#894 Personalized Monetary Policy Is Coming 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, CBDCs, individualized inflation rates, and what the Fed is going to do next. Darius joins us every Thursday on "The Best Business Show." To see the video with the corresponding charts that Darius references throughout the interview, go to "The Best Business Show: LIVE" YouTube Channel ======================= Crypto is all about giving the power back to the people and our sponsor, Pipe, is doing that in a big way. Pipe is the world’s first trading platform that allows you to trade recurring revenue streams for up-front capital. And with Pipe’s new API, companies with recurring revenue can build seamless, embedded financing options into their platforms. One of the most interesting uses for Pipe’s new API right now is Compass Mining’s “Mine Now, Pay Later” which powers payment plans on bitcoin mining hardware so more miners can start or scale with a smaller up-front investment. Whether you’re looking for mining hardware or scaling any business with recurring revenue, check out Pipe to access growth capital with: No loans. No dilution. No restrictive covenants or warrants. Just growth on your terms And right now, Pomp Podcast listeners can access tens of thousands of dollars even millions fee-free for 12 months. Whether you are a bitcoin mining company looking to enable financing for your customers or a SaaS, DTC, or any business that has recurring revenue, sign up at http://pipe.com/pomp to start trading today. ======================= 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. =======================

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 Pipe. Crypto is all about giving the power back to the people, and our sponsor Pipe is doing that in a big way. Pipe is the world's first

• 0:44Anthony Pompliano?

  trading platform that allows you to trade recurring revenue streams for upfront capital. And with Pipe's new API, companies with recurring revenue can build seamless embedded financing options into their platforms. One of the most interesting uses for Pipe's new API right now is Compass Mining's "Mine Now, Pay Later," which powers payment plans on Bitcoin mining hardware, so more miners can start or scale with a smaller upfront investment. Whether you're looking for mining hardware or scaling any business with recurring revenue, check out Pipe to access growth capital with no loans, no dilution, no restrictive covenants or warrants, just growth on your terms. And right now, Pomp Podcast listeners can access

• 1:25Anthony Pompliano?

  tens of thousands of dollars, even millions, fee-free for 12 months. Whether you are a Bitcoin mining company looking to enable financing for your customers, or a SaaS, DTC, or any business that has recurring revenue, sign up at pipe.com/pomp. Again, pipe.com/pomp to start trading today. Today's episode is brought to you by Exodus, the world's leading desktop, mobile, and hardware crypto wallet. They offer beautiful, user-friendly blockchain products that sync across all of your devices, making it easier to send, receive, and exchange 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 market

• 2:10Anthony Pompliano?

  Place 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 unverified collections with more added every single day. Ready to check it out for yourself? Run, don't walk over to exodus.com/pomp for your free download today. Again, if you want 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 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%

• 2:51Anthony Pompliano?

  APY on stable coins 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. All right, let's get in this episode. I hope you guys enjoy this one.

• 3:15Speaker 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.

• 3:38Anthony Pompliano?

  Yeah. They don't have a way. Say it again.

• 3:40Speaker 02

  Are they allowed to like or dislike things the government does in China?

• 3:43Anthony Pompliano?

  Are they allowed to?

• 3:44Speaker 02

  Just put your head and keep moving.

• 3:47Anthony Pompliano?

  No, I think that, by the way, Darius is here.

• 3:52Speaker 02

  I'm always here, by the way. You just don't see me.

• 3:55Anthony Pompliano?

  If anyone didn't know, Darius is here.

• 3:57Speaker 02

  They just moved the TV out of the way.

• 3:58Anthony Pompliano?

  One of the, one of the, the big things that I think people don't really understand about the whole China thing is you may not know, like, so. I'm not an expert. Let me first just throw that out there. I'm not an expert on this, but there's these octopus cards, uh, which allow you access to the, uh, kind of public transportation, whatever. Um, and these octopus cards during the Hong Kong protest, all of a sudden, they started to be used as surveillance tool because what they were saying is, oh, why did you get on the train at that station and then get off at the one right next to the protest? You must've been going to the protest. We're gonna come after you. We're gonna do something with the social credit system, like all these issues. So I remember during that protest, there was incredible lines because what people were doing is they were going into

• 4:43Anthony Pompliano?

  the machines, they were getting cash. And then they were using that to pay so that they didn't have to use the card that couldn't be traced, right? Untraceable payments. And so you start thinking about this stuff and it's like, okay, that sounds kind of crazy. Like that only happens in an authoritarian government situation. Oh, wait, Canada just did the same shit. If you went to the protest and you participated and they were freezing your bank accounts, they were, you know, coming after you with financial sanctions, all this stuff. And so like in the world, I don't think a lot of people are like, oh, China and Canada, those are run by similar people. In almost every conversation, you'd be like, those are very different. The similarity, though, is your actions tied to your financial transactions became a target for the government. Now, take

• 5:28Anthony Pompliano?

  it a step further, which people don't like when I say it, but if you just happened to win the ovarian lottery and be born in Russia, you kicked out, right? Just because you literally were born on a piece of land with an imaginary line around it and a flag that everyone sits and looks at in the classroom.

• 5:46Speaker 02

  Yeah, totally.

• 5:47Anthony Pompliano?

  And so you start to look at it. Now, again, there's more complexity to it than just that. But again, where you were born ends up putting you in a situation. If you participate in a protest, if you use a specific type of transaction, like all that stuff ends up being like, damn, we're heading in a direction like, that don't sound good.

• 6:02Speaker 02

  What's the bull case for all this? Like, you guys obviously talk to a lot of people a lot more about these topics than I do. Is there someone in support of these ideas?

• 6:10Anthony Pompliano?

  Oh, yeah. If you wear a suit and tie, got cologne and a fake Rolex, and you walk into the, uh, Washington DC office, you love this shit, right? Think about this. I get to now, send money cheaper.

• 6:26Anthony Pompliano?

  I don't have Leon Cooperman or Ken Lang going on CNBC being like, I'm a billionaire. Why did I get a $1,200 stimulus check? Well, it's because you didn't show that you actually made a billion dollars last year. You had losses. So like that you end up getting hopefully easier to get money in the hands of people in times of emergency, like all that type of stuff. Second is I think you have a whole argument around the rails are better. So if I can drop the cost for people to actually use this stuff, there'd be more transactions, more velocity of money. It ends up being better for the average person, whatever. And then the third thing is I think that there is a desire to be seen as innovative.

• 7:06Speaker 02

  I think that's what it is.

• 7:09Anthony Pompliano?

  It's like, oh, everyone else is going to do it. We have to be early because we're innovative.

• 7:12Speaker 02

  I think that's what it is too.

• 7:13Anthony Pompliano?

  But it doesn't change the monetary policy. Like there's still going to be 8% inflation, whether it's a physical dollar or an electronic Q SIP or a digital token, it's still 8%.

• 7:20Speaker 02

  It makes monetary policy way worse. This is how monetary policy currently is what works. Fed tells market participants that they're going to do something. Market participants price that into money markets and interest rates and all across the sovereign debt curves and particularly in money markets. And then the rest of the financial markets price off of that. At least there are smart people in that sort of chain of command that are, you know, taking risk and, you know, have capital allocation and real consequences for making poor investment decisions. If you just allow it to just go back to the entire monetary policy, back to that, you know, round table in the Eckles building, then to me, that's a significantly worse outcome than where we are today, which is a completely unmitigated disaster.

• 8:00Anthony Pompliano?

  So I'm going to take it one step further. There's three things that are like real scary stuff. Monetary policy, right now, 12 people FOMC, they go into a little conference room, they get horrible data fed to them by all of their consultants and their staff. They do the best they can with bad data and they come out and they usually make decisions that, uh, short-term mitigation of pain, long-term consequences. And, uh, that's the way that this works.

• 8:23Speaker 02

  It's called smoothing, by the way.

• 8:25Anthony Pompliano?

  Correct. When you think about that, when they make that decision, and literally Jerome Powell, whoever the chairman of the Federal Reserve is, is standing up at the conference, press conference, and people are trying to guess, what's he gonna do, raise rates, not raise rates, whatever. That is a one-size-fits-all monetary policy. So you, me, them, everybody else in the country and around the world that hold dollars, all are subject to the same monetary policy.

• 8:48Speaker 02

  Exactly.

• 8:49Anthony Pompliano?

  Well, when they digitize this, now, you get a different monetary policy than I get. So, in the most positive light as you could possibly have, oh, you're in a dire financial position, what we're gonna do is, we're gonna give you a lower inflation level. We're gonna give you cheaper access to capital, because you're gonna get a personalized interest rate. Versus, somebody who is wealthy, or in a good financial position, maybe we will smooth it by giving them higher inflation, or giving them a higher cost of capital. And so you start to play this game of personalized monetary policy. Everything else in your life is personalized. Your music playlist, your search results, literally the maps when you go and use Google Maps.

• 9:31Speaker 02

  Yeah.

• 9:32Anthony Pompliano?

  Your monetary policy is gonna get personalized as well. Now, the negative, worst, nastiest view of it, Darius, you ate too much McDonald's this week. Joe, your ass ate too much candy. And John, you've been eating healthy. So guess what? Joe and Darius, you guys, we're gonna jack your inflation level up. We're gonna give you the highest cost of capital, because you're doing things that are negative towards society. You're leading to obesity, blah, blah, blah, stuff. John, you're amazing. We're gonna drop everything for you and make it the most attractive monetary environment possible.

• 10:01Speaker 03

  They could even bar you from going to those places, right?

• 10:03Anthony Pompliano?

  We haven't even got there yet. We're just talking about the monetary policy.

• 10:06Speaker 02

  Wow.

• 10:07Anthony Pompliano?

  Don't even think about going there. So that's problem number one, it's personalized monetary policy. Second thing, expiration of money. So China's already testing this. We have this in the United States already. EBT cards, they give it to you, they tell you what you can spend it on. Has to be unprepared food, not-prepared food, things like that. If you, most people don't know this, but if you get an EBT card and you save, so you don't spend all, let's say it's 500 bucks. 12 months later, if you have not spent the money from that first cart, it disappears.

• 10:35Speaker 02

  Yep.

• 10:35Anthony Pompliano?

  So you have 12 month window. Now 12 months, most people are like, okay, 12 months, like not the craziest thing in the world, whatever. Well, if I give you the CBDC, I now can make the money expire on a certain timeframe. So in China, oh, we're going to give stimulus. The point of giving the stimulus is for you to go spend it, not for you to go and save it. And so you have two weeks to spend the money. Imagine if during the pandemic, they said, okay, $1,200 checks, everyone gets it. You have two weeks to spend the money. If you don't spend it, it expires.

• 11:00Speaker 02

  Everyone would spend it.

• 11:01Speaker 03

  Can't save it, can't invest it, can't do any of that.

• 11:03Anthony Pompliano?

  No, it's just there's rails. You gotta spend it on the things we told you to. If you don't, it's done. Like you get in a weird, crazy world. And then lastly, third point is just no, like it just CBDC declined. You cannot go to the movies or yo fat ass gotta walk.

• 11:20Speaker 02

  To walk to McDonald's.

• 11:21Anthony Pompliano?

  Yeah, because you've been eating too much food. What you mean, like you can get like really, really egregious with it. Like that's the stuff that like, I don't trust that these people are not going to go there in those situations.

• 11:31Speaker 03

  But in a weird world, this, this drives much more people towards Bitcoin, right? So

• 11:36Speaker 02

  Yeah.

• 11:36Speaker 03

  don't you agree, right? Doesn't this ultimately set them up for failure when it comes to people leaving, whether it's the digital currency of the US dollar, whatever it is, but going towards a solution like Bitcoin?

• 11:46Anthony Pompliano?

  I don't know. What do you think?

• 11:47Speaker 02

  Hundred percent it does. What's the alternative? I mean, if you have a government institute that could just take away all your life savings. I mean, obviously they wouldn't do that. You certainly wouldn't expect a country like the US to do that or be able to even pass laws that can get you to that point. But let's take this, you know, we gotta play, you gotta go to the extremes to really make points here. If you know, you had an economy like that, that's very similar to like what you experienced in third world countries with, you know, physical goods, confiscation, obviously banks closing and things of that nature. So yeah, definitely. I mean, it's, it's the bull case for digital assets is becoming very clear by the day, you know, for, for, and so, you know, if you're not, to me, it's like, it's a, it's a no brainer, but it's, when you make these commentaries and, and, you know, I've, I've used to be in the camp that central bank

• 12:29Speaker 02

  digital currency was actually a good thing because I, for all the reasons you just described in terms of, you know, being able to enact more thoughtful monetary policy. Right now it's a complete shit show. But in the reality is, you know, we're not, it's not just monetary policy. It's all kinds of, what it really does is expand the scope of policy, the big P word. That's all it really does.

• 12:47Anthony Pompliano?

  Which, as you can see from that standpoint, oh, we're gonna have more tools. If we have more tools, we can better address, we can better intervene in the market, we can better do all. So like, the pro argument sounds amazing, but it's kind of like the like MMT stuff, right? It's like, wait, I get free money? Like, yeah, sure. Politicians, how do I get elected? Like, I'm gonna give you free money? Everyone's like, yeah, it's kind of like in high school when the student government, you know, thing gets done. What does the winner always do? They hand out candy. Always. They bribe you.

• 13:14Speaker 02

  Exactly.

• 13:15Anthony Pompliano?

  Like, that is what politicians are starting to do, is like, oh, we're gonna give you a trillion here, a trillion there. I saw a clip recently, somebody had one of the White House spokespeople talking, and they were like, yeah, we need, you know, there's a bill or something with asking for more money. And a reporter was like, you had trillions from COVID relief. Where'd it go? Like, you guys are out of money, you need more money now? And then they wouldn't answer, he like asked again, he's like, but like, where did the trillions go?

• 13:41Speaker 02

  If he was smart, he'd be like, we gave it to you.

• 13:47Anthony Pompliano?

  And so like, you know, people got all upset, whatever, but like, I think that's part of this is, you then get the surveillance stuff, right? Which is, I don't know.

• 13:56Speaker 04

  How would countries around the world perceive the US if we issued CBDC?

• 14:02Speaker 02

  I think the Western societies would definitely follow our lead on that. You know, there's this sort of, you know, I would, I would call like the, there's someone smarter than me, hedge fund manager, I'm blanking on the name, but they kind of created this persona, the Davos man, the global man, the, you know, the institutional person, you know, that person. And I think, you know, pretty much every central banker in Western society is very connected to that community. They're in that part of that community, they're a very key part of that community. And so if we, if we adopted a central bank digital currency, it'll be cheered, it'll be celebrated, it'll be, you know, further adopted by all the Western nations. And for probably for an extended period of time, it'll be a great thing, right? Like, the benefits will come sooner than the, than the, than the costs.

• 14:44Speaker 02

  And that's kind of the issue with a lot of these types of things, which is, you know, we give you free money, we give you all this stuff, but guess what? A year and a half later, we have the worst inflation we've seen in 40 years. And everybody's out there hurting and struggling, and oh, by the way, all that free money's gone. Getting eaten alive by inflation, by rental increases, by you know, food cost increases, by transportation costs increases. So that I think it'll be very similar to that, which is, yeah, this is great. Oh, no, wait, it's not great. Oh, no, wait, it's getting worse. Well, how do we get, what's the out? So the only way I think they could probably do this well, and what I mean by well is something that's acceptable to, you know, four or five guys in this, in this room, which is you'd have to sort of, you know, I think you'd have to amend the constitution to, to account for the potential overreach of government and to society as a function of,

• 15:28Speaker 02

  of being able to sort of regulate the big P at a more, you know, kind of

• 15:32Anthony Pompliano?

  This is why a lot of these politicians, there's Emmer, there's Lummis, Cruz, a bunch of them, I'm gonna not be able to name all of them, but a bunch of them want to either prevent the Federal Reserve from doing this and issuing it directly to the individuals, or what they want is they want a guarantee that it'll be permissionless, basically preserve all the aspects of cash around the privacy, etc. And hard to see a path how we get there. We should, right?

• 16:04Speaker 02

  There's no chance. Why would a central bank go through all the problems of issuing additional currency if they don't get all the goodies?

• 16:10Anthony Pompliano?

  Yes.

• 16:10Speaker 02

  It's like, yeah, no, it doesn't make any sense.

• 16:12Anthony Pompliano?

  It's, uh, it's pretty crazy. We've got a, a chart from you that you sent over, the Bitcoin and Ethereum.

• 16:20Speaker 02

  Yeah, finally broke out to bullish. We were talking about that last week.

• 16:22Anthony Pompliano?

  Let's get into it, baby!

• 16:24Speaker 02

  Broke out to bullish. I told you, I told you we had a window of opportunity here. You know, we still, like I said, we have this window of opportunity between now and let's call it May or June, where the economy is still hanging in there, and growth's not decelerating fast enough to catalyze like a breakdown in risk asset prices. And in the context of this window, you know, the next chart actually, because it's Bitcoin, Ethereum chart's pretty obvious, the next chart, which I show the financial conditions, actually, I had a viral tweet yesterday, which I think is pretty funny, which came from a hilarious conversation I had with my good friends over the weekend, which is, we still, like, we're all talking about tighter policy and quantitative tightening and rate hikes and stuff, but the reality is, the Fed's only done one rate hike.

• 17:08Speaker 02

  The Fed's balance sheet is still, you know, eight, nine trillion dollars. And guess what? As a function of those two things, we still have booty models on TikTok giving financial advice. You know, and then so that with the red line in that chart shows is the Goldman Sachs Financial Conditions Index. So it's like the, it's like the VIX. So when the financial conditions are really loose, the chart, the price of the red line is low. When the financial conditions are tight, it's like the VIX, you know, goes up when things are getting worse. Financial conditions are tightening. Right now, at the, today, we are as loose from a financial conditions perspective as we were, or more loose, rather, than we were at the peak of the tech bubble, the dot com bubble. The peak of the dot com, we are more loose today.

• 17:47Speaker 03

  That is wild.

• 17:48Speaker 02

  That is wild. Like, imagine like back in 2000, I mean, we wouldn't have had TikTok, but you would have had like Wall Street Journal ads with like booty models pitching like tech stocks. So that's, that's exactly where we were. We didn't even have that back then. So this is what this, I'm kind of making a joke with the booty models, but it's, you know, it is what it's an microcosm of where we are today in society, where we are today in policy. And so until we sort of really start to drain that liquidity, you know, hike rates at a more expeditious pace, you know, it's very unlikely that we see, you know, new lows and things like crypto and digital assets. In fact, it's probably likely that we could, you know, see some, some highs here, but will we get back to the prior all time highs? Put a gun to my head, I'd probably say no. I don't think the window of time is long enough for that, but I certainly.

• 18:32Speaker 03

  And just relative to how fast we start hiking rates aggressively?

• 18:35Speaker 02

  Yeah, like, yeah, this is a one to two month window at best, you know, it could be shorter depending on what happens with Russia and Ukraine.

• 18:40Speaker 03

  Think that there's an opportunity for them to continue to increase in price in the face of that?

• 18:45Speaker 02

  It's, yeah, so there's two countervailing forces, right? There's the, holy crap, this whole thing is, it's everything, the, the, the long-term secular bull case for Bitcoin has, it's all happening right now. Like everything Satoshi's been saying since day one and every Bitcoin bull who's been accumulated over the last decade plus is now seeing the, the, the bull case play out in real time. And it's a lot easier to sell it to somebody else who has not participated in the asset class. So there's that, that fundamental flow. There's, but the, on the other, the other side of it, you still have. A decent amount of people who bought Bitcoin and either institutional or people who have overly allocated to other risk assets and are feeling pain. So you have these two massive forces.

• 19:29Speaker 02

  My man Jim Carson has been using this word. I think it's a perfect word to describe what's happening in financial markets and the economy this year, which is let's occur to you. You have these sort of massive fat tail distributions. You have these big forces on either sides of the tails that are really bumping up against each other. And we had a big kind of slip down in asset prices when the Fed sort of start to signal that they were going to reprice monetary policy in January. Then we had another slip down in February with the Russian invasion of Ukraine. Then we had a massive slip up as a function of, one, we didn't fall off a cliff from growth terms. We didn't go to World War III. And so you're having all this massive two-way volatility. And so I think that's what's been happening in crypto markets really since the bottom in

• 20:14Speaker 02

  late January. And it could continue to happen. But I just think the window of time for now is positive enough for the bull case to win for a little bit.

• 20:22Speaker 03

  And how do you think about it when it comes to institutions versus retail? Right? Because if we get into a recession, obviously retail, they need money. They need to access that capital, right? They can't last within, they can't hold it, right? But institutions potentially could, even in the face of rising rates or whatever it is, depending on kind of what catalyst we see. If we see a positive catalyst, are they able to stay in there and be able to see the price raise? Or institutions, are they going to drop out also, you think?

• 20:46Speaker 02

  Now, see, the problem with most institutions, any legitimate hedge fund has generally strict risk parameters. Like, you can't even really be a hedge fund these days without having very strict risk parameters. And most risk systems or volatility is kind of the central component of risk. A measurement of risk, VAR is kind of the most popular value of risk is the most popular framework. But there's other frameworks. I don't say that all uses a different framework.

• 21:10Speaker 02

  If we did got into anything that looked like a recession, or more importantly, it's not even the recession, because generally speaking, risk assets bottom in recession, it's the path to recession. It's going from economy slowing to, oh, no way, this could be a recession. That's the, that's the window where you get the most pain. And so on that path, it's very unlikely that institution will be able to maintain the same size exposure to a high beta risk asset, because at the bare minimum, at the bare minimum, other high beta risk assets are going down in price. And from a correlation perspective, that correlation's going to drag down Bitcoin and other assets. And even if it's uncorrelated, you know, just the sheer fact that you got to take down risk broadly means you got to sell everything systematically, just to reduce your, the size of your portfolio.

• 21:55Speaker 03

  And you don't think we're on that path? Like, in my mind, right, it's pretty clear that we're probably on the path towards a recession, right?

• 22:01Speaker 02

  We were on that path.

• 22:02Speaker 03

  But we haven't seen, I mean, we've seen some sell off, right? But we haven't seen total destruction bottoming out that you would imagine, right?

• 22:08Speaker 02

  Exactly. And this is the great, great question. So that, that to me is like the, trying to add some calendar to this, because to me, that, that's the name of the game in institutional finance, is understanding like the, the actual catalyst and when things should happen, so you can actually hedge appropriately in both directions. We are not going to be, you know, remember I said that we had the window where it's like, okay, growth slowing, we're below trend, and if we keep slowing, recessions, it's going to go from a 50% probability, something higher than 50. That, to me, that window is probably Q1 of next year.

• 22:38Speaker 03

  Okay.

• 22:39Anthony Pompliano?

  Has this changed if you got guys like Do Kwon in the market buying billions of dollars of Bitcoin? Like, how much of the macro gets overridden by market structure and the individual asset versus it flips? And like, it doesn't matter what's happening in the market, it's the macro?

• 22:51Speaker 02

  Depends on what window you're in. Right now, we're in a window where that could overwhelm prices to the upside. I think if we were in Q1 of next year, it would very, it would get overwhelmed by everybody else selling. And so to me, the markets, the markets have choices, right? So, you know, that's where I think the economy is likely to be, I'm speaking to the US economy here, you're probably a quarter behind. You know, that's where the economy is likely to be in that particular timeframe. So, asset markets can price that in sooner or later. It's never, you typically never more than One to two, at most three months ahead of those types of catalysts. So let's call it Q4 of this year. You're probably likely to see enough pain to, you know, to really spook investors, both institutionally and retail, to kind of demand liquidity. And more importantly, I think what's most likely to happen is that

• 23:37Speaker 02

  demand for liquidity is going to spook the Fed out of tightening us into a recession. We still have time to avoid the recession if the Fed doesn't do what it's already told us it's going to do. The problem is if they just do what they're going to tell us to do, they're going to be doing it for way too long. And by the time we get into the first part of next year, it'll be too late.

• 23:54Anthony Pompliano?

  So I want to switch gears for a second.

• 23:55Speaker 02

  For sure, let's do it.

• 23:56Anthony Pompliano?

  We've been talking about Bitcoin and crypto. I'm going to throw a curve ball and just get your thoughts.

• 23:59Speaker 02

  Let's go.

• 24:00Anthony Pompliano?

  Because I just saw this recently.

• 24:03Speaker 02

  I can't hit a curve ball for shit.

• 24:06Anthony Pompliano?

  New home sale price in the United States is up 25% over the last year, and it just today crossed and hit $511,000.

• 24:16Speaker 02

  Median.

• 24:17Anthony Pompliano?

  Like two weeks ago, it was a big deal because we're at $500,000. It's $11,000 increase in a matter of weeks.

• 24:24Speaker 02

  Yeah.

• 24:25Anthony Pompliano?

  What the fuck is going on?

• 24:27Speaker 02

  Those not, well, there's a lot of things going on in the housing market, but one, there's obviously not enough supply. You know, for whatever reason, I can't tell you why, but it's very probably for the same reasons that the, uh, the, the, the energy, uh, sort of, um, the EMPs, the energy producers won't drill. You know, they just refuse to respond to supply and maybe they're saying, maybe it's a tacit admission that they themselves don't believe in the sustainability of prices. Now, generally speaking, you don't tend to have, and this is a very famous last words, you don't tend to have nationwide declines in home prices, which I think is what Bernanke said right before the financial crisis. So I'm borrowing a quote for him. So, um, it's a little bit, you know, the, the lending standards,

• 25:08Speaker 02

  you know, in today's housing bubble are extremely different than they were back in 2003, 2004, 2005. And so, you know, you certainly, lending standards and products, you know, adjustable rate mortgages, all that kind of stuff. No, no income verification loans. We don't have that stuff now. So the probability that we have a housing burst for this bubble is low. But what is likely to happen is you're just going to price people out of the market. If you haven't already and eventually you're just gonna have a lot of inventory that does not move and home builders not responding to the demand fast enough. So what's that gonna do? It's going to create a massive sort of secondary wave that we're already experiencing that we're in the early innings of in terms of rental inflation.

• 25:46Anthony Pompliano?

  Is it fair to say that this is a better measurement of inflation than than the CPI?

• 25:52Speaker 02

  No, no, I mean, so neither is a perfectly good measurement of inflation, right? I mean, inflation's personal.

• 25:59Anthony Pompliano?

  Eight percent or 25?

• 26:00Speaker 02

  No, CPI, because at least CPI is a broader basket, right? It's assuming, it's assuming. So which one's closer to?

• 26:06Anthony Pompliano?

  Thirty-three percent of it is shelter.

• 26:07Speaker 02

  Let me, let me, let me, let me, let me answer this appropriately. That's a good question. That's a good question. So housing price inflation today is probably more reflective of where the level of price changes in the economy than CPI, but CPI generally is a better basket to represent price changes in the economy.

• 26:26Anthony Pompliano?

  Okay, so over the long term CPI is better. Right now, housing.

• 26:29Speaker 02

  Right now, especially down here.

• 26:31Anthony Pompliano?

  That's a good answer.

• 26:32Speaker 02

  Especially down here. I mean, it feels like there's 50% inflation down here.

• 26:37Anthony Pompliano?

  Crema, they just jacked up another quarter. It's 525 now for a large iced coffee.

• 26:42Speaker 02

  It's outrageous.

• 26:43Anthony Pompliano?

  When we moved here, it was like 375. How's that happen?

• 26:46Speaker 02

  How much is it now? I can't afford my pastries, man. This is getting ridiculous.

• 26:49Anthony Pompliano?

  Yeah, I mean, look, by the way, like I'll pay them $6 if they want for the iced coffee.

• 26:56Anthony Pompliano?

  Some people are like, I'm gonna complain about the gasoline that I'm putting in my car.

• 27:00Speaker 02

  You're about to get popped. The price just went up.

• 27:04Anthony Pompliano?

  We don't need CBDCs for him.

• 27:07Anthony Pompliano?

  $10 iced coffee. Like, shit, okay. Need my gasoline to get going.

• 27:11Speaker 02

  And that's the, that's the issue with inflation, right? It's like, it's personalized. Everyone in this room can afford a $6 or $10 iced coffee, although I'd probably, I'd probably stop myself out at about 7.

• 27:20Anthony Pompliano?

  At $10, I'm just, I'm over.

• 27:22Speaker 02

  I just, I don't need coffee.

• 27:23Anthony Pompliano?

  $9, I'm grabbing some tap water.

• 27:27Anthony Pompliano?

  I just eat the coffee beans. I just buy. Pull the hose out from the building.

• 27:33Anthony Pompliano?

  If you get, if you get to $9.99, you got me. You cross for 10, just on principle, I'm out.

• 27:39Speaker 02

  Joe and John, like grinding coffee beans.

• 27:43Anthony Pompliano?

  But I do think this idea of like, how do you measure inflation right now? And it's like, okay, I'm not going to go as far as to say, I believe inflation right now is 25% in America, but I sure as hell don't think it's 8%. I think it's double digits. Is it 12% or 20?

• 27:58Speaker 02

  Well, I told you it is. It's already double digits. It's definitely 10% minimally.

• 28:02Anthony Pompliano?

  But that's what I'm saying. So like, when you start to look at what, how to measure it, like we're in the teens at least.

• 28:08Speaker 02

  So how we measure it, at least throughout the pandemic, because you know, there's been so much variance with respect to the COVID waves. It's been difficult to measure things in a year-over-year basis, or not difficult, it's been stupid. It's not a true representation of what's happening. So we've been measuring all, you know, mostly hard economic statistics on a month-on-month or three-month annualized percentage change basis, you know, which is, you know, similar to year-over-year, but just looking at it month-on-month or three-month-on-three-month. Inflation on a month-on-month annualized basis headline is 10% already. So we are having double-digit inflation. It just hasn't caught up to the year-over-year. It will catch up to the year-over-year. Customs will catch up to the annualized momentum. That's what happens in the time series. And so, yeah, we do have double-digit inflation in this country and it's probably being under-reported if we're being honest.

• 28:52Anthony Pompliano?

  The March inflation report.

• 28:55Speaker 02

  Oh, where were we? I was at 8.5.

• 28:57Anthony Pompliano?

  8.5? Are you sticking with that?

• 28:58Speaker 02

  Tuesday, April 12th. Yep, yep. And this is before Bloomberg hasn't even put out their forecast yet. I think they'll do that tomorrow.

• 29:04Anthony Pompliano?

  You think 8.5?

• 29:05Speaker 02

  8.5. Got 8.5. On a 2010.

• 29:08Speaker 03

  What did I say? 8.3?

• 29:10Anthony Pompliano?

  I don't remember.

• 29:10Speaker 03

  It was just below you, I think.

• 29:12Anthony Pompliano?

  We'll go to the tape.

• 29:13Speaker 03

  But I may go up now.

• 29:14Speaker 02

  No, no, no, no. Here's why you should go up.

• 29:17Anthony Pompliano?

  I actually, you think you should go up?

• 29:18Speaker 02

  I think, I think 9 is probably closer to the reality. After seeing the European inflation data, so the last two days, we got Spanish, German, France and Italian preliminary March CPI data. They were all pretty high. So Spanish was like 9.8, German was 7.6, France 5.1 and Italy 7%. All but Italy, like Germany was like 100 basis points north of the estimate. Spain was over 100 basis points north of the estimate. France was like 30 or 40 basis points north of the estimate.

• 29:44Anthony Pompliano?

  How much of that is because of energy, given that they're so dependent on Russian energy and natural gas versus the US has some differences? Or do you think it's pretty much across the board?

• 29:56Speaker 02

  No, it's going to be across the board. We're going to feel the same energy price shock as they felt. And so the point I'm making is that. Inflation, the reported data blew the expectations out of the water, even though everybody on earth knew we were going to have a big surge in inflation in March. And we economists still were too low on it. And so I think the probability that we get a

• 30:14Anthony Pompliano?

  10 print?

• 30:14Speaker 02

  Was, I don't think so, but it could.

• 30:17Speaker 04

  How much do you think the inflation this month will be affected by, hey, we've seen price raises over the last year? So you can't raise that much year over year over year on a percent basis.

• 30:26Speaker 02

  Yeah.

• 30:27Anthony Pompliano?

  The compounding effect.

• 30:27Speaker 02

  Yeah. Yeah. So

• 30:29Anthony Pompliano?

  Last year inflation wasn't that high.

• 30:31Speaker 03

  Well, we didn't get it until a couple more months, right?

• 30:33Anthony Pompliano?

  I think it was like June was when we started getting into vibes.

• 30:35Speaker 02

  March, yeah. So April, the April data was where the, the, the, the, sorry, the sequential momentum really accelerated. And so April will be the first month where base effects really kick in. But again, it's, that's a moot point. I think economists are being, they're being disingenuous right now. We keep talking out, we economists, particularly at the Fed, continue to say base effects going to, you know, base effects, base effects. You're going to bring down inflation, base is going to be non-inflation. And that's true. That's accurate. But the problem isn't the level of year over year inflation. The problem is the fact that inflation continues to accelerate. Price increases continue to go higher. So eventually when those base effects were off, it's still going to be at like 10%.

• 31:11Anthony Pompliano?

  Well, your point is like, if you grow 5% year over year, and then you grow 4% the year over year from that, you shouldn't celebrate. You should be like, why the hell is it still going up 4% after we went up 5% the year before that?

• 31:21Speaker 02

  Bingo. And we're actually, we're not even, so what you just said is accurate. And what I'm saying is what's actually happening is we grew 5% year over year, and we're now growing six sequentially. So the expectation that we're going to four next year is ridiculous. We're actually on our way to six, you know, not using those particular numbers.

• 31:38Anthony Pompliano?

  Do you think we hit 10% at all in the United States?

• 31:40Speaker 02

  So again, we are at 10% sequentially. Will we get to 10% year over year? We only have one month to do it because by the time we get to April, the year over year numbers are going to start to come down. And so that's a problem for

• 31:50Anthony Pompliano?

  You sound pessimist.

• 31:52Speaker 02

  No, no, no.

• 31:53Speaker 03

  It'd be a big jump from eight to 10, right?

• 31:54Speaker 02

  Yeah. So if it, if it happens, it has to happen in March is what I'm saying. The probability that it happens in April is much lower because the base effects accelerate so, so quickly in, in April. So that's, I don't know. Again, we're a long ways away from, from, from anything that get the Fed off of what it's doing, which means we're a long ways away from getting back to a more positive market dynamic.

• 32:17Anthony Pompliano?

  I think it's 50 50. We hit 10%.

• 32:19Speaker 02

  Oh, okay, okay.

• 32:20Anthony Pompliano?

  I don't, I don't know. If this was a sports book, that would not be the odds.

• 32:28Anthony Pompliano?

  I'm gonna caveat, I'm gonna caveat though, which is the 50 50 breakdown is I don't think it hits it in March. I think we probably come, uh, I do think that there's a higher probability of breaking nine than most people are assigning to it. It's like 9.1, 9.2.

• 32:44Speaker 02

  After this data, I would agree now.

• 32:45Anthony Pompliano?

  So 10, the only reason why I probably put higher odds on it is I'm not convinced that fertilizers, natural gas, oil, like all those issues, like I think people are like, oh, it peaked. There's not gonna be any more problems, right? Or like we saw the worst of it, but like, I don't think we quite understand if fertilizer prices really do spike how it looks like they are. It looks like we're not going to get a lot of the Ukraine and Russia wheat out of there.

• 33:13Speaker 02

  Yeah.

• 33:14Anthony Pompliano?

  And so you start to add this complex, like there's too much global chaos. And what I'm assigning more probability to than I think other people is that the Fed and politicians don't know how to solve these problems from a first principle standpoint. The only thing they know how to do is spend money. And so if gasoline prices stay above $5, $6 in the United States, they're gonna hand out gas cards. If food all of a sudden becomes a huge issue, they're going to start to do all sorts of things that create more inflation.

• 33:45Speaker 02

  100%, so stupid.

• 33:46Anthony Pompliano?

  And so if you do that, even though there's the base effect, there's a shot. Again, I say 50 50 because I don't know, but it's just like, there's a structural thing underway, which their response unfortunately is going to be step in, spend, gas cards, like all this shit. And like, just how inflation, I don't know, but they spent trillions.

• 34:08Speaker 02

  Yeah.

• 34:08Anthony Pompliano?

  And we got to 8% so far. Like the next bill, what are they gonna do? 5 trillion, 7 trillion? Like, these guys are just gonna go bigger and bigger and bigger.

• 34:18Speaker 02

  I'll, I'll, I'll push back on that a little bit because I agree with that's where we're going, but the process to getting there is nonlinear because.

• 34:26Speaker 02

  You need 60 votes in the Senate to change tax and spending law. And so, obviously, you know, Democrats have the narrowest majority ever in the House and Senate, 50 50 with Kamala Harris being the tying vote. They're not going to be able to change tax and spending law, particularly ahead of a midterm election. The Republicans aren't going to go for that. Republicans aren't going to do anything that makes the Democrats, you know, helps the Democrats.

• 34:47Anthony Pompliano?

  You're assuming that there's a difference between those two parties.

• 34:50Speaker 02

  Uh, there's a difference heading into a midterm election, but there's not a difference in terms of their policies. I've been, by the way, I've been saying that for years.

• 34:56Anthony Pompliano?

  True.

• 34:57Speaker 02

  I'm going to go on a rant right now. I've said this for years, going back to 2017 Tax Cuts and Jobs Act. When I saw that legislation, I said, wow, so it looks like the Republican Party prefers blowing holes in a deficit this way. The Democrat Party prefers blowing holes in a deficit that way. But it looks like both parties love blowing holes in the deficit. There's no difference between two parties, fiscally anymore. There was when I, when I first started on Wall Street, Paul Ryan and, and, and Ron Paul's guys, you know, there was a real faction that the Tea Party was legitimate. There is no more Tea Party. There's just blow hole with tax cuts, blow hole with spending. But guess what? You're just digging a deeper and deeper hole, so rant over.

• 35:31Anthony Pompliano?

  No, but I think that this is the whole thing is there, there's more of an appetite now to spend tax cut, like the whole thing. And I don't see a world where regardless of what the Fed does, the Fed is not just fighting inflation. The Fed is fighting politicians.

• 35:47Speaker 02

  Yeah.

• 35:47Anthony Pompliano?

  And the politician, I mean, we've already seen it. They did a press conference yesterday. They're like, we need more money. And the guy's like, what do you mean? You had trillions, where'd it go?

• 35:54Speaker 02

  Did you see AOC's comments about price controls?

• 35:57Anthony Pompliano?

  No.

• 35:57Speaker 02

  No. Oh, my God, this is like, where do you get these people from? Like, just pick up a book and read two pages of a book about how bad price controls are.

• 36:06Anthony Pompliano?

  What did she say just generally?

• 36:07Speaker 02

  Well, she was just like, like, this is where we gotta go. We gotta, we gotta do something about inflation, so price controls is the next step.

• 36:11Anthony Pompliano?

  You know what's funny about that? On December 29th of 2021, I wrote a piece that said, price gouging, price controls and inflation. And I basically said that this is exactly what they were going to do. And I, the exact quote was, the United States is experiencing nearly 7% inflation and we see our politicians calling out various industries from beef producers to grocery stores in regards to alleged price gouging. If history serves us a guide, it is unlikely that the corporation. are actually price gouging. It's much more likely that their labor material costs have drastically increased. And then I basically started to talk about Turkey, and I think I talked about Argentina in here, if I remember as well. But what I basically said is if you're going to continue to accuse grocery stores of price gouging, including things like Kroger with a 3% profit margin.

• 36:55Anthony Pompliano?

  All of a sudden, we may be talking about some issues. And so instead, what we need to do is we need to prevent against this. And my whole idea was you better be very careful because the price controls, they're going to try to implement.

• 37:09Speaker 02

  They destroy the productive capacity of the economy and it makes the inflation problem way worse over the longer term. This is how we got to the seventies. This is part, the seventies was price controls and unionized labor. We don't have as much unionized labor anymore, but I think we have a form of unionized labor in the sense that the, the total number of job openings right now is 1.7 times the total number of unemployed workers. Which means workers right now have as much bargaining power as they ever had, which is effectively a union, right? They're not unionized, but in terms of worker bargaining power for wages, it's as high as it's ever been. You're seeing, you know, the turnover in jobs is as high as it's been. The quits rate right now in terms of private sector quits rates at 3.2%, that's 20 basis points off an all time high.

• 37:52Speaker 02

  So people are actively moving jobs, looking for higher wages at a rate that's never been seen before. So it feels like we have unionized labor. And obviously if we do anything that looks like price controls, this thing's going to get way, way, way worse. And the problem with this situation is that there's smart people in a room like ours and there's plenty of smart people in plenty of rooms across the country and across the world that can see this slow motion train wreck. The problem is they're not communicating or they don't have avenues to communicate to these buffoons like AOC and Senator Warren. And I, and I mean buffoons because this is ridiculous.

• 38:22Anthony Pompliano?

  They don't understand economics. It's okay. Where, where can people go to 42macro?

• 38:25Speaker 02

  Oh, 42macro.com could check us out. I'm at 42macroddell on Twitter. We got Bitcoin conference next weekend. So come down here, have some drinks with us. Let's have some fun. Yeah, man. I'll see you guys next week.

• 38:35Anthony Pompliano?

  Thank you so much. I appreciate it. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribe on Apple, Spotify, or your favorite podcast player. And if you're looking to try to. Transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to pompscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to pompscryptocourse.com to learn more and I'll meet you guys for the next episode.