#917 Darius Dale On Why The Fed Has A Serious Inflation Problem On Their Hands

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." To see the video with the corresponding charts that Darius references throughout 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 http://defi.tech =======================

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 to send, receive, and exchange

• 0:47Anthony Pompliano?

  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 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. This episode is brought to you by DeFi Technologies. DeFi Technologies represents what's next in the digital economy. They're providing simplified trusted access to crypto, decentralized finance,

• 2:13Anthony Pompliano?

  and web three 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 U.S. 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.

• 2:57Speaker 01

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

• 3:20Anthony Pompliano?

  Obviously, we've got 8.5% inflation. Before you got here, yes, you got it right. So we did our little prediction game. You were dead on. I said earlier, you went through the dart and just bullseye 8.5. You were the furthest off. I was. Well, I was the closest to real inflation, but the most off.

• 3:36Speaker 02

  What was your number?

• 3:37Anthony Pompliano?

  9.3.

• 3:37Speaker 02

  9.3.

• 3:38Anthony Pompliano?

  And then you said at some point.

• 3:39Speaker 02

  8.5.

• 3:39Anthony Pompliano?

  8.5. 8.7. 8.7. 8.3. 8.3. You were the only one that was just way off. So I was second place because if we're playing the prices right rules, I was under and only, only.

• 3:49Speaker 02

  Again, it's, it's, everyone wins here because when you, when, well, we were talking about this last time, when you look at inflation on an annualized basis, month over month, three month over three month, annualized, the stuff that really matters to the Fed right now, it's actually running at 11%. It's 10.8%. And so like we, we're talking about it growing 8.5% over the past 12 months, but if you look at the pace of growth over the last three months, it looks something more like 11% inflation. So obviously we continue to build momentum in the time series. That's a problem.

• 4:17Anthony Pompliano?

  So when you think about this 8.5%, obviously, the numbers seem very skewed to tell as rosy of a picture as we can. I think shelter now is like 5%, but the rent and home prices are still up, you know, 18, 20%. So like, there's just all the things we've been talking about, even though shelter is 33% of the CPI index.

• 4:38Speaker 02

  It's like forty percent of your consumption if you're a human being.

• 4:41Anthony Pompliano?

  Where there's one data point in there that was like really, really eye popping to me. But when you actually look at all of the various components, was there anything that like caught your eye? And you were like, this is what I'm paying attention to, or this is part of the components of CPI that I think people should be more aware of?

• 4:56Speaker 02

  Yes, it's the first chart I sent you, second chart I sent you. It is all of the components of CPI. It's the median CPI. So you take everything in the basket, find the median inflation rate. And that is the, that's the sort of the median CPI. So you can see how broad based or not broad based inflation is. And this is why I keep saying the Fed has a real serious inflation problem on their hands. We just hit an all time high. If you look at the three month, either year over year, or if you look at a three month annualized, which we've been looking at over the last few months. I have six point four percent for median CPI. This is the fastest rate of median CPI, median inflation we've ever seen in this country. Like faster than what we saw in the eighties, seventies and stuff like that. I don't even know if time series go back that far, to be honest with you.

• 5:38Speaker 02

  But seriously, it's a really big deal because it tells you that it's not just energy. It's not just used cars. It's not just auto, you know, all the stuff that they keep trying to, you know, pick and cherry pick to say that inflation is going to be, you know, here today, gone tomorrow. That, that chart tells you that it's not only here today, it's actually getting way worse. And the other chart I sent you sticky CPI, which is the stuff that sticks around. So like things that tend to have lagged price changes and, and, and sort of have a very lagged impacts on, on the cycle. Sticky CPI accelerated to six point six percent on a three month annualized basis. I think that's like, you know, running five, north of five percent on a year of year basis. These are massive, massive problems, like screw the miss on core.

• 6:22Speaker 02

  Who cares about headline? This is telling you that there is a real fundamental inflation problem in the economy. And if the Fed does anything that looks like not following up on its tightening path, we're going to have a real serious inflation problem in this country.

• 6:35Anthony Pompliano?

  We're getting fifty basis points next meeting for sure.

• 6:37Speaker 02

  Absolutely, we better, we better. But the problem is.

• 6:40Anthony Pompliano?

  You think we're gonna get fifty?

• 6:41Speaker 02

  Yeah, it's not that, yeah, it's already priced in. So the Fed doesn't like to surprise financial markets. So if they, if, if, if what is, they're gonna, they're gonna have to do a lot of talk. Between now and early May to get us out of 50, basically. So it's very likely we get 50 in May, very likely we get 50 in June. Asset markets support that currently, both in pricing terms and both in where the stock market is. But our problem is, and I fear, I fear for the, the, the ported low income, middle, uh, low income, low to median income consumers in this country, that the Fed, after they do a couple of 50s, looks around and maybe sees one, you know, not in line, but just one decelerating inflation print and goes, okay, job done. And just leaves us hanging out here with 6% median CPI, 7% sticky CPI.

• 7:24Speaker 02

  And that's, I actually fear that as a possibility because you know, these people are tethered to the stock market.

• 7:28Anthony Pompliano?

  Yeah, the, the number that jumped out at me was 10% food at home.

• 7:32Speaker 02

  Yeah.

• 7:32Anthony Pompliano?

  I mean, just the average American family paying 10% more to eat at home today than they did a year ago. Uh, they cannot sustain that for a very long period of time. And my fear is all of the things that we talked about previously around the wheat prices, fertilizer. We even got, uh, in the U S, the wheat market, uh, we started to get some of the readings and, and it's much lower amounts of the wheat is actually high quality than they had predicted, et cetera. And so you start to like stack all this up and you're like, man, if food prices, all of a sudden we get to 12, 15, God forbid, 20% increase in food at home.

• 8:05Speaker 02

  Yeah.

• 8:07Anthony Pompliano?

  That's going to be bad.

• 8:08Speaker 02

  This is how you get like, like riots and pandemics, right? Like, we're already starting to see it. I think like Sri Lanka was having protests, Pakistan.

• 8:14Anthony Pompliano?

  Well, Sri Lanka, uh, the central bank just, uh, so they're bankrupt. The, the, so, all right, let's go one by one here. So the food thing I think was very eye opening to me. I was like, oh my God, like this could, even though it may not have a material impact on CPI itself, if everything else starts to come down on a percentage basis. And let's just say that we'll give the, uh, the, the anti inflation crowd, uh, the assumption that, okay, inflation peaks in March, which do you agree with that or disagree? You think that it's going to peak?

• 8:42Speaker 02

  Year over year, it could, uh, because base effects really materially steep in in April, but that doesn't mean the momentum is just dying down. Once you get past the base effects, you're still going to be at a very high level of inflation. That's the problem with the momentum.

• 8:53Anthony Pompliano?

  Yes. So I, that's generally my idea as well is like, people are going to start to now just go headline numbers and they're going to lose the nuance. And, and going into midterm elections, we're going to have politicians being like victorious.

• 9:06Speaker 02

  Victorious were at six and a half instead of eight and a half, you know?

• 9:09Anthony Pompliano?

  And if, and if we didn't have base effect, it would really be like 12.

• 9:11Speaker 02

  Hundred percent. Yeah, that's the problem. Yeah.

• 9:14Anthony Pompliano?

  Right? So, uh, so I think that's a big problem. When we then go and we look around the world, I recently wrote about it. Uh, I know Marty Bent wrote about it, a couple of different people, uh, is we now have had two central banks slash governments, however you want to break it down, uh, basically say checkmate, like, like game over, uh, without restructuring because we had Lebanon, which for two years now, they've been having riots in the streets, the, uh, the currency has been devalued significantly. There's been more than 50% contraction in the economy over the last two years, like just horrible situation for people on the ground. They basically like, hey, we're done. Right? Uh, and now they're coming on like, oh, we're not really bankrupt, but like, you know, whatever spin they're putting on

• 9:54Anthony Pompliano?

  it, but like they're bankrupt. Sri Lanka, which since 1948, they've never had an issue paying their external debt service. Wow. 1948 till today, never had one issue. They are very unique in that obviously you get all the undisciplined monetary and fiscal policy over the last decade. Going into 2020, you then get hit with the pandemic. Pandemic was important for Sri Lanka because of the high tourism. Oh, yeah. All of a sudden, if they don't have tourism, right? GDP, all that stuff, big issue. Then they get all of the, uh, race between central banks to devalue their currency, right? On a relative basis. Then they get the, uh, hit of, uh, the Russia-Ukraine situation, right? And you go step by step by step. And you're like, these people have just been throwing curveball

• 10:37Anthony Pompliano?

  after curveball after curveball. And, uh, I think it was Marty's point, which I thought was really good, was he was like, look, the weakest fall first. And so Lebanon, Sri Lanka, like, like they're not the Fed, right? The Fed has got like all the firepower and these guys basically are knife fighting. Yep. The question is, are the two outliers? Or are we going to see more fall? And, and again, they won't be Western developed nations where most of the people who are watching this show have to worry about like, oh my God, is my central bank going to go bankrupt?

• 11:06Speaker 02

  Yeah.

• 11:07Anthony Pompliano?

  But there's still, I don't know how many people are in Sri Lanka, but there's millions of people that live there. Right? That are negatively affected by this. And so like, do we see two, three, four, five more? Like, how do you?

• 11:16Speaker 02

  Is there a real material difference than a poor person living on $2 a day in Sri Lanka than a poor person living on $2 a day in India, Lebanon, Nigeria, Morocco? Like, is it really? No. This is the problem. And this is, this is why I don't, I think the sort of inflation around narrative on Wall Street is missing the point, which is, What's going to cause food and energy prices to stop going up? Are we going to get a glut of energy or a glut of wheat, a glut of corn coming from somewhere anytime soon? Because no, if we don't, the supply and demand will dictate that the price has to continue to rise, you know, to crowd out the marginal buyer, to crowd out the marginal demand. And so to my point, it's like we're forgetting that, okay, yeah, the inflation might peak

• 11:58Speaker 02

  year over year for a convenient narrative in the US equity market or US bond market, but that doesn't mean we're not continuing to build the risk that we see protests, not just in Sri Lanka, but in Detroit, in St. Louis, in Minnesota, you know, people are poor, poor people, this is really, it's a really bad time, man.

• 12:16Anthony Pompliano?

  Yeah, it, it, it just feels like they don't have the tools as well. Like the Fed still has some credibility left, right? Although people would argue it's probably diminishing. Many of those central banks, like their people don't believe them.

• 12:28Speaker 02

  Yeah.

• 12:29Anthony Pompliano?

  Right? And they, and they don't have the ability to actually go after it. And one of the things we were talking about yesterday is like the IMF obviously gets called up when Sri Lanka's saying, hey, we're going, you know, bankrupt and we need help restructuring our debt and payments and all stuff.

• 12:41Speaker 02

  IMF is like a payday lender.

• 12:43Anthony Pompliano?

  Yeah, literally, I mean, literally.

• 12:44Speaker 02

  They're a payday lender.

• 12:45Anthony Pompliano?

  But they're spending their time recently, if you look at all their public comments, yelling and screaming at El Salvador, which is using two currencies that they don't control, the dollar and Bitcoin, and IMF is yelling at them. But at the same time, they've got countries that they can help and service that are going bankrupt. Like, it just feels like we've gotten in this weird, like virtue signaling slash distraction world.

• 13:07Speaker 02

  Yeah.

• 13:07Anthony Pompliano?

  And did they take the eye off the ball?

• 13:10Speaker 02

  Yeah, who is they? That's the question. Who is even they?

• 13:14Anthony Pompliano?

  It's a huge piece of it. So what, what are you watching for now, moving forward? So we got the high inflation, right? We've got, obviously, the Fed meeting. You think there'll be 50 basis points, like the market generally thinks that'll be 50 basis points. What is the impact if they go ahead and put for the 50 basis points? And how do you think about that?

• 13:30Speaker 02

  Yeah, so, I mean, it's, it's, again, most of the tightening has been sort of front loaded and I think this is kind of what's missing in the mainstream narrative about growth, is that because of the Fed's very unique forward guidance feature, which, by the way, we've really never had this kind of forward guidance where the Fed That is telling us, hey, we're going to do this at this meeting and this meeting by then and then and that with respect to its policy agenda and its balance sheet. We've seen so much of the tightening happen already. If you look at financial conditions, you look at real interest rates, you know, real interest. Damn right. The real 10 year tip shield, the 10 year tip shield, the real interest rate is up like 100 basis points month over month. Like the mortgage rate straight up to 5%.

• 14:08Anthony Pompliano?

  Yep.

• 14:08Speaker 02

  You know, a high yield credit yield spreads and also yields themselves. Like the cost of refinancing debt is now more expensive than the existing stock of debt. It's the first time we've seen this in like, you know, 10 or 12 years. And so like, we've seen a lot of tightening happen to the economy already. And so all the Fed's really doing is just kind of, you know, meeting expectations. But what I think is missed amongst consumers and investors is that we're going to see a growth slowdown. It's coming. It's, do you ready for it? And it might be more persistent if the Fed has to do more tightening relative to what's already priced in.

• 14:40Anthony Pompliano?

  Yeah, it, it just feels, um, it feels like they can't move fast enough. Like there's so much momentum on the inflationary forces that like, even if they did 50 basis points, does it really have an impact? Like they talk so tough in November, December, January, February, that most people I think already moved capital that was going to move capital. And sure, maybe if they tighten, you know, up to, you know, 100 basis points, 125 basis points, whatever. Maybe tech stocks keep falling, but like, how much further can they really fall if you're already at, you know, I don't know. 20 times revenue.

• 15:20Anthony Pompliano?

  Could you fall to 15? Could you fall to 10?

• 15:22Speaker 02

  By the way, like 20 times revenue is a nonsensical number. Like you should be like two to five times revenue if you're a great business. You know, there is no valuation support until you get to a reasonable valuation. There's a long way down for a lot of these companies.

• 15:35Anthony Pompliano?

  So you think that it could still fall like very, very far?

• 15:38Speaker 02

  Yeah, definitely. I mean, if this is mismanaged by the Fed, see the worst, here's the worst outcome, because this is a bevy of outcomes, right? The worst outcome is the Fed is getting incrementally tighter as growth is starting to materially decelerate. And then it becomes this sort of gap between policy and the The economy, which is what happened in Q4 of 18. The sort of base case scenario is that the Fed marches along, hikes interest rates, does quantitative tightening, and growth starts to decelerate faster. And the market's like, nah, dude, we need you to chill. Otherwise, we're going to go into recession. The bull case is that we get like some very, you know, sharp deceleration in inflation, which our models aren't projecting, at least not until Q1 of next year. And we get a very sharp deceleration in inflation on a very near term basis.

• 16:23Speaker 02

  That tells the Fed to stop, pull back a lot of this tightening. And that growth deceleration is not as big because you get sort of a artificial inflation of real incomes. That is a possibility. I don't think it's the highest probability. I think the two higher probabilities are the bear case and the base case, which are both lead to lower stock prices, lower risk asset prices.

• 16:41Anthony Pompliano?

  As you think about them continuing to tighten until something breaks, what breaks? Like, what do you think is the thing that alarm bells go off, they say, all right, stop?

• 16:50Speaker 02

  Yeah, so I'm going to borrow the work of the great Joseph Wong here. Fed guy is a really great follow on Twitter, by the way. Oh, by the way, this was really cool. So I was at the ETF conference. I came after the conference to meet a friend. And we went to the bar outside the Fountain Blue. And this guy, Andres, shout out to Andres. He goes, I ordered a drink, tried to pay. He's like, oh, no, on the house, it's for you. And I'm like, I'm like-

• 17:10Anthony Pompliano?

  The bartender?

• 17:11Speaker 02

  Yeah, I'm like, I've never seen this guy before in my life. He goes, oh, you're always on pop, man. I love you on pop.

• 17:15Anthony Pompliano?

  Let's go.

• 17:19Anthony Pompliano?

  What bar was this? We may have to go check it out.

• 17:22Speaker 02

  It was the Fountain Blue pool bar.

• 17:23Anthony Pompliano?

  If he's had a nice three drinks. Andres from the Fountain Blue pool bar. Anybody who goes to Fountain Blue, shout out Andres. Go check him out.

• 17:30Speaker 02

  That's my guy.

• 17:31Anthony Pompliano?

  Yeah, I bet it is your guy.

• 17:34Speaker 02

  No, no. Why am I bringing this up? What did you ask me?

• 17:37Anthony Pompliano?

  In terms of until they breaks.

• 17:39Speaker 02

  Oh, yeah, sorry, in terms of what breaks. So, sorry, Fed guy, Joseph Wong was one of the people I told him to follow on Twitter. So in terms of what breaks, like, it's very clearly the treasury market that has a lot of risk, right? Because there's so much incremental supply. The Fed is now about to sort of force a lot of supply back onto the private sector. We're sort of getting clues that Janet Yellen is going to be complicit in that as well. And we just don't have the sort of pipes, the liquidity channels of- From sector repo with respect to transitioning cash out of money market funds and cash buyers really being able to take down the amount of supply. So you could see what he's been calling the potential air pocket in rates. And who's to say we're not part of it already? Like again, nominal interest rates on the 10 year treasury have backed up 100 basis points in like three

• 18:23Speaker 02

  and four and a half weeks. Like this could be the air pocket we're in right now. And who knows where that ultra terminal rate is right now. But you know, there's some people trying to step in and buy treasuries here. And I certainly don't disagree if inflation is peaking. That typically is what you would do. However, these sort of liquidity dynamics from an interbank perspective is something that needs to be respected because it is somewhat new relative to where we've been in previous cycles.

• 18:45Anthony Pompliano?

  Yeah, it also feels like Bitcoin has been matured to now where it entered this conversation. And I think a lot of the I'm going to separate out in a very over generalized manner. You have the Bitcoin holders who are retail folks who treat Bitcoin as a reserve asset. And then you have Bitcoin who is being treated as a risk asset by I'm just call it Wall Street.

• 19:10Speaker 02

  Wall Street, yeah.

• 19:10Anthony Pompliano?

  And if you think of those two things, historically, the people who treat it as a reserve asset, they don't give a shit about interest rates. I'm a dollar cost averaging into Bitcoin, whatever. And that's proven to be incredibly valuable. It's still up till today.

• 19:22Speaker 02

  Is there anybody that's owned Bitcoin on a three year basis that's underwater?

• 19:27Anthony Pompliano?

  I think four years for sure is positive. I don't know about three. Yeah, I think three years would still be up to. Yeah. Yeah. Basically, if you hold it for three years, historically, you've been good. The Wall Street crowd really cares about this stuff, though, right? And so now that I think a lot about like the earth is shifting beneath Bitcoin holders a little bit of things that used to be undeniably true based on math. So I'll give you an example, correlation to tech stocks. You could look at the math and you could say sometimes it's correlated, sometimes it's not, but over a long period of time, it's non correlated, right? Meaning that, yeah, it fluctuates, whatever, but it's non correlated. Since 2020, there has been a very high degree of correlation, including, I think it was last week, we hit an

• 20:08Anthony Pompliano?

  all time high in correlation to NASDAQ. And so some people may say, oh, it's just a two year stretch and like it'll go back to being non correlated. Some people say, no, now that it's been quote unquote, financialized and Wall Street has adopted it, it's going to remain correlated. I don't know. I don't have a crystal ball. But I think that that shifting kind of underneath our feet is important because Wall Street also brings other things. They sell at the end of the year to go ahead and reap management or carry fees. They sell for taxation. Like, like, there's all these components that go into it. And so it makes you reevaluate a lot of your previously held perspective. And maybe you change your mind, maybe you don't, right? But like, when things are changing,

• 20:49Anthony Pompliano?

  I fear that some portion of the Bitcoin community and then the greater crypto community holds on to what used to be true, but they're not looking at the most recent data.

• 20:58Speaker 02

  Well, that's, that's the, that's the nature of finance. It's always changing. And this is why, you know, sort of what we do with 42 macro is, is, we look at the world in rate of change terms. Because once you start looking at the world in absolute terms, you're very sort of agnostic to and quite frankly, you're victim of regime change. You know, you don't realize that you're a frog being boiled in a pot of water of inflation or boiled in a pot of water of correlation risk or things of that nature. And so what you really care about is the change in these sort of states, the change in growth, the change in inflation, change in policy, change in correlation, change in overall risk preference and risk tolerance. Like, that stuff is what really drives financial markets forward or at the margins. So I think you're absolutely right. You're spot on to point out the risks. But I mean, whether it decouples

• 21:42Speaker 02

  or recouples, I'm not quite sure that that really matters. Because ultimately, you know, it's an asset that is designed to sort of, you know, kind of be a counter cyclical asset relative to a lot of the shenanigans that we're seeing from a policy perspective. And I would argue that, you know, because most tech companies are, you know, at least the ones that are highly correlated to something like Bitcoin, those are disruptive, innovate, those are disruptive companies. These are the kinds of companies that are, you know, decentralizing everything and taking power out of the, you know, centralized players and putting them into, to, to, to, to the, putting them in the masses hands, generally speaking, obviously not every company. But so I do believe that there's probably something fundamental about why Bitcoin is correlated to those types of enterprises.

• 22:27Anthony Pompliano?

  Yeah. What other questions you guys got, John John? Yeah, I would just ask, like, what you expect the average individual to do, right? Obviously, people are in different financial circumstances. Yeah, what should they think about when it comes to? Protecting themselves for what you think inevitably is going to happen.

• 22:43Speaker 02

  Yeah, I mean, look, I say this all the time, like, just cash is a very dangerous weapon in a good way for an investor in a time like this. Like, we're, you know, the last two years, 2020 and 2021, I'll say this, I'm blowing the face, were so historic in terms of the drivers of asset prices. You had, you know, I was saying, there's been like 10 quarters since 1960, where like five things, the five big things were happening all at the same time. Accelerating growth, accelerating inflation, accelerating corporate profits, accelerating balance sheet, you know, aggressive monetary easing, aggressive fiscal easing. Like, that almost never happens together. It's usually counter cyclical policy. There's a, and so all these things were like a plus, plus, plus, plus, plus, check, check, check, check, check for the financial markets.

• 23:25Speaker 02

  And that's why we saw such aggressive price appreciation in Bitcoin, crypto, stocks, et cetera. Well, with the exception of inflation, all those things are now moving in the wrong direction. And soon inflation will be moving in the wrong direction as well. So you're going to go from check, check, check, check, check to minus, minus, minus, minus, minus. And so to me, it's like if, if you can't have the same positioning on as an investor that you did during this check, check, check, check, check period, as you do in the minus, minus, minus, minus period, or you're going to get a minus on your test. You know, you're going to, you're going to fail in grade on your test. And so to me, it's a very difficult time to trade and mismanage macro. It's a very difficult time. I mean, most people I know I talked to, you know, hedge funds, they're, everyone's sort of like, man, this is just the pitch of a year, for lack of a better word.

• 24:08Speaker 02

  Cash as a retail investor is your solution. The hedge fund guys I talked to can't go to cash. The mutual fund guys I talked to can't go to 5% cash at most. It's the retail investor who has the opportunity to take a step out, book some gains if you're a long-term holder, and have the ability to go buy some good prices, maybe six months from now, nine months from now. That's a, to me, that's a phenomenal strategy.

• 24:28Anthony Pompliano?

  You think that's going to be possible?

• 24:30Speaker 02

  Absolutely. I mean, again, unless we go, remember those scenarios, bearish case, bull case? And there's a base case, bull case, and bear case? If we hit the bull case, inflation collapses, we inflate, ruling comes, the Fed can back off. That's very bullish relative to where we are now. I just don't think it's the highest probability outcome.

• 24:46Anthony Pompliano?

  Yeah. It's, it's interesting because

• 24:51Anthony Pompliano?

  I've been thinking a lot about some of the major hedge funds, names that people would know. I'm not going to say any of them. Some of these guys are down 20, 30% year to date. It's bad.

• 25:03Speaker 02

  And this is coming off of bad years last year, too.

• 25:05Anthony Pompliano?

  Yeah, like I was talking, I was talking with one guy who's got, you know,

• 25:10Anthony Pompliano?

  billions in his hedge fund, pretty well known. And I sat down next to him and I was like, how you doing? Not like a how's your business doing? Just like, how you doing? And he was like, to be honest, this fucking sucks. And I was like, wait, what? And I was like, oh, like, and he just was like, yeah, he's like, it's tough.

• 25:28Speaker 02

  It's hard, dude.

• 25:29Anthony Pompliano?

  Right? And you could just, you could just feel the energy of just like, we wake up every day. We're doing the best we can, but we're just taking it on the chin right now.

• 25:38Speaker 02

  Totally.

• 25:38Anthony Pompliano?

  Right? And we're just getting punched and punched and punched. And the hope is that they can raise more capital, that they're going to be able to kind of buy their way out of it at lower prices and kind of all is good at the end. When you're dealing with billions of dollars and you're playing a game where also your world is very much held to just equities, for example, a lot of these guys, they can't go into gold or they couldn't go into Bitcoin or they couldn't go like.

• 26:01Speaker 02

  Their investors wouldn't let them.

• 26:02Anthony Pompliano?

  It's just, hey, this is your game. You got to play. You got to play within this box.

• 26:05Speaker 02

  Totally.

• 26:06Anthony Pompliano?

  Not a lot of things you could buy.

• 26:07Speaker 02

  Not a lot of things you can buy in this. And then, and let's be, let's be, um, one, there's a couple of things I make. This is the definition of prospect theory. When you ever have a billionaire who's disappointed, you know, it tells you that, that it's not about the outcome, it's about the expectation and how, whatever the outcome, the relationship between the outcome and the expectation. So clearly, you know, that's something that's, this is why financial markets were functioning on rate of change. And number two, it's like,

• 26:35Speaker 02

  I don't really feel that bad. I mean, you probably made a ton of money. Again, go pull up a chart of any financial asset, start the chart from the end of 2019, you know, let's say pre pandemic. And it's straight up and to the right, except for the last kind of three to four months. You know, you know, maybe you go to ARK or something like the Russell 2000 peaked in Q1 of last year, but you've made a tremendous amount of money in what has been a very historically bad time for the average human being.

• 27:03Anthony Pompliano?

  Mm hmm.

• 27:04Speaker 02

  So, you know, investors shouldn't feel too bad that we're going into this very difficult time, this minus, minus, minus, minus time. It's just part of the cycle. You just have to have patience. Patience is the number one thing in investing, right? We all know that. It's hard to be patient sometimes. You just have to have patience and have to have the ability to sort of go read a book, you know, raise some cash, read a book and, and check, check, check the price six months from now.

• 27:24Anthony Pompliano?

  Would, uh, uh, things like Berkshire, where do they fit in? Are, are those like, uh, I, I think of that as just like the quintessential like value investment, right? Lots of cash, like all this type of stuff. Do you see a lot of, uh, of these institutions just being like, screw it, like, let me go trust Uncle Warren and just buy some Berkshire? Or are they trying to outsmart that as like a, a simple strategy?

• 27:45Speaker 02

  No, no. If you're, if you're a mutual fund investor, someone who does relative performance within the market, Berkshire's an obvious, it's obvious place to put, put your money. One, it is a fortress balance sheet, but number two, it's, it's a low beta stock to begin with. Insurance companies tend to be very low beta. They tend to do well relative to the broader market in times like this. So Berkshire's a great place to put your money. Again, these are the kinds of questions that I, these are kinds of discussions I have people who can't take the money out and take their ball and go home.

• 28:08Anthony Pompliano?

  Yeah.

• 28:09Speaker 02

  So I'm having very different discussions with certain types of investors. But if you're remaining in the market, then obviously the answer is Berkshire, the Berkshire athletes of the world, the, the, the, the energy companies, the consumer, you know, the very mega cap, you know, and go nowhere consumer staples like Walmart and stuff like that. You know, this is the kind of market where managing risk is, is of utmost importance. It's not about making money in a market like this. If you're going to be participating in a market like this, you'll be thankful to make money. What you're trying to do is avoid losing money.

• 28:36Anthony Pompliano?

  Mm hmm. Yeah. It's, uh, offense versus defense.

• 28:39Speaker 02

  Yeah, totally. We're on defense right now as investors. Be aware of that. I want everybody to be aware of that.

• 28:43Anthony Pompliano?

  The championship teams usually say, you know, defense wins championships. All the teams who don't win the championship, they say offense wins championships.

• 28:50Speaker 02

  Hundred percent.

• 28:51Anthony Pompliano?

  Right? That's how it always works.

• 28:52Speaker 02

  We, uh, we are, are, I'm not sure we scored more than 15 touchdowns when we won the championship, but we had the number one defense in the country.

• 28:59Speaker 03

  Hall of famers say they're both.

• 29:02Speaker 02

  Nobody scored on us.

• 29:03Anthony Pompliano?

  What?

• 29:04Speaker 03

  I said, Hall of famers say they're both important. Know when to be on offense, know when to be on defense.

• 29:08Speaker 02

  That's true. Yeah, totally.

• 29:09Anthony Pompliano?

  Where were you dropping that knowledge from?

• 29:11Speaker 03

  From my knowledge back, I got a question for you, Darius.

• 29:15Anthony Pompliano?

  So my question is pretty simple and I know it's hard to guess, but is a recession coming? Are we going to see two consecutive quarters of negative GDP growth?

• 29:23Speaker 02

  Great question. So it's still, as I mentioned, it's still too early to determine that. We are certainly on a path towards one. Again, I think you still have to go through the bear case or the base case to get to one. The base case will tell you it'll start kind of like middle of next year. The bear case is, you know, we could have one sooner or sort of, you know, one sooner rather than later. So it's too early, but if we do get a recession, we're still growing comfortably above trend from a GDP perspective. So we have a lot of slowing to do to get us into a vulnerable enough state for an exogenous shock, which typically is what happens, what causes a recession. You're at a very below trend, vulnerable state in the economy and then you, someone runs by and just kicks you in the nuts. You know, that typical is what happened. You know, you drop to your knees.

• 30:07Speaker 02

  And so we're not there yet. We'll be in that, in our opinion, at least according to our models, we'll be in that vulnerable state kind of Q1, Q2 of next year. And so that's when you could potentially have one. But again, it's not the recession that matters as an investor. It's the path to recession and what that means in asset performance terms. That's what we're trying to get right.

• 30:24Anthony Pompliano?

  Yeah. It, uh, I think a lot of people also in the market have 2020, there was economic recession that lasted for like four weeks.

• 30:32Speaker 02

  Literally.

• 30:34Anthony Pompliano?

  And when they hear recession, like, ah, whatever. I think that if we have one, it's going to be a little bit longer than, uh, than just the emergency, you know, two, three, four week one. And so there's a lot of people who came in the market, uh, young people who they may get a crash course a little bit in, you know, true, true market corrections.

• 30:52Speaker 02

  Yeah. I had a great conversation with Chris Sidio over at Amber's Group yesterday on our platform, 42 Macro. He showed me this chart and it was like, kind of like eye popping. So normally the US equity market has this very sort of skewed, it's like the relationship between implied volatility on puts and minus the implied volatility on calls. And typically the implied vol on puts tends to be much more expensive than calls because everyone's generally long risk assets and downside protection tends to be overbid relative to upside protection. There's more of a kind of a asymmetric. Smile now, it used to be excuse, called skew, but now it's like a smile. And that was he saying, this is indicative of that, that sort of brazen character of this sort of this new bull market, which is people want upside protection.

• 31:37Speaker 02

  People are still YOLOing basically in the stock market and other assets. And so we haven't seen anything yet. If the liquidity conditions, you know, kind of sort of evolve in a manner that we think they're going to involve the growth dynamics evolve in a manner that we think they're going to involve, you're going to see a real inability to sustain that kind of positioning, in our opinion.

• 31:55Anthony Pompliano?

  I think that you guys are doing a fantastic job. Where can we send people to learn more about 42 macro?

• 32:00Speaker 02

  Appreciate you, brother. Thank you. 42macro.com, follow me on Twitter at 42macro, D D A L E. Look forward to connecting with everybody, man. This has been a great, great experience. I love hanging out with you guys, bro.

• 32:11Anthony Pompliano?

  We love it too. I'll leave you with one last good laugh. Joe found this tweet, Zero Head just tweeted out, said, well, this is awkward. The Twitter board has hired Goldman to advise if the Elon Musk $54.20 offer is too low. The only problem is that Goldman has a sell rating with a $30 price target.

• 32:33Anthony Pompliano?

  That's Wall Street, baby. Probably should have checked. Y'all should, y'all should accept that shit. It's almost double what we think it's worth.

• 32:41Speaker 02

  This is Wall Street, unfortunately.

• 32:44Anthony Pompliano?

  Goldman's going to change that to fucking $100 a share by tomorrow. We thought it was worth 30, when y'all running it with Elon, 200.

• 32:52Speaker 02

  And you wonder why Bitcoin exists. This is Wall Street.

• 32:56Anthony Pompliano?

  That is, that is just.

• 32:58Speaker 02

  Oh my God.

• 32:58Anthony Pompliano?

  I appreciate you very much. See you next week.

• 33:04Anthony Pompliano?

  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.