:34Speaker 02

  Yeah.

• 4:34Anthony Pompliano?

  Unofficial is much higher.

• 4:36Speaker 02

  Yeah.

• 4:36Anthony Pompliano?

  The Federal Reserve is sitting and they're staring at this and say, okay, we got inflation problems, we obviously have the Russia-Ukraine conflict that's going on, there's sanctions, there's exploding commodity prices, like they got, they got a, a, a view of the playing field.

• 4:50Speaker 02

  They got a lot of stuff on their plate. It's Thanksgiving for the Fed.

• 4:53Anthony Pompliano?

  What are their options of what they could do? What are the tools? Is it just interest rates and contraction or expansion of the money supply and that's pretty much it?

• 5:02Speaker 02

  Yeah, so the Fed at any given time, like outside of like, you know, attacking a foreign entity or something like that, they only have three tools. It's the policy rate, it's the balance sheet, and it's forward guidance. You know, I think the most important forward guidance that we've gotten in recent weeks was, you know, during Powell's testimony last week where he got his feet held to the fire by, I want to say Senator Durbin or Shelby in Alabama, talking about the Fed's resolve to, you know, kind of combat inflation and really, you know, kind of defend the Fed's credibility on price stability and, and Powell basically said, yeah, we'll do what it takes. And to me, I think the markets are underpricing that kind of draggy moment, if you will. So if you go back to 2012, you know, when the European sovereign debt crisis was sort

• 5:47Speaker 02

  of at its peak, or, you know, European growth expectations were at their nadir, then ECB President Mario Draghi came out and said, hey, we'll do whatever it takes to protect the euro and, and maintain, you know, sound banking, you know, for the, for the continent. And that, those words are arguably the most powerful words in financial, central banking history because they effectively ended the crisis. It told everyone that, hey, look, the ECB is going to backstop all this sovereign debt, this, it's a known, none of these peripheral countries are going to default. And to me, you, you kind of go back and I'm blanking on the quote, but Powell basically, you know, said, we'll do whatever it takes last week. And I think markets are very much underappreciating that as it relates to the Fed's resolve to tighten policy. So we're in for a world of hurt in our opinion.

• 6:28Anthony Pompliano?

  How bad can it get? Will we see a 10% official number or will they manipulate it and pull stuff out?

• 6:34Speaker 02

  Oh, that's a good question. Well, so look, if we stay at this pace, we will see a 10% official number in a matter of months. And that's the problem. And so the problem is-

• 6:42Anthony Pompliano?

  Can we see it next month, given how fast oil has exploded upwards and some of these other commodities?

• 6:46Speaker 02

  Yeah, I mean, you could. Well, you mean, yeah, we could see it in March. Is the, yeah, you're absolutely right.

• 6:51Anthony Pompliano?

  The March number could come in at 10%.

• 6:52Speaker 02

  You're absolutely right. So the February number, again, we're talking about February inflation prints, the energy inflation was annualized at 51%. And so that probably is going to double in March. And so we could very much see something that looks like 10% inflation. So again, I mean, the Fed is, they're toast. I mean, they, whatever financial stability mandate they have, or whatever inclination you might have thought as an investor, that they're going to protect risk assets, or protect growth, protect the economy. I think you have to throw those out the window. And the sooner you throw them out the window, the more likely it is you're going to not lose a lot of money.

• 7:26Anthony Pompliano?

  Joe Biden says that the February inflation numbers prove the cost of sanctions, but the sanctions didn't happen until like the last three days of February and March. What do you think about that?

• 7:37Speaker 02

  Oh, my God. Don't get me started with the politicians now. It's like, oh, well, it's all sanctions and the Russian war in Ukraine. Like, these are February data points. What are you talking about?

• 7:47Anthony Pompliano?

  You mean the inflation couldn't tell the future?

• 7:49Speaker 02

  Yeah, I know. I know, dude. But look, they, this is the problem with politicians, right? They are still living in the newspaper radio era where they think we're all uneducated and uninformed. But obviously, thanks to programs like this, programs, you know, services like mine, and just general knowledge and on the internet, to begin with, we're not as dumb as they think we are. People are pissed off. I think there's a serious zeitgeist. I can see it in all the statistics. Consumer confidence is rancid right now. And we are, we are talking about an economy that is, you know, most recent GDP print is a 7% growing economy. It's, you know, three times our potential growth rate. And people are pissed off. What happens when they're pissed off, and we slow back to trend or below trend, you know, as we, as our models project for the, you know,

• 8:34Speaker 02

  in the second half of this year? And so- This is a big problem. I don't see how we get out of this very easily. And sometimes there's not always an easy answer, right?

• 8:42Anthony Pompliano?

  If they raise interest rates, is it pretty much a guarantee we'll go into a recession?

• 8:46Speaker 02

  I think it's a guarantee we're going into recession regardless. I mean, you've done enough damage to consumer confidence, to real incomes, that we're probably going to go into recession regardless. And this is something I said a few weeks ago. I mean, we're probably going to, we're going to have two choices as investors. And really, the Fed has two choices. Allow the economy to go into recession because inflation destroys will incomes and confidence enough to cause a decline in purchasing power and ultimately decline in the, you know, the quantity of goods and services that are purchased. Or do you send the economy into recession because you're, you know, you're clawing back some of the credibility you lost on the inflation and price stability front? I happen to think the Fed is more likely to choose scenario B over scenario A because scenario A is, that's kind of the death nail for the central bank.

• 9:32Speaker 02

  You know, if your whole, you know, if you're here to prevent things like recessions and financial crises, you know, if you can't prevent that, you lose your entire credibility whatsoever. And I don't think the Fed is willing to risk that. At least it's not my indication, or they haven't given us any indication that they're willing to risk that.

• 9:46Anthony Pompliano?

  As we head into a recession, what do you think will actually play out in terms of risk assets like tech stocks, et cetera? I've already sold off a lot. Is there still like 50% more to go? What do you think of other types of assets as well?

• 9:57Speaker 02

  Yeah, that's a great question. So let me be clear, like recession, we're nowhere near a recession now. You know, this economy is still growing well above potential. The problem is the speed of the decline from growing well above potential to growing something that's below trend is accelerating. You know, we've already had that as a pretty, pretty sharp decel starting in the, you know, kind of middle of the part of this year. But that pretty sharp decel could actually, it looks like it's going to be faster now. And so as it relates to asset prices, you know, it seems like we're only, and I hate to use the word seems like, but you know, there's really not too many perfect corollaries to what we're experiencing. I mean, you can sort of cite the 1970s as relates to, you know, you know, the response of asset markets to what we're experiencing today.

• 10:41Speaker 02

  I happen to think where we are today is somewhere between, it's a hybrid between the 2000 and 2002. Unwind of the tech bubble and the 2018 experience where the Fed was sort of tightening, tightening, tightening and didn't realize the economy was slowing and ultimately the markets had to tell the Fed to back off. And I think you merge that experience, you know, Q4 18 with kind of the unwind of that tech bubble. And I think that's where we are today.

• 11:04Anthony Pompliano?

  Yeah. What questions you guys got? We obviously can't tell regardless of what people say what the sanctions did to the last month's numbers, but now that they are implemented, what impact do you think that they'll have on next month's numbers?

• 11:16Speaker 02

  See, this is, this is the tricky part. Markets have front run the sanctions, particularly physical commodities, right? And so there's been a lot of speculation, a lot of financialization in the physical commodity space, anticipating supply shortages across, you know, nickel, tin, aluminum, copper, wheat, pick your, pick your commodity, obviously crude oil. And so it's how much of the sanctions have effectively been priced in is the question. I, I'm not, I don't think anybody's smart enough to be quite frank, but I'm certainly not smart enough to understand that. You know, so the problem is it's not just, well, commodity prices continue to go higher. You know, that's, that's, that's, that's the feedback mechanism to higher reported inflation. But I think the feedback mechanism to the economy and to the markets, you don't need commodity prices to go higher. If they just stay at

• 11:59Speaker 02

  this price, it is a, you know, drag on real incomes, certainly relative to the outlook and relative to the expectation. And, but you know, it's, it's a drag on your budget. I mean, go fill, I mean, I have rich people texting me receipts from their, filling up their cars at the gas station, people who are very well off, you know? So you can only imagine what the pain is like out there for, for low to median income households. I mean, it's pretty, pretty remarkable.

• 12:23Anthony Pompliano?

  This sounds really bad, but it almost is like sport, right? Where like literally, I think I've seen them online. People are posting them and there's some people who are saying, hey, send them to me and I'll post the biggest ones or whatever. And people are like hunting for the highest priced gasoline. I had to like prove it. Seven, eight bucks.

• 12:37Speaker 02

  Yeah.

• 12:37Anthony Pompliano?

  I mean, it's pretty crazy.

• 12:38Speaker 02

  Yeah. It's, it's, it's, I mean, I want to say like, this is like 2008, but I think it's, it's a little bit more scary than 2008. One, the speed of the change is faster. Like we have this chart in our, in our slide deck where we take the two-year change in the Brent crude oil price. And you know, anytime you're basically above 150% on that percentage change, you know, you're walking into a recession. There's been one notable outlier going back to, you know, kind of the seventies. This is the fastest two-year change. We're like up at like 200 plus percent. You know, it's like the highest peak of that analysis. So not only are you likely to get a recession as a function of this, you're more likely to get something that looks like more of a structural bear market as a function as well.

• 13:18Anthony Pompliano?

  John, what do you got?

• 13:19Speaker 03

  What are you seeing or are you suggesting retail investors do with commodity prices already so high? The sediment and confidence is really far down and a recession's looming. So like, what does a retail investor do?

• 13:31Speaker 02

  Yeah, so this is really does matter about the kind of track you've taken to get here. Like if you, if you, there's two types of investors right now. Ones who probably, you know, risk managed, you know, December, January, a little bit better, have a little bit more cash and can start to be a little bit more selective. I don't think this is the time to be selective. But I think if you're a long-term investor and like your favorite name or your favorite digital asset is on sale, this is where you'd start the DCA. But again, I don't think that's the average investor. I mean, with the statistics we look at, you know, for instance, you know, one thing we track is sort of, you know, kind of asset class ownership on the household balance sheet. And if you look at a household equity ownership, for instance, you know, as

• 14:12Speaker 02

  a percentage of total net worth, that's around 30%, just off of 30%. That's the all-time high by like 500 basis points. And so the median, the average investor is as long stocks and I'm assuming because they're correlated, as long digital assets as they've been as a share of the overall net worth ever. And so there's not a lot of people who have cash to start buying dips right now. And that, that is the problem for the market.

• 14:38Anthony Pompliano?

  If you were the Fed, what do you do?

• 14:40Speaker 02

  Oh, if I'm the Fed, I send the economy into recession, gain some credibility and set us up for a good 2023.

• 14:46Anthony Pompliano?

  You just.

• 14:46Speaker 02

  This year's a wash.

• 14:47Anthony Pompliano?

  You just throw in the flag.

• 14:48Speaker 02

  Well, it's not even throwing in the flag. It's punting. I mean, you're football, you're all football guys. Like it's, you're punting. This is, the Fed is, if they don't like, there's two choices. You can be, what's my man in San Diego, who always goes up forward on fourth down? You can be that guy and out of the playoffs, or you can punt the ball and, and, you know, live to fight another day. And I think punting the ball equates to, you know, engineering a slowdown in the economy. And it's not just our economy. The Fed can take crude oil from $130 a barrel to $65 a barrel overnight if it wanted to. Take the policy rate up 500 basis points and see what happens. They don't want to do that, obviously. They don't want big changes because big changes tend to scare people. And you get all these side effects as it relates to, you know, credit intermediation of all this, you know,

• 15:32Speaker 02

  the hypothesis. There's a lot of side effects in the financial plumbing of it all.

• 15:35Anthony Pompliano?

  So what do they end up doing? Do they just raise interest rates to like?

• 15:39Speaker 02

  They're gonna try to-

• 15:40Anthony Pompliano?

  300 basis points?

• 15:41Speaker 02

  I think they-

• 15:41Anthony Pompliano?

  3%?

• 15:42Speaker 02

  Yeah, no, I don't think they're gonna get that far. The problem is, again, the Fed is starting this tightening process too late in the business cycle.

• 15:50Anthony Pompliano?

  Well, to be clear, we're at 8% CPI. They haven't raised rates at all. They were literally buying assets like two weeks ago.

• 15:56Speaker 02

  Like two weeks ago, yeah. I know. These guys are doing QE like two weeks ago, dude. Yeah, it's funny.

• 16:02Anthony Pompliano?

  The Fed did QE for nine months while inflation was above 5%.

• 16:07Speaker 02

  I know. I'm sure I'll write a book at some point in my career.

• 16:10Anthony Pompliano?

  That's a great tweet. Somebody should fire that one off. That's a freebie for somebody out there.

• 16:13Speaker 02

  Totally.

• 16:15Speaker 02

  The start of my book will be, yeah, and the Fed was buying bonds like two weeks-

• 16:20Speaker 02

  You know, like two weeks ahead of this. Like, so yeah, no, my point is, so they're gonna try to walk a fine line, right? The Fed doesn't want to spook anybody. They certainly don't want to upset what's priced into markets from a policy tightening standpoint. So they're gonna do the 25 basis points. Maybe they'll talk up if, hey, if Russia-Ukraine goes well, we'll do 50 basis points in May, or we'll do 50 basis points in June. But the reality is, as long as inflation momentum stays elevated, the probability that that 50 basis points in May gets solidified, and then it's 50 basis points in June, that gets solidified, those probabilities start to go up. And so it's increasingly looking like the Fed might have to front load a lot of tightening as a function of being so behind the curve on inflation, so behind the curve as it relates to the economy.

• 17:04Speaker 02

  This is the lowest the unemployment rate's ever been prior to the Fed lifting interest rates ever in the history of the Fed funds rate. And so, you know, there's a saying on Wall Street that the Fed, you know, tends to cause an accident when it tightens policy. It usually tightens until it breaks something, breaks something in financial markets, or breaks something in the real economy. The Fed is definitely going to break something because the probability of them breaking something is as high as it's ever been because they're so late in this process. You know, imagine like, um,

• 17:33Anthony Pompliano?

  Why, why did we get here? Like, why, why didn't they do something earlier?

• 17:36Speaker 02

  Because they-

• 17:36Anthony Pompliano?

  Was it arrogance?

• 17:37Speaker 02

  No, well, there's a couple of reasons. I think, I'm so glad you said arrogance and, and, um, you know, certain, myself as a professional forecaster, I think I would consider myself and everybody who does this for a living, we all need to eat a little bit of humble pie. Nobody got this inflation call right. I mean, with the exception, I think Jim Bianco, I don't think he had forecast, but he certainly, um, he had a view that inflation would be stickier and persistent. I remember that back in the summer where a lot of folks didn't. Uh, but generally speaking, nobody, nobody saw 7.9% inflation six, nine months ago. Nobody saw 5% inflation nine, 12 months ago. You know, so the reality is we all got this wrong, but the problem is we're not setting policy. You know, the Fed is setting policy on its forecast, which were obviously wrong by a double. And so that's a problem. So arrogance is a factor in terms of transitory, but the real factor of why they're so late is because

• 18:22Speaker 02

  they made themselves that they chose to be late. Go back to the fall of 2020 when they changed their, um, their inflation target, their inflation mandate, basically to an average inflation targeting scheme, which means instead of saying 2% is the ceiling on inflation, we're comfortable having inflation average 2%, uh, the core PC specifically. So they changed that. And the reason they changed that was the real change that matters, they, you know, they kind of adopted a woke framework, to be quite frank. You know, this is sort of this concept of maximum and inclusive employment, um, really stemmed from, you know, kind of the wake of the George Ford protests, all this stuff. And the Fed realized after having done a lot of research, and this is something I've been talking about my whole career, which is the Fed always takes the punch bowl away when, you know, the economy starts getting good for disaffected groups, African Americans to Hispanics. You know,

• 19:05Speaker 02

  those are typically, you know, those people typically have higher unemployment rates. They, they, the, their unemployment rates go down usually after, you know, whites and this is, and Asians and stuff like that. So I think the Fed wanted to do something to address this kind of zeitgeist of America back in that, in that particular timeframe. And they, what they said was, hey, look, we're going to ease policy until we see the whites of the eyes of, of the lowest unemployment rate ever for these particular groups. And they actually did that. And they did that. And they made a lot of real substantial progress in Q4, in particular for females, for the, you know, for folks without high school diplomas, all this stuff. And so they got what they wanted, but the problem is they had to keep easing and go crazy and go ham with balance sheet and 0% interest rates to get that done. And now we're dealing with the consequences.

• 19:51Anthony Pompliano?

  There's this belief that the numbers are inaccurate, I think is a fair way to say.

• 20:00Speaker 02

  Yeah.

• 20:01Anthony Pompliano?

  We pulled up earlier that the current shelter inflation number makes up 33% of the CPI.

• 20:09Speaker 02

  It's like 4.8%.

• 20:10Anthony Pompliano?

  4.7, 4.8% year-over-year growth. But rents are up 18% nationally and home prices are up 19% nationally. I'm not a mathematician, so I, maybe I just do bad math. But if rents and home prices are up more, you know, three times more than what they're saying, where's everybody living where it's only 4.7%?

• 20:33Speaker 02

  I mean, I guess they're surveying, you know, the 10 cities of San Francisco. I mean, no.

• 20:39Anthony Pompliano?

  But which, by the way, San Francisco spent like, like $200,000 per 10 or something like that on.

• 20:45Speaker 02

  More than my apartment cost.

• 20:49Speaker 02

  Probably move to San Francisco.

• 20:52Anthony Pompliano?

  But, but when you think about the numbers, like, we joke around a lot, but like 4.7, 4.8% is the official number. The national average of rent is up 18%. The national average of home sales is up 19%. How do they get to 4.7?

• 21:07Speaker 02

  So here's, here's how they get to 4.7. It's, it's, you can, I don't know if it's nefarious or not, but I suspect because it's the government and the government is incentivized to report lower inflation statistics. I think it's reasonable to assume there is some nefariousness going on. But here's how, there's a reason there's such a disconnect. The way they survey houses in the BLS survey, particularly owners equivalent of rent, which is, you know, two or three fifths, three fourths of shelter CPI. You know, they, they sort of have these panels where they ask house A, you know, is your, what's your rent? And then they don't survey house A for another six months. And then, so in order to get like a true inflation statistic, it takes like a full year for you to understand like, hey, like there's, there's some been rental inflation.

• 21:51Speaker 02

  So that process is very slow in terms of repricing rents higher and lower to both to the downside. You know, we had a big, big tail, a big headwind for inflation. For an extended period of time after the financial crisis, because that process was working in reverse after the housing bubble burst. So it just is what it is. We all think, I think we all can feel it, see it in our rents, you know, we can see it in cost of utilities, we can see it in cost of getting a contractor, even being able to get building supplies or anything like that. That inflation is much higher. We'll see that inflation come down as shelter CPI is likely to continue accelerating, though. So at some point, all that stuff will peak, you know, let's call it sex from nuns from now. But shelter CPI will still be slowly rising as a function of that, that, that technical process.

• 22:35Anthony Pompliano?

  It's, um, it's crazy to me.

• 22:39Speaker 02

  It is crazy.

• 22:39Anthony Pompliano?

  That we're making decisions based on bad data. It's very obvious it's bad data.

• 22:45Anthony Pompliano?

  And so what is the impact on like any of the election stuff? Is it just a foregone conclusion? We're going to have, you know, six, seven percent inflation going into an election season and like, there's likely to be massive turnover in existing politicians getting voted out? Or how do you think about that?

• 23:04Speaker 02

  Yeah, I mean, I think, I think we're around six percent for September, which is the last print you're going to get for, before the, for the election. So it's going to be a problem. I mean, look, we know the Democrats were toasting the elections going back to November when we got the October CPI, when that jumped up to six percent. Like that just put the kibosh on the whole democratic agenda. And obviously that agenda is, is, is partially why they got, a lot of them got elected. And so they're going to get the boot. I don't think the Republicans probably have a good answer to deal with this either, but the reality is guys who are currently in charge are going to take the, bear the brunt of the consequences.

• 23:36Anthony Pompliano?

  I asked my brothers earlier, do we get $15 gasoline or $15 federal mandated minimum wage first?

• 23:44Speaker 02

  Oh, uh, no, we're not getting $15 gasoline. There, that, that, what was the national average now, like 475 or something like that?

• 23:51Anthony Pompliano?

  I saw eight somewhere.

• 23:53Speaker 02

  Oh, yeah.

• 23:53Anthony Pompliano?

  That's the way.

• 23:54Speaker 02

  It was like four.

• 23:55Anthony Pompliano?

  No, no, no, the, the national average.

• 23:57Speaker 02

  It's a national average.

• 23:58Anthony Pompliano?

  Yeah, the national average will get the 15. But do we see a $15?

• 24:01Speaker 02

  Oh, do we see a 15 handle somewhere in the States?

• 24:04Anthony Pompliano?

  In the United States.

• 24:05Speaker 02

  Outside, okay. Can we caveat this? So excluding like hurricanes or anything in particular places?

• 24:11Anthony Pompliano?

  Just, yeah.

• 24:12Speaker 02

  Just in this current trajectory, will someone pop that up? I sincerely hope not.

• 24:18Anthony Pompliano?

  There's definitely somewhere, somebody is realizing, oh, this is bad. And I think that's why we saw, I mean, what is it, a week, two weeks?

• 24:25Speaker 02

  The problem is, the problem with $15 gasoline, though, it's like, you can't get $15 gasoline in one particular place because it's more likely that you'll have a bunch of elevens and twelves in a geographic location than one 15 and a bunch of anything less. You know, it's kind of gets spread out, refiners are.

• 24:40Anthony Pompliano?

  You ever gone to a street corner? He ever gone to a street corner, like, one guy's at, you know, it used to be like 240, the other guy's at 199, you're like, how does this happen?

• 24:49Speaker 02

  A hundred percent of the time, absolutely. Totally. Why, you, you, like, you can't work in financial markets and be someone who's constantly concerned about prices of securities and assets and be dumb enough to be, put more expensive gas in your car across the street from a place that's selling at a lesser price. You have to be some kind of, like, rich Connecticut asshole to do that.

• 25:11Anthony Pompliano?

  True, true, true. What do you think about the US going and basically begging Venezuela and Saudi now for oil?

• 25:17Speaker 02

  I think it's a national embarrassment. And this is a, this is a real problem, right?

• 25:22Anthony Pompliano?

  Venezuela?

• 25:23Speaker 02

  This is, this is the real problem, right? Our reaction to the Russia invasion of Ukraine, in terms of the aggressiveness of SWIFT and all of this, and kicking them off the dollar settling system and everything like that. One, China can observe the nature of our reactions and start to build, you know, contingencies for doing those kinds of things.

• 25:42Anthony Pompliano?

  They probably aren't going to hold that many dollars now.

• 25:43Speaker 02

  Yeah, totally, well, exactly. They're shifting the goal, but China was going to do the same thing to Taiwan at some point in this century. It could be this year, it could be next year, who knows when it's going to be, right? But they're.

• 25:52Anthony Pompliano?

  Or in their 300-year plan or 100-year plan.

• 25:54Speaker 02

  Totally, they're definitely going to do the same thing to Taiwan. So China's right now taking notes about, hey, this is what they're going to try to do, so let's make contingencies now to prepare for those things. But the second problem is, if you're a bad actor in the world, now you know the blueprint. Well, there's an inflation problem in the, you know, so let me make it worse. Do my bad thing. I'll make the inflation problem worse. And eventually these people have to kowtow to me in order to get the raw materials that they demand.

• 26:21Anthony Pompliano?

  Did Putin, is he playing chess? Like, did he realize that, hey, if I do this, they're going to sanction me? And if they sanction me, then like, this is going to basically like, take what is kind of a small fire economically in the United States. Now I'm going to just like, set the whole forest on fire?

• 26:35Speaker 02

  No, I don't think he's, that's like, next level chess times a million. No, I don't think he's, I think he was taking, I think the whole world was taken aback by how aggressive the response was. And how unified and coordinated the response was. Because don't forget, Europe gets, you know, what, 20, 30% of its energy from Russia. No, I think Putin was playing chess in, I'm going to wait till I see 7, 7.5% inflation in the US, oil pushing a hundred dollars a barrel, and then do this. And then make it worse so that we can't get those sanctions, so that they're less likely to give those sanctions. I think he was shocked by how stringent the sanctions are. But now he keeps regrouping and saying, hey, well, look, if I'm going down, everybody's going down. And that's kind of his thoughts.

• 27:16Anthony Pompliano?

  Yeah, I mean, he could continue this out for a long period of time, right? And we could, the sanctions might not change.

• 27:20Speaker 02

  Yeah, well, Putin, so Putin and Russia are two very different things, right? Putin's a guy barking orders, and Russia's an economy that needs resources to function. So, yeah, I mean, he can certainly continue this for way longer than anybody who's levered long risk assets can, can maintain those positions without getting margin called. So that's, that's the problem. So I think Putin's regrouping and saying, hey, look, well, this is a new dawn, new era. They have jumped the shark. I've jumped the shark, and there's no going back from this, right? You can't go back from this, really. I just, we've crossed too much, we've crossed the Rubicon, unfortunately.

• 27:57Speaker 03

  People love using war as almost an excuse to print a lot of money. Is that, are we too far and too close to a recession right now to just go ahead and print a bunch of money and fund an entire war?

• 28:09Speaker 02

  Uh, no, I think that would be an optimal solution. You know, certainly you're going to hear more talk of that if we, once we start to get real data that the economy is slowing down, like, don't forget, like, PMIs globally are still like at 58, you know, these are real high numbers, 50 is like the dividing line. You know, they're still very high, you know, global GDP, Europe 6%, US 7%. Like, we're still, if you look backwards, growth is phenomenal. It's as good as it's been in many, many, many years. But looking forward, you know, folks like myself who make forecasts or anybody with a brain can see that the economy is going to slow. And so, again, it's all about the pace of an economy, economic slowdown. But once we get that slowdown confirmed, it's very likely that we're going to get more talk. And this is kind of one thing that's bounced markets this week, bounced Bitcoin, bounced crypto,

• 28:54Speaker 02

  going back to, yeah, bounced on Tuesday and Wednesday, which is that Europe is effectively talking about issuing a tremendous amount of debt, you know, like on the order of like 2 trillion euro or 2 trillion dollars, I'm not sure if it's euro dollars, but a lot of money to basically finance the acceleration of their green infrastructure agenda, acceleration of defense spending. And so that's the kind of thing that, one, is obviously positive for growth, but it's also more inflationary. Where are you going to get the additional supply, the physical resources to do all this stuff? Where are you going to get the additional workers? That's a big problem.

• 29:26Anthony Pompliano?

  Well, they're going to build windmills and then when the wind shuts off, they're going to complain, but oh, God, we maybe should have just drilled for oil and built nuclear power plants.

• 29:34Speaker 02

  Yeah. I don't understand that the thing about nuclear, that blows my mind. Why are we not doing nuclear power plants at this point?

• 29:39Anthony Pompliano?

  Well, it's because everyone heard one time that there was a nuclear power plant leak and they don't understand any of the details and they are scared about it. What did Musk say? He'll go there and eat, he'll eat food that was grown locally in the soil.

• 29:52Anthony Pompliano?

  He said, I've already done it. He said, yeah, no problem. Yeah, I mean, it's all, it's all nonsense. The other thing too is I talked to a group recently that they put an application in to get approved to build a nuclear plant and got denied. And, and I was like, how much of this is like real stuff versus? Uh, you know, the, um, just bureaucracy.

• 30:10Speaker 02

  Yeah.

• 30:11Anthony Pompliano?

  It's all bureaucracy. Right. Um, and, and so if you think about it, by the way, if we start today, we won't be energy independent for 24 months, you know, maybe even longer or whatever. Uh, but, but I did see, um, I did see a, uh, CNN segment. That was just like laugh out loud funny. They were trying to explain how, uh, the United States, uh, is not a net importer of energy, uh, or of oil that, uh, we produce much more than we consume. And, uh, that Russia, uh, is only the third largest producer. So the United States is actually in a good situation. And I literally, I was scrolling, I saw it, I watched like two, three minutes of it and I just had, I just had to keep, I was like,

• 30:56Anthony Pompliano?

  I just, I'm gonna leave this one alone. I said, uh, I don't know if those numbers are right, but okay.

• 31:02Speaker 02

  You don't need to engage in that. So the US, uh, the US is a massive energy producer. It's probably number two or three on the list. But the problem with us.

• 31:08Anthony Pompliano?

  Number one oil producer in the world.

• 31:10Speaker 02

  Oh, producer, yeah. But the problem, we produce, we produce, uh, a very light, sweet crude oil. Like we, the kind of crude oil that is significant, way too expensive and way too light and sweet to run your engine. You also need to mix it with like heavier sour crude oil that comes from like Saudi Arabia, Venezuela, Canada, Mexico. And, you know, so we do import a tremendous amount of crude oil, just as a function of like, you need to find the right feedstock and the balance to, to, to, to make cars and motors run.

• 31:38Anthony Pompliano?

  Well, we're just for the record, we're definitely a net importer of oil.

• 31:41Speaker 02

  Oh, yeah.

• 31:43Anthony Pompliano?

  Which was my whole thing, which was like, what is going on here? How, how are we telling this story that we're not a net importer of oil?

• 31:49Speaker 02

  Totally.

• 31:50Anthony Pompliano?

  Okay, that's fine. Um, are you changing anything in your portfolio because of all this?

• 31:54Speaker 02

  Yeah. So on, um, yes, we have some signals that, that, uh, that tell us like, Yeah, I call them GTFO signals, get the fuck out signals, for lack of a better phrase. It's just like, hey, this is a time to start raising more cash and getting more defensive. We were already pretty defensive, obviously, but we got raised some more cash and sold some more things. So, yeah, we made some sales. We bought a little bit more volatility, made a few short sales. So we're positioned for a bear market. I mean, it doesn't mean you have to get a bear market every single trading day. I mean, any given headline can take the market up 2%, 3% on any given day in a bear market, because that's what happens when stocks and when dealers are short gamma. That just means that they're constantly having to hedge in the direction of the market as opposed to countercyclically with the market.

• 32:38Speaker 02

  You're going to get these big realized volatility spikes and maybe they sometimes they'll last for a couple of weeks, even a couple of months, going back to 08 and spring of 08 in particular. But that doesn't mean we're not in a bear market. This is a bear market and investors need to be aware of that and treat it as such.

• 32:55Anthony Pompliano?

  Last question I have for you is nickel basically went through this massive short squeeze recently. The news came out this morning that the Chinese billionaire who owns this big nickel company who supposedly was short and was taking on all these losses. The banks went to him and were like, hey dude, you want to turn that trade off? And he said, no. And he said he wants to keep shorting nickel. Is this idea of these massive short squeezes in various markets? We saw it with the meme stocks, we see it with something like nickel. Is this just becoming more pervasive in the financial system in general?

• 33:26Speaker 02

  Yeah, so there's a couple of reasons why. Well, one, I think people are actively targeting assets that have the options dynamics that would perpetuate that. So dealers being short gamma perpetuating call squeezes and all that kind of stuff. But I think what's also happening is that there's just a ton more options activity. The world is more financialized than it ever has been. Don't quote me on this stat, but I think I've heard this in passing. Like we've quadrupled options activity, looking at the US equity market in particular, like quadrupled it or tripled it since 2019. And that's a massive, massive, massively underestimated kind of feature of markets, because it's not just obviously US equity markets. I'm sure that's correlated to every other market commodities.

• 34:09Speaker 02

  Cryptocurrencies, things of that nature. And so there's just a lot more gamma out there and you create these bigger moves as a function of that. You know, my man Jim Carson over at Kai Volatility has this word leptocortic, which means you just have like these fatter, crazier tails. Like, you know, you, the frequency of these fat-tailed outcomes is much higher than it otherwise would be, much higher than a normal distribution would imply. Because I think part of it is because of the, the growth of the derivative space.

• 34:37Anthony Pompliano?

  All right. You two got any more questions? No. Can we, can we all take a guess real quick? What? Let's put our bets in. March inflation number. Oh. What, what do you think it is?

• 34:47Speaker 03

  I guessed eight, by the way.

• 34:49Anthony Pompliano?

  For, for February, you know, pop boys motors with their economic predictions. We're off by 0.1%. It's not bad. It's not bad at all. What would, what would your guesses be?

• 35:01Anthony Pompliano?

  I go eight, five. Yeah, I was gonna say higher.

• 35:05Speaker 02

  Eight, five, yeah.

• 35:06Anthony Pompliano?

  Eight, five, Joe? Let's go. What you got all day to think? I already got my number. I'm going 9.3. Oh, shit.

• 35:12Speaker 02

  Ooh, nine handle, huh?

• 35:14Speaker 03

  You went eight, two?

• 35:15Anthony Pompliano?

  Yeah, eight, three.

• 35:16Speaker 02

  Eight, three?

• 35:17Anthony Pompliano?

  Eight, three?

• 35:18Speaker 02

  All right, so we got eight, five.

• 35:19Speaker 03

  I was gonna do eight, two, eight, three, but now that that's with the thing, I'll do 8.7% CPI.

• 35:25Anthony Pompliano?

  All right, so we got eight, two to nine, two covered. You're the only one on the nine.

• 35:29Speaker 03

  Yeah, outlier.

• 35:30Anthony Pompliano?

  Yeah, well, hey, listen, if you want to win, you gotta go big.

• 35:34Speaker 03

  That's why, that's why I changed my answer.

• 35:35Speaker 02

  1% bump.

• 35:41Anthony Pompliano?

  Amazing. The actual retail price of March CPI is.

• 35:46Anthony Pompliano?

  $1.

• 35:47Speaker 02

  Oh, you guys been year over year.

• 35:50Anthony Pompliano?

  I, I, I genuinely believe that if they do not manipulate the numbers,

• 35:57Anthony Pompliano?

  they're not going to be able to keep this shelter number down, 33% of the index. I don't think that the gasoline number, they're going to be able to keep that down. Right? The oil prices exploded 20% or whatever. And I think that we're just in a, a situation where food is probably. The actual, the one where I think people are going to miscalculated or misanticipate the most. Where, you know, wheat production, I mean, just take that as one example, kind of Ukraine and Russia. Right. And how big of a portion of the food production, uh, I think all those prices are going to spike materially.

• 36:27Speaker 02

  It already did spike materially in February. So it was up 13% annualized in February. 13% in one month. Like you go to the store and you, you, you buy a bunch of chicken and I don't know what people eat. What do people eat? I just eat like animal crackers all day, but. Chicken and then green and salad and all the stuff. And you go back two weeks later and it's like, oh man, that up, that went, that went up. You know, like I, fiance, 20% of our conversations is her complaining about our grocery bill. We're not poor, by the way, you know, I mean, like this is, it's.

• 37:01Anthony Pompliano?

  You want to know what I do for food now?

• 37:03Speaker 02

  What?

• 37:03Anthony Pompliano?

  I, I think that, uh, we're going to hear a politician, like they said, you know, if you don't want to pay high gas fee, uh, prices, just get an electric vehicle. I'm telling, I'm telling you, I'm telling you, we're going to see some moron.

• 37:15Speaker 02

  If you want to pay so much in food, then just eat two meals a day. Totally.

• 37:19Anthony Pompliano?

  John, John's face is like, please, for your reputation, do not say that. Somebody, somebody somewhere is going to say it, or they're going to be like, you know.

• 37:33Speaker 02

  My bet is on ALC if I have the guess.

• 37:36Anthony Pompliano?

  I'm telling you. The studies show that you should only eat twice a day. Only 1200 calories. The average American eats 3500 calories. So therefore if you eat less calories, you won't pay a bigger grocery bill.

• 37:47Speaker 02

  The average American eats 3500. I was going to say, that's preposterous. It's like Thanksgiving.

• 37:54Speaker 02

  I'm probably like 2, 2,700.

• 37:58Anthony Pompliano?

  Oh shit, 3600.

• 38:02Speaker 02

  Y'all need to stop eating so much, man. I'm 285 pounds and I don't eat that much.

• 38:08Anthony Pompliano?

  Average American 3600 calories, a 24% increase from 1961.

• 38:13Speaker 02

  This is a public service announcement.

• 38:17Anthony Pompliano?

  Thirty-six hundred calories.

• 38:19Speaker 02

  Wow, dude.

• 38:21Anthony Pompliano?

  Yeah, that's crazy. And I think that, I think the, uh, uh, science says, uh, for longevity purposes, twelve hundred calories.

• 38:27Speaker 02

  Yeah, of course, it's gotta be under two. I thought two was like a, a happy medium.

• 38:31Anthony Pompliano?

  Two thousand, I think, is the average American, like, that's the target.

• 38:33Speaker 02

  It's the target.

• 38:34Anthony Pompliano?

  Twelve hundred is for optimizing for longevity. The average American eats thirty-six hundred calories. Yeah, I think.

• 38:38Speaker 03

  All right, the average American male weighs about two hundred pounds, too.

• 38:41Speaker 02

  That's wild, because the average person is probably five-nine.

• 38:44Speaker 03

  Yeah.

• 38:45Anthony Pompliano?

  Five-seven.

• 38:45Speaker 03

  The average weight is one-eighty, but males are, you know, around two hundred, females around like one-sixty.

• 38:50Speaker 02

  Yeah.

• 38:52Anthony Pompliano?

  Damn, two hundred, one-sixty.

• 38:53Speaker 02

  We got more than, we got health crises, uh, oil crises, yeah.

• 38:57Anthony Pompliano?

  Real quick, do you have an eight-sleep? Do you sleep in cold weather? Do you, do you make it cold?

• 39:02Speaker 02

  Yeah, I make it cold, yeah.

• 39:02Anthony Pompliano?

  Yeah, you like sleeping when it's cold?

• 39:04Speaker 02

  Yeah.

• 39:04Anthony Pompliano?

  One of our sponsors is Eight Sleep, so that's my way of saying, plugging eightsleep.com/pomp. Go check them out. Obviously, the best way to sleep is thermo-regulated. You can make it hot or cold on either side of the bed.

• 39:14Speaker 02

  Oh, this is a bed, it's a mattress?

• 39:15Anthony Pompliano?

  Yeah, yeah, yeah, yeah.

• 39:16Speaker 02

  Okay.

• 39:17Anthony Pompliano?

  I make it freezing cold, and I sleep like a little baby. When Sophia tries to, uh, come and bug me, I say, "Hey, yeah, come over here." And then it's freezing, and she's a little baby, she doesn't understand what's going on, so she jumps off and goes back to the other side where it's warm.

• 39:29Speaker 02

  You, you, you, yeah, you, you. You're still young, my friend, you wait till you put the pillow in between, so you know that, that you stay on your side, I stay on my side.

• 39:37Anthony Pompliano?

  I already got that.

• 39:37Speaker 02

  Oh, yeah.

• 39:40Speaker 02

  But don't come over here. I already went before thirty.

• 39:43Anthony Pompliano?

  All right, ladies and gentlemen, where, uh, where can we send people to, uh, to find you on the internet and subscribe to, uh, the service?

• 39:49Speaker 02

  Yeah, so I'm on, uh, Twitter at, uh, forty-two Macro D Dale, and, uh, come check us out, forty-twomacro.com. Obviously, put out a lot of research, help investors with portfolios, make sure we don't blow up in times like these.

• 39:59Anthony Pompliano?

  Awesome. It's a fresh picture you got on the website there.

• 40:01Speaker 02

  I appreciate you, man, thank you, thank you, fresh, fresh cut, I'm about to go get one right now.

• 40:06Anthony Pompliano?

  Somebody earlier said your sunglasses make them want to move to Miami. There we go.

• 40:10Speaker 02

  Come on, come on now.

• 40:12Anthony Pompliano?

  Come on down. Miami is an intelligence test. We'll see if you make it here. All right. Thank you. All right, boys. Thank you so much. I'll see you guys. All right. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribed 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.